Canada and the other TPP-11 Countries Conclude the CPTPP Agreement

Article by Tereposky & DeRose LLP

On January 23rd, the eleven remaining members of the Trans-Pacific Partnership (TPP) agreement announced the conclusion of their discussions on a revised free trade agreement. Re-branded the “Comprehensive and Progressive Trans-Pacific Partnership” (CPTPP), the new deal is expected to be signed on or about March 8th at a ceremony in Chile. In concluding the agreement, Canada continues to expand and diversify its major regional trade agreements beyond the North American Free Trade Agreement (NAFTA), which is currently undergoing difficult negotiations with uncertain outcomes. Notably, the CPTPP updates the terms of trade between Canada and Mexico.

The United States withdrew from the TPP on January 30th last year, after the agreement had been concluded with the other eleven members: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. At that time, the legal text of the agreement had been finalized, and all that remained was implementation and ratification. The TPP would have covered about 40 percent of the world’s GDP (valued at US$28.5 trillion). Without the United States, the CPTPP’s coverage is significantly less — around 13.6 percent of global GDP (US$10.2 trillion). However, notwithstanding the absence of the United States, the agreement creates important new opportunities for Canadian exporters in the CPTPP region.

For example, Canadian agricultural and fishing industries will have preferential market access to important consumer and industrial CPTPP markets. The progressive elimination of customs tariffs will provide Canadian goods with a competitive advantage over US exports to those markets. While trade between the United States and CPTPP countries will certainly continue, the new agreement can be expected to shift the competitive landscape in favour of Canadian producers, providing them with new export and supply chain opportunities. In Japan, the single largest CPTPP economy, Canadian enterprises will not only enjoy an advantage over U.S. competitors, but they will also be able to trade on even footing with Mexican and Australian competitors (who have been enjoying the benefits of existing bilateral trade agreements with Japan).

As noted above, conclusion of the CPTPP also creates a new trade dynamic between two of the three NAFTA members, Mexico and Canada, with potential implications for the current NAFTA re-negotiations. For example, commitments to implement stricter intellectual property (IP) protections were important concessions to US demands in the original TPP. They include extended copyright and patent terms, fixed market protection measures for certain pharmaceutical products (e.g., biologics), and other commitments that would have required Canada to implement new IP rules that are more stringent and less flexible. However, these provisions are “suspended” in the negotiated outcomes of the CPTPP, indicating that Canada and Mexico may no longer be interested in making such concessions to the United States. On the other hand, Canada and Mexico may find it difficult to deny US NAFTA demands that are equivalent to TPP provisions that remain part of the CPTPP. It also remains to be seen how differences will be reconciled in the CPTPP and any re-negotiated NAFTA with respect to the rules of origin, particularly in relation to minimum regional value content thresholds for motor vehicles.

In November 2017, Canada expressed concerns over insufficient protection in the CPTPP for Canadian “cultural industries” (i.e., Canadian media, including print publications, films, music, and television and radio broadcasting). Its reluctance on this and other points prevented the parties from signing an agreement-in-principle at the APEC Summit in Vietnam. The parties have since agreed that this issue, among others, will be resolved through side letters rather than by re-opening and substantively amending the current text of the TPP agreement, as incorporated by reference and amended by the text of the CPTPP.

The text of the CPTPP was released to the public on February 20th (available online here). The text is very concise, consisting of only seven articles and one brief annex.

Importantly, Article 1 incorporates the consolidated text of the Trans-Pacific Partnership (TPP), by reference, and makes it part of the CPTPP mutatis mutandis (while specifying that the CPTPP shall prevail to the extent of any inconsistency).

Article 2 operates to indefinitely suspend the TPP provisions that are listed in the CPTPP Annex. This list includes the TPP provisions that the parties previously agreed to suspend, as identified in paragraph 3 and Annex II of the Ministerial Statement issued in November 2017 (available online here), and also includes additional negotiated outcomes that have more recently been finalized. Many of the suspended provisions are no longer relevant in the new agreement because they were concessions granted to the United States during the original TPP negotiations.

The remaining provisions are administrative in nature, providing for the entry into force of the CPTPP, withdrawal, accession, review of the Agreement under certain circumstances, and the authenticity and priority of the English, Spanish, and French texts.

The text of the new bilateral side-letters, which will provide the more substantive negotiated outcomes of the CPTPP, have not yet been released to the public, but “are expected to follow as soon as possible” (see Global Affairs Canada, “Minister Champagne welcomes release of full text of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership”, News Release (February 20, 2018), available online here).

In the context of the United States’ withdrawal into protectionist and anti-globalization policies on trade, new plurilateral regional agreements like the CPTPP and the Canada-EU Comprehensive Economic and Trade Agreement (CETA) are increasingly important to Canada — not only because they provide new and alternative trade opportunities for Canadian stakeholders, but also because they offer unprecedented competitive advantages over US exporters in important international markets. Negotiations between the United States and the European Union concerning the Trans-Atlantic Trade and Partnership (TTIP) agreement are currently suspended. Thus, neither Japan nor the European Union are currently engaged in bilateral negotiations with the United States. Depending upon the negotiated outcomes of the NAFTA modernization process, Canada’s participation in the CETA and the CPTPP could make it a strategic location for foreign direct investment in North America.

Tereposky & DeRose LLP regularly provides advice on international trade agreements, including the NAFTA, the CETA, and the forthcoming CPTPP.  Should you have any questions regarding potential opportunities under these trade agreements or any other trade related issues, we are at your disposal.

Daniel Hohnstein

Jennifer Radford

Greg Tereposky