April 6, 2023
UK concludes negotiations to join Comprehensive and Progressive Agreement for Trans-Pacific Partnership
- The UK has concluded negotiations to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), becoming the twelfth member of the agreement.
- This Alert summarizes the key elements of the trade deal and outlines key considerations for businesses to be able to utilise the agreement once it takes effect.
On 31 March 2023, the United Kingdom (UK) announced it had secured agreement to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), two years since it first applied to join. With the legal text signed, the UK becomes the first country to accede to the CPTPP and the twelfth member of the agreement.
The CPTPP's existing members (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam) cover a significant market, encompassing a population of more than 500 million people and collective gross domestic product (GDP) of £10 trillion.
The UK has existing trade deals with nine of the eleven CPTPP members — such as the yet-to-be ratified UK-Australia FTA, the trade continuity agreements with Mexico and Canada (where upgrade negotiations are ongoing) and the Digital Economy Agreement with Singapore. All of these agreements have been considered important stepping stones to the UK's CPTPP accession.
Having the green light to join implies that Britain has met the CPTPP's advanced market access requirements and will adhere to the sanitary and phytosanitary standards and other provisions set out in the CPTPP, such as the investor-state dispute settlement.
The largest immediate benefit for businesses will come from the new preferential trading relationships between the UK and Malaysia and Brunei, countries with which the UK does not have existing trade deals. Over the longer-term, the CPTPP is expected to expand further, with potential future members including Costa Rica, Ecuador, Taiwan, China and Thailand having either applied to join or expressed interest in doing so. This would enable UK access to those markets in the future.
By becoming a CPTPP member, the UK joins a deal whose conditions have been largely predefined by its 11 founding members. With only a few deviations from the CPTPP provisions, the deal covers all sectors, reducing barriers across all aspects of trade. It is considered to be a liberal and flexible agreement, and while mostly removing barriers to goods trade, it also includes ambitious services provisions, benefitting the UK as the world's second largest service provider.
A number of changes and improvements to current trade relationships are summarized below.
Trade in goods, customs and rules of origin
- Tariffs. Almost all (99%) UK goods exported to CPTPP members will be at zero tariff. Staged or restricted tariff liberalization mostly relates to meat, dairy and chocolate exports to member states like Canada, Japan, Mexico or Peru. On imports, the UK has agreed to remove already low tariffs on palm oil and to reduce duties for bananas with additional Tariff Rate Quota agreed concessions made for Mexico and Peru. Tariffs will be phased out on UK whisky exports to Malaysia and on engines and medicine to Vietnam.
- Rules of origin. The rules of origin chapter mostly allows so-called "cumulation" — goods inputs from any CPTPP member will count as "local" to all CPTPP members for the purpose of qualifying for tariff-free trade. Some of the UK's deals with CPTPP members, such as Japan, Mexico or Canada, allow for EU inputs to fall within the same rule on "local content" and UK producers will be able to make use of both preferential provisions when exporting to the respective CPTPP countries.
Services, investment and digital trade
- Services. The CPTPP's trade in services chapter sets out the member states' commitment to national treatment of each other's service providers, improving protection, predictability and transparency for UK businesses across service industries, which will also benefit from greater certainty around licensing procedures. The CPTPP includes a standalone financial services chapter, aiming to create a level playing field across markets for CPTPP businesses.
- Data. The CPTPP sets out high data protection standards, commits to the free flow of data and works towards reducing unnecessary data localization requirements. A dedicated e-commerce chapter aims to provide a platform to shape rules and prevent barriers to digital trade.
- Domestic regulation. Rather than setting out rules for domestic regulation, the CPTPP defines regulatory recommendations and preferred approaches to domestic regulation. For UK goods in heavily regulated industries, the CPTPP will enable third-party conformity assessments to be conducted by bodies outside the UK, as long as these bodies meet the UK requirements and standards. Canada has dropped its request for the UK's ban on hormone-treated beef to be eliminated as a membership condition. Further, food standards in the CPTPP do not conflict with European food and drink regulation.
- Investment. The Department for Business and Trade projects that investment from CPTPP countries into the UK helped create more than 5,000 new UK jobs over the last two years. The CPTPP will enable nondiscriminatory treatment of investors across the bloc, enabling UK investors equal access to CPTPP markets and vice versa.
- Investor-State Dispute Settlement. The CPTPP includes an Investor State Dispute Settlement (ISDS) provision, which allows investors across CPTPP countries to litigate against governments, if they feel governments didn't treat them fairly. This provision would enable investors to challenge governments' investment restrictions protecting the climate or human rights. The UK emphasizes its "right to regulate in the public interest including in areas such as the environment and labour standards."
- Intellectual property. The agreement outlines a common set of rules on intellectual property protection and enforcement, aiming to promote cross-border innovation and investment. Most of the UK's standards align with CPTPP requirements, and the UK has secured a derogation as part of its membership of the European Patent Convention.
Sustainability, SMEs and gender empowerment
- SMEs. A dedicated SME chapter signals acknowledgment of the importance of SMEs across economies and includes provisions to strengthen the cooperation supporting SME trade between member states.
- Sustainability. While not setting out any tangible climate pledges, the environment chapter reaffirms the parties' commitments to the Multilateral Environmental Agreements, including the Paris Agreement. Having agreed to a tariff reduction for Malaysian palm oil, the UK and Malaysia have promised to publish a joint statement on sustainable production and forest protection.
- Gender empowerment. The CPTPP does not include any specific provisions on gender empowerment.
Implications for business
Although the UK has just announced that the negotiations to join the CPTPP are now concluded, it will take some time for the agreement to be ratified and to come into effect so that businesses can take advantage of the preferential trade conditions the deal provides. Businesses should use that time to review the opportunities presented by the agreement and the requirements to trade under it. As bilateral trade deals are in place with most of the CPTPP's members, businesses will have to consider which agreement would be most beneficial for them to consider trading under.
Reviewing supply chains and global footprint will help businesses assess how the new Rules of Origin, access to CPTPP markets, resources and talent can help diversify procurement and improve supply chain resiliency. Particular focus should be paid to the new preferential trade relationships with Malaysia and Brunei as new market access opportunities are opened up.
For additional information concerning this Alert, please contact:
Ernst & Young LLP (United Kingdom)
Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor