United Kingdom's Separate FTAs with Australia and New Zealand Enter into Force; UK CPTPP Membership on Track

The United Kingdom's free trade agreements (FTAs) with Australia and New Zealand entered into force on May 31, 2023. As a significant milestone in the UK's post-Brexit future, these FTAs are the first two independently negotiated trade agreements (as opposed to largely rolled-over EU deals) since the UK left the European Union on January 31, 2020. The entry into force of the Australia-UK FTA ("AUKFTA") and the New Zealand-UK FTA ("NZUKFTA") follows their respective signing on December 16, 2021 and February 22, 2022, and after the Trade (Australia and New Zealand) Act 2023 received Royal Assent in the UK on March 23, 2023.¹

Both FTAs are comprehensive and cover a wide range of issues including tariff elimination, services (including cross-border trade in services, professional services, financial services, maritime and delivery services, and telecommunications), investment, digital trade, environment, mobility schemes, public procurement, and intellectual property, among others. The NZUKFTA represents the best market access deal secured in any trade agreement that New Zealand has ever concluded, while the AUKFTA is Australia's most ambitious FTA with any country besides New Zealand.

The commitments in both FTAs go further than previous agreements on environment, labor and climate; trade and gender equality; and digital trade, reflecting the changing nature of global trade. Key elements of the AUKFTA and NZUKFTA are also inspired by the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), to which Australia and New Zealand are founding members and the UK is close to joining.

In the following section, key highlights of both agreements for both businesses and consumers are summarized.

Trade in goods

AUKFTA

The AUKFTA provides for improved market access to both the Australian and UK markets with immediate tariff elimination upon entry into force of the agreement for nearly all tariffs. Australian goods exports to the UK, including wine, grain rice, honey, nuts, olive oil, and food supplements as well as auto parts, electrical equipment, and fashion products, will benefit from immediate tariff elimination. For sensitive agricultural products, the UK will grant duty free transitional quotas for beef, sheep meat, sugar, and dairy products with eventual tariff elimination. Ninety-eight percent of British exports to Australia will benefit from duty-free entry with tariffs on the remaining sensitive items, such as certain steel items and cheese, eliminated over six years from the entry into force date of the agreement.

NZUKFTA

New Zealand will eliminate tariffs on all UK exports upon entry into force of the agreement. Previously, UK exports to New Zealand faced most favored nation (MFN) tariffs that averaged 2.2% in 2021. In turn, the UK will immediately eliminate 96.7% tariffs on New Zealand's exports, while tariffs on the remaining goods will be eliminated in stages. Similar to the AUKFTA, the UK will grant duty free transitional quotas for some sensitive agricultural products including beef, sheep meat, apples, and dairy products. Quotas will grow over time and then eventually be removed.

Rules of origin and customs procedures

AUKFTA

The provisions on rules of origin are modern and liberal to reflect contemporary production procedures and new trade logistics arrangements. These provisions seek to support the UK and Australia's existing and future supply chains and ensure that most companies will not need to change their existing supply chains to qualify for zero tariffs. Businesses are no longer required to meet burdensome EU-style rules on insufficient transformation requirements, which previously prevented goods made by simple processes from qualifying as originating.

The AUKFTA adopts a product specific rules of origin (PSRs) approach, where the criteria by which to determine if a product qualifies for preferential tariff treatment differs from product to product. Most products adopt co-equal rules, which provide flexibility for companies to utilize either a change in tariff classification (CTC) or a regional value of content (RVC) rule of 40% to meet the rules of origin requirement. In addition, there are certain tolerance criteria (de minimis) available for certain HS chapters whereby a product containing non-originating materials that does not satisfy its CTC requirements can still qualify for zero tariffs.

On customs cooperation, the AUKFTA provides for simplified customs procedures and enhanced trade facilitation provisions to expedite clearance of goods. Specifically, it requires that goods must be released from customs within clear timeframes, including 6 hours for perishable goods and 48 hours for all other goods, to provide certainty in the supply chain and reduce cost. Certificate of origin arrangements allows use of self-declaration, while proof of origin can be accepted in electronic format.

NZUKFTA

The NZUKFTA also adopts a PSR approach to determine whether the product is considered as originating. There are three types of rules in the PSRs schedule that a non-originating good can use to gain originating status: (i) CTC; (ii) RVC; and (iii) chemical reaction. Co-equal rules also apply to most PSRs, where traders can choose which of the co-equal rules to use in determining whether the final good has origin status. The NZUKFTA also has tolerance criteria for certain goods whether a good that does not meet the required change in tariff classification in the PSRs can still be considered as originating if the value of all non-originating materials does not exceed 15% of the total value.

The NZUKFTA allows traders to self-declare the origin of goods. While there is no prescribed format for a self-declaration, the respective customs authorities have developed a template that includes the necessary data elements that traders can follow. A self-declaration can cover multiple importations of identical goods provided these importations occur within 12 months from the date of issuance of the self-declaration. To provide certainty for traders, the NZUKFTA includes provisions on advance rulings on tariff classification and origin determination, which should be issued to traders within 90 days after the trader submits a request to the customs authority of the other Party.

Trade in services

AUKFTA

High quality rules for the supply of services for all sectors, including obligations to provide access to foreign service suppliers (market access), to treat local and foreign suppliers equally (national treatment), and to treat foreign suppliers at least as well as suppliers of another Party (MFN treatment) are established in the AUKFTA. The agreement adopts a negative list approach for services liberalization where market access is open to foreign services suppliers unless exceptions have been applied. The AUKFTA guarantees that both sides' services suppliers will have access to and use of public telecommunications networks and services and ensures safeguard provisions are in place to prevent anti-competitive practices and discrimination in the telecommunications sectors.

On professional services, the AUKFTA will support the bilateral advancement of professional skills, commercial interests, and modern value chains through the first stand-alone professional services chapter for both sides. Australian and UK professional services providers will benefit from provisions to support mutual recognition of qualifications and greater certainty as they enter the respective labor markets.

With respect to people movement, the AUKFTA extends the working holiday arrangement to three years for individuals aged 18 to 35 working in both Australia and the UK and introduces new visa provisions to allow intra-corporate transfers and a new visa category to Australia for UK innovators.

NZUKFTA

Similar to the AUKFTA, the provisions on cross-border trade in services seek to facilitate services trade, including mutual recognition commitments for professional services and qualifications, which can provide bespoke arrangements for specific professions. The NZUKFTA also adopts a negative list approach for services liberalization.

The agreement includes an annex on professional services and recognition of professional qualifications, which aim to provide benefits for UK and New Zealand professionals who wish to work in or provide services in the other country including reciprocal access for UK and New Zealand lawyers and accountants, who wish to practice in the other Party. The NZUKFTA also includes provisions that encourage relevant bodies to set up dialogues with their counterparts as well as a chapter on domestic regulation, which seeks to reduce behind the border barriers.

Investment

AUKFTA

The AUKFTA reflects strong investment partnership and mutual confidence in each other's economy. The investment provisions cover core investment protections including rules requiring payment of compensation where an investment is expropriated, fair and equitable treatment, compensation for losses due to conflict and civil strife, and free transfer of investment-related capital. For the first time in an FTA, the UK agreed to include investment protections covering portfolios as well as direct investment.

UK investors will benefit from guaranteed rights to invest across the Australian economy. Most UK investments will no longer need to be reviewed by the Australia Foreign Investment Review Board (FIRB) in light of higher investment screening thresholds, which will substantially save time and reduce bureaucracy for investors.

The AUKFTA includes commitments to prohibit performance requirements on investors as conditions for entering, expanding, or operating in the other Party.

The AUKFTA does not provide for investor-state dispute settlement (ISDS).

NZUKFTA

Investment provisions in the NZUKFTA incorporate modern investment protection rules, which provide certainty and stability regarding market access for investors from both countries. New Zealand's existing investment screening regime, provided for under the Overseas Investment Act, will continue to apply. Under the NZUKFTA, however, the UK will benefit from the same screening threshold of NZD 200 million that is applied to many of New Zealand's other main FTA partners, including CPTPP parties, China, and Korea.

The NZUKFTA prohibits specific performance requirements, which will lower costs for businesses, allow investors greater control, reduce barriers, and minimize market distortions. Like the AUKFTA, there is no ISDS mechanism under the NZUKFTA. Both sides also agree that ISDS will not apply between New Zealand and the UK, should the UK accede to the CPTPP. 

Government procurement

AUKFTA

The government procurement chapter includes commitments that go beyond the benefits provided by the two parties under the WTO Government Procurement Agreement (GPA). These commitments include obligations concerning electronic publication of contract opportunities, inclusion of a clause on environmental, social, and labor considerations. In addition, the AUKFTA locks in greater access for goods, services, and construction suppliers of all sizes including SMEs to the government procurement market of both parties in a transparent and non-discriminatory manner. All procurement bids must be posted electronically, while accessible systems must be made available for bidding. Meanwhile, the same rules of origin, customs duties, and import charges will apply to government procurement as they do in the normal course of traded goods.

NZUKFTA

Government procurement provisions under the NZUKFTA are less flexible than those under the AUKFTA. While the agreement commits New Zealand and the UK to expand the scope of coverage by building both sides' commitments under the WTO GPA, the UK's access to New Zealand's sub-federal procurement remains limited due to New Zealand's domestic regulation. Both sides, however, agree to consider further modification in the future, should this regulation change. 

Digital trade

AUKFTA

Provisions on digital trade are more extensive than the CPTPP and any other UK trade agreement. They are based extensively on the Australia-Singapore Digital Economy Agreement.² The provisions, however, aim at binding existing practices and increasing cooperation rather than requiring changes to current regulations or policies. Nevertheless, these provisions will have substantial implications for the scope of future digital policies for both parties in the areas of data protection, online harms, regulation of artificial intelligence, digital identities, financial regulation, and cyber security.

The AUKFTA will facilitate digital trade by addressing restrictive practices such as requirements for paper-based trade administration documents. It secures the free flow of data necessary for businesses to provide many products and services to customers, while locking-in a legal requirement for personal data protection in both countries. The parties will also establish interoperable electronic invoicing frameworks and ensure that electronic transactions regulations are implemented in a manner consistent with international framework.

The AUKFTA contains a commitment not to impose customs duties on electronic transactions, and it guarantees greater cooperation on 5G and cybersecurity. It also includes the world's first dedicated innovation chapter, which establishes a strategic innovation dialogue that will drive the commercialization of new technology.

NZUKFTA

The NZUKFTA seeks to ensure the free flow of trusted data and allows for easier ways to trade. Like the AUKFTA, traders will not be required to locally store or process data as a requirement for conducting business in the other market. The agreement generally promotes the free of data, while committing both countries to maintain robust regimes for the protection of individuals' personal data. It also guarantees that the free flow of digital content between the two parties is not subject to custom duties.

The two sides agree to not deny the validity of electronic signatures and other forms of trust services on sole grounds of being in electronic form, and to recognize the importance of electronic invoicing and ensure that electronic invoicing systems will be interoperable. The NZUKFTA also includes provisions to promote innovation and economic growth through cooperation in relation to emerging technologies and digital inclusion. Alongside the provisions designed to promote digital trade, this chapter also contains important safeguards to ensure that both governments can still regulate in the public interest.

Intellectual property

AUKFTA

The AUKFTA will raise standards of intellectual property (IP) protection and enforcement by striking a balance between protecting innovation while promoting and protecting the public interest. Both Australia and the UK are also parties to numerous international conventions on all IP matters. The AUKFTA contains provisions and commitments that are even more comprehensive in protections than the CPTPP.

On geographical indications (GIs), the AUKFTA includes a commitment whereby the parties will review the GI regime following entry into force of the Australia-EU FTA. If Australia agrees to protect EU GIs, then the UK can propose its GIs for potential protection, including spirits and agri-foods, subject to Australia's legal procedures.

NZUKFTA

The UK and New Zealand will grant similar protection to copyright, trademark, and patent holders as the AUKFTA. New Zealand agrees to extend the term of copyright and rights in creative arts to 20 years to align with the UK's term of protection. This commitment shall be implemented within 15 years after the NZUKFTA enters into force. IP rights holders including SMEs can also make use of online electronic registration systems and online databases for registering and maintaining trademarks.

On GIs, the NZUKFTA does not contain any up-front commitments but rather a commitment that if New Zealand introduces a bespoke GI regime for agricultural products or foodstuffs, both parties will be able to review it and seek to put forward UK GIs for potential protection, subject to New Zealand's legal procedures.

Environment

AUKFTA

The environment chapter of the AUKFTA derives its objectives, commitments, and specific areas of cooperation from the CPTPP. It marks a shift away from rolling over EU environmental chapters, which are structured differently. Under the CPTPP model, non-compliance with core non-regression/non-derogation requirements can ultimately result in one party imposing sanctions on the other through the imposition of tariffs. As a result, the AUKFTA may be the first FTA where obligations on product regulation in technical barriers to trade (TBT) and sanitary and phytosanitary (SPS) chapters are not subject to dispute settlement. Conversely, failure to enforce or maintain environmental regulation could result in trade sanctions instead.

NZUKFTA

This chapter sets out shared commitment to the environment and targets key technologies in the transition to a low carbon and climate resilient economy. The NZUKFTA sets new precedents including ambitious commitments on coal and fossil fuels, the circular economy, and sustainable forest management as well as an extensive list of environmental goods with liberalized tariffs. The NZUKFTA also contains commitments that New Zealand and the UK will not derogate from their environmental standards to encourage trade and investment. Both sides affirm their international environmental agreements, including the Paris Agreement.

Next steps for the UK and CPTPP

The successful conclusion of FTAs with New Zealand and Australia was considered essential to the UK's request for accession to the CPTPP. That brought Australia and New Zealand on board to support the UK's request, it set benchmarks against which other CPTPP members could evaluate the UK's market access offers, and it helped to defuse domestic concerns in the UK about various aspects of CPTPP membership relating in particular to food safety, farming and environmental standards, and ISDS. Some of those concerns remain, but they are not considered by the UK Government to be serious enough to derail the remaining formal part of the CPTPP accession process.

The UK and CPTPP members concluded their negotiations in March 2023 when it was agreed that the conditions had been met for the UK to accede. Since then, the UK's Protocol of Accession has been translated and "legally scrubbed" to prepare it for signature by the UK and CPTPP members, which is anticipated to take place at the CPTPP Trade Ministers meeting in New Zealand in July. Once that is complete, the UK and each CPTPP member will need to ratify the agreement in accordance with their domestic law.

In the case of the UK, this will mean parliamentary scrutiny of the agreement in accordance with the Constitutional Reform and Governance Act 2010 as well as the passage of any necessary implementing legislation. There is no requirement in the 2010 Act for a formal parliamentary debate or vote on ratification of the agreement, but the UK Government has stated that it will allow a debate if one is recommended by one or more of the parliamentary select committees that are currently reviewing the Protocol. That process of review is currently proceeding relatively smoothly, which could place the UK in a position to complete the ratification process later this year. However, other CPTPP members will also need to pass legislation or hold parliamentary votes to agree the UK's accession, and for that at present there is no clear timetable. The UK will formally become a CPTPP member 60 days after all of the current members give notice that they have completed their domestic ratification procedures.

_{1 Click here to access the Trade (Australia and New Zealand) Act 2023.
2 Click here to access the Australia-Singapore Digital Economy Agreement.}

Busaba Krairiksh (White & Case, Contract Senior Trade Analyst, Remote) has contributed to the development of this publication

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