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Brexit trade deal with Asia is not as outlandish as it may seem
BREXITEERS have long claimed that countries are queuing up to sign trade deals with Britain once it leaves the European Union (EU). It is one reason that they oppose any Brexit deal that leaves the UK tied to Europe's customs union, even temporarily.
Right on cue, Japanese Prime Minister Shinzo Abe told the Financial Times this week that the UK would be welcomed with "open arms" into the 11-member trans-Pacific trade bloc, or TPP-11. Just as the Brexit talks reach their endgame, here at last is proof of the bright economic future that awaits Britain once outside the EU, right?
Not so fast. There are reasons to cheer Mr Abe's offer; but they are not the ones most often cited. The idea of the UK joining the bloc after Brexit is not so outlandish. The world economy has been reorienting towards the Indo-Pacific growth markets; it makes sense for Britain, a very open economy where trade makes up 62 per cent of gross domestic product (GDP), to expand its ties with the region.
Six of the TPP-11 - or Comprehensive and Progressive Agreement for Trans-Pacific Partnership, to give it its full name - are also Commonwealth members with which the UK has historic links. The Asian initiative was always intended to be open to new members, too.
Even so, Britain needs to be realistic about what it would get out of membership. For one thing, it is hard to discount geography. According to the gravity model of trade relationships, the two main determinants of trade flows are an economy's size and its proximity to its partners. Members of the TPP-11 are concentrated around the Pacific Ocean or the South China Sea; the UK, obviously, is not. That - and four decades of close ties - explains why 43 per cent of UK trade, about £241 billion (S$438.5 billion), is with EU members, and only about 7 per cent with TPP-11 countries.
Of course, things change. Britain's economy is predominantly services driven, so perhaps proximity matters less. Even so, the EU already has agreements with most of the TPP-11. Britain is seeking simply to have those converted into bilateral deals to keep its existing benefits, in which case it would be unlikely to see any major boost in trade. Preserving the status quo may not be that simple, though. As Bloomberg reported last Thursday, the US is threatening to block the UK from a global public procurement agreement unless it overhauls its application.
The TPP-11 is not the EU by a long shot, but joining would come with obligations and impose limitations. For one thing, any agreement would require Britain to leave the EU customs union. But Brussels' demand that Britain maintains a frictionless border in Ireland means that the UK could be locked into that arrangement for some time.
Britain's future trading relationship with the rest of the EU could also complicate any trade deal because European rules in areas such as food and product testing differ from the TPP, according to David Henig, director of the UK Trade Policy Project and a former senior government trade official. The EU objects, for example, to hormone-treated beef that US authorities are happy to approve. Those differences would greatly complicate Britain's plans to smooth the flow of goods and food with Europe under a common rule book.
Even if it had a free hand to join the TPP-11, the UK might not like everything that it finds there. Requirements on the setting of drug prices gives pharmaceutical companies more room to challenge pricing decisions - something that could prove costly for the National Health Service. Britain might also be asked to accept higher migration numbers from TPP-11 countries as the price of admission. BLOOMBERG