UK Free Trade Deals

Ah, the past. It's so comforting because it's already happened and we can control it. Economic and political subjects are also welcome.
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sharoma
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UK Free Trade Deals

Post by sharoma »

Last year I reflected on the state of the UK's free trade agreements. In July 2023 the UK signed on to become a member of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). It seems highly likely the UK will accede to full membership status sometime in the latter half of 2024. Here are some possible disadvantages and advantages of the UK leaving the European Union and joining the CPTPP:

Disadvantages
  1. Increasing barriers to trade is rarely good for trade or the flow of labour. Capitalism's biggest fear is the flight of labour. Extra paperwork requirements for goods, tourists, students, and the rest entering or leaving the UK will reduce the amount of each.
  2. Reduced influence within Europe. Previously the UK exercised considerable influence within the EU and therefore the economic situation in Europe. The UK remains a member of the Council of Europe and a key part of its strategic defence. The EU is an expanded German and French economic union. The UK was perceived as a liberalizing force, contrasting slightly with Germany's desire for more state control and deeper integration. Without the UK, weaker and new member states will not have as powerful a voice to oppose Germanic economic mandates. Opt-outs will end sooner rather than later. Denmark will have to accept the Euro sooner. The Euro is the Deutschmark by another name and has offered enormous advantages to German exporters at the expense of domestic industry in all other member states. While the UK was a member of the EU, as the second largest economy and net contributor, it had a powerful voice to help influence policy decisions in its own favour or the favour of any nation but Germany or France. Clearly all sovereign states still desire the best deal for their own country, above that of the supranational concern or blocs (e.g., Canadians want what is best for Canada above what is best for USMCA). Germany wants what is best for Germany it believes that to be a Europe controlled entirely by the European Union. Their current government is committed to deeper integration within the EU as well as its expansion. If this proves to be dangerous, the UK's reduced influence may be partly to blame.
  3. Reduced investment. The UK lost one of its membership cards, although it is still a member of the Commonwealth of Nations, the Council of Europe, the G7, the OECD, NATO, the Five Eyes, AUKUS and the CPTPP. A reason companies may have invested heavily in the UK was that it was a 'Gateway to Europe' - whether that is still true is open to debate. Trade with the EU has increased in value since the UK left the EU, although like rail passenger numbers increasing since privatization, this could just be a case of things naturally growing over time as populations and markets increase in size. Depending on the source you read, foreign direct investment has stalled since Brexit or increased more since the UK left the EU. This could be a mix of feeling and reality or somewhere in between. That is, maybe there are no difficult barriers to investing in the UK post-Brexit, yet a foreign company may just not want to because of their negative opinion of Brexit. To companies outside the EU wishing to sell their products in the valuable British market, EU membership is irrelevant.
  4. Perceived loss of status. With the UK outside the EU, the UK may be perceived as less ‘globalized’ than before. Although its Great Power status has yet to be challenged, the UK's loss of influence in the economic affairs of Europe has reduced its world status. Whether the EU will become a future superpower is still a question of debate. Without the UK's population, economy, and military, this seems much less likely. If the United States of Europe ever does happen, the UK will be worse off outside it and not powerful enough to act with independence. The EU itself states that it does not intend to become a Federation, despite the German government professing a stated aim for it. The EU already resembles a Federation, a Confederation, and a Supranational union.
Benefits
  1. The UK remains a Great Power, at the centre of a continuous and close series of alliances which culminate with NATO, of which the UK is arguably the second most important member after the USA. With the launching of HMS Queen Elizabeth, the UK committed once more to an East of Suez policy with new focus on the Pacific region and their emerging markets. Within the EU, UK foreign policy wasn't really limited. The future of the EU, however, based on trends since the UK joined in 1973, has been toward greater unity. Not just economically, but politically. A large reason for the Brexit vote was that the last referendum, held in 1975, questioned the public on continued membership of an advantageous economic union, not a political one. The UK public was not consulted throughout the '80s and '90s as various treaties and agreements were signed which could eventually lead to the EU being a single sovereign state. As a fully independent sovereign state, the UK now can exercise the freedom of economic and foreign policy it exercised before 1973. This includes the freedom to join a Pacific free trade zone, in which is a large and growing middle class and therefore, lucrative markets. The UK can also act militarily without consulting the EU, should that become necessary in the Pacific in the future.
  2. The Pound Sterling (GBP), remains the fourth largest reserve currency in the world, offering untold benefits. The UK exercised an opt-out and therefore never joined the Euro. Public opinion was never close to being in favour of joining the Euro. Outside the single currency, the UK's EU membership was limited, as was the EU's own power to force the Euro on smaller nations and new applicants. The degree of harmony desired by Germany was never going to happen, even had Brexit gone the other way. A requirement of new countries joining the EU is that they adopt the Euro and their central bank loses a key power, that of setting interest rates. A new EU country adopting the Euro is a German economic satellite. Each new member adds potential instability to the Eurozone. Outside of the this, the UK can isolate itself from future economic crises and offer a safe currency haven in case of Euro collapse.
  3. Ukraine is eager to join the EU. Its program for postwar reconstruction is estimated to already cost a potential half a trillion dollars, money Ukraine itself does not have. By EU standards, Ukraine is poor and "corrupt". The other member states' contributions would have to increase, and no doubt the question of agricultural exports and subsidies would prove contentious. Ukraine's accession could possibly cause significant instability within the Eurozone and a loss of confidence in the Euro. The EU's policy of actively aiding a member state faced with external aggression has never been tested, partly why each recent new state to join has also joined as a NATO member. This saves the EU from having to worry about it. Since the EU lacks its own military, and likely always will, it remains at best a soft superpower. Military co-ordination of each member state's military would fall to NATO and therefore in large part to the UK. This would transfer a great deal of power back to the UK. Why should the UK perform this role when the EU has its own mutual defence policy? This is a bargaining power which may be needed if the UK was threatened with being closed off from trade with the EU over a future dispute.
    Ukraine wishing to join EU and NATO proved too much too soon in terms of the 'Great Game' of diplomacy which has been ongoing since at least the 18th century. The Soviet Union was the second of the two remaining superpowers from the mid 1950s to its collapse. Despite what the EU hopes for, nation-states are still what matters and they are the entities which control militaries. Allowing a possible NATO and EU member to share a border with Russia was simply too much, too soon. It was reckless and Russia, feeling threatened, lashed out. This ignores the fact that Ukraine has strong cultural ties with Russia. International diplomacy is a delicate matter and wishing to expand the EU/NATO border up to Russia's front door was an extremely bad idea and could be blamed for the loss of lives on both sides. If Russia sees the EU as Germany (and NATO as their Cold War adversaries), and it was from Germany they liberated Ukraine to begin with, it is interesting how World War 2 is still very much influencing policy.
    Outside the economic restrictions of EU membership, the UK won't be as adversely affected by a Eurozone collapse caused by Ukraine's accession or military and economic collapse. In the case of Ukraine joining EU, certain countries will find their own farmers complaining about Ukrainian products taking their markets. Or, they will not like the CAP subsidies Ukraine is now entitled to. Nor would they like having to fund Ukraine's postwar rebuilding and its game of 'catch up'.
  4. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership is a free trade agreement which evolved out of the TPP, which was cancelled when the USA under Trump withdrew. In a way the UK is somewhat eager (desperate?) to replace lost investment and trade and has signed on to joining the CPTPP. How? The UK isn't a Pacific region country. Holding sovereignty over the Pitcairn Islands makes the UK eligible to join and certain countries, such as Japan, expressed a desire for the UK to join (likely for defence reasons too). Looking at this positively, this allows the UK to remain and maybe strengthen its position as a gateway to Europe for Pacific region exporters. Ignoring rule of origin requirements, the simple movement of goods increases GDP, employment, even if UK companies aren't directly earning. The Pacific region has the fastest growing middle class, with younger populations. Joining this agreement may be more of a boost to the UK than the Conservative forecasts, especially if China and Taiwan are allowed to join. In the past, all the UK's trade deals were negotiated on its behalf by the EU. In the future, it's possible the UK's deal with the EU may be superseded by the CPTPP's deal with the EU, restoring a more advantageous trading position for UK in regard to the EU. If the USA joins the CPTPP, all the better, as the UK is currently having to negotiate to individual US states because its federal government refuses to make a free trade deal.
    Disadvantages that my arise from CPTPP membership include the forced sharing of secrets by state owned enterprises, reduced animal welfare standards, and the ability of corporations to sue national governments if they feel their profits have been affected by regulation. In a way, this means the UK may 'lose' sovereignty in different or similar ways it was losing within the EU. As stated above, since we still live in the world of nation-states, military alliances and the blocs to which they are loyal, are the key determinants of sovereignty. For example, despite a smaller and less powerful exporting economy than Germany, the UK is a more powerful and influential nation-state individually, since Germany is part of the EU (and lacks nuclear weapons). In economic statistics, the European Union is already treated as a single 'country'. In this way CPTPP membership may allow the UK to both be treated as a sovereign state (with the esteem this brings) as well as enjoy the advantages of being within a free trade bloc (CPTPP) which itself has favourable terms with the UK's closest free trade bloc (the EU).
    Ukraine wishes to join the EU. However, it also wishes to join the CPTPP, something which Canada is supporting. I can't find out how this is possible, since Ukraine is entirely a European nation without overseas territories. Therefore, I assume it is something of a sympathy vote. A disadvantage of the UK joining CPTPP is that due in part to diverging standards, it will make EU membership harder to attain in future. Is Ukraine allowed to join both? If it is, surely the UK can be open to reapply for EU membership in future, even if it remains part of the CPTPP.
  5. Leaving the EU has made it more likely that the United Kingdom will not split up into its constituent countries. This is due to the NATO alliance system. The world is (rightly?) moving toward the end of the nation-state system. Blocs like the EU are the future. Whilst the UK was within the EU, it was effectively irrelevant if Scotland or Northern Ireland were part of the UK. EU membership assured Scottish loyalty and NATO access to the military facilities there, which include a base for servicing nuclear submarines. If Scotland were to leave the UK, who would take responsibility for the UK's NATO commitments? England alone? Should the UK cease to exist, England and Scotland would surely rejoin the EU together.
Robin
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