16 April 2021

Minako Morita-Jaeger is an International Trade Policy Consultant and Fellow of the UK Trade Policy Observatory at the University of Sussex.

On 1^st February, the UK asked to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)^[1]. While the request appears motivated more by foreign policy than economic benefit, joining the CPTPP will require the UK to accept CPTPP rules which may impact on UK economy and society in specific ways.

CPTPP as UK’s geo-strategic project

For the UK, the potential economic gains from joining CPTPP seem to be slim, taking into account the current trade and investment relations with CPTPP members and what has been already achieved through bilateral trade deals with CPTPP members (see The value of the CPTPP for the UK).

However, the UK Integrated Review 2021[2] marks a shift of focus away from Europe and towards the Indo-Pacific, and this is about more than economics. The CPTPP provides an existing basis for the UK to increase its presence in the region. As the second largest economy after Japan (out of the CPTPP countries), the UK hopes to use economic diplomacy to play a more proactive role in the region. The UK’s membership could move the CPTPP from a mere regional group to a more like-minded middle-power club that promotes liberal economic norms and could open the door for other countries outside the Asia-Pacific region to join the club and so create an impetus for further expansion.

A high threshold for the UK to become a first acceding country

Having left the EU, the UK is keen to assert regulatory autonomy from the EU. How to achieve this and what the precise regulatory objectives are, however, is not clear. Joining the CPTPP requires compliance with existing CPTPP rules and accession will require the UK to demonstrate that UK domestic laws and regulations comply with CPTPP obligations.^[3] And, if not, the UK has to identify the necessary changes to its domestic laws and regulations for compliance. Until CPTPP members acknowledge the UK’s assent to CPTPP rules, market access negotiations will not start.

The challenge is that CPTPP is a US-style Free Trade Agreement (FTA) with US-style provisions. Given that the 34 continuity agreements the UK has signed as well as the FTA with Japan, are largely EU-style FTAs, this raises possible areas of conflict for the UK to do with e-commerce provisions, the investment dispute resolution mechanism and regulatory coherence.

Current CPTPP members do manage to derogate from certain obligations, and this is achieved via bilateral ‘side instruments (or ‘side letters’)’, and range from agricultural products, culture, e-commerce, motor vehicles, geographical indications, and Investor-State Dispute Settlement (ISDS). These also make it difficult to understand the actual level of compliance with CPTPP rules by existing CPTPP members.

There is little chance the UK will be permitted to use this route. First, CPTPP members are politically determined to demand CPTPP-accessing countries fully accept the existing rules, particularly since the UK will be the first-accessing country to CPTPP and it is a highly-developed open economy. Even Japan – the country enthusiastically endorsing the UK’s accession – has emphasised the need for the UK’s compliance with all of the existing rules in the CPTPP ‘without exception’ as a condition of it becoming a member.[4] Second, one of the two benchmarks set in the accession rules clearly stipulates compliance with all of the existing rules as a condition.[5] CPTPP members may be concerned that political accommodation for the UK would trigger a race-to-bottom for future accessions and that the high-standard CPTPP rules may lose substance, like the Regional Comprehensive Economic Partnership (RCEP) [6] that provides the lower level of rules in comparison with CPTPP.

Societal implication cannot be undermined

One area of difficulty for the UK is likely to be e-commerce provisions (Chapter 14). Under the UK-Japan Comprehensive Economic Partnership Agreement (CEPA), the UK already made a policy shift from EU-style digital trade governance – that treats the protection of data as a fundamental right – to the US/Asia-pacific market-driven approach such as CPTPP. Indeed, CEPA e-commerce provisions (Chapter 8 Section F) replicated many provisions from CPTPP and further modernised them, by including some provisions from the Japan-US Digital Trade Agreement. In this context, accepting CPTPP provisions would not be technically difficult for the UK. However, legal experts and societal actors are concerned about the possible social implications of CEPA in the UK, particularly regarding the balance between economic objectives and public policy objectives, such as data privacy.[7]

As for CPTPP, the most controversial area for the UK is the relationship between free data flow (Art. 14.11) and data privacy (Art.14.8). Free data flow provisions under CPTPP provide only limited exceptions for public policy measures, which is similar to CEPA (Art. 8.84). But there is a difference in the degree of data protection as it is unilaterally arranged outside the FTA. The UK applies the highest standard of data protection – based on GDPR – and Japan received a GDPR adequacy decision from the EU.[8] The UK and Japan have also unilaterally provided adequacy decisions to each other. In the case of CPTPP members, only three countries (Canada and New Zealand, in addition to Japan) out of 11 CPTPP members have received a GDPR adequacy decision from the EU. This means that if the UK accepts free data provisions under CPTPP, the UK’s data will be transferred among CPTPP members with the lower threshold for data privacy.[9] Any solution for regulatory interoperability among CPTPP members needs to be considered in order to maintain a high degree of data privacy.

Another controversial area for the UK is Investor-State Dispute Settlement (ISDS). Having left the EU, the UK’s position on the ISDS mechanism under FTAs is still not clear.^[10] The UK has 87 conventional investor-friendly bilateral investment treaties (BITs) that include an ISDS mechanism. At the same time, some BITs (e.g. with Singapore and with Vietnam) were replaced by the EU’s post-Lisbon investment protection agreements that introduced the investment court system reflecting a balance in the rights of a host country and those of an investor. In theory, the UK could accept including ISDS in its FTAs. However, the UK did not agree to include a comprehensive investment chapter including an ISDS mechanism under CEPA, leaving the matter for a future discussions (CEPA, Art. 8.5(3)).

In general, states are becoming more cautious about the ISDS mechanism for several reasons. One major concern is that foreign investors use ISDS to threaten host states’ regulatory autonomy, especially for public policy objectives (e.g. environment, health and labour rights) and these actions are having a chilling effect. ^[11] In the UK, non-economic stakeholders are  concerned about including ISDS mechanisms into the UK’s FTAs for the same reason, especially its possible negative effect on future regulation to combat climate change.^[12]

In order to become a CPTPP member, the UK has to accept ISDS clauses (Chapter 9: Investment, Section B: Investor-State Dispute Settlement). Among the CPTPP members, the UK has BITs with six countries: Chile (1996), Malaysia (1981), Mexico (2006), Peru (1993), Singapore (1975) and Vietnam (2002). Although some CPTPP members use a ‘side instrument’ to exclude compulsory ISDS mechanism, it would be difficult for the UK to derogate from ISDS provisions under CPTPP by using a ‘side instrument’ as detailed above.

In addition, there could be other possible areas of conflict, such as accepting sanitary and phytosanitary measures (SPS) provisions in relation to food safety, as this is an area of high interest.[13]

In conclusion, CPTPP is more about achieving the UK’s Indo-Pacific tilt for foreign policy rather than an economic project. However, the UK has to accept all CPTPP rules to become a member to achieve the strategy. The UK cannot fudge the hard choices, such as on e-commerce, ISDS and regulatory coherence with CPTPP countries, since these choices will impact not only on the UK economy but society too. Substantive and inclusive policy discussions at the domestic level are imperative to start its accession process.

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Footnotes

[1] Eleven members are: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Viet Nam. Although the Agreement became effective in December 2018, the four countries (Brunei, Chile, Malaysia and Peru) still could not manage to ratify the Agreement.

[2] Global Britain in a competitive age (publishing.service.gov.uk)

[3] CPTPP/COM/2019/D002, Art. 3.3.

[4] A quote from the Japanese Minister, Mr. Nakamura, to the UK secretary of international trade, Liz Truss, at the UK’s formal accession application to CPTPP on 1^st February, 2021.

[5] CPTPP/COM/2019/D002, Art. 5.1.

[6] RCEP is an FTA of 10 members (ASEAN countries, Australia, China, Japan, New Zealand, and South Korea) that was signed in November 2020.

[7] House of Commons, International Trade Committee, Oral evidence: Digital trade and data, HC 1096, 10 March 2021.

[8] It should be aware that Japan has introduced supplementary law to receive the adequacy decision from the EU.

[9] Both CEPA and CPTPP endorse self-regulatory initiatives (i.e. APEC cross-border privacy rules), which provides lower data protection standard than GDPR, for the personal data transfer.

[10] House of Commons International Trade Committee (2021). UK-Japan CEPA: Government Response to the Committee’s Second Report of Session 2019-2021. UK-Japan Comprehensive Economic Partnership Agreement: Government Response to the Committee’s Second Report of Session 2019–21 (parliament.uk)

[11] For example, see Tienhaara, K. (2018). Regulatory Chill in a Warming World: The Threat to Climate Policy Posed by Investor-State Dispute Settlement, Transnational environmental law, Vol.7 (2), p.229-250, Cambridge, UK: Cambridge University Press.

[12] For example, see the written evidence submission from Trade Justice Movement for the House of Commons International Trade Committee Inquiry on Inward Foreign Direct Investment, February 2021 (IFD0011).

[13] For example, UK firms’ concern about food standards: Food standards warning as UK applies to join CPTPP – FarmingUK News. Also, there is a general concern about the impact of FTAs on British diets from a health policy expert: The impact of Free Trade Agreements on British diets — Trade Unwrapped.

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