The UK joining CPTPP is a seismic moment for the global trading system
While commentators here will quibble over exactly how much the agreement might add to our GDP, the real value of the deal is not in its immediate impact on the UK economy. Those dynamic benefits will take time to ripple through, but what really matters is the impact on the global trading system. Most important of all is that the new CPTPP, with the UK now on board, will help contain China’s market distortions, which are creating huge problems in the global system.
In a speech in early February, President Xi made some very important statements about the path of developing countries. Thus far, China has acknowledged that the West’s competition-based system has delivered growth, but insisted that China be left to pursue it’s own economic model. In that speech, however, Xi went much further and effectively said that the Western model had failed to deliver growth and Beijing’s choice is a better one – not just for China, but for all countries.
According to Xi, Chinese modernisation illustrates to developing countries that Western liberal democracy does not offer a successful path to growth and he criticises Western values as being insufficiently universal. These statements show a China much more willing to engage in an ideological debate with the West, instead of merely stating, as it has in the past, that many systems can compete, and pushing generally for a more harmonious world. China clearly feels that it is time to adopt a more assertive approach to the West, and to present a different option to the rest of the world.
It is therefore more important than ever for the West to demonstrate how classical liberal economics has resulted in more people being lifted out of poverty in the last 70 years or so than the preceding 2000, and that those ideas are not Western constructions but the result of universal values.
That some countries came upon them more completely and earlier than others is borne out by the economic success of even relatively newly formed countries like the US, or more recent additions such as Singapore or the United Arab Emirates. Indeed, it is crucial to point out that where countries with very different traditions and cultures adopt these same liberal economic ideas, such as Singapore and the UAE, they grow much more quickly, far outstripping their neighbours.
British and American foreign policy must therefore be aimed at developing a group of like-minded countries who share the same essential belief in open trade, competition and the protection of property rights. (That’s why UK accession to CPTPP is so vital. Rahm Emanuel, the US Ambassador to Japan and former Obama Chief of Staff, has noted that UK accession to the CPTPP means that the Indo-Pacific and Atlantic ‘are singular’.)
What flows naturally from this set of beliefs is a limitation on the size of the state. Where the government is involved, it tends to crowd out the private sector and makes it almost impossible to compete fairly. It follows that government should only intervene where the market cannot deliver solutions (such as long term research into deep space exploration or research into nuclear fusion), and should certainly avoid interventions that have anti-competitive effects.
Singapore adopted these approaches affirmatively and deliberately in the 1960s, and in doing so went from third world to first world. Singapore’s GDP per capita now far outstrips Malaysia, from which it separated in 1965, and indeed most of the world.
Since the 1970s, the UAE has adopted a similar approach, and the result is a vibrant and dynamic economy that attracts entrepreneurs. These sorts of markets understand each other. A fintech company would feel equally at home in the City of London, Singapore or the Dubai International Financial Centre (which is a special zone modelled on English law and English courts).
This is the context in which we should evaluate the UK’s accession to CPTPP. For the first time, a major G7 country has chosen to accede to a regional grouping, not because it is part of that region, but because CPTPP is the most advanced and deeply liberalising agreement around – one based on mutual recognition, equivalence and adequacy. Increasingly, countries see the CPTPP as the alternative liberalising framework to the World Trade Organisation, which maximises regulatory competition.
It is also a geo-economic and geo-political grouping which has a major impact on the way global trade agreements work. Now the CPTPP is not just a regional agreement, it becomes a real challenge to the atrophied WTO system, and will hopefully encourage it to change tack.
Our accession also powerfully demonstrates that the UK has made a choice about whether it wants a world of regulatory harmonisation or one of competition. It provides a platform where novel approaches to these anti-competitive market distortions can be agreed by a large global group.
It’s no exaggeration to say that CPTPP+UK is an equivalent economic power to the EU-28-UK. If our involvement ultimately leads to the US rejoining CPTPP, then it would become a grouping that takes in about half the entire global economy. At that point it can really start to determine the way the world trade system operates. In doing so, it will offer a compelling answer to XI Jinping’s latest salvo, and go a long way to demonstrating that the CPTPP’s classic liberal foundations are best suited to promoting economic growth.
Another dimension of UK accession is that the CPTPP itself is a different agreement now it has a member that is not a Pacific nation. There is nothing to stop other non-Pacific nations joining, and it will rapidly transform the grouping into a global liberalising agreement, as opposed to just a regional one. This will pile pressure on the WTO to remain relevant and meaningful and make it harder for countries like Brazil and India to block progress there. It will also put pressure on the US’s new trade policy which does not feature market access commitments (such as the IPEF), and increase the voices in the US calling for it to rejoin the agreement which it was so instrumental in founding. This is a powerful inflection point for the direction of travel of the world’s economy – it should be recognized and celebrated as such.
This article was first published on CapX.