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Friday, March 31, 2023

March 31, 2023

The United Kingdom is joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). According to prime minister Rishi Sunak, post-Brexit UK is pursuing a new trade strategy, while also enhancing its foreign policy “Asia-Pacific tilt”.

The CPTPP, also known as TPP11, is a trade agreement among Canada, Australia, Brunei, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Chile, and Vietnam. It evolved from the previous Trans-Pacific Partnership (TPP), which ended up never being ratified - due to the US withdrawal under Donald Trump’s presidency in 2017. Many experts back then opined that the (now defunct) TPP trade deal would also have the geopolitical effect of reducing its signatories’ dependence on trade with China, thus bringing them closer to Washington.

When Trump, in his first executive action, withdrew from the previous TPP, he was signaling his commitment to “America First”, by relatively isolating his country from global trade. His administration focused on renegotiating existing trade deals and on promoting new bilateral ones so as to “level the playing field” for American businesses. Much of the rest of the world, in turn, pursued multilateral deals, such as the EU-Mercosur and the Japan-EU agreements.

The TPP was expected by many analysts to showcase the triumph of global trade. After the American withdrawal, followed by the pandemic, by the re-emergence of economic nationalism (exemplified by the current US President’s subsidy war against Europe), and by today’s conflict in Ukraine, the idea of a new age of planetary trade in the 21st Century has not aged so well.

In any case, the successor group, TPP11, is one of the world’s largest free-trade areas (by GDP). It has been criticized by economists, such as José Gabriel Palma, for supposedly restricting the sovereignty of the state members. For example, they are subject to international courts and also to some restrictions on what their state-owned enterprises can do. Be as it may, the British are joining the club, as part of their efforts to diversify international commerce.

For a while, the UK has been facing a very difficult situation domestically. France-Britain tensions over smuggling networks and migrants crossing the English Channel have been growing since at least 2021 even though British PM Sunak and French President Emmanuel Macron agreed, on March 10th, to step up efforts to prevent illegal immigration in the channel.

As is often the case, domestic policy problems are connected to foreign policy ones, in the aftermath of Brexit. For example, a Northern Ireland crisis involving trade problems has brought back the specter of a violent loyalist-republican conflict. It is closely related to the post-Brexit Northern Ireland Protocol. In short, the open border between Ireland and Northern Ireland (the latter being part of the UK) has a significance that goes way beyond trade. To find a way to allow goods to move nicely between Northern Ireland and Britain without threatening that border, London came up with a solution that has created a de facto sea frontier between Northern Ireland and Great Britain - and there seems to be no easy way out of such a conundrum, even though EU-UK tensions over such customs arrangements have calmed down for now. The Democratic Unionist Party, Northern Ireland’s largest unionist party, however, is still demanding more concessions and has, since May 2022, been boycotting Northern Irish political institutions.

In fact, the British post-Brexit mess, including the aforementioned Northern Ireland issue, had initially caused concern among Pacific TPP11 members (including Japan) about the UK joining the trade organization. London had threatened to unilaterally rewrite the EU-UK Breaxit treaty and thus could be seen as a “lawbreaker”, according to David Henig, a European Centre For International Political Economy trade expert.

On top of the aforementioned domestic and foreign problems, the British economy has been crumbling, and the causes for that disaster go way beyond former PM Liz Truss September 2022 £45bn “mini budget”: much of its ills in fact are driven by high energy costs, which, in turn, have everything to do with a financial warfare against Russia which has backfired. British crises are so serious that they even pose a threat to the very unity of the UK.

For the British, it is not so clear how much good the TPP11 deal can do: by London's own estimates, it will increase UK GDP in the long run by just 0.08 per cent.

It turns out one of the reasons why Sunak views the agreement as so important is partly geopolitical: London sees it as a strategic window of opportunity to give the UK a role in the “China-dominated” region. Despite intense Chinese diplomatic pressure, this month, Sunak also signed a submarine agreement with the US and Australia, as a development of the AUKUS deal - the anti-Chinese military alliance that has been described as the “Asian NATO”.

Many different groupings and alliances, such as the QUAD and others, have been weaponized by Western powers against China. London might be pivoting to the Pacific as part of its strategic goals pertaining to “countering” China - however, Beijing itself has applied to join TPP11 too. In October 2021, Australia’s trade minister expressed his concerns about that. According to journalist Ji Siqi, who covers China’s economy, Beijing still “has its sights set on China joining” the pact. This is not a simple goal, though, according to Zhang Zhiwei, chief economist at Pinpoint Asset Management, due to the reforms that would be necessary to make the country meet requirements for accession.

To sum it up, far from having entered a new age of global trade, the world today finds it increasingly hard to insulate industries and trade from geopolitical disputes, and one must keep that in mind when looking at British trade aspirations in the Pacific.