The government has hailed its signing of the CPTPP trade pact as a landmark moment that will “strengthen ties with some of the world’s most dynamic economies.” What they didn’t mention is the deal will no almost nothing for London.
CPTPP, or the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, to give its full title, is essentially a trade bloc of countries in the Asia-Pacific region. Reaction to the UK joining has been mixed and rather predictably divided down Brexit lines. Cheerleaders of the deal have thrown around ridiculously optimistic figures about the potential economic benefits and have claimed that it will prevent the UK from rejoining the EU while opponents have pointed to the government’s own scoping assessments of the modest economic boost.
Although the economic benefits of joining the bloc probably will be relatively small in economic terms, any increase in trade is a good thing and it is also important geopolitically. However, what has been overlooked is the fact that the reason why the economic gains will be modest is because modern free trade deals generally do very little for advanced economies such as the UK and so signing up to this trade bloc will do very little to benefit the country or London in particular.
The main reason for this is because free trade deals tend to focus on trade in goods and seeks to slash and eliminate tariffs on products. The issue with this is that tariffs on most goods (apart from in agriculture) already tend to be quite low anyway and so cutting them even more – while definitely a good thing – doesn’t bring much of a boost.
The trade bloc does have provisions to facilitate services trade and cut some red tape but these can hardly be described as comprehensive
Moreover, modern trade deals do very little for trade in services and CPTPP is no exception. This is obviously important for a major services economy such as the UK and London in particular. London is a global powerhouse when it comes to trade in professional services, especially in finance and technology. The trade bloc does have provisions to facilitate services trade and cut some red tape but these can hardly be described as comprehensive. What is more, while it is encouraging that many modern trade deals do contain digital chapters which are often touted by governments as being a boon for tech firms, these tend to just commit countries to keep doing what they already are. Again, this is welcome but hardly groundbreaking and so the benefits for firms in London are likely to be small.
Distance also needs to be taken into consideration. It should be obvious but distance really does matter when it comes to trade and this is true for services as well as goods. Countries tend to do much more trade with countries close to them than they do with businesses on the other side of the world. This makes sense when it comes to services due to the costs and effort it takes for businesses to fly their staff far away. Even if the services are provided remotely then time differences as well as language and cultural barriers also need to be considered. As such, we should expect for a British bank or law firm to do much more business in France or Germany than in Brunei or Malaysia.
In an ideal world every area of the country and every sector of the economy would benefit from striking trade deals and this is a balance which governments often attempt to strike. However, the UK government needs to focus on the importance of London by prioritising professional services when it comes to trade policy.
The government needs to work with other governments and the WTO to make it much easier for London based professional services firms to do business in other countries by greater harmonisation of regulations, mutual recognition of qualifications, and cutting other forms of red tape. The UK should also push for a more mature and cooperative relationship with our nearest trading partner the EU.
Joining CPTPP is a good thing for the UK but we should expect the economic benefits to be modest. However, it doesn’t have to be this way. The government has the opportunity to use its independent trade policy to push for reform of the global rules based system and emphasise the importance of services trade. Such a move would have the potential to bring significant economic gains to the whole of the UK and London in particular.
