THE AUTHORS:
Svetlana Portman, Associate at Debevoise & Plimpton
Mihika Gupta, Associate at Hunton Andrews Kurth (UK) LLP
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (“CPTPP” or the “Agreement”) stands as a significant free trade agreement between 12 countries: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and the United Kingdom (the “UK”). Originating as the Trans-Pacific Partnership Agreement (“TPP”), with the United States initially involved, the landscape shifted when the Trump administration withdrew from the negotiations. Subsequent to this withdrawal and prior to ratification, the agreement underwent substantial revisions by the remaining nations, culminating in the establishment of the CPTPP, which came into force in 2019. The primary objective of the CPTPP is the facilitation of trade liberalisation among its signatories, involving measures such as the elimination of tariffs.
In a notable development as of July 2023, the UK emerged as the most recent signatory to the CPTPP. Remarkably, the UK is the inaugural European country and the first non-Pacific region member to join the CPTPP. Currently representing approximately 15% of the global GDP, the member nations of the CPTPP play a pivotal role in shaping international trade dynamics.
Rationale for the UK’s Accession
The backdrop to the UK’s entry into the CPTPP is rooted in the aftermath of Brexit, which led to a decline in trade with the European Union (“EU”). Positioned within the context of a post-Brexit reality, the UK’s decision to join the CPTPP aligns strategically with the nation’s Indo-Pacific tilt. The Indo-Pacific tilt, elucidated in the Prime Minister’s foreword to a parliamentary policy paper, underscores the UK’s commitment to fostering robust and enduring ties in the Indo-Pacific region, designating it as a fundamental pillar of the country’s international policy. Framed as a gateway to the broader Indo-Pacific and the Americas, the CPTPP is poised to unlock novel prospects for British enterprises. The government stated that CPTPP accession will not only bolster employment opportunities nationwide but will also play a pivotal role in shaping the trajectory of global trade rules. Embracing the CPTPP, the UK aspires to extend its influence across a more extensive portion of the Indo-Pacific region, exemplified by initiatives such as the launch of the British International Investment’s Singapore hub, deployment of a UK Carrier Strike Group and two offshore patrol vessels to the region, and co-launching the Partners in the Blue Pacific initiative.
Within the framework of the CPTPP, the UK anticipates substantial advantages through enhanced market access and diminished trade barriers. Over 99% of exported goods to CPTPP member nations are poised to qualify for zero tariffs, as the Agreement eliminates impediments like tariffs, fostering the exchange of physical goods among member states. Furthermore, the CPTPP addresses barriers to digital trade and data flows, dismantling constraints such as data localization requirements and ensuring the unhindered flow of data between the UK and other CPTPP members. The Agreement also beckons opportunities for the UK’s service sector to broaden its reach to other member states, removing market access barriers and ensuring equal treatment of UK service providers alongside local counterparts. This alignment has the potential to streamline operations for UK businesses, potentially reducing bureaucratic hurdles and providing greater certainty on trade terms. As a result, the UK anticipates a 0.08% increase in GDP post-accession to the CPTPP.
CPTPP provisions on Investor State Dispute Settlement (“ISDS”) and the UK’s Approach
Chapter 9 of the CPTPP, which delves into investment, sets out the investment protections (Section A) and ISDS provisions (Section B), featuring a multitier dispute settlement mechanism. Key provisions:
- Investment protections: The CPTPP enables parties to bring claims concerning covered investments, defined broadly while expressly excluding orders and judgments in judicial or administrative actions (Article 9.1). Parties can resort to arbitration if a breach occurs with respect to investment protections, investment authorisations or investment agreements (Article 9.19.1). Covered investments are treated in accordance with applicable customary international law principles, including fair and equitable treatment and full protection and security (Article 9.6.1), while excluding the application of investor expectations (Article 9.6.4). The Agreement also provides protection against direct or indirect expropriation of a covered investment, subject to certain exceptions (Article 9.8.1).
- Pre-arbitration steps: In case of a dispute, the parties are obliged to attempt to resolve the dispute through consultation and non-binding procedures such as good offices, conciliation, or mediation (Article 9.18.1). The claimant initiates this process with a written request for consultations (Article 9.18.2), followed by a mandatory six-month consultation period (Article 9.19.1). Thereafter, the claimant must serve the respondent with a written notice of intent 90 days before initiating arbitration (Article 9.19.3).
- Fork-in-the-road clauses: The CPTPP precludes investors in Mexico, Chile, Peru and Vietnam from pursuing arbitration if the same claims were pursued before domestic courts (Annex 9-J). More generally, before initiating arbitration, the claimant must provide a written waiver of its right to initiate a dispute before a court or tribunal (Article 9.21.2(b)). However, this provision does not impact the claimant’s right to seek interim injunctive relief from courts while an arbitration is pending (Article 9.21.3). Arbitration proceedings must be initiated within three and a half years from the date the investor first acquired or should have acquired knowledge of the breach (Article 9.21.1).
- Composition of the arbitral tribunal: Unless otherwise agreed by the parties, a three-member tribunal is constituted, with each party appointing one arbitrator and the third, a presiding arbitrator, appointed by mutual agreement (Article 9.22.1). The ICSID secretary general steps in if the parties fail to appoint a tribunal within 75 days (Article 9.22.3).
- Arbitration rules: Arbitration may be commenced under the (a) ICSID Convention, (b) ICSID Additional Facility Rules, (c) UNCITRAL Arbitration Rules or (d) any other arbitration rules agreed on by the disputing parties (Article 9.19.4).
- Remedies: The tribunal can award monetary damages or restitution of property (Article 9.29.1), with punitive damages expressly prohibited (Article 9.29.6). Additionally, the tribunal can only award damages for claims alleging the breach of an obligation with respect to an attempt to make an investment if the claimant has proven it sustained injury during the investment attempt (Article 9.29.4).
- Transparency: Acknowledging criticisms of ISDS, the CPTPP incorporates specific provisions on transparency of arbitral proceedings, requiring public access to all arbitration documents and hearings (Article 9.24).
- Appeals: The possibility of adopting an appellate mechanism for the review of awards has been left open and up to the parties, should such a mechanism be developed by other institutional arrangements in the future (Article 9.23.11).
The UK expressed confidence in the CPTPP’s ability to safeguard its investors from unfair, arbitrary or discriminatory treatment, due to the Agreement’s robust dispute resolution provisions, emphasising that the Agreement contains a “modern and transparent” ISDS mechanism.
While endorsing ISDS as an effective dispute resolution mechanism, the UK has retained the right to regulate specifically in areas such as environment and labour standards, where public interest is concerned. Similarly, investment screening decisions undertaken by the UK on national security (e.g., under the National Security and Investment Act 2021), or under public interest grounds, are excluded from the scope of the ISDS provisions of the CPTPP and cannot be challenged. The UK has entered into side letters providing similar investment screening carve-outs for Malaysia, Singapore and Vietnam. The UK has also entered into side letters with Australia and New Zealand to specifically disapply the ISDS provisions against each other.
Takeaways and Ramifications for the UK’s Stance on ISDS
The inclusion of ISDS mechanisms in investment treaties has sparked substantial debate in recent years, raising various concerns, including transparency, the cost of proceedings, inconsistent decision-making, perceived unfairness, and the potential for a chilling effect on regulatory changes. In light of these concerns, the EU is actively shifting away from conventional ISDS, striving to establish a multilateral investment court system featuring a permanent cadre of judges and an appellate court.
In contrast, the UK maintains investment agreements containing ISDS provisions with over 90 trading partners and, in a summary on the CPTPP, has reiterated that ISDS is an effective means of resolving investment disputes, emphasising its crucial role in protecting British investors abroad. In the same summary, the UK government seems to address the criticisms of ISDS, asserting that the CPTPP overcomes these criticisms.
Notably, while the EU charts its course away from ISDS, the UK seems prepared to take on a more measured stance, creating a discernible contrast in approaches within the European region. The question arises as to whether the UK’s acceptance of the ISDS provisions under the CPTPP signifies a departure from the EU’s pursuit of institutional reform. The evolving dynamics in the realm of ISDS warrant close observation, particularly as the UK navigates its path in the post-Brexit era, revealing potential implications for future international trade relations.
ABOUT THE AUTHORS:
Svetlana Portman is an Associate in the International Dispute Resolution Group of Debevoise & Plimpton. She represents private clients and states across multiple jurisdictions in investor-state and international commercial arbitrations governed by various substantive laws and conducted under the auspices of the major arbitral rules, including ICSID, LCIA, ICC and UNCITRAL. She is admitted as a solicitor-advocate in England & Wales and to the bars of New York State and Israel.
Mihika Gupta is an Associate in the Energy Litigation practice group of Hunton Andrews Kurth (UK) LLP. She is a dual qualified lawyer admitted to practice in England & Wales and India. She has also completed the Geneva LLM in International Dispute Settlement (MIDS).
