Liam Fox has said it is too soon to seek out membership of a flagship Pacific trading group, but insisted it would be foolish for the UK to rule out such an option in the future.
Speaking during a trip to China, the international trade secretary did not deny that informal talks had taken place about the possibility of Britain becoming a member of the Trans-Pacific Partnership, despite the geographic distance.
Fox said the TPP deal, which has lost the support of the United States but still includes countries such as Australia, Japan and Mexico, had yet to be negotiated so it would be “a little bit premature” to want to sign it without seeing the final details.
“However, we have said that we want to be an outward-looking country and therefore it would be foolish for us to rule out any particular outcomes for the future,” he said. “So we’ll keep an open mind and we’ll want to talk to our global trading partners.”
His comments came as a former British diplomat who has led both the Foreign Office and the Department for Business, Innovation and Skills, poured scorn on the idea of Britain joining a distant trading pact.
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The former Tory Treasury minister Jim O’Neill, who was appointed by George Osborne, also criticised the government’s thinking over trade. He said leading Brexiters were mad to pour so much energy into markets such as New Zealand, a part of the TPP negotiations, instead of a trading giant such as China.
In comments published in the German newspaper Die Welt, the crossbench peer said: “Brexiteers in May’s cabinet like Boris Johnson or Michael Gove were very intellectual, smart people. But they have no clue about the world of economy. They are clueless, sadly. Clueless.”
Others pointed out that Japan, which is the largest economy within the TPP grouping, accounted for just 1.6% of UK’s goods exports in 2016, according to the MIT’s Observatory of Economic Complexity, and all the TPP nations combined accounted for less than 8% of exports. Meanwhile, Germany alone accounts for 11%.
Meanwhile, officials from TPP countries told the Financial Times it was “way too soon” to talk about the possibility of a country such as the UK – which is not located anywhere close to the Pacific – joining the group. However, the UK trade minister Greg Hands said there was no geographic restriction on such a step.
Senior cabinet figures have argued internally that predictions about the economic impacts of trading relations have relied too heavily on the so-called gravity model. This claims that the size of an economy and its distance are the two most important factors when it comes to predicting the scale of trade flows – and so would suggest that the UK would benefit more from a closer relationship to the EU (and countries such as the US and China) than to TPP nations.
David Davis and other senior figures within the government have argued that other factors such as cultural links and language are becoming increasingly important, particularly as transport of goods becomes easier and trade in services more important.
Samuel Lowe, a trade expert at the Centre for European Reform, said ministers were trying to downplay the gravity model because “it eventually says we shouldn’t leave the EU”.
He said the “iron law of trade” was that you always do more business with a large country nearby, and that as distance doubles, trade halves.
Lowe admitted technological and other advances meant geography would become less important, but he said size followed by distance was still critical. Language and historical links were also important, but so too were timezones, he added, which benefited the closeness of the EU.
As for TPP, Lowe said there had also been talk of the UK joining the North American Free Trade Agreement (Nafta) but it was all “blue-sky thinking”.
“In terms of viability, TPP hasn’t been concluded and there is a long way to go. It is not ready for us to join and I’m not entirely sure if we’ve read it and would agree with it.
“We are never going to be able to join it until they know what our relationship with the EU is. The EU already has trading arrangements with some countries involved, so how does joining TPP fit in with that?”
The question of joining something like TPP could throw up tricky questions. For example, the US withdrew from the agreement amid questions over whether it could result in American jobs being “offshored” to lower-wage economies such as Vietnam.