By David Collins, April 4, 2023
Last week, the UK joined the mega-regional Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). This significantly upgrades Canada’s economic links with post-Brexit Britain, the world’s sixth largest economy.
Since the accepting of new members to the Pacific trade pact requires unanimity, Canada’s objection to the UK’s refusal to accept its hormone-treated beef exports had been the final obstacle to the UK’s lengthy application for accession. In accession talks last month in Vietnam, Canada allegedly walked away from the table, demanding the same level of market access for its beef that the UK granted in its bilateral trade deals with Australia and New Zealand. This was met with resistance from the UK’s influential agricultural lobby.
Thankfully a compromise, the details of which have yet to be disclosed, was eventually reached. Canadian farmers may still be unhappy with the UK’s accession to the CPTPP, particularly since Canada’s heavily subsidized dairy products can now enter the UK tariff free while barriers to hormone treated Canadian beef stay in place. British farmers aren’t too pleased with the UK’s accession either, tending to express reflexive disdain whenever the UK lowers tariffs on agricultural products, despite shocking rises in prices. But the broader benefits to both countries in the form of zero tariffs on 99 percent of products will be enjoyed by consumers on both fronts.
Canada is one of the founding parties of the CPTPP, originally called the Trans-Pacific Partnership (TPP) before the US withdrew during President Trump’s first week in office. Canada can also boast a central role the TPP’s rebranding; the addition of the ‘comprehensive and progressive’ element was at the behest of Prime Minister Trudeau, eager to burnish his image as a champion of non-trade values in the face of accusations of pandering to economic liberalism.
With the UK’s accession, the CPTPP’s membership grows to 12 countries (Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, Peru, New Zealand, Singapore and Vietnam), comprising 16 percent of global GDP. This total will grow in the coming years as the world’s centre of economic growth shifts decidedly eastwards.
Now with three G7 members on board (Canada, Japan and the UK), the CPTPP is fast becoming the trade pact that everyone wants to join, including the power-house China. Of course, China’s accession to the CPTPP is unlikely given its preference for state owned monopolies, not to mention the so-called “China veto” in the USMCA (United States Mexico Canada Agreement), in which signatories agreed that they needed each other’s permission to sign a free trade agreement (FTA) with China. But it is quite likely that Taiwan will sign on in the near future, most probably provoking Beijing’s ire.
In that sense, the UK’s CPTPP accession is part strategic in nature. One of the reasons that Japan was so supportive of the UK’s membership in the CPTPP was to tie the UK into a region that needs high-calibre economic integration in response to Chinese attempts to coerce neighbouring countries. It is also quite feasible the US will revisit its decision to pull out of the TPP, regardless of whether the next president is a Democrat of Republican. With the multilateral trade agenda under the World Trade Organization (WTO) in abeyance, the CPTPP may become the most important trading arrangement in the world.
It is true that Canada and the UK already have a bilateral trade deal in place – the roll-over of the Canada-EU Comprehensive Economic and Trade Agreement (CETA) – but the CPTPP goes deeper than this agreement in several respects, notably in relation to enhanced market access for services. The CPTPP also contains comprehensive protections for foreign investors, including the controversial Investor-State-Dispute Settlement, through which investors can bring legal claims directly against host state governments through international arbitration, by-passing local courts.
In addition to lower tariffs, crucially for Canada’s manufacturing sector, the CPTPP also enables “accumulation” in the assessment of origin of manufactured goods for the purpose of preferential tariff treatment. This means if Canadian exports are made with materials, parts or semi-finished goods imported from other CPTPP members, these inputs count as originating material when a product is exported to another CPTPP member. Parts made in the UK now count for this total, enabling complex and low-cost supply chains across the entire grouping.
Another area where the CPTPP will become more relevant in the near future is in relation to digital trade. While the agreement was at the forefront of rules on e-commerce, basing these largely on the text of the USMCA, this is a rapidly changing sector and there are already new instruments which are bolder and deeper. Chief among these is the Digital Economy Partnership Agreement (DEPA), signed by the three CPTPP countries Singapore, New Zealand and Chile, which is focused on common principles, such as free flow of data, non-discrimination as well as the protection of privacy. It also contains innovative provisions on cooperation in artificial intelligence (AI) and digital identities.
Eager to stimulate its burgeoning tech sector, Canada has wisely expressed an interest in signing on to DEPA. The UK may soon do so as well, having already signed a similar bilateral deal with Singapore. DEPA was designed to be slotted into CPTPP as a side agreement, demonstrating the Pacific pact’s capacity to accommodate new provisions, updating itself along with trends in the global economy.
It is good news for everyone that Canada and the UK managed to resolve their differences on beef and get the deal over the line. As the world, and especially the Commonwealth, turns its attention to the Coronation of King Charles III next month, Canada should celebrate the UK’s accession to the CPTPP as a like-minded ally and co-champion of free trade, the advancement of which has shown time and again to generate wealth and raise living standards.
David Collins is Professor of International Economic Law at City, University of London.
