Recently, Britain agreed to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a trade pact based around the Pacific rim, as it seeks to build ties around the world after leaving the European Union.
GS II: International Relations
Dimensions of the Article:
- What is CPTPP?
- How much does Britain trade with CPTPP?
- Benefits of Rules of Origin under CPTPP for Exporters
- Sectoral Impact and Geopolitical Factors of UK Joining CPTPP
What is CPTPP?
- CPTPP is a free trade agreement (FTA) that was agreed in 2018 between 11 countries – Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.
- Britain will become the 12th member, and the first to join since the partnership since its inception.
- Prime Minister office said that CPTPP countries will have a combined GDP of 11 trillion pounds ($13.6 trillion) once Britain joins, or 15% of global GDP.
- It does not have a single market for goods or services, and so regulatory harmonisation is not required, unlike the European Union, whose trading orbit Britain left at the end of 2020.
How much does Britain trade with CPTPP?
- Britain says that exports to CPTPP countries were worth 60.5 billion pounds in the twelve months to end-Sept. 2022.
- Membership of the grouping will add another 1.8 billion pounds each year in the long run, and possibly more if other countries join.
- But in an impact assessment of the deal when negotiations started in 2021, Britain said the agreement is estimated to deliver an increase of just 0.08% to GDP over the long term.
Benefits of Rules of Origin under CPTPP for Exporters
The Rules of Origin (RoO) under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) can provide benefits for exporters. Here are the key points:
- Preferential Tariffs: Exporters can benefit from preferential tariffs by demonstrating that their product is made up of a sufficient proportion of “locally” sourced parts.
- RoO under FTAs: Even when trading with countries where there is a bilateral Free Trade Agreement (FTA), exporters can benefit from CPTPP membership.
- EU Inputs Count as “Local”: RoO under post-Brexit FTAs with Japan, Mexico, and Canada allow exporters to count inputs from the European Union (EU) as “local.”
- Inputs from CPTPP Members: Under CPTPP, inputs from other CPTPP members can be considered local, giving exporters more options.
- Practical Benefit: The practical benefit for UK exporters is optionality. They can choose between counting EU inputs or CPTPP inputs as “local,” depending on which option is more beneficial.
Sectoral Impact and Geopolitical Factors of UK Joining CPTPP
The UK’s accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) has sectoral impact and geopolitical factors. Here are the key points:
- Beef Quota: The UK agreed to a quota on beef imports but did not agree to lower food standards, including the ban on hormone-treated beef.
- Tariff Reductions: Tariffs on palm oil from Malaysia will be liberalized, and the UK also agreed to tariff reductions on bananas, rice, and crab sticks following requests from Peru, Vietnam, and Singapore respectively.
- Zero Tariffs: 99% of UK exports to CPTPP would be eligible for zero tariffs, including cheese, cars, chocolate, machinery, gin, and whisky.
- Whisky Tariff: The phased elimination of Malaysia’s 165% tariff on whisky was welcomed by the Chief Executive of the Scottish Whisky Association, who sees the UK’s accession to CPTPP as opening up new opportunities for Scotch Whisky and other UK products in key markets in the region.
- Small Economic Gain: While the long-term economic benefits for the UK are modest, the country has other reasons for joining the bloc.
- Geopolitical Strategy Gain: According to Minako Morita-Jaeger, a policy research fellow at the UK Trade Policy Observatory, the UK’s accession to CPTPP is a “big geopolitical strategy gain with a small economic gain.”
- China’s Application: China has applied to join CPTPP, and the UK’s pivot towards the Indo-Pacific, where it highlights China as an “epoch-defining challenge,” could enable the country to enhance strategic ties with like-minded countries to protect a free and open Indo-Pacific region.
-Source: Indian Express