The United Kingdom (UK) has signed a handful of new trade agreements and launched several trade negotiations since leaving the European Union (EU), its largest trading partner. Aligned with the UK's "Indo-Pacific tilt" - a strategic shift in the country's foreign and economic policy emphasising engagement with the Indo-Pacific region1 - the UK signed the Protocol of Accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (also referred to as "the CPTPP" or "the Agreement") in July 2023. The CPTPP is a trading bloc made up of 11 countries in the Asia-Pacific region accounting for 580 million consumers and 15% of global GDP (including the UK). These include Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Viet Nam. The Agreement, which received Royal Assent in March 2024, is expected to enter into force for the UK later this year. It should be noted that at the time of writing, the UK already has bilateral Free Trade Agreements (FTAs) with nine of the 11 CPTPP Parties. However, the CPTPP provides added benefits by going beyond the provisions in the existing FTAs. Furthermore, the CPTPP creates the opportunity for the UK to expand its trade relations with Asia-Pacific and the Americas as new members join the trade bloc.
This first article of a series of four provides a general overview of the CPTPP and its key implications for UK businesses. Subsequent articles will focus on the Labour and Environment provisions of the Agreement and a comparative analysis of the CPTPP and the UK's existing FTAs with CPTPP Parties.
Figure 1: CPTPP Contracting Parties
UK's Trade with CPTPP Contracting Parties
In 2023, UK exports to CPTTP parties stood at USD 36 billion and the top five markets for these exports were Canada (21%), Singapore (21%), Japan (19%), Australia (16%) and Malaysia (6%). Top products exported to the CPTPP bloc included Turbojets, turbopropellers and other gas turbines (16%), Motor cars and motor vehicles for transport of less than 10 persons (10%), Gold (8%), Medicaments (4%) and Undenatured ethyl alcohol (4%).
Imports from CPTPP countries to the UK, on the other hand, amounted to USD 59 billion in 2023. The main sources of these imports were Japan (25%), Canada (24%), Viet Nam (16%), Mexico (10%) and Australia (8%). Main products imported include Gold (19%), Motor cars and motor vehicles for transport of less than 10 persons (7%) and Telephone sets (7%).
Implications for UK BusinessesTrade in Goods
The Agreement2 reduces tariffs on over 99% of UK goods exports to CPTPP State Parties, enhancing market access for UK exporters. This is especially relevant for markets such as Malaysia and Brunei where the UK does not currently have any bilateral trade agreements. Additionally, the CPTPP offers further benefits for UK trade with the other nine State Parties with which the UK already has bilateral Free Trade Agreements (FTAs). These include higher tariff reductions, faster elimination of tariffs for certain sensitive products such as agricultural products and cars and increased quotas for specific products. Imports of goods into the UK will also become more competitive due to the tariff reductions offered by the Agreement.
Furthermore, the Agreement allows for cumulation, i.e. UK companies can use inputs from any CPTPP State Party to produce goods that will be considered as originating if they satisfy the requirements set out in Chapter 3 (Rules of Origin and Origin Procedures) of the Agreement. As per Article 3.2 of the Agreement, a product is originating if it is:
- wholly obtained or produced entirely in the territory of one or more State Parties as per Article 3.3;
- produced entirely in the territory of one or more State Parties exclusively from originating materials;
- produced entirely in the territory of one or more State Parties using non-originating materials provided that the requirements on Product-Specific Rules of Origin (Annex 3-D) are complied with.
Chapter 5 of the CPTPP on Customs Administration and Trade Facilitation also ensures transparency and the streamlining of customs procedures to facilitate the movement of goods across borders and is expected to lead to less red tape for UK companies trading with CPTPP markets. Dedicated chapters on Sanitary and Phytosanitary Measures (Chapter 7), Technical Barriers to Trade (Chapter 8) and on Small and Medium-Sized Enterprises (SMEs) (Chapter 24) are also poised to facilitate trade for UK exporters. For example, Chapter 24 establishes a Committee on SMEs which, among others, is tasked with identifying ways to assist SMEs of State Parties to capitalise on the commercial opportunities offered by the Agreement.
Investment
Regulatory certainty and investor protection are key to fostering a favourable investment climate. Article 9.4 on National Treatment ensures that investors of a State Party are given the same treatment, in like circumstances, as domestic investors of another State Party with regard to the establishment, acquisition, expansion, management, conduct, operation, sale or other disposition of investments. Furthermore, Article 9.6 on Minimal Standard of Treatment stipulates that each State Party must ensure fair and equitable treatment and full protection and security of covered investments by providing treatment that aligns with applicable customary international law principles.
With regard to expropriation and compensation, Article 9.8 states that no State Party shall nationalise or expropriate covered investments, either directly or indirectly, except if it is:
- for a public purpose;
- conducted in a non-discriminatory manner;
- accompanied by prompt, adequate, and effective compensation;
- in accordance with the due legal process.
Compensation must be paid without delay, reflect the fair market value of the investment before expropriation, exclude any value changes due to the expropriation announcement, and be fully realisable and freely transferable. The Agreement also offers UK investors access to an Investor-State Dispute Settlement (ISDS) mechanism.
Trade in Services
Regarding cross-border trade in services (Chapter 10), the Agreement ensures that services and service suppliers from the UK are accorded treatment no less favourable than is accorded, in like situations, to domestic services and services suppliers of a State Party. Furthermore, the Agreement enhances market access for UK service suppliers through several provisions. For example, Article 10.5 on Market Access stipulates that State Parties shall not adopt or maintain measures, either regionally or across its territory, that impose specific limitations on:
- the number of service suppliers through numerical quotas, monopolies, exclusive suppliers or economic needs tests;
- the aggregate value of service transactions or assets through quotas or economic needs tests;
- the total number of service operations or quantity of service output through quotas or economic needs tests;
- the total number of natural persons that may be employed in service sectors or that a service supplier may employ, directly related to the supply of a service, through quotas or economic needs tests.
Mutual recognition is an important element facilitating cross-border trade in services. The Agreement promotes mutual recognition of education or experience obtained, requirements met, or licences or certifications granted, in the territory of another Party or a non-Party but such mutual recognition is left at the discretion of the respective State Parties.
Furthermore, Chapter 10 contains annexes on Professional Services and Express Delivery Services and the Agreement has dedicated Chapters on Financial Services, Temporary Entry of Business Persons and Telecommunications, providing regulatory certainty for services trade and establishing Working Groups to facilitate implementation.
Electronic Commerce
The CPTPP includes advanced provisions on E-commerce. Article 14.3 prohibits the imposition of customs duties on electronic transmissions, including on electronically transmitted content. However, this does not prevent a Party from applying internal taxes, fees or charges on electronically transmitted content. With regard to cross-border data transfers, Article 14.11 recognises that each Party may have its own regulations for electronic information transfer. However, it requires that State Parties allow the electronic cross-border transfer of data, including personal information, when necessary for the conduct of business activities of a covered person. Additionally, Article 14.13 prohibits data localisation requirements except if these requirements are implemented to achieve a legitimate policy objective.
In accordance with Article 14.17, no Party shall demand the transfer or access to source code of software owned by a person from another Party as a condition for importing, distributing, selling, or using such software or products containing it within its territory. This applies to mass-market software or products containing such software but excludes software used for critical infrastructure. However, commercially negotiated contracts may include terms and conditions about providing source code, and Parties may require source code modification to comply with laws or regulations that are not inconsistent with the Agreement.
Government Procurement
The CPTPP, through Chapter 15 on Government Procurement, provides UK suppliers with access to government procurement opportunities in all CPTPP Parties, levelling the playing field with other Parties which already had government procurement commitments in CPTPP markets. As per the country-specific market access schedules annexed to this Chapter, procurement of goods, services and construction services that fall under specific thresholds are excluded from the obligations of the Government Procurement Chapter. The CPTPP ensures that UK goods, services and suppliers are treated no less favourably than domestic goods, services or suppliers for covered procurement. Additionally, the Agreement establishes transparent processes for government procurement, providing certainty to UK businesses. For example, the Agreement stipulates the specific circumstances in which multi-use lists or limited tendering may be used.
In conclusion, the CPTPP offers several benefits to UK businesses, including reduced tariffs, enhanced market access for goods and services as well as regulatory certainty across investment, electronic commerce and government procurement. To fully leverage the opportunities offered by the Agreement, UK businesses must ensure that they thoroughly understand the different provisions of the Agreement and related implications for their specific sectors. It is also important to analyse the differences between the UK's existing agreements with nine of the 11 CPTPP countries to determine whether the CPTPP or the bilateral agreements offer more favourable terms for particular business activities.
International Economics Consulting Ltd (IEC) is an independent consultancy firm working with national and international development partners, governments, and the private sector to create value and promote sustainable growth and development. With extensive experience in trade policy, research, and negotiations, IEC can support governments and businesses deal with unfair trade practices and unforeseen consequences of free trade by providing analytical expertise and support.
Footnotes
1. GOV.UK (2021), Policy Paper, Global Britian in a Competitive Age: the Integrated Review of Security, Defence, Development and Foreign Policy, Available from: https://www.gov.uk/government/publications/global-britain-in-a-competitive-age-the-integrated-review-of-security-defence-development-and-foreign-policy/global-britain-in-a-competitive-age-the-integrated-review-of-security-defence-development-and-foreign-policy
2. The Agreement Text can be accessed here: https://www.mfat.govt.nz/en/trade/free-trade-agreements/free-trade-agreements-in-force/cptpp/comprehensive-and-progressive-agreement-for-trans-pacific-partnership-text-and-resources.
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