Myth one: The UK has taken a 4% Brexit hit for an 0.08% CPTPP gain
This myth has been repeated so many times on social media that people are sure it is true: but so far no one on Twitter has been willing to explain their working on the ‘4% hit’. I assume they have misunderstood an OBR average forecast, published in Oct 2018, calculated from a list of economic forecasts from 16 organisations on page 39, where the average expectation (minus the highest and the lowest predictions) was for the UK’s GDP to fall by 4.4%, if the UK left the EU on WTO terms. But the UK did not leave the EU on WTO terms; it has a comprehensive free trade deal with the EU, but this inconvenient truth seems to have been overlooked by the pro-EU Twitterati. As is the fact that these were expectations of long-term changes in the UK’s GDP relative to a baseline, not an immediate 4% GDP decrease on leaving the EU as some Twitterers seem to believe. If you want more information, Harry Western and Graham Gudgin have written about this on multiple occasions.
Even so, joining the CPTPP and having a trade deal with the EU are not mutually exclusive events. The CPTPP does not restrict, tax, or prohibit trade outside the group. Several of its members have trade deals with the EU – Canada, Mexico and Japan, for example.
So has the UK suffered a ‘4% hit’ from Brexit?
We now have GDP figures and trade figures for 2022, and unlike figures for 2020 and 2021 they are unsullied by Covid lockdowns, travel bans and factory closures. Brexit dissenters will be disappointed to know that the UK’s GDP increased from £2.24 trillion in 2019 to £2.49 trillion in 2022 an increase of 11% in current prices although unchanged when you account for inflation. But either way: this is not a ‘4% hit’.
According to the ONS, UK total goods export values in 2022 were up 14.4% from their pre-Brexit 2019 level, with exports to the EU in 2022 were up 14.1% from their 2019 values. UK total goods import values in 2022 were 26.2% higher, but UK imports from the EU were up only 15.3%. (All commodities, measured in current prices.) The relatively lower EU imports are likely to be due to the corrected Rotterdam effect. For years we have been overstating our EU trade due to the EU’s habit of often recording trade within the EU as coming from the port where the goods were landed rather than from the country where they were made. The UK’s non-EU imports were also inflated by the UK’s Liquid Natural Gas imports during the summer of 2022 as were the UK’s gaseous natural gas exports to EU countries. But still, this is not a 4% hit.
Even pundits claiming that Brexit caused the UK’s trade intensity to fall are wrong. The UK’s trade intensity increased from 64.1% in 2019 to 68.9% in 2022 in current prices and from 64.1% to 64.3% in constant prices. Not that trade intensity is particularly important for the UK, but it is still nice to know that the doomsters were jumping too early and that the lower trade figures in 2020 and 2021 were due to Covid lockdowns and factory closures, not Brexit. If you want more information on UK trade, please read McBride-Brexit-UK-trade-What-has-changed-FINAL-22.02.23.pdf (globalbritain.co.uk)
But is joining the CPTPP really only worth a 0.08% gain?
I have been told that the Department for Business and Trade uses the American GTAP general equilibrium model to calculate the impact of FTAs. The key aspects of any trade model are the elasticities which link changes in trade costs to economic impacts. In GTAP it is unclear where the elasticities come from, except to say that they do not seem to be based on any UK data. The potential benefits will also depend on whether the UK has liberalised trade in all products, or not. For that we will need to see the fine print of the deal.
However, predicting anything is difficult, and if civil servants were actually good at it they would be running a hedge fund, not running trade models in Whitehall. And in the case of the CPTPP, they really need to do a dynamic assessment because the CPTPP includes some of the world’s fastest growing and affluent markets.
The immediate benefits will be that UK imports of finished goods from the CPTPP will be cheaper and so benefit UK consumers, while UK manufacturers will be able to accumulate semi-finished CPTPP goods into their exports to CPTPP countries, lowering or removing any tariffs.
For many of the UK’s major exports, most importantly high value vehicles, being tariff-free will make them more competitive with their EU and US rivals, neither of whom are members of the CPTPP. However, the UK will still need to produce the products that CPTPP countries want to buy – this might not be electric vehicles, so the government must allow UK manufacturers to continue to make petrol and diesel vehicles as well as those powered by e-Fuels or hydrogen if export markets demand them. The German car industry certainly realises this, which is why the EU’s ban on the combustion engine from 2035 has just been modified. UK companies need to be allowed to be equally flexible if they are to profit from new export markets.
Overall, the UK is now in a good strategic position. We have a free trade deal with the EU, which successfully preserved our goods exports to the EU in 2022 at approximately 2019 levels. This is fine, because UK exports to the EU weren’t growing pre-2019 anyway. Joining the CPTPP and sealing other trade deals with fast-growing economies in Asia will give Britain the best of both worlds.
Myth 2: there is no need to join the CPTPP because the UK already has trade deals with 9 of the 11 CPTPP members
It is also claimed on social media that there is no need for the UK to join the CPTPP because the UK already has trade deals with nine of the eleven CPTPP members, so there will be little additional benefit to the UK economy. While that may seem reasonable, some of those trade deals are not full FTAs while others were negotiated by the EU, and so benefited EU businesses generally rather than the UK specifically.
The CPTPP is focused on promoting market-driven economies and the elimination of tariffs and other trade barriers for manufactured goods, agricultural commodities, and services. It also establishes rules for investment and protection for investors, intellectual property, and communications, as well as transparency in government procurement amongst many other advantages.
The trade deals negotiated by the EU with CPTPP members are not so expansive, especially when it comes to agricultural goods: consequently both Mexico and Canada have been trying to improve their trade deals with the UK since we left the EU and Japan has already done so. This is good for UK consumers, who will have access to more products at better prices. The EU had 28 countries, all with their own industries screaming for protection from competition, which meant that EU trade deals often, if not always, overlook the needs of consumers.
The biggest advantage of CPTPP membership for UK manufacturers is the CPTPP’s process of accumulation. This means that if your exports are made with materials, parts or semi-finished goods imported from other CPTPP members, then these inputs count as originating material when a product is exported to another CPTPP member.
This is important. The main decreases in UK exports to the EU since Brexit have been in products where the EU no longer recognizes them as being from the UK because they do not have enough UK manufactured content under the EU’s Rules of Origin. For some products the EU only allows 20% of non-originating material, for others 100% of the making-up, including the cutting of the fabric, must happen in the country of origin, although the materials can be imported. Consequently, the UK’s fashion and footwear industry saw its trade statistics with the EU drop dramatically post Brexit, and its tariffs rise, due to the EU’s Rules of Origin.
Most modern manufacturing involves imports of materials and semi-finished goods. It is uneconomic for most UK companies to make everything in the UK. They’re more profitable if they can import parts and semi-finished goods for assembly and finishing in the UK. Many companies manufacture their products completely outside the UK while the design, research and development, marketing, packaging and distribution remain in the UK. These processes generally account for most of the revenue, but they’re not counted as part of the value chain by the EU, so UK exporters of goods made outside the UK must pay tariffs on their manufacturing costs if sold in the EU.
Under the CPTPP rules, when a UK fashion company uses wool or cotton produced in Australia or New Zealand, or cloth made in Malaysia, or uses Vietnamese factories to make their shoes etc., these inputs count towards originating material so they can sell their products in Japan or Canada at the CPTPP preferential tariff rate.
This cumulation will also help SME and start-up fashion brands, since the CPTPP requires its members to establish a committee to identify ways to assist SMEs to take advantage of the commercial opportunities in the CPTPP and help them to grow their exports.
Myth 3: the UK has to give up its sovereignty and lower its standards in order to join the CPTPP
Incredibly, almost one million people have listened, via a Twitter video, to someone called Liz Webster who claims that the CPTPP trade agreement “is sort of similar to the EU but there is no political structures so that you have to accept all of the rules. You hand away your sovereignty. That means we have to lower our standards to be a member. So, the Conservatives are giving up our high standards that they pledged to protect.”
She goes on: “Bad food and bad standards really have a big impact on all of us and our public health. Do you want to eat food that has come from a feed lot where they use hormones, and the standards are so terrible for the animals, and they suffer so badly. Our standards here, the British standards for farming are the highest in the world. If lower standard food come in, our British Farmers will be really wiped out, and the only food you will eat, most of the choice you will have, will be this low standard food.”
There is so much wrong with Webster’s claims.
Firstly, the lack of political structures in the CPTPP is not a design fault but a feature. Unlike the EU, which is entirely a political project, the CPTPP does not impose an additional layer of government demanding more import tariffs and sales taxes to pay for a Court, Parliament, Commission and officials with bloated salaries, accommodation, pensions and chauffeur driven limousines. The CPTPP has rules that are important for trade, but it is not interested in world government or ‘ever closer union’, nor is it trying to become a federal superstate. The CPTPP does not see itself as a regulatory superpower – yes, this is how the EU proudly describes itself, as a champion exporter of expensive bureaucracy.
Most importantly, the CPTPP does not impose tariffs on its members should they choose to import goods from outside the group. Sure, there are advantages to trading with other CPTPP members but there are no penalties if you don’t – this is quite unlike the EU, which imposes tariffs on non-EU imports.
As for Webster’s wild claim that ‘British farmers will be wiped out’ – most CPTPP members are not large agricultural exporters, and the UK has already agreed full FTAs with the two CPTPP member countries that are: Australia and New Zealand. Both countries have very high standards that suit their climates and agricultural production, albeit different standards to those of the UK and even different standards from each other. Their standards are often set by industry groups rather than bureaucrats and are high enough for them to have become major suppliers of food to the US, Japan, Singapore and China’s uber wealthy. All countries which can afford to buy the best food available anywhere on the planet.
The CPTPP members mostly export machinery, electronics, oil and gas, minerals, and chemicals. As does the UK, by the way. The UK’s export mix is very similar to those of most of the other CPTPP countries except for Australia and New Zealand – where the UK’s vehicle manufacturers and aircraft engine producers (the UK’s two biggest export industries) will find a market with no local producers demanding protection from competition, little public transport relative to their land area and therefore populations which are dependent on imported cars, trucks, mining vehicles and air transport.
Meanwhile the UK’s other manufacturers will have improved access to semiconductors and circuit boards from Singapore and Vietnam, the UK’s fashion industry will have better access to Vietnam’s and Malaysia’s clothing and footwear factories and the UK’s food manufacturers to Malaysian palm oil, Canada’s wheat and soy, New Zealand’s honey and dairy products, Australian beef and sheep meat, avocados from Mexico, berries and tropical fruit from Peru, apples and pears from Chile, oysters from Australia, filleted fish and shelled prawns from Vietnam and wine from Chile, New Zealand and Australia. What’s not to like?
Will British farmers really be wiped out?
While many UK farming organisations may fear competition from Australia, New Zealand and even Canada, they have had to cope with massive heavily subsidised competition from EU countries for 50 years. The EU would very much like this unsatisfactory state of affairs to continue, even after Brexit. It is no surprise that the EU’s Twitter brigade are the biggest critics of the CPTPP.
It should also be noted that the UK does not really export food. It imports it. In 2022 the UK’s largest agricultural export was Beverages and it only exported £8.4 billion out of total goods exports of £383 billion, (that is 2% of UK goods exports). UK Beverage exports are primarily whisky, gin, beer and mixers. These already sell well in CPTPP countries but will generally be cheaper when the UK joins the CPTPP. Like the UK, many countries add excise duties to alcohol outside the scope of the CPTPP, so it may not be a bonanza. The UK’s largest food export is Miscellaneous edible preparations where total exports in 2022 were only £2 billion, so worth 0.5% of UK total goods exports. What are miscellaneous edible products? Food preparations, condiments and mustards, extracts and essences, ice cream, soups and broths, yeasts and baking powers, protein concentrates – not quite the British farming you thought Webster was referring to, I bet. The UK did export dairy products worth £1.8 billion in 2022 even though they were outside the EU (0.5% of total UK goods exports) and preparations of cereals, flour, starch or milk (biscuits and cakes to you and me) worth £1.7 billion (just 0.4% of total UK goods exports).
Agriculture is simply not a big export industry for the UK. It is also, surprisingly, only a slightly bigger import sector for the UK. Our most valuable agriculturally based imports were also Beverages – but our imports were worth only £7.5 billion, so slightly less than we exported, and only 1.3% of our total goods imports of £592 billion. Our biggest food imports in 2022 were fruit and nuts worth £4.4 billion (0.7%), products made with flour or milk, worth £4.3 (0.7%), meat and edible offal £4.3 billion (0.7%) preparations of meat or fish £3.7 billion (0.6%) preparations of vegetable £3.4 (0.6%) and vegetable £3.2 (0.5%). And most of these are either fruits and vegetables that can’t be grown in the UK, or meat and fish that can’t be produced in sufficient quantities to meet UK demand. So why is Webster so worried about the UK joining the CPTPP? We actually need their food, and lower prices through the trade deal would be much better for British consumers.
Food standards, farming standards and environment standards
For some reason Webster thinks that the rest of the world has lower standards than the EU – presently the UK’s largest food supplier – and that joining the CPTPP will enable its members to sell sub-standard food to the UK. She might be surprised to know that the UK already imports a lot of food from CPTPP countries – especially fruit and vegetables, fish, palm oil, lamb and wine. The trade deal will simply remove the tariffs, many of which are an overhang from our EU membership.
Webster also conflates food, farming and environmental standards in her full rant (I didn’t type it all out above – she does go on), as if they are the same thing and as if the UK is a world leader in them all. But she is wrong about both of those claims.
Let’s start with food standards: UK retailers cannot sell food that does not meet UK standards regardless of whether it was produced in the UK or imported – even if it is imported from the EU, as we have seen with the imported EU horsemeat scandals and the banning of the sale of UK products from BSE infected cattle.
Secondly, farming standards vary between different countries due to their crop types, their climates, their local pests, and even the size of their farms. So, the climate evangelists who claim, for example, that Australia has licenced twice as many pesticides as the UK, generally skip over the inconvenient truth that Australia produces three times as many commercial crops as the UK and does so in about 5 different climatic regions. So while Australia has licensed cotton boll weevil pesticides – unsurprisingly the UK, which does not have the climate to grow cotton, has not. There are hundreds of similar examples especially for tropical crops that the UK can’t grow.
And finally, Webster’s claims about the UK’s environmental standards – where to begin? Here is an embarrassing statistic regarding deforestation. According to the World Bank, when the UK joins the CPTPP, it will have the lowest level of forest area as a proportion of its land area of any country in the CPTPP. Even Singapore – a city state slightly bigger than Andorra but with 5.87 million people – has a greater proportion of forestland than the UK: 21.7% of Singapore’s land area is forest while only 13% of the UK’s land area is forest.
Webster will also be unhappy to know that the CPTPP trade agreement has a chapter on the Environment, and it sensibly concentrates on achievable goals: protecting the oceans from ship pollution, overfishing, and illegal fishing; protection of wild flora and fauna, endangered species and their habitats; control of toxic chemicals, discharge of pollutants and environmental contaminants and protecting the ozone layer. And better still – these protections must be in each members legislation and be enforced by the members’ own governments.
Most importantly, why are people spreading these CPTPP myths?
A not-so secret agenda
Let’s start with Liz Webster as I suspect she is a typical example. What is her motivation other than ignorance of the world outside her suburb? Well, her Twitter Bio says, and I quote as you really couldn’t make this up, ‘Chair of Save British Farming, campaigning to join the Single Market to Save British Food’ (my emphasis)
So, her campaign is not about the CPTPP at all, but about rejoining the EU’s Single Market and no doubt as a prelude to rejoining the EU as a member state. But being a member of the EU and its Single Market almost destroyed British agriculture, while the EU’s Customs Union kept prices high for UK consumers by adding high tariffs and small quotas to foods imported from outside the bloc.
The UK has a similar climate to most of its EU neighbours but with generally fewer heat units, so UK farms produce similar products to most of the EU and in the same season. I cannot stress enough how excess Northern hemisphere summer agricultural production suppresses prices for UK farmers. Worse still, neighbouring countries such as Ireland not only have a similar climate and soil as the western side of the UK, but Ireland also has lower farm wages, cheaper farmland and now much lower corporate taxes. The UK’s biggest imports from Ireland are beef, butter and cheddar – all things that could be produced in the UK. This is what is killing UK farmers – not New Zealand’s countercyclical unsubsidised lamb imports, but subsidized and virtually tax-free products from Ireland. Webster doesn’t want to save British farming – she just doesn’t want EU farmers to have to compete with CPTPP farmers for UK customers.