Exactly a year after it said goodbye to the European Union, the United Kingdom is now eyeing a new trade club.
The UK's International Trade Secretary Liz Truss recently announced that the British government will make the request to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) on Monday.
CPTPP covers a market of around 500 million people, generating more than 13 percent of the world's income. The main purpose is to cut trade tariffs between its member countries. If the UK joined the CPTPP, tariffs would be cut for many UK industries including food and beverages as well as automobile sector. For example, there would be no tariffs on whisky exports to Malaysia and cars to Canada.
It is a very practical move by the UK to deepen its Asian trade ties, especially following the COVID-19 pandemic.
Let's see what the numbers have to say.
China and Southeast Asian countries are among the few that recorded positive growth after COVID-19 hit. Asia is expected to account for 50 percent of global GDP in the next 20 years and represents huge opportunities for British companies in terms of manufacturing and trade.
While Asian trade will probably define the next phase of globalization, the UK's current trade ties have been reliant on existing, well-established trade networks in primarily the Commonwealth Nations in Africa, the Caribbean and the EU.
The UK has done very little to cement ties in Asia, with Vietnam being the only recent regional trade deal made outside of the Commonwealth. ASEAN's collective GDP in 2019 was about $9.34 trillion, roughly equivalent to that of the entire Commonwealth and three times larger than that of the UK itself.
ASEAN is a market of about 135 million middle class consumers and is expected to double in size in the next decade. It is one of the key drivers of global trade development, yet the UK's engagement with it is minimal.
Can the UK strengthen its ties with the Asian markets without factoring in China? The answer is no.
EU member states have both a deal with the UK through the European Union and have also signed off a memorandum of understanding under the Belt and Road Initiative with China. While China is opening up its market and with its extensive trade reach, UK businesses would have no reason not to seek to be part of that network and work with China.
In 2020, China further amended its foreign investment laws, released a new foreign investment catalog and issued a "dual circulation" strategy which effectively re-positioned China's economy from a solely export driven base to a consumer based model.
China's middle class consumer base is about 400 million and growing. It represents a consumer class bigger than the population of the United States.
Accessing those and selling to China both via e-commerce and supply chains should be a priority for any export-oriented British manufacturer.
Along with China's foreign trade agreement with ASEAN, the recent Regional Comprehensive Economic Partnership (RCEP) and its relaxed investment policies and market access for global businesses, it should not be neglected by UK investors.
RCEP was recently concluded, and China has just announced its intentions to begin negotiating accession to CPTPP. Just as the UK drifts away from the European continent with Brexit, China arrives at its doorstep with the conclusion of negotiation of its investment agreement with the EU.
How to deal with ongoing trade relationship in world's financial hub Hong Kong is also a question for the UK should it intend to broaden its ties in Asia.
Global financial firms can use Hong Kong as a base to access $3 trillion worth of personal wealth accumulated on the Chinese mainland, while Hong Kong is also an important gateway to ASEAN countries.
Joining CPTPP is a positive move by the UK government to foster global free trade. The recently elected Joe Biden administration is also reportedly considering having the U.S. rejoin the Trans-Pacific Partnership after Trump pulled the country out in 2017.
UK Prime Minister Boris Johnson said, "One year after our departure from the EU, we are forging new partnerships that will bring enormous economic benefits for the people of Britain."
We hope that stronger ties among global economic entities will bring true mutual prosperity to the whole human society. The conservative government of the UK had hoped for a fast trade deal with the U.S., but that possibility is now remote under a new U.S. administration. Asia now is a must, not a nice to have.