Cementing relations with the Asia-Pacific region at the heart of UK trade growth

'Go West, young man' used to be the exhortation. Fast forward a couple of centuries and the priority these days appears to be 'Look East, mature democracies', as youthful Asian economies begin to flex their muscles once more. David Sapsted explores UK trade deal potential in the Asia-Pacific region.

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As 2021 dawned and hopes grew that vaccines would finally banish both the Coronavirus pandemic and the resultant global downturn, Joe Biden moved into the White House looking to "build coalitions of like-minded partners and allies" with the aim, in part, of "ensuring security and prosperity in the Indo-Pacific region".Simultaneously, Liz Truss, the UK's international trade minister, said that trade deals completed with Singapore and Vietnam in December marked another step towards Britain realising its post-Brexit ambition of joining the massive free-trade zone, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).Meanwhile in Brussels, European Union officials took a significant step towards completing a deal with China later this year – after negotiations that began in 2013 – which will open up some Chinese manufacturing markets to foreign investment.

The lure of trade with the ASEAN nations

Not that such a move is likely to go down well in either Washington or London, where the emphasis is very much on expanding links in the Asia-Pacific region with the likes of India, Australia and the ASEAN nations – Indonesia, Thailand, Malaysia, Vietnam, Singapore, Philippines, Brunei, Myanmar, Cambodia and Laos – but definitely not China."Increasing concerns over China’s assertive moves in the Indo- Pacific have resulted in greater diplomatic efforts in the region by the US, Britain and the European Union, with India, Australia and the 10-nation ASEAN group at the forefront of their focus," commented the South China Morning Post."Australia is engaged in escalating trade and geopolitical disputes with China, while India has had military confrontations with China on the Himalayas in the last year, with dozens of casualties.
"US President-elect Joe Biden has also emphasised the need to rebuild US alliances after four years of President Donald Trump’s go-it- alone strategy with China."Although Mr Biden's anti- Beijing rhetoric is likely to be less strident than his predecessor's, the new president has made it clear he has no time for China’s trade practices, let alone its human rights record.In a think-tank report this winter, the Washington-based Peterson Institute for International Economics (PIIE) said negotiating a new trade deal with Asia-Pacific countries would help the US to reassert its leadership in the region while countering China’s growing dominance.Jeffrey Schott, senior fellow at PIIE and lead author of the report, said Mr Biden should work to renew ties with Asia “perhaps sooner rather than later”, adding, “The incoming Biden administration’s domestic policies to strengthen US output and employment and to support the most vulnerable in society should not deter it from attending to the dramatic changes in the Asia-Pacific region."Several analysts have suggested the US could join the CPTPP, a renegotiated and renamed version of the Trans-Pacific Partnership, which the US was originally part of under Barack Obama but which was abandoned by Donald Trump in 2017.

UK keen to join the CTPP 

It is this trade agreement among 11 nations – Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam – that Britain is so keen to join now that it has cut its ties with the European Union."The CPTPP is important to the UK first of all because it will give us deep access to a nine trillion pounds market but also because it helps the UK diversify its supply chains more broadly and makes us more resilient," said Ms Truss.And, of course, were the US to join the group, too, there would be an effective UK-US trade deal in place without many of the complications encountered in existing transatlantic talks."The UK is in the preparatory stages of formally applying for CPTPP membership, which is expected to be formally lodged in early 2021. Consequently, the UK has begun discussions with CPTPP member nations as preparatory groundwork for its potential formal application for CPTPP membership," Rajiv Biswas, Asia- Pacific chief economist at IHS Markit, told Deutsche Welle."The 11 CPTPP nations generally have good political and economic relations with the UK, which should ease the UK's path towards accession to the CPTPP."Ironically, immediately after signing the 15-nation Regional Comprehensive Economic Partnership (RCEP) trade pact in November, Chinese President Xi Jinping surprised diplomats worldwide by announcing that China would actively consider joining the CPTPP.But Miyake Kuni, a former career diplomat and now an adviser to the Japanese government, wrote in a recent article in Japan Today that Mr Xi's announcement was pure propaganda and that existing members of the CPTPP would never accept Chinese membership.“Based on my experience as Japan’s chief negotiator for trade in services at the World Trade Organisation from 1994 to 1996," he added, "I don’t expect China to abide by the ordinary rules or regulations for joining the free trade agreement."Besides, Beijing now has its role in RCEP to enjoy – a trade pact comprising the ten ASEAN nations plus Japan, China, South Korea, Australia and New Zealand. India played an important role during the eight years of discussions over the formation of the pact but withdrew last yearThe aim of RCEP is to eliminate tariffs on a wide range of products for its member countries and establish common rules for e-commerce, trade and intellectual property. And though Beijing celebrates its existence because it is free of Western input, it might not be to China's economic advantage.Nikkei Asia reported in December: "An estimate by the United Nations Conference on Trade and Development and the World Bank shows that RCEP's five non-ASEAN members will see their combined trade balance improve by $12.7 billion a year. But for ASEAN, the balance will worsen by $17.3 billion. By country, the balance is expected to deteriorate for seven of the 10 members, except for Singapore, Laos and Brunei."China's trade balance is also estimated to worsen by $1.3 billion. Japan is estimated to enjoy the best improvement at $16.7 billion thanks to increased exports to China and South Korea, followed by Australia at $2.9 billion. But the estimate was issued shortly before RCEP was signed and does not reflect the tariff cuts for individual items that were not available while negotiations were ongoing."Meanwhile, the fear in the EU is that RCEP will not only make Europe less competitive in one of the world’s fastest-growing markets, but could also dampen European ambitions to be a rule-maker in the global digital economy, according to Deborah Elms, executive director of the Asian Trade Centre in Singapore.“As RCEP integration continues, the region might start to craft arrangements and standards that are purely Asian, with less attempt to align to European rules or standards,” she said. “It’s not just about China. All of RCEP will likely be included in creating new pathways and economic frameworks for trade in future.”

India perspective

India Prime Minister Narendra Modi announced his country was pulling out of the RCEP deal shortly before its signing in November. The abrupt withdrawal was apparently sparked by fears that India would be flooded with cheap goods from China and elsewhere. India already runs a large trade deficit with RCEP countries and wanted specific protections for its industry and farmers, which were not forthcoming.Now, India is looking elsewhere and the UK is at the forefront to secure a deal, as evidenced by Prime Minister Boris Johnson's plan to visit India in January - a tripthat had to be belatedly postponed until later in the year because of the UK's latest Covid-19 lockdown.Mr Johnson's post-Brexit determination to forge links with Asia-Pacific region have also been illustrated by the fact he has invited India, Australia and South Korea to join the G7 summit that Britain is hosting later this year.Mr Johnson said he was looking forward "to delivering the quantum leap in our bilateral relationship that Prime Minister Modi and I have pledged to achieve". He added: “As a key player in the Indo-Pacific region, India is an increasingly indispensable partner for the United Kingdom as we work to boost jobs and growth, confront shared threats to our security and protect our planet.”A government spokesman in London said that Mr Johnson's aim in India was to boost cooperation in areas that would be foreign policy priorities for the UK throughout 2021 "from trade and investment, to defence and security, and health and climate change".Mr Johnson, it seems, is one not- so-young man now determined to look East.

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