On Friday 31 March, the UK government announced it had reached an agreement to join the CPTPP (Comprehensive and Progressive Trans-Pacific Partnership). The CPTPP is the first major trade agreement since Brexit – so what will be the impact of the CPTPP on UK farming?
What is the CPTPP?
The CPTPP is a Free Trade Agreement (FTA) between 11 Pacific ring nations – Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. CPTPP member countries have a combined population of 500 million and a GDP of £9 trillion. Currently, the CPTPP as an area makes up 7.8% of the UK’s total trade.
The UK will be the first European member of the CPTPP which was established in 2018. In 2019, UK service suppliers exported £28.8 billion worth of services to CPTPP members. The average annual growth in trade between 2016-2019 with members was 8%.
The CPTPP Countries are all within the Pacific Rim
What will happen next?
The negotiations have ended but the agreement is yet to be implemented. It will be subject to pre-ratification scrutiny under the Constitutional Reform and Governance Act 2010 (CRaG). The UK parliament still needs to pass the legislation to implement the agreement. Before implementation, the Government will commission and publish the advice of the independent Trade and Agriculture Commission. The Secretary of State for International Trade is also seeking advice from the Food Standards Agency and Food Standards Scotland on whether the agreement is consistent with maintaining UK levels of protection in relation to human health.
In addition, the CPTPP countries themselves will need to complete their own domestic ratification procedures to approve the UK’s accession. Once both the UK and the CPTPP countries have finished their legislative processes the agreement will come into force.
What are the benefits for the UK of joining the CPTPP?
The UK’s case for joining the CPTPP rests on the benefits of ‘digital trade’ and ‘services’. According to the UK government’s analysis, there are potential gains for the UK beverage, tobacco, and motor vehicles sectors, but the semi-processed food sector would likely be hit hard.
Rules of Origin
Under rules of origin criteria, a country can export products to another CPTPP member which may contain materials that originate from other CPTPP countries and still qualify for preferential tariff rates. For example, a product containing 20% of materials from the UK, 60% of materials from other CPTPP countries and 20% materials sourced from the EU would be eligible for preferential tariffs when exported to another CPTPP country. This contrasts with the EU in that products imported from the EU cannot automatically qualify for tariff-free export back into the EU except under specific circumstances.
Overall Economic Gains are Modest But the Real Value is Political
The UK government forecasts the deal will add only 0.08% to the size of the UK economy in ten years. The UK already has bilateral Free Trade Agreements (FTAs) with seven of the eleven countries, and digital economy agreements with Singapore and Japan. An independent trade policy has consistently been one of the most important objectives of the UK government since Brexit. UK membership helps cement the CPTPP as a grouping of mid-sized powers committed to a free-market approach and rules-based international trade.
Access to Asia-Pacific Markets
The CPTPP member countries include several economies in the Asia-Pacific region, such as Japan, Canada, and Australia. Joining the CPTPP would provide the UK with enhanced access to these markets and potentially increase its exports to Asia-Pacific countries.
What are the benefits for CPTPP Countries?
UK trade with the group was worth £111 billion in 2019, growing by 8% a year since 2016. Will the UK joining the block make a difference to the CPTPP countries?
Increased Market Access
The UK’s participation would expand the CPTPP’s market by adding a significant economy. The UK is the world’s sixth-largest economy and a member of key multilateral organisations such as the G7. It also has a strong services sector, which could provide new market opportunities for other member countries.
Trade Diversification
The CPTPP aims to promote the diversification of trade partners and reduce dependence on a single market. With the addition of the UK, the CPTPP would diversify its membership and provide access to a diverse range of industries and products.
Harmonization of Standards
The CPTPP includes provisions on regulatory coherence and the alignment of standards among member countries. The UK’s participation could contribute to the harmonization of standards, creating a more streamlined and predictable business environment.
Strengthened Global Rules
The CPTPP establishes high standards for various areas, including intellectual property rights, labour, environment, and government procurement. The UK’s inclusion would further strengthen these global rules, promoting fair and transparent trade practices.
What are the prospects for agricultural trade within the CPTPP?
As well as significant agricultural exporters the block contains a number of notable food importers such as Japan. CPTPP members are expecting to see significant growth in their food imports particularly for red meat and dairy products. Rapid population growth and economic development are driving a rapid expansion of middle-class consumers within the block. The US Department of Agriculture (USDA) forecast the following growth in imports:
- Pork: 19% by 2031 to a combined 3.9 Mt – focused on Japan, Vietnam, Mexico and Canada.
- Beef: 16% by 2031 to a combined 1.8 Mt – focused on Japan, Malaysia, Mexico and Canada.
- Dairy – significant growth in Malaysia and Japan for butter and cheese, and for skimmed milk powder in Mexico.
What will the impact of the CPTPP on UK Farming?
The CPTPP contains major agricultural exporters, notably Australia and New Zealand – who could expand their market presence whilst providing limited opportunities for UK exports. The CPTPP deal will not worsen the impact, however, as the UK has already agreed to comprehensive FTAs with these countries.
- The CPTPP FTA will make trade easier with a lot of countries, and this will be of benefit to agriculture in the medium to long term. The CPTPP is a large and varied market and includes food-importing counties such as Japan, Mexico and Malaysia;
- There will be an inward beef TRQ starting at 2.6 Kt increasing in equal increments to 13 Kt by year 10 of the agreement;
- There will be an inward pork TRQ starting at 10 Kt and increasing in equal increments to 55 Kt by year 10 of the agreement;
- Lamb will be fully liberalised (except for New Zealand and Australia) but there are no other major lamb exporters in CPTPP;
- Butter and cheese will be liberalised over 11 years.
Summary of the headline results per sector
| CPTPP exports to the UK 2019–2021 average (t) | Change in CPTPP exports to the UK (t) | Change in CPTPP exports to the UK (%) | UK exports to CPTPP 2019–2021 average (t) | Change in UK exports to CPTPP (t) | Change in UK exports to CPTPP (%) | |
|---|---|---|---|---|---|---|
| Lamb | 203 | 74 | 37 | 457 | 118 | 26 |
| Beef | 1,356 | 668 | 49 | 2,355 | 1,404 | 60 |
| Pork | 190 | 402 | 211 | 3,508 | 818 | 23 |
Beef and lamb imports to the UK will only initially be given “proportionate access”. In addition, inbound shipments of pork, chicken, sugar and eggs will be protected, with quotas rising in stages.
The most significant trade opportunity is with Malaysia – the only country where CPTPP is in force and with which the UK does not currently have an existing FTA. While Malaysia is only the UK’s 34th largest export destination, it is a growing market. Some businesses may see some product-specific tariff and non-tariff barriers reduced as a direct result of CPTPP accession. In particular, tariffs of around 80% will be eliminated on UK exports of whisky.
What are the practical issues with joining the CPTPP?
Despite the economic and political benefits of joining the CPTPP, there are limitations, firstly geography. The U.K. is not within the Asia-Pacific rim (aside from the tiny UK outpost of Pitcairn). The issues are the financial and environmental costs involved. The CPTPP countries are hardly on the UK’s doorstep and there are high costs in shipping bulky agricultural commodities over long distances. Perishability is another factor. It may be easy to move car parts around in this manner but it’s more difficult for agricultural goods.
Food Standards
There is concern over the impact of joining the CPTPP on food standards. The UK government claims that nothing in the CPTPP restricts the UK’s sovereign right to set its own animal welfare and antimicrobial resistance policies. But there is particular concern over the import of pork and eggs produced to lower welfare standards from countries like Mexico and Canada.
Geographic Indications
The protection of GIs is not a CPTPP priority. However, under the terms of the EU Withdrawal Agreement, the UK must provide the same level of protection to products with characteristics linked with their place of production as the EU.
There are political realities to consider. The UK will join a club where the rules and conditions have already been agreed upon and set. CPTPP members will not change how they do things to accommodate the UK. Differences in food standards could be important. For example, the CPTPP adopts a risk-based approach rather than the EU’s precautionary stance. Given that the EU will remain an important trade partner for the UK, it will need to integrate both approaches.
What has been the reaction?
Despite these concerns, the UK farming industry bodies have cautiously welcomed joining the CPTPP.
“Compared to the deals struck with Australia and New Zealand, I am pleased to see that the Prime Minister has stuck to his word and the government has negotiated a far more considered and balanced outcome, particularly with respect to managing market access in our most vulnerable sectors.”
Minnete Batters
The improved access to the 11 countries in the trade bloc will provide some opportunities for UK farming. However, there are still many concerns about the finer details of the agreement and import standards.
Would you like to know more about the opportunities and risks of the CPTPP for your business? Contact us to discuss your needs.