UK set to join Comprehensive and Progressive Agreement for Trans-Pacific Partnership
On 31 March 2023, the UK was welcomed into the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) – a soon-to-be 12-member and GBP11 trillion GDP trading bloc consisting of Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. As the first non-founding member to join the CPTPP, the UK’s accession is expected to set the template for future applicants, including the China’s application which is next to be decided.
The UK Government said the deal would generate GBP1.8 billion in the next 12 years, cut tariffs on exports of food, drink and cars, and reduce red tape for access to Pacific markets. In total, 95% of import charges or tariffs are eliminated or reduced, accounting for 99% of UK goods exports to CPTPP member countries.
Manufactured products will also be able to claim their goods qualify for preferential treatment so long as 70% of the products’ components come from within the CPTPP bloc. The deal was welcomed by a number of businesses and industry groups, including the world’s second-largest wine and spirits seller, with news that the 80% tariff on whisky exports to Malaysia will be axed as CPTPP becomes the first ever trade deal between the UK and Malaysia.
CPTPP also helps remove the barriers companies face with data flows, including data localisation requirements, and UK service-based businesses will no longer have to establish a local presence in a CPTPP-member to access their market. Recognition of professional qualifications between the UK and CPTPP partners will also be bolstered, with dialogue encouraged between regulators. Financial portfolio managers will be permitted to manage funds across the world.
The Labour Chapter of the agreement also prohibits members from weakening protections afforded to workers under their labour laws, or from failing to enforce them, to ensure that UK businesses will not be threatened or undercut by unfair labour practices.
While the Labour Party has cautiously welcomed the UK’s accession, trade unions have raised concerns about investor state dispute settlement provisions, with the Trades Union Congress General Secretary saying that this could lead to companies blocking minimum wage rises or nationalisation of energy companies.
The environmental aspects of the deal have been a cause of concern for campaign groups, with palm oil exports from Malaysia having tariffs slashed, although the Government has said that the impact on deforestation would be minimal and that the standards set by the Government will dictate the quality of palm oil imports to the UK.
Opportunities for UK businesses
Calling it the “biggest trade deal since Brexit”, the Government have lauded the opportunities CPTPP makes available as exemplifying the new ‘Global Britain’. The deal solidifies supply chains for technology, including semi-conductors and critical minerals used to make EVs and wind turbines.
The Department for Business and Trade stated that UK businesses are “expected to benefit from an increase of GBP1.7 billion in exports to CPTPP members, and a GBP1.6 billion increase in imports.” The government has also predicted that, should CPTPP continue to grow, all industries but food and agriculture will see a slight increase of up to 2.5% in value. To ease pressure on these industries, access to the UK market for sensitive agricultural produce will be staged over time, with permanent annual limits on the volume of the most sensitive agricultural goods (including beef, pork, chicken and sugar) that can be exported to the UK at a reduced- or zero-rate tariff.
In discussing palm oil, Business and Trade Secretary Kemi Badenoch argued that being in the trade bloc will give the UK more influence over sustainability policy, and open up the UK to a market worth 15% of global GDP while maintaining British control over standards. The government has also stated that joining CPTPP will not compromise animal and plant health, food safety or animal welfare standards, and there will be greater cooperation in the transition to low emission and energy-efficient technologies.
The government predicts greater certainty over temporary entry for business persons to ensure that highly-skilled persons across the Trans-Pacific region will be able to travel and relocate with ease, and CPTPP rules will help protect UK investors from unfair, arbitrary or discriminatory treatment and enable them to access a dispute resolution mechanism when rules are broken. The CPTPP is recognised as having world-leading rules on services trade and cross-border investment which can facilitate the free flow of data, simplify business mobility, and ensure a robust and transparent regulatory framework which aligns with the UK’s vision of becoming a global technology hub.
A number of growing economies are still keen to join the pact, including China, Taiwan, and central and south American countries. Potential future applicants include South Korea, Thailand, and the US (which was originally a signatory before Trump’s withdrawal in 2017). As the bloc grows, so will the UK’s influence in writing the global trade rulebook.
Advice to clients
When the UK agrees a new trade deal, a discussion in the media inevitably follows on whether the trade deal is a net positive or negative for the country. These broader considerations often fail to highlight the day-to-day commercial opportunities a trade deal can bring to individual businesses. These are the ability to import to and from existing and new markets at reduced costs and delay, and to benefit from increased market access to provide services. Clients would be well advised to review which countries are members of the CPTPP and determine whether there is a case for adapting supply chains or export markets to take advantage of the opportunities the UK’s membership of the CPTPP brings.
DLA Piper’s trade team helps clients to navigate the commercial opportunities arising from the UK’s post-Brexit trade policies.