The UK's Accession Into The CPTPP: A Strategic Trade Move

06/11/2023    257

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership is a free trade agreement between eleven countries in the Indo-Pacific region, including Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam, that established a trade bloc in 2018. In July 2023, the UK signed an Accession Protocol with the CPTPP parties, making it the first new member to join since the establishment of the bloc. This accession into the CPTPP puts the UK in an advantageous position with a dynamic group of countries.

The crux of the accession of the UK into this particular trade bloc is the wide host of trade benefits that it brings with it. It is expected that the move will bring certainty in terms of trade as UK businesses will operate on the same level as local firms, which will lead to reduced red tape and bureaucracy. The accession would diversify supply chains which would aid in free trade across the bloc. Additionally, the accession gives way to 99% of current goods exports being eligible for zero tariffs, which improves market access for British firms for trade in goods, while at the same time implying cheaper imports. The CPTPP affirms its members' existing rights and obligations in accordance with the measures in place under the WTO agreements with regard to trade remedies, while also providing for transitional safeguard measures as a step to address any injury or threat of injury that the bloc itself may bring with it. The accession of the UK will benefit the members of the CPTPP, providing great economic growth.

The final impact of the accession itself will not be revealed till much after 2024, but by taking the first step into this bloc, the UK has set the stage for increased affirmative action from the European region.

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership ("CPTPP" or "Agreement") is a free trade agreement between eleven countries in the Indo-Pacific region- Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. The CPTPP is, in essence, a trade bloc that was established in 2018. This trading bloc consists of nearly 580 million consumers and makes up for 15.6% of the global GDP. The Agreement offers high-standard, ambitious features that touch on most aspects of trade and investment such as market-access commitments in trade in goods, services, investment, labour mobility, and government procurement.1 It aims to establish a consistent, transparent, and fair environment and touches upon specifically significant issues such as technical barriers to trade, sanitary and phytosanitary measures, customs administration, transparency, and state-owned enterprises.

The UK's accession into the CPTPP

Recently, as on July 16th 2023, the United Kingdom signed an Accession Protocol with the CPTPP parties. Being as the CPTPP trading bloc was established only in 2018, the UK is set to be the first new member since the establishment of the bloc following two years of negotiations. This entry is steadily in line with the UK's Indo- Pacific tilt that was set out in their integrated review2 as well. The move to join the CPTPP is strategic as well, as 2022 saw the UK exporting 7.5% of its total exports to CPTPP countries, with 5.8% of its total imports from these countries as well. This entry is expected to bring with it a host of benefits, including decreased trade barriers to a region that is expected to gain steady importance in the world economy.

The UK has existing Bilateral Investment Treaties with 9 out of the 11 countries, with Brunei Darussalam, and Malaysia being the exceptions. The UK's entry into this trading bloc will bring about a trade relationship between these countries and will also mark the first time that the world sees Malaysia and UK in the same trade bloc, granting the UK access to a new trade market worth 330 billion. Further, it is expected that the investment between UK and the CPTPP countries will increase, with the agreement containing limits on barriers and encouraging investment instead.3 Though the UK has signed the Accession Protocol to the CPTPP, the actual ratification of the Agreement is still a way away. The entire ratification process is expected to conclude in the second half of 2024.4

Accession, an advantage?

The aim of the CPTPP itself was to create a bloc that would expand and grow. Hence, the UK will benefit from the access it provides currently, and additionally would provide to new markets. The accession into the CPTPP puts the UK in an advantageous position with a dynamic group of countries, including Vietnam, which is predicted to be one of the fastest growing economies in the future.5 The combined GDP of the bloc will only climb, depending on new joinees.6 The accession will also open access to opportunities in new government procurement markets such as Malaysia, Singapore, and Japan.

The service sector also benefits from this deal as service firms will benefit for modern rules7 which ensure non-discriminatory treatment and greater levels of transparency. It also will give the UK the freedom to offer its services without being troubled with the establishment of new offices in the countries that are a part of this bloc. As one of the most modern trade agreements in the world, the CPTPP with its ambitious services provisions would complement the UK being the world's second largest services provider.8 The UK sells more services than goods to CPTPP members, with the services amounting to around 32.2 billion pounds.9

Trading benefits

The move to join the CPTPP brings with it a host of benefits as regards trade. To begin, it brings greater certainty on terms of trade as UK businesses will operate more on par with local firms, and red tape will be reduced. The digital trade creates a new global economy, with the advent of remote delivering of services gaining popularity in the context of the market between the UK and CPTPP being worth 23 billion pounds.10 The removal of barriers in terms of data localisation requirements also aids in ensuring free flow between the UK and CPTPP.11

The accession is touted to be beneficial to UK exporters in a couple of ways. First, new opportunities would arise from diversifying supply chains which would then support greater economic resilience12 as modern 'rules of origin' could help British businesses by allowing them to trade more freely across the region. Second, that 99% of the current goods exports would be eligible for zero tariffs, improving the goods market access for British firms.13 These tariff reductions will help British manufacturers of key exports. Tariff reductions would also mean that imports would become cheaper, such as fruit juices from Chile and Peru, honey and chocolate from Mexico, and more.

The CPTPP in its Trade Remedies chapter affirms the CPTPP members' existing rights and obligations as regards anti-dumping, countervailing, and safeguard measures under the WTO agreements. It also provides for the application of transitional safeguard measures, cleverly accounting for any increase in imports in such quantities that cause or threaten to cause serious injury to domestic industries, as a result of the tariff liberalisation that the bloc itself brings with it.

The potential economic security offered by joining a globally acknowledged dynamic trading area while still protecting the sovereignty of the UK is a definite advantage.14 The UK's accession will also benefit the members of the CPTPP, ensuring that the economic growth would be inclusive and would also contribute to the alleviation of poverty. Finally, the UK will also help shape the CPTPP's development to fight unfair and coercive trading practices that threaten the future of international trade in terms of technical and other barriers to trade and more.

Impact and Conclusion

With the UK joining this trading bloc and marking yet another trade deal occurring with the Asia Pacific, the attention is now on the United States. Non-participation by the US could bring serious repercussions to the US economy. However, Biden's administration has now begun talks for an Indo Pacific Economic Framework for Prosperity, but trading partners in the US are still seeking CPTPP membership despite there being an absence of any such wishes from the US.15

The impact of such accession will reveal itself after 2024, but it must be noted that the UK is the first from the European region to join the CPTPP, thereby paving the way for more. In sum, this move on paper is proving to be bountiful for the UK. Considering the CPTPP has strong rules against unfair trade practices that are prevalent in certain parts of the world, the UK will largely benefit from joining this bloc by strengthening the global perspective against such practices.

Source: Mondaq