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Tue June 18 2024

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Free trade hurdle cleared, but who will it help?

17 May The government reckons that the UK’s imminent entry of an Asia-Pacific free trade agreement is going to have big benefits for UK construction

The UK joining the Comprehensive & Progressive Agreement for Trans-Pacific Partnership opens up our market to more Vietnamese imports [Photo by Leonie Clough/Unsplash]
The UK joining the Comprehensive & Progressive Agreement for Trans-Pacific Partnership opens up our market to more Vietnamese imports [Photo by Leonie Clough/Unsplash]

The UK joining the Comprehensive & Progressive Agreement for Trans-Pacific Partnership (CPTPP) – is rather like Australia joining the Eurovision song contest. But the legislation was passe by parliament in March and today a key step has been passed clearing the way for UK accession later this year.

CPTPP is a trade agreement between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.

Singapore, Japan, and Chile have already ratified the UK’s entry, with other countries in the works.  Trade minister Greg Hands is today in Peru to sign the UK-Peru Double Taxation Agreement, which will prevent businesses from being taxed twice and reduce the costs of doing business with Peru.

Greg Hands said: “The UK has been racing to get our ratification done because we know how much CPTPP will benefit British businesses, whether through access to new markets or cutting red tape on existing exports.

“I’m delighted we were able to bring this forward, ahead of our original July forecast, so we can get the countdown to entry into force going as soon as possible.”

According to the Department for Business & Trade (DBT) there will be particular benefits to the UK construction industry from CPTPP membership, especially for consultancy and design businesses, who will benefit from mutual recognition of professional qualifications and easier business travel.

Commitments on business travel will make it easier for business people in the construction industry to supply services in another CPTPP country. For example, professionals will be able to stay for up to six months in Peru and Vietnam to supply specialised services. That will work both ways, however.

The DBT also claims it will benefit UK manufacturing as well as the service sector, because tariffs will be eliminated on UK exports of all building materials and construction machinery to Malaysia.  And tariffs will be eliminated sooner on UK exports of building materials  to Vietnam compared with under the existing UK-Vietnam trade deal. Customs procedures will become more consistent, transparent and predictable, it says.

As a consulting engineer, supplying invisible services around the world, Mott MacDonald is all in favour of the UK joining the CPTPP.  Executive director Ian Galbraith said: “Mott MacDonald is strongly supportive of UK accession to the CPTPP and proud to have been part of the technical board advising the British negotiating team.  “The partnership’s ambitious services and procurement chapters pave the way for greater recognition of professional competence in engineering and architecture and establish open, fair and transparent competition rules in government procurement, allowing world-leading British services firms like Mott MacDonald to win and service new contracts across the many countries covered by the CPTPP”. 

But claims that UK manufacturers of building materials and construction machinery are likely to benefit are challenge by those that actually know anything about the construction industry.

The UK traditionally has a trade surplus in construction machinery – exporting more than it imports – thanks to overseas companies like Komatsu, Caterpillar and Mecalac having factories in the UK. JCB makes most of its machines outside of the UK, including in India, Brazil, China and North America.

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When it comes to construction products and materials, the UK has a huge and growing trade deficit – £6bn in 2013 rising to £14bn in 2023. The fear in the industry is that CPTPP membership will actually only exacerbate that, opening the UK market up to even more cheap overseas suppliers – good for buyers but less so for British manufacturing.

Noble Francis, economics director at the Construction Products Association and professor of construction economics at University College London’s Bartlett School of Sustainable Construction, said that UK membership of CPTPP was unlikely to have any significant benefit to the UK construction products sector and could well see Vietnam joining China as a major supplier of building products and materials to the UK market.

Professor Francis explained: “UK exports of materials and products only account for 15% of UK production as most production is used domestically. So, the CPTPP may make a marginal impact on trade in UK construction materials and products, but it is unlikely to be significant. Any benefit is likely to focus on UK exports that are higher quality, higher value-added products for niche uses, so there is some scope for increasing exports but they are unlikely to be high volumes for the main markets in those countries.

“The greatest UK construction materials and products trade is unsurprisingly with the EU (irrespective of Brexit) due to proximity being the primary determinant for large, heavy materials and products. 57% of UK imports of construction materials and products last year were from the EU, and 60% of UK exports of construction materials and products were to the EU. Back in 2018, pre-Brexit, the respective proportions were 63% and 63% so Brexit hasn’t had a major impact.

“Exports for the niche demand of high-quality high value-added products may rise marginally but there is also likely to be a rise in imports from these countries that are likely to be lower-value-added products for the mass market in the UK so higher volumes that may well more than offset any rise in imports, especially given that historically, the UK imports more than it exports.

“Even still, the EU is still likely to dominate UK imports and exports of materials and products overall.

“Having said that, if you treat each EU country separately, then the country that the UK imports most from is China (lighting, electrics etc.) so it could be that we see a significant increase in imports from other manufacturing nations such as Vietnam.”

With regard to construction machinery, Off-Highway Research managing director Chris Sleight: “Free trade is better than trade barriers and tariffs but I don’t see a meaningful upside for UK construction equipment manufacturing from this.”

Asia already has substantial machinery manufacturing capability of its own, in Japan, South Korea and increasingly China. Although Caterpillar has a presence from its numerous regional bases, if JCB, for example, was looking to supply machines into Malaysia, it would likely do so from its factories in India.

“I can’t see a UK-made Cat, JCB or Mecalac machine being able to compete on price, with or without a tariff advantage,” Sleight said.

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