Is the UK Leaving Europe and Moving Continents?

Annabella Matute-Castro: * Lawyer and senior consultant in construction law and commercial matters at MC Services Links.

This article was first published by Construction Law Journal in November 2020. All rights reserved and cannot be reproduced without the express consent of the author.

(2020) 36 Const. L.J., Issue 7 ? 2020 Thomson Reuters and Contributors.

* Americas; Asia Pacific; Brexit; Construction industry; Free trade agreements; Free trade areas; Oceania; Small businesses

1. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)

Origin

The CPTPP has its origins in the defunct Trans-Pacific Partnership (TPP), a free agreement signed on 4 February 2016, between 12 countries bordering the Pacific Ocean, namely Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand,Peru, Singapore, the US and Vietnam. After a short period of uncertainty following President Trump’s decision on 23 January 2017 to withdraw the US from membership, the remaining 11 Member States agreed to continue with it, under a renewed name. Thus, the TPP became the Comprehensive and Progressive Agreement for Transpacific Partnership (CPTPP), which is now the third largest free trade area in the world to date, with more than 13% of the global economy. It is a giant with a strong presence across three continents: America, Asia and Oceania. The newly re-branded CTPP agreement was signed in Chile on 8 March 2018, having already been ratified by Australia, Canada, Japan, Mexico, New Zealand, Singapore and Vietnam whereas the other Member States of Brunei, Chile, Malaysia and Peru are expected to ratify it soon. This will lead to one of the world’s largest free trade zones, with over 500 million consumers, representing 13.5% of the global GDP. Although most of the original TPP provisions still remain, 22 items have been suspended and few significant changes effected, such as Chapter 18 (dealing with IP rights), as well as cuts on provisions actively pursued by the US at the time, such as: patent delays, pharmaceutical patent test data, technology protection, and copyright term length.

2. The scope of the CPTPP

The CPTPP is called progressive because it aims at safeguarding high working and environmental standards across the Asia-Pacific region and not just at reducing costs for businesses. In addition, the CPTPP also deals with SMEs and government procurement.

Amongst its perceived main benefits is the reduction of tariffs in 95% of the products the Member States trade with each other, which goes hand-in-hand with the regional cumulation principle. In effect this means that, if a Malaysian manufacturer needs to import small parts from Singapore and electronics from Japan in order to produce its smart TV sets, it will not pay taxes on any of these products. Such cumulation of origin is not just restricted to goods and supplies, but can also apply to processes and services.

The CPTPP presents itself as a modern trade agreement, which will not only benefit consumers and exporters with lower costs, but also by promoting agreed standards in labour and the environment. In today’s world, most companies operate across borders and it is not uncommon for them to operate in more than two countries. Hence, regional agreements like this one are embraced by large corporations, as well as many investors and importers and exporters and there could be more benefits than with a bilateral agreement.

On the other hand, since Mexico and Canada are still renegotiating the FTA with the US, the rebranded TPP, appears to be an excellent option which will open doors for them to penetrate Asia, whilst reducing their dependency upon the US. By the same token, Japan will elevate its competition in that region against its giant neighbour China.

3. Legal framework

The agreement considers the regulations for trade, tariffs, labour and mechanisms for open markets, as well as a state dispute resolution process; this latter is laid out in Chapter 28 of its predecessor TPP. Under these provisions, all Member States will need to adjust their legal framework so as to comply with the CPTPP standards.

Something of particular importance is that no existing WTO commitment is restated in the CPTPP, but rather used as a baseline upon which to build; thus, disputes under the CPTPP would not be able to be argued in front of the WTO dispute system mechanism (the DSU). Without a secretariat, or supra-state institution, it would therefore be very challenging to deal with a dispute over the interpretation of the legal text in new areas.

The CPTPP protects foreign investments in member countries, as stated in Chapter 9, defining them as every asset owned, or controlled, by an investor directly, or indirectly, through a commitment of capital, in return for profits. As a result, a Member State must treat investors from other Member States in a fair manner, particularly in comparison with local investors. This involves the acquisition, expansion, management and sale of the investments.

Dispute settlement

The agreement contemplates three versions of dispute settlement, depending upon whether it comprises investor-state dispute settlement (ISDS), labour and environmental disputes, or government-to-government dispute settlement.

From the above three mechanisms, the ISDS has always attracted controversy, since it is perceived by many as a tool for powerful business lobbies1. Through this mechanism, foreign investors can sue governments before an international tribunal for any regulations they have passed, or actions which might threaten their ability to make profits. The tribunal sits either at the United Nations Centre for International Trade Related Arbitration Law (UNCITRAL), or at the International Court for the Settlement of Investment Disputes (ICSID) at the World Bank.

Also of particular importance is the aforementioned Chapter 9, which requires Contracting States to compensate any investment property expropriated (or nationalised) from foreign investors at the market value immediately prior to the expropriation (or nationalisation) taking place. Furthermore, any loss incurred must be adequately covered in a prompt fashion.

Chapter 28 of its predecessor (the TPP) lays out the manner in which a state party can request consultations with another party; should they fail to reach agreement, then the first party can request the setting up of a three-member legal experts’ panel to decide the dispute. As regards arbitration and alternative dispute resolution, some state parties have restrictions regarding the ability of the investor to submit the dispute, for example to an arbitral tribunal, once it has commenced proceedings in a domestic court. This is the actual case of Vietnam, where cases settled at tribunals will be definitive and exclusive, effectively preventing investors from initiating a lawsuit under the ISDS. Investors must carefully assess before filling their complaints the forum which they want to use in an eventual dispute. It is therefore crucial to be aware of each state party’s domestic regulations concerning arbitration and their relationship with their national courts.

4. The CPTPP and human rights

Indigenous groups interests

One of the main contents which the agreement contemplates is the ISDS, which especially highlights the impact of free trade agreements upon the lives of the indigenous groups and, as a result, upon the environment.

The life of indigenous populations is intrinsically linked to protection of the environment, since their very identity is forged around their natural habitat, with strong bonds to the land, resources and consequential skills developed thereon.

The rights of indigenous populations are protected by Convention 169 of the International Labour Organisation (ILO), which recognises land ownership rights of the tribes and their right to be consulted in advance on all matters with relation to such lands.

Victoria Tauli-Corpuz (United Nations Special Rapporteur on the Rights of the Indigenous Peoples) in her 2015 report highlighted the direct effect which investments agreements have upon the land of indigenous groups, their resources, the right to free self-determination, consultation and free and informed consent of the indigenous groups to decide their priorities concerning development and other matters.

On the other hand, indigenous groups have been consistently and systematically stigmatised by urban dwellers, local authorities and also corporation managers as terrorists (leftist Maoist inspired movements2 ), freeloaders, enemies of the motherland and “backwards”. This, in turn, has brewed into confrontation, leading to physical clashes and violence between the establishment and the indigenous groups3.

Particularly important is the fact that the CPTPP state members have many indigenous groups amongst their respective populations, such as Inuits and Metis in Canada, Mapuche in Chile, Maoris in New Zealand, Mayas, Zapoteco and Mixteco, amongst others in Mexico, and various Amazon, Quechua and Aymara indigenous groups in Peru, whose indigenous population represents 24% of its whole population, as well as the Dusun, Murut, Paitan and Bajau in Malaysia, the aboriginal Australians and the Montagnards from Vietnam.

Within this context, some international agreements signed between the government of Peru and the EU (Title VII, chapter 2, Title IX, article 272) and the US (article 18.11) recognise the importance of the traditional knowledge of the indigenous population in the conservation and sustainable use of the biological diversity. Furthermore, the agreement with the EU specifically states that, according to article 8(j) of the Agreement on Biological Diversity, the traditional knowledge will be respected and preserved, thus promoting informed consent, as well as an equal distribution of any benefits. It is also significant to note that most of the vast natural resources in Latin America (i.e. gas, oil, minerals and timber) are located in remote areas which have generally been ancestrally inhabited (and owned) by indigenous communities.

In Chile alone, by 2014, over 74% of exports centred around natural resources, such as mining, timber, cellulose and salmon farming, which are mainly located in the territories ancestrally occupied by indigenous groups. Oftentimes, the exploitation of these resources has been strongly opposed by indigenous communities, which have resulted in police reprisals and the use of legal tools under anti-terrorist laws. One example of this, is the case of the Mapuche people, whose territory has been subject to the exploitation of exotic plants since 1974, as part of Chile’s reduced tariff trade agreements with China, the US and Japan.

Similarly, in New Zealand, the Maori groups are demanding to be directly involved in the negotiation of international trade treaties, concerning their land, waters and people. As such, they have taken the New Zealand government to the Waitangi Tribunal, with regard to issues which are neither properly covered by the current exclusion clause in the agreement, nor protected elsewhere. This involves objecting to certain enforceable rights conferred upon foreign investors over their territories, resources and intellectual property and which are not available yet to the indigenous people of Aotearoa. By the same token, mining and fishing (although directly impacting the public health and lifestyle of indigenous groups) would not fall under the exception clause.

Women’s and labour rights

Governments in Chile, Mexico and Peru advocate their case for signing the Treaty, based mainly upon the opportunities of expanding their trading to new and potentially bigger markets in Asia and Oceania, which they believe would flow more quickly and easier, with the removal of tariffs and protectionist policies and, as a result, would bring an improvement in their national economies. On the other hand, civil society groups, such as NGOs, trade unions and representatives of SMEs, fear that this could force them out from trading, not only because they might be unable to comply with higher standards, or compete with the lower prices some Member States (like Vietnam) might charge for their products, or both, but also because of the “national treatment” principle. This requires Member States to treat foreign companies on an equal basis with the domestic ones. Women who are mainly working in agriculture, will not be able to compete against substantial agro business corporations.

In the case of Peru, women’s groups fear that their rights will not be properly protected from foreign investments and the extractive industries, in view of the investor-state- clause disputes, a point of particular concern, taking account of the fact that 70% of women earn their living in SMEs4. In a country with a massive 17%5 employment rate gap between women and men, these concerns cannot simply be ignored.

Similarly, Mexico’s textile industry fears that imports of cheap manufacturing from China (via Vietnam and Malaysia) could lead to an estimated 30% loss in employment, due to a drop in production and exports in the textile-fashion chain.

Conversely, for industrialised Member States such as Japan, Australia, Canada and New Zealand, with higher quality manufacturing technology and capacity for mass scale production, the deal should sound more appealing and, equally, it could be expected to run smoothly, both at the law-making level and the level of acceptance by the people. Malaysia is also meant to benefit by expanding its trade to new markets, such as Canada, Mexico and Peru, especially concerning palm oil and electronics. Alongside this, Vietnam (although not being a developed country, and contrary to Moody’s6 analysis) is perceived in Latin America as benefiting by expanding its trade, mainly for its potential to channel Chinese cheaply manufactured products, which would, in turn, help to improve their GDP and balance of payments. Singapore and Brunei would expand their trade to new markets under very favourable conditions.

However, concerns have also been raised in Australia, New Zealand and Canada, particularly regarding the lack of information to the public about what the deal actually entails and their right to know whether this would, in practical terms, benefit them, or not. This sentiment is also shared by people in Latin America.

Similar to the Latin American scepticism (at best) and, at times, outright negative perceptions, which have accompanied the investor-state-dispute settlement system, this is also a matter of concern for at least four of the five participating Asian nations, namely Brunei, Malaysia, Singapore and Vietnam.

Common concerns on both sides of the ocean include the restrictions placed upon cheaper generic drugs to favour pharmaceutical companies, with much more expensive ones, as well as with regard to the power global corporations can gather, as they might effectively sue Member States, if they do not comply with these treaty investment obligations.

5. The UK: a potential move of continents!

Soon after the 2016 referendum result began to take the UK out of the EU block, the government launched a dynamic trade negotiation programme, with immediate effect across the globe. Moreover, the UK government intends to position the country as a champion of free trade agreements, fighting protectionism and thereby turning the UK into a worldwide hub for businesses and investors.

Ever since, the UK has contemplated the idea of accessing the CPTPP, despite not being geographically sited within the region. Negotiations have recently intensified, as the UK is actively looking to increase trade and investment opportunities, which will boost the economy, so badly hit by the Covid-19 pandemic. It is envisaged that British exporters could benefit from strategically important sectors (i.e. digital trade, data finance, professional (legal) and business services).

By joining the CPTPP, it is expected that small businesses will benefit from the removal of trade barriers, which (as a consequence)simplifies export processes with a market, which, by 2018, represented 13% of global GDP. If the UK were to join this agreement, it would become the second largest member in terms of economy and the block would increase to 17% of global GDP.

Despite the effervescent optimism displayed by the UK government, stakeholders at home shared some of the concerns which CPTPP Member States have previously expressed, namely the need to protect labour and environment, before imports from other member countries with lower costs and standards. Hence, at the consultation held in July 2018, respondents highlighted the need to engage with civil society during any negotiations, in order to secure sustainable business practices, as well as keeping at bay the carbon footprint.

Within the same trend, unions have pointed out globally that the CPTPP does not contain any mechanism with which to monitor a country’s adherence to ILO standards and, therefore, no penalties in view of breaches. As a result, unions perceive this as a risk to workers’ rights, particularly with CPTPP Member States (like Vietnam) banning independent trade unions and the freedom of association not being generally respected. Along these lines, unions fear that the ISDS would undermine minimum wage laws and health and safety regulations, given that this clause has been used in the past to challenge the above.7

Finally, the threat of Vietnam potentially exporting cheap goods which originated in China, is also feared by the Trade Union Congress (TUC).

6. CPTPP and the construction sector

Although trade and investments have often been mentioned as the main benefits of this alliance, it is vital to have a workable and reliable infrastructure in order to capitalise from those benefits. Within that context, the less-developed countries of the alliance will have to improve their public infrastructure, such as roads, ports, borders and logistics platforms. This is particularly true for those emerging Member States, such as Chile, Peru, Vietnam and even Singapore.

By way of example, the fast and dynamic growth experienced in Vietnam, could only be maintained with a sustainable and adequate infrastructure. It is estimated that, by 2040, the country will need around US$600 billion in infrastructure investment, which includes seaports, roads and rail. Given that the country does not have enough funds to cover such a huge gap and is also fast approaching the 65% statutory cap use of public funds, public private partnerships (PPP) are the most suitable option. Foreign investors, however, need to be aware of Vietnam’s reservations in Annex IV, which provides preferential treatment to Vietnamese investors within its territory and effectively requires a member-country investor in a PPP only to use Vietnamese domestic businesses.

On the other hand, CPTPP will provide very advantageous business opportunities for the more well-developed Member States, like Australia, Canada and Japan to compete equally with domestic suppliers for government procurement contracts in construction services and goods required in large infrastructure projects.

All these new opportunities have been properly highlighted by the CEO of Singapore Business Federation, Ho Meng Kit, as follows: “Companies in the IT, construction and consultancy sectors will be able to bid for government tenders in countries that were previously closed to foreign bidders, such as Malaysia, Mexico and Vietnam”.

Reinforcing this view isthe recent creation of the Asia Infrastructure Investment Bank committed to fund infrastructure projects in the Asia Pacific region.

7. Conclusions

A trade agreement in nature, this represents extremely good news for companies doing business across borders and, in particular, for large corporations, since it provides exceptionally advantageous ISDS clauses. Along the same lines, one of its highlighted merits would be the creation of opportunities for emerging economies (such as Vietnam, Malaysia, Chile and Peru) to expand their trade into bigger markets. However, these same countries need to be extremely cautious with the “national treatment” principle, which could effectively put their SME indirectly out of trade. Special attention also needs to be devoted to the powers being conferred upon multinationals with the ISDS and to what extent the state could leverage such power when being sued by large corporations. This is still to be tested at an international tribunal.

Of particular importance is the existence of various indigenous groups in most Member States, whose rights need to be protected (over land and water), mainly before the large corporations, in view of the ISDS clauses.

A cautious assessment needs to be made on the terms which the UK might require to join the block, as it will have zero power to influence the policies to shape the deal, which is already completed. Similarly, to what extent the UK can realistically join CPTT will depend upon the terms of the agreements negotiated with the EU. Furthermore, instead of using a cautionary approach, CPTPP’s approach to regulation with regard to the harmful effects of a product, places the onus upon end users. The reduction of tariffs could therefore become a deal breaker, since the UK may agree to align its tariffs with those of the EU.

The terms of the agreement will undoubtedly prompt countries to bring their infrastructure up to the challenge, thus creating many business opportunities in trading and the provision of goods and services among Member States.

The future looks very promising for the CPTPP in many respects, hence attracting many countries near to and far from its borders, such as Colombia, or the UK itself. As with many other things, Covid-19 has put much of the negotiations on hold and so, by now, it would be fair to say that it still comprises “work-in-progress”. 

Footnotes:

1.  “TPP” is an agreement to manage its members’ trade and investment relations—and to do so on behalf of each country’s most powerful business lobbies. Make no mistake: …TPP is not about ‘free’ trade” (Joseph Stiglitz, Noble Laureate in Economics and Professor at Columbia University, 2015).
2.  Movimiento Revolucionario Túpac Amaru (MRTA) and Shining Path.
3. Caso Conga.
4. Instituto Nacional de Estadistica (INEI) National Statistics Institute, 7 March 2016.
5. Instituto Nacional de Estadistica (INEI) National Statistics Institute, 2015.
6. “Sovereigns—Asia Pacific and Americas: Revised Trans-Pacific Partnership benefits all members, but less so without the US”, March 2018. Is the UK Leaving Europe and Moving Continents? 529 (2020) 36 Const. L.J., Issue 7 ? 2020 Thomson Reuters and Contributors.
7. There have been 21 cases against the US and 15 cases against Canada since 2010 via ISDS in NAFTA.