The UK government has finished talks to join the CPTPP trade deal in the spring of 2023. We know it might seem like some alphabet soup of letters and numbers.
But hopefully, by the end of this post, you’ll have a pretty solid understanding of the CPTPP, its benefits, how it came to be, and why it can significantly impact your business, potentially saving you much money in customs duties and taxes.
Let’s start with what CPTPP is.
What is CPTPP?
Eleven nations in the Asia-Pacific region have signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a free trade pact. The UK will become the first nation in Europe to join when it does so officially.
Why is the deal important?
The deal may allow you to expand into new markets and enjoy cheaper goods and services. In a word, the CPTPP seeks to lower trade barriers and ease trade by including almost all industries and facets of trade between CPTPP nations. After the United States-Mexico-Canada Agreement and the European Single Market, the CPTPP was the third-largest free-trade region in the world by GDP at the time of its signing, and it may eventually even overtake the Regional Comprehensive Economic Partnership – another essential free trade zone.
Which CPTPP countries are involved?
Ten nations—Canada, Australia, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam—are now Party to the pact.
The CPTPP will go into effect for Brunei, the last signatory, 60 days after they have approved it. The UK is on route to formally join towards the end of 2023.
The UK would be the 12th member. When the UK joins, it will surpass Japan to become the second-largest CPTPP economy.
What is the aim of CPTPP?
CPTPP can contribute to UK employment growth, enhanced economic ties, and expanded trade between CPTPP countries. When fully implemented and joined by the UK, the CPTPP would create a trade bloc with more than 500 million customers, 15% of the world’s GDP, and preferential access to important markets in Asia and South America.
Practically all this translates, at the business level, in
Cuts in customs tariffs on goods,
Streamlined customs procedures (that you already know of)
No more barriers to trade that would stop you from trading with the country because it is “too difficult.”
The deal will also help businesses to invest more easily in other CPTPP countries by reducing investment restrictions and providing greater legal certainty for investors.
But with officially projected GDP growth of 0.08%, is it worthwhile for my company?
Sure, some official figures state that CPTPP won’t significantly affect the economy immediately. In reality, we know that CPTPP will cause the UK’s GDP to grow only by 0.08%. But this isn’t a big surprise. This number is low because the UK already has bilateral FTAs with every other member except Malaysia and Brunei. Most of the growth expected from joining the accord comes from Japan’s economy. Since the UK and Japan already have a strong trade agreement, the benefits are not listed.
However, even if the UK’s overall growth is small, companies that import and export goods to and from CPTPP member countries could benefit significantly! A business with a positive customs duty bill can be lowered to zero immediately and for good. In addition, if the requirements for origin can be met, companies could save much money. Reduced trade friction increases the chances for you to be successful in a CPTTP
And another fact is undeniable: With more than 1 billion GBP in exports to CPTPP countries, the UK will be the second-largest participant in the CPTTP. According to the UK government, the UK exported goods to CPTPP members valued at least £1 billion ($1.25 billion) in 2019. The UK government also emphasised the close to £98 billion in investments that UK businesses made in CPTPP nations in 2018 and the more than £110 billion ($137 billion) trade that the UK conducted with CPTPP nations in 2019.
So, our recommendation is:
Take note of the fact that CPTPP is not a game changer in terms of GDP growth for the UK economy as a whole
Assess the benefits it could bring your business and see how much money it can save you.
Focus on microeconomics, not macroeconomics!
OK, I like saving millions. Go on, tell me what’s in it for my company then…
The CPTPP is a trade agreement that has many pages and chapters. These include all the elements that make trade more accessible, such as:
market access for goods,
market access for services
how to reduce technical barriers to trade (TBT),
provisions for SMSs to make it easier to trade
how to protect a market from health scares in food and drink, known as veterinary sanitary and phytosanitary measures (SPS).
rules for making investments in CPTPP countries,
instructions on moving workers there (including workers’ rights)
how to get government contracts, and more.
In particular, if the CPTPP contains government procurement and intellectual property rights protection chapters.
In a word, it should create a uniform, open, fair business environment in CPTPP markets for you to operate in. For you, it means the same rules for everyone and a clear focus on economic growth among CPTPP members. This is how you benefit!
Formally, the UK government lists these Top 10 benefits on their website.
I import and export goods. To be more specific – what can I gain from CPTPP?
Like any FTA, some benefits are difficult to identify or quantify.
For example, we can tell you that CPTPP covers almost all trade-related industries and parts and that your business may find it easier to trade in these markets when trade barriers may be removed or lowered, which, I am sure you would agree, is nice to have.
CPTPP countries must keep customs processes transparent, short, and predictable. Clear customs and trade rules help create a uniform, open, and fair business environment for you in CPTPP markets.
That’s a bonus!
Furthermore, clear customs and trade rules reduce the time it takes to process goods at borders and make it easier for goods to move between countries.
And we will say there will also be cooperation regarding rules and regulations, leading to fewer needless rules and regulations across the Indo-Pacific region.
How great, right?
So, you will benefit because CPTPP is also about technical trade cooperation between its members, especially regarding economic growth, the consistency of regulations, and small and medium-sized businesses. This makes it easier for you to do business and lets all companies enter these attractive markets, big or small.
But, and that is a big BUT – This is all too wishy-washy, so general, not specific enough. How does all of this translate into tangible benefits for my business – is this fundamental question companies are asking today?
You said my business could save millions on customs duty and taxes when sending my goods to CPTPP countries. Explain….
Yes, there are tangible benefits that you can and should quantify. So why not get in touch with us with a free call to discuss how to do that?
If you ship to a CPTPP country or bring goods into the UK, you can see the customs duties and tariffs disappear quickly. We think that 98% of exports to CPTPP member countries or imports into the UK will be duty-free as long as the so-called rules of origin are followed.
Yes, you heard right. Nothing is free these days. To claim preferential tariff treatment, ensure that the goods you are importing are considered “originating” as per the general and product-specific rules of origin contained within the agreement.
Also, hold an acceptable Certificate of Origin to support your claim. Download the template for the Certificate of Origin. (Need to be a FULL subscriber of the Trade Intelligence Update).
We can help you with all questions on Rules of Origin. We run an excellent training programme on Rules of Origin several times a year. In addition, we can help you determine which products meet the CPTPP Rules of Origin.
We’ll talk more about this down below.
When will CPTPP’s reduced tariffs be available to my company?
When the CPTPP goes into effect, your business may benefit from lower tariffs immediately (according to the respective “Tariff Elimination Schedules” that each CPTPP country has agreed with the UK). In the following years, even more, tariff cuts will be made until most tariffs are either zero or very close to zero.
What happens if my product has a lower tariff under a different FTA signed by the UK? Should the CPTPP be used?
Good question. You are right! Your product may sometimes get better tariff treatment under another FTA that the UK has negotiated with a CPTPP country. For example, the UK has preferential trade agreements with Japan, Chile, Singapore, Vietnam, Peru, and New Zealand, among other countries. So, it would help if you thought about whether it is better to trade under the favourable CPTPP tariff rate, the MFN applicable tariff, or a separate FTA that the UK has with the Party.
Please get in touch with us to compare the different FTAs’ tariff rates for your goods. When the UK and a CPTPP party are both members, it is up to businesses to decide which FTA they will use unless the other FTA or the CPTPP says otherwise. Then, you can pick the deal that works best for you.
Oh no, not those dreaded Rules of Origin again…
Rules of origin are an essential part of CPTPP, too. If you wish to use the future CPTTP, you need to know how to determine if a good meets the CPTPP Rules of Origin and qualifies for preferential treatment under the CPTPP as all the other rules of the agreement.
Your role with Rules of Origin depends on who you are:
If you are the importer, check if the rules of origin have been followed. This can be shown by the importer or exporter’s certification paperwork.
If you are the exporter, you must show that the product is sufficiently “local” to qualify for preferential tariffs under the specific origin rules in the CPTPP. The criteria and circumstances defining what is enough locally vary depending on the product. Remember, Rules of origin determine in which country a product was sourced or made - its ‘economic nationality’ – and help ensure customs authorities correctly apply lower duties, so businesses benefit from them.
Don’t be frightened by the Rules of Origin. If we strip it all down, these are the steps you need to take to pay lower customs duties on your imports or exports and start benefitting from CPTPP:
See if your product qualifies for lower customs duties under the relevant tariff elimination schedule of the CPTPP country
Find out how to prove your product’s origin to the customs authorities of the CPTPP countries
Present your products and documents for customs clearance in the CPTPP country
Please keep in mind that we can help with all these steps, including the mass qualification of your products. Together, we can help you optimise your duty benefits from CPTPP.
As a FULL subscriber of our Trade Intelligence Service, you can benefit from a detailed guide on how importers and exporters can benefit from the rules of origin under the CPTPP. Upgrade to download the guide right away.
BONUS: More ways to save customs duties using diagonal cumulation!
We know this sounds scary, but don’t worry. We’ve got this. The CPTPP rules of origin contain provisions on diagonal cumulation. These provisions are the CPTPP’s most significant favourable for UK businesses.
To know whether a product has been sufficiently transformed for preferential trade, it is essential to know if materials and inputs can originate in one or multiple CPTPP trade partner countries.
Under the concept of cumulation, you may consider so-called “non-originating materials” imported from any CPTPP trade partner country as part of the country you are importing from.
We know this does not sound effortless, so let’s break it down further.
Diagonal cumulation can be used where more than two CPTPP countries are involved in producing the goods. So, practically, a UK producer could import goods from Peru (originating from Japan), incorporate them into something else, alter it, do nothing with it, whatever, and then sell it to a customer in another CPTPP country. It would be treated as if it was of UK origin, no matter how much value was added or not, in the UK. Without cumulation, only the inputs originating in the UK (the exporting country) could be counted towards the originating status. In other words, contributions from any CPTPP members can be counted towards your “Is it local?” decision.
Let’s take two more examples to nail it—one from the import and one from the export side.
On the import side, this means that a UK carmaker could bring in a battery from Japan, which is a CPTPP member, put it in a car, and then count the value of the battery when figuring out if the vehicle meets the CPTPP’s local content requirements threshold for exports to the UK (once the CPTPP is formally in force).
On the export side, diagonal cumulation is helpful to UK exporters, too. This is because the UK has let EU inputs be counted as local inputs in most free trade deals since Brexit (Japan, Mexico, Canada). This means that manufacturers in the UK may be able to keep using the supply networks they already have in place across the EU. If these rules are in place, UK exporters will have this choice. So, you, as an exporter, can get parts and inputs from other CPTPP members, which, as we’ve already said, could be very helpful for many businesses. They can diversify their supply chains and open new markets, which is impossible under the UK-CPTPP bilateral trade agreements.
What proof of origin is needed for my company to apply for preferential tariff treatment through the CPTPP?
Under the CPTPP, an exporter, manufacturer, or importer can complete a Certification of Origin. As an importer, this lets you seek preferential tariff treatment – aka claim zero duty. When exporting to a CPTPP Party, it’s essential to check with us about the Certification of Origin requirements since some CPTPP countries may still need the importer to fill one out.
Contrary to other agreements, under CPTPP, there is no need for certification by a recognised authority or a third party as a great benefit. Certificates of Origin also don’t have to be written in a certain way. However, the minimum data requirements of CPTPP Chapter 3 Rules of Origin must be met.
Since there is no standard, the Certification of Origin can be shown differently, such as on the consignment invoice, business letterhead, or a Certification of Origin template.
Looking into the future: Much bigger fish in the pond…
Keep your eye on CPTPP because it could expand further. There is potential that the CPTPP can grow much more. As the agreement’s economy increases, more countries join; for example, the US could return. We would like to point out that CPTPP, developed from the Trans-Pacific Partnership (TPP), was abandoned by the United States and never took effect. However, the incoming Biden government has hinted that it would eventually re-join the trade pact.
After all, this would create a UK-US Free Trade Agreement as part of the CPTPP.
Although unlikely, also don’t forget that China has shown interest in signing up and may be able to convince or push sure CPTPP participants to comply.
The UK has formally concluded negotiations with CPPP countries, and the tariff reduction schedule has been set. Companies wanting to do business with these nations may want to ensure they are familiar with the CPTPP language, processes, and procedures – including the Rules of Origin.
If you are trading with CPTPP countries, assess if you can benefit from CPTPP. For example, understand the duty-saving potential if you can meet the rules of origin and help from diagonal cumulation.
If you or your team needs training on rules of origin, get in touch.
Then, let’s put in place processes and procedures to allow you to make use of it compliantly, efficiently and effectively.