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No Liam Fox, the UK should not join TPP – here’s what priorities should be

19th Century Fox. EPA

During a new year trip to China, the UK’s international trade secretary Liam Fox signalled that after Brexit the UK could sign up to Pacific free trade zone, the Trans-Pacific Partnership. If Britain joined this club of 11 nations, whose members include Japan, Australia, Canada and Mexico, it would be the first country from outside the “region” to do so.

Fox later clarified that the UK would first have to see what reconstituted TPP agreement emerged following America’s departure last year, but stressed it would be “foolish” to rule membership out. He may have kept his job in the cabinet reshuffle, but his blasé approach always makes me think he understands trade deals about as well as David Davis understands Brexit sectoral impact assessments – which is not much.

Whether joining TPP would be economically desirable is questionable, but first some practical considerations. Since there is already an agreed TPP text of close to 5,000 pages, it’s doubtful whether London would get any say over any final deal. Signing up would essentially be on a “take it or leave it” basis, which may not be smart.

The agreement extends far beyond trade to other topics including the environment and labour standards. A UK government could find hard these to accept, fearing the prospect of fellow members not implementing them as diligently as the UK did.

The overall deal is not in any case finalised, since several participants have unresolved issues – Canada is worried about protections for cultural industries, for example; Vietnam wants a longer timescale to implement labour standards.

And following America’s withdrawal under Donald Trump, the dominant country in the region, though not formally a party to the TPP, can now be expected to be China. This suggests any final text would have to take account of China’s interests and expectations (though China is also pursuing its own regional trade deal, the RCEP, or Regional Comprehensive Economic Partnership). Would it really make sense for the UK to be party to this? I’m sceptical.

Finally, of course, the UK is not a Pacific nation. Would the existing TPP nations really want to widen out the proposed deal to include a country like the UK – if so, where do you then set the boundary?

Whither UK trade

This raises the wider question of what trade set up would be best for the UK post-Brexit. The answer, unquestionably, is a good deal with the EU and a deal with the US. No other deal comes close in terms of the shares/volumes of British trade – as this World Trade Organisation (WTO) summary makes clear.

The charts below show that the EU is miles out in front as the UK’s leading trade partner. The US and China are both important for goods trade, but the US is far more important for UK services: the UK exports 62% of its services to the EU and the US and relies on them for 68% of imported services.

WTO 2016 figures. WTO

Now that negotiations over phase one of the Brexit agreement have concluded with the EU, we will see whether a trade deal emerges this year. It will likely be a much tougher negotiation than what we have seen already. As for America, despite President Trump’s initial enthusiasm a deal will not be easy.

Deals with India and China might also be attractive, as large and growing trade partners. I am also not against separate free trade deals with Australia and New Zealand, for instance, though we cannot really claim these will transform the British economy. The trade involved is just too little: barely 1% of UK trade between them.

Meanwhile, the UK government is currently putting a Trade Bill through parliament, mainly to replicate all the trade deals and economic partnerships to which the UK is a party by being an EU member state. This is sensible, but there will be major hurdles:

  • The UK can’t just unilaterally declare a replicated trade deal with anyone. There needs to be some discussion with the countries in question. It may be quick and easy or could take years – who frankly knows?
  • The original EU deals’ clauses on rules of origin, which govern where the components of products can come from, cannot just be written over into a new UK deal. Unlike rules on, say, product standards or food safety, they have implications for third countries – you might not, for example, want to allow Jamaican exports preferential access to the UK if that enabled Chinese steel to come through Jamaica and enter the market without paying a tariff. Settling these might well entail tripartite discussion involving the UK, the EU27, and the other trade partner. Again, not straightforward.
  • Likewise for some products, notably in food and agriculture, the existing EU agreements provide for quotas. Would the UK abandon these, set its own, or expect to use a share of the existing EU quota? This too is difficult to settle without discussions with the EU27.
  • To replicate an EU deal where there are multiple partners – for example the EU-CARIFORUM agreement with 15 Caribbean partners – the UK would need to hold discussions with each partner and/or the group representing them.
  • Trade agreements need ratified by all parties, then registered with the WTO. If an arrangement is not properly registered, then under WTO rules the UK must offer the same favourable tariffs to all other WTO members.

In short, never mind a TPP deal: establishing a post-Brexit trading framework for the UK will involve a huge amount of work, much of which is only getting started. By a large margin, the initial priorities must be a good trade agreement with the EU, preferably including major services, and a deal with the US.

For the rest of the world, including the 11 countries in the TPP, we can get by for quite a while by trading on standard WTO terms. For most sectors this is not a terrible model, as existing tariff rates are generally pretty low nowadays. In short, Liam Fox needs to stop flying unrealistic kites and get his priorities right.

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