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The UK announced on the 31 March 2023 that it had reached an agreement to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (the CPTPP). The CPTPP is a free trade agreement (FTA) with 11 members located across the Pacific Rim, which together will account for 15% of global GDP once the UK officially joins the bloc.
Acceding to the CPTPP will represent arguably the most significant development in the UK’s post-Brexit trading landscape, aside from the conclusion of the EU-UK Trade and Cooperation Agreement. In this bulletin, we explore the expected economic benefits associated with the CPTPP and some of the agreement’s implications for businesses.
What is the CPTPP?
The CPTPP is an FTA whose current members are Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. The bloc contains over 500 million people and accounted for GBP60.5 billion in British exports in the twelve months leading to the end of September 2022. It represents an opportunity for the UK to deepen its economic and political ties with the nine current members which it already has an FTA with, as well as to establish new trading arrangements with Brunei and Malaysia.
The UK sees the wider Indo-Pacific region, which has 60% of the world’s population and is expected to account for over half of global economic growth by 2050, as a region of strategic importance. This was reaffirmed by the UK’s 2021 Integrated Review of Security, Defence, Development and Foreign Policy. The UK’s agreement to join the CPTPP has been coupled with its announcements of two defence agreements with allies in the region: the AUKUS with the USA and Australia in 2021 and the Global Combat Air Programme with Japan and Italy in 2022. Joining the CPTPP may also provide further market access and enhanced political ties in the region as future members may include Costa Rica, Ecuador, the Philippines, South Korea, Taiwan, Thailand and Uruguay.
The economic benefits
According to the UK Government, accession to the CPTPP is expected to boost the UK economy by GBP1.8bn in the long term. At its core, more than 99% of UK goods exported to CPTPP members will be eligible for tariffs of 0%. The CPTPP’s progressive ‘rules of origin’ will enhance UK businesses’ ability to sell products and components free of tariffs to other members. The agreement also contains provisions on including digital trade, data, e-commerce and the trade in services.
Importantly, this will be the first time that the UK has a preferential trading relationship with Malaysia and Brunei. British businesses will benefit from this increased market access, with Malaysia’s GDP worth GBP271bn in 2021 and Brunei’s GDP worth GBP14bn in the same period. For example, membership of the CPTPP will over time eliminate Malaysian tariffs of around 80% on UK exports of whisky and up to 35% on UK automotive exports to Malaysia.
Implications for businesses
The UK’s accession to the CPTPP will now need to be ratified, and it is only expected to come into effect later in 2023. As such, businesses should use the valuable time in between to identify new opportunities that will flow from trading under its terms, especially with Malaysia and Brunei. The UK’s membership of the CPTPP may also help businesses to diversify their supply chains and improve their resilience at a time when these are key areas of focus.