A subsidiary is a business owned by a ‘parent company’, but ultimately acting as a separate entity. Sometimes, subsidiaries are referred to as ‘daughter companies’. The parent company has a whole or majority ownership stake.
What is the CPTPP?The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is a free-trade agreement among 11 countries located around the Pacific Rim: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.
It’s one of the largest economic blocs in the world, with the combined GDP of its member states adding up to £9 trillion and accounting for 13% of worldwide GDP in 2019.
Members either eliminate or greatly reduce their tariffs for one another, increasing market access and reducing export costs.
In return, countries in the CPTPP must cooperate on regulations. But these aren’t rigid, one-size-fits-all regulations – there’s a bit more wiggle room. And member nations are also free to strike their own trade deals with countries outside the bloc.
How might the CPTPP benefit British businesses?If the UK is successful in joining the agreement, the initial benefits will probably be marginal, as CPTPP countries accounted for only around 8% of UK exports (though, with UK-EU exports falling, this could increase).
The UK also already has trade deals with most of the 11 nations, so membership wouldn’t immediately open up any significant new markets.
That said, there are some specific ways in which the CPTPP could benefit British businesses.
Tech industryThe UK is home to a booming tech sector, with a digital technology turnover of £151 billion in 2019. Many hope that by joining the CPTPP, the UK’s tech sector can grow even bigger.
This is because the CPTPP contains some of the most progressive digital trade clauses to date, promoting the free flow of data across member states’ borders and removing customs duties on electronic content.
Countries in the CPTPP have also agreed on the need to cooperate as the technology industry advances, particularly in helping small- and medium-sized ecommerce enterprises flourish. Therefore, joining the agreement could provide a boost to tech and ecommerce companies.
Services industryWith the services sector accounting for 80% of UK economic output in the first quarter of this year, it really is at the heart of the UK economy.
The CPTPP should make exporting services to CPTPP countries easier and cheaper for UK businesses by removing barriers, slashing tariffs, and making markets more accessible.
Rules of originA key benefit of the agreement is the rules-of-origin provision, which allows manufacturers’ products to qualify for preferential treatment as long as 70% of the products’ components come from CPTPP countries.
This means that British manufacturers could cut costs and expand their supply chains, so long as 70% of their products’ parts or materials come from CPTPP nations (including the UK). This is likely to be another boon for the tech industry, which often uses parts sourced from other countries. Producers of items such as machines and medicine – two of the UK’s most valuable exports to these countries – will also likely reap the rewards.
The UK is the first non-founding country to ask to join the CPTPP, but other countries have also shown an interest in joining. And if the CPTPP were to expand, that would increase the benefits for all member states.
Other new members
This could be particularly valuable for the UK as we look to forge new trading partnerships following Brexit.
So far, both South Korea and the Philippines have expressed an interest in joining. Meanwhile, the US has hinted at joining the CPTPP in the future, but it’s certainly not at the top of President Biden’s to-do list.
If the US did join, however, it would supercharge the CPTPP. The trade group would account for 40% of global GDP. And as the US buys over two times the amount of UK exports than all 11 CPTPP nations combined, this would be a big deal for UK businesses.
While the UK’s joining the CPTPP might not initially have a noticeable impact on the UK economy as a whole, it does offer opportunities for British businesses to increase exports, expand supply chains, and cut costs. And if more countries sign up, it could potentially grow into something even more profitable.
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