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.