When RCEP came out, analysts emphasized the importance of cumulation rules. While many of the RCEP countries had FTAs among themselves, binding all those FTAs into a single mega-regional meant that all RCEP content would be counted for origin purposes, and this would allow products with complex RCEP value chains to qualify for duty-free treatment throughout the region.
The departure of the UK from the EU has given rise to the opposite situation. While the UK is rapidly negotiating FTAs, or at least "continuity agreements", with countries that have FTAs with the EU, what would happen to UK products with a high EU content? Would Minis and Bentleys qualify as UK products, or would their high EU content mean that they could not benefit from the UK's new FTAs?
Having looked at the UK's agreements with Japan and Canada, it seems that the UK has come up with a solution. Both agreements provide that EU inputs into UK products will count towards UK origin. See UK-Japan FTA, Article 3.5.2, UK-Canada Continuity Agreement, Protocol on rules of origin and origin procedures, paragraph 3.3.2A.
While this outcome ensures that UK products with high EU content will get UK origin, it creates significant asymmetries. First, UK products do not contribute to EU origin under EU FTAs. Thus, the UK's FTAs give EU products more favorable treatment than EU FTAs give to UK products. Second, UK content does not count towards origin for exports to the EU from partners such as Japan and Canada. Finally, and perhaps most critically in the real world, would inputs from the UK's FTA partners count towards UK content under an (increasingly doubtful) UK-EU FTA, such that, for example, a Nissan built in Sunderland with high Japanese content would count as a UK product?
The practical difficulty is that these issues cannot be resolved through the UK's FTAs with third parties, but must be addressed in FTAs with the EU. I don't know whether this issue is under discussion in the UK-EU negotiations, nor whether the EU would be likely to agree to such provisions.
The UK-Japan FTA addresses this asymmetry problem by providing that the UK and Japan "may seek to agree with the European Union" on cumulation rules (Article 3.5.10). The UK-Canada continuity agreement more generally states that "the parties shall continue to seek and work towards mutually beneficial and more liberal rules of origin that best reflect Canada's and the UK' supply chains and sectoral interests", but also provides that the provisions counting EU inputs towards UK origin will expire after three years, unless extended. This presumably would incentivize the EU to negotiate.
Yet another complication in this complicated divorce.
Thanks to David Kleimann for attracting my attention to this interesting issue.
