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The United Kingdom’s (U.K.) accession to the Comprehensive
and Progressive Agreement for Trans-Pacific Partnership (CPTPP)
might have been a bumpy ride, but it will soon come to fruition.
While all eyes are on the trade implications of the CPTPP, another
component of the CPTPP that is getting comparatively little
attention – the CPTPP treaty provisions on investment – may turn
out to have a much greater impact for the United Kingdom.
The accession process began when the U.K. submitted its formal
request to accede to the CPTPP on February 1, 2021. The U.K.
achieved a major milestone on February 18, 2022, when the U.K. and
CPTPP Members began the second phase of negotiations, which
centered on trade and market access provisions (notably on tariffs,
services, and government procurement).
On March 23, 2023, U.K. Trade Secretary Kemi Badenoch indicated
that negotiations had reached a “great stage” and that
the U.K. hoped to join the CPTPP “imminently.”
On March 31, 2023, the U.K. Government announced that it had reached
an agreement for its accession to the CPTPP, on the heels of Chile officially joining the CPTPP in February of
this year. The U.K. is expected to formally sign the CPTPP text
and accede later in 2023.
The CPTPP was signed by eleven states on March 8, 2018, after
they, all members of the original Trans-Pacific Partnership (TPP),
regrouped and relaunched the TPP as the CPTPP following the Trump
Administration’s withdrawal of the United States from the TPP.
The CPTPP first entered into force on December 30, 2018, for the
six countries (Australia, Canada, Japan, Mexico, New Zealand, and
Singapore) that ratified it by that date. It entered into force for
Vietnam on January 14, 2019, for Peru on September 19, 2021, for
Malaysia on November 29, 2022, and for Chile on February 21,
2023.
While the CPTPP collectively forms a massive free trade area
whose gross domestic product (GDP) was estimated at £9 trillion in 2021, the
U.K. Department for International Trade expects that the U.K.’s
accession to the CPTPP will increase the U.K. GDP by only a modest amount (0.08%) after
approximately 15 years. This is largely due to the U.K. already having bilateral trade agreements with
most CPTPP Member States. Issues of proximity and of lack of
complementarity between the U.K. and other CPTPP markets likely
also play a role. And, of course, unlike the Single Market of the
European Union, a free trade agreement such as the CPTPP does not
eliminate regulatory differences between participating states,
which in practice continue to present market access barriers.
One may need to look beyond trade to fully understand what
accession to the CPTPP has in store for the U.K. The Investment
Chapter of CPTPP is a very good place to start.
The Protection of Foreign Investors in the U.K. Under
the CPTPP
The CPTPP is a comprehensive trade, investment, and economic
integration agreement. It incorporates by reference the provisions
of the TPP (itself not in force), with the exception of a targeted
subset of suspended provisions that had originally been U.S.
“asks” and that the remaining members decided to set
aside in light of the U.S.’s withdrawal. The CPTPP
incorporates, for example, detailed rules from the TPP concerning
market access for goods and services, rules of origin, sanitary and
phytosanitary measures, and the protection of the environment. It
also provides for rules on financial services, intellectual
property, labor, the temporary entry of business persons,
telecommunications, electronic commerce, government procurement,
competition, and investment. By signing the CPTPP, its signatories
have expressed their dedication to maintaining open markets,
increasing world trade, and creating new economic opportunities for
people of all incomes and economic backgrounds.
Among these provisions, the CPTPP contains a specific chapter
providing for investment protections for CPTPP investors in other
CPTPP host states and related provisions on investor-state dispute
settlement (ISDS). The chapter is essentially an update of the
original investment chapter in the North American Free Trade
Agreement (NAFTA) that incorporates innovations in the Canadian and
U.S. model bilateral investment treaties that were amended since
the NAFTA came into force in 1992. The CPTPP’s investment
protection rules are intended to provide greater certainty and
legal protection to foreign investors, allowing them to compete on
an equal footing with investors of the host State, while balancing
the rights of governments to legislate and regulate in the public
interest. Following the NAFTA example, the CPTPP ensures that
foreign investors shall receive treatment no less favorable than
accorded to domestic or other foreign investors in like
circumstances. Foreign investors are entitled to fair and equitable
treatment and full protection and security in accordance with
customary international law and are protected in the case of direct
or indirect expropriation of their investments. The CPTPP further
incorporates rules on the transferability of returns from
investments, the prohibition of enumerated performance
requirements, and the composition of senior management and boards
of directors of companies, all part of the original NAFTA text.
Crucially, the CPTPP provides that, in the event of a dispute, a
foreign investor may bring a claim against a CPTPP Contracting
Party before an international arbitral tribunal. As a result, a
foreign investor coming from another CPTPP country and with a
dispute with the U.K. may rely on these provisions to resolve the
dispute before a neutral forum created specifically for these types
of dispute.
Going forward, the CPTPP will provide a robust dispute
settlement mechanism for foreign investors from other CPTPP
countries who make investments in the U.K. for their investment
disputes. This ISDS mechanism may provide foreign CPTPP investors
in the U.K. with an attractive dispute resolution option should a
dispute with the U.K. Government arise. Inward investment stocks to
the U.K. from CPTPP countries
were worth £182 billion in 2021, according to the U.K.
Government.
In its November 2021 report, the International
Agreements Committee (IAC) of the U.K. House of Lords called on the
U.K. Government to set out its negotiating position and clarify its
intention regarding ISDS. In its January 2022 response, the U.K. Government explained that
investment protection and ISDS provisions “exist to protect
British businesses and investments abroad,” while stressing
that “U.K. investments in CPTPP countries are worth over
£100bn”, and that “ISDS will protect them.”
Upon reaching agreement to accede to the CPTPP, the U.K. Government
noted that outward U.K. investment in CPTPP countries
had reached £117.3 billion in 2021.
The U.K. Government further acknowledged that other CPTPP
Members “have used ‘side letters’ and other
instruments to clarify certain policies or exclude themselves from
certain provisions,” and that the U.K. Government “will
consider these options insofar as there is a need to safeguard U.K.
interests in the negotiations.” This suggestion echoed Chile’s efforts to modify some of the
CPTPP provisions prior to its entry into force through signing
bilateral side letters applicable to the signatories to restrict or
exclude access to ISDS.
Upon announcing the agreement on its accession,
the U.K. Government stated that “[i]n light of the
investment relationship the U.K. has with Australia and New
Zealand, we have agreed to disapply the ISDS provisions in
CPTPP?between our countries.” This appears to be the only ISDS
carve-out the U.K. ultimately negotiated.
The details of the U.K.’s terms of accession to the CPTPP
will only become fully clear when the text of the accession
agreement is tabled in Parliament. In the meantime, CPTPP nationals
(both natural persons and enterprises) with investments in the U.K.
should be aware of the new substantive and procedural rights the
CPTPP will accord them in the U.K. Conversely, U.K. investors in
Canada, Mexico, Peru, Chile, Japan, Vietnam, Malaysia, and Brunei
are on the verge of obtaining important new protections for their
investments.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.