UK’s biggest post-Brexit economic opportunity dawns

IN THE midst of the UK’s June 2016 Brexit referendum, bold claims were made by some Leavers about huge economic opportunities the nation would gain if it left the European Union. Yet, by and large, those gains have not come close to fully materialising almost a decade later.

Some of the big prizes that were highlighted by Leavers such as Boris Johnson, UK prime minister from 2019-2022, include UK trade deals with the world’s two largest economies – the United States and China. Yet, the prospects for an agreement with Washington remain highly uncertain, and there is probably even less possibility of a deal with Beijing.

However, one significant ray of light on the trade and investment front is the UK’s accession on Sunday (Dec 15) to the Comprehensive and Progressive Trans Pacific Partnership (CPTPP) with 11 markets in the Asia-Pacific and the Americas. With the United Kingdom joining, the combined gross domestic product of the CPTPP members increases from over £9 trillion (S$15.43 trillion) to around £12 trillion, and from around 12 per cent of global GDP to 15 per cent.

The CPTPP opportunity may be significant for the United Kingdom in the longer term. However, even the UK government’s own impact assessment declares that the economic gains will be fairly small in the medium term – only around 0.08 per cent of GDP over the next decade.

While the United Kingdom will be a clear geographical “outlier” amongst the agreement members, the move makes a reality of many aspirations, post-Brexit, to strengthen ties with key markets outside of Europe. In effect, trying to create a stronger business bridge from Europe to the Asia-Pacific and the Americas.

The CPTPP opportunity is, most accurately, seen as a long-term opportunity for the United Kingdom. Optimists like UK Conservative Party leader Kemi Badenoch – who helped promote the deal as a former UK trade and business secretary – argue that CPTPP is akin to a “startup”. She says that those 0.08 per cent, 10-year estimates do not account for the fact that some members – for example, Vietnam – are rapidly growing in importance in global trade. She also flags that a key perk of the new deal is greater access to all CPTPP markets, including a pledge to eliminate or reduce the overwhelming majority of import charges or tariffs.

It will be some years before it is possible to know if Badenoch is proven right, or not. However, what is much surer already is that CPTPP opportunities for the United Kingdom will be heavily country and sector-specific, at least to begin with in the second half of the 2020s.

The Malaysia opportunity

One of the most significant country opportunities, in the immediate term, may well be Malaysia. This is the only CPTPP nation apart from Brunei with which the United Kingdom does not have an existing bilateral trade agreement.

While Malaysia is not among the UK’s largest, existing export destinations, it is a growing market and businesses will see some product-specific tariff and non-tariff barriers reducing as a direct result of CPTPP accession. Bilateral trade between the two nations totalled £5.7 billion in the four quarters to the end of the second quarter of 2024.

Sector-wise, one of the significant market opportunities might be in food and agriculture. For instance, with Malaysia and Brunei, UK manufacturers will eventually see removal of tariffs, including anticipated, more-or-less complete removal on entry into force of Malaysian tariffs on a significant number of manufactured products such as confectionary items.

UK exports to the other CPTPP members could also become, significantly, more attractive in wider markets too. In part, this is because of a range of new benefits, including access to a tariff-free cheese export quota and grain opportunities in Canada; additional access for dairy and cereals in Japan; dairy access in Chile; and the removal of tariffs on chocolate and confectionery, plus better beef, pork and poultry access to Mexico.

CPTPP also provides more flexibility for manufacturers to access tariff-free trade. Rules of origin are the terms and conditions that dictate if a trader is able to access a preferential tariff in a trade agreement. CPTPP includes a single set of rules that offer alternatives for businesses to those in the UK’s existing bilateral trade agreements, and this may help to unlock additional opportunities for UK exporters.

Moreover, the deal might also help speed up UK trade in short shelf life food and drink products with a commitment to ensure goods will be released as soon as possible after arrival, where possible. CPTPP also includes a commitment to move to the use of electronic systems for customs users that can help to cut bureaucracy and the cost of trade.

Metals, minerals and data

On the metals and mineral resources front, it is hoped that all tariffs will eventually be eliminated on UK exports to Malaysia. There could also be opportunities in wider markets too, including Australia and Chile, which is part of the so-called “lithium triangle” with just under two thirds of global reserves collectively with Argentina and Bolivia.

Another sector where there might be significant, new UK business opportunities is data flows. Joining CPTPP will help remove remaining barriers UK-based companies face such as data localisation requirements, ensuring data can flow between UK and CPTPP members.

So CPTPP accession may also help the United Kingdom become a significantly stronger international leader in digital trade, with modern rules on data and freer access to bloc-wide services sectors. CPTPP members are committed to the high data protection standards so UK businesses can potentially expand with confidence that data and intellectual property are safe.

One of the benefits that Malaysia is now hoping for is to leverage UK advanced digital services to develop their own information and communication technology industries to make the nation a digital hub in Asia. This reflects the fact that, under CPTPP, there are generous terms for data flows which underpin an increasing part of international trade.

Moreover, CPTPP accession could also help UK producers of items such as machinery and medicines – amongst the UK’s most valuable, existing exports to the bloc – by allowing them to expand supply chains across member nations. Here, the CPTPP could have particular relevance for small and medium-size UK firms, not just big businesses, by allowing them to potentially greater build efficiencies by importing components from member countries to use in manufactured goods for export.

Taken together, early CPTPP opportunities for the United Kingdom will be country and sector-specific. Moreover, the deal also has the potential to be a much wider, significant source of UK growth in the second quarter of the 21st century and possibly beyond.

The writer is an associate at LSE IDEAS at the London School of Economics