CPTPP is the agreement of the future

04/08/2023    240

Last month the UK formally joined the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) – the Asia-Pacific trade bloc worth around 12tn pounds (US$15tn) in GDP and including Chile, Peru and Mexico.

Other members are Australia, Brunei, Canada, Japan, Malaysia, New Zealand, Singapore and Vietnam. Agreements were signed in 2018. Early the previous year, Donald Trump pulled the US out of the precursor, the Trans-Pacific Partnership.

According to an impact assessment conducted by the British government, the long-run increase in GDP would be 2bn pounds, or 0.06%, but could be higher if other countries, such as South Korea, join the club.

To find out more and get an outline of what it means for Latin American signatory nations, BNamericas conducted an email interview with Jonathan Knott, UK trade commissioner for Latin America and the Caribbean.

BNamericas: Why did the UK want to join the CPTPP? Is it a strategic move, given that although the economic benefits today appear small, countries such as South Korea could join and, in turn, increase the impact on UK GDP?

Knott: I tend to say that CPTPP is the agreement of the future. You see, the Indo-Pacific region will account for the majority of global growth and around half of the world’s middle-class consumers in the decades to come.

Now, with the UK, CPTPP has a combined GDP of 12tn pounds, and this could increase rapidly as new economies join. For example, Costa Rica, Ecuador and Uruguay have formally applied to join. Thailand, the Philippines, and Republic of Korea, as you mentioned, have also expressed an interest in joining.

If these economies were to join CPTPP with the UK, the combined GDP would increase to just over 14tn pounds and would cover 9% of all UK annual exports. So we are talking about a bloc with great potential.

BNamericas: For Chile, Peru and Mexico, what is the significance of the UK joining CPTPP?

Knott: CPTPP creates new opportunities for businesses in these countries as well. Joining CPTPP will not only bring the UK closer to Mexico, Chile and Peru but also create benefits for these countries on top of the existing bilateral agreements. It will facilitate the development of stronger, more diverse linkages and supply chain operations, low tariffs, bring greater legal certainty to investors and service providers, and improve companies’ competitiveness for UK government contracts.

BNamericas: Are there specific Latin American opportunities that are blinking brightly on the UK’s radar? For example, exports of clean energy technology or services and digital trade?

Knott: CPTPP has a digital chapter dedicated to facilitate digital trade and to support our financial services sectors. In particular, the UK and the three Latin American countries are measured as being among the most open to digitally enabled services. Modern digital and telecommunications chapters will allow better, tailored business operations and maximize opportunities for digital trade.

Furthermore, CPTPP will provide options to expand our ecosystem of exporters, allowing SMEs and startups to do more business, and these companies tend to be disproportionately impacted by trade barriers. That is because CPTPP’s dedicated SME chapter will enable free access to the information necessary for British and Latin SMEs to take advantage of new trade opportunities.

BNamericas: What about financial services? Does the CPTPP establish incentives? Chile, for example, is looking to build a green hydrogen-exporting industry, an objective that would require billions of dollars in investment. The country will also need multiple gigawatts of new renewables capacity along with significant investment in transmission and distribution to support its 2050 net-zero push.

Knott: This is a great question. Chile is a market with great potential indeed. I had the chance to visit Magallanes region last year, and got a good overview of that country’s national strategy for green hydrogen. The UK-Chile trade relationship is strong: Chile was the first country with which the UK signed a continuity trade deal, a temporary agreement designed to guarantee the continuation of trade between both countries after the Brexit transition period.

Now our trade links will be substantially upgraded, barriers removed and market access improved, while key areas such as the digital economy, financial services and investment are covered. Chile will receive improved investment liberalization commitments from the UK, which represents a significant improvement in access for Chilean investors to the UK market.

The UK’s accession to CPTPP will also make it easier for Chile to build on the recognition of professional qualifications with the UK through its annex on professional services, and Chilean regulators will work better on their counterparts to open up opportunities for Chilean professionals.

BNamericas: In terms of the trade flow from Latin America to the UK, what areas could generate opportunities for Chile, Peru and Mexico?

Knott: CPTPP will bring additional benefits for Latin American countries beyond those of existing bilateral agreements, including reduced tariffs on agricultural goods, for instance, that will have a positive impact on both Latin American and UK businesses, of all sizes.

For example, in 2021, over 2,800 British SMEs exported goods to Mexico, and at least 1,000 UK SMEs imported from Mexico. Specifically, Mexico will have permanent access to the UK’s shared CPTPP tariff rate quotas for beef, pork, and chicken.

Tariffs will also be eliminated on Mexico’s exports of honey and chocolate to the UK. In another example, Peru will receive duty reductions for banana exports and additional access to tariff rate quotas. Tariffs will also be cut on Peru’s exports of fruit juices and garlic to the UK.

All in all, CPTPP brings the openness to expand our trade ties, diversify, and deliver benefits for these enterprises, which tend to be disproportionately impacted by trade barriers. CPTPP will simplify our export processes and procedures.

BNamericas: Any other messages you want to communicate to BNamericas readers?

Knott: As closing remarks, I think it is important to emphasize three points:

1) The UK's joining of the CPTPP will lead to a stronger commercial relationship with Latin America. For instance, over 99% of current UK goods exports to CPTPP members are eligible for zero tariffs. This alone means a drastic reduction in the cost of trading, which can increase profitability for businesses in these Latin American markets. Moreover, it is not only businesses that will benefit, decreased tariffs on goods imported to the UK from Latin American nations will allow British consumers to have access to a wider variety of goods, at more competitive prices. This could range from high-quality products such as Chilean and Peruvian fruit juices, to Mexican honey and chocolate.

2) CPTPP is designed to benefit businesses of all sizes, from small and medium-sized enterprises to large multinational corporations and those within the global supply chains. The bloc has specific provisions that make it easier for SMEs to access these markets, encouraging growth and expansion. On the other hand, larger enterprises, especially those involved in global supply chains, can enjoy smoother and more cost-effective operations due to lessened tariffs and increased harmonization of regulations.

3) Entry into force will take some time, so it is essential to understand that the full impact will be seen over a more extended period. In the years to follow, the UK plans to build on the combat of protectionism and the creation of opportunities for businesses in both the UK and Latin America. It’s a commitment to the Latin American market and will lead to deeper trade deals, new partnerships and opportunities.

By actively encouraging free trade, the UK's entry into the CPTPP will help foster a robust, open, and competitive global economy that will offer benefits for all participants, including Mexico, Chile, and Peru.

Source: Bnamericas