Canada Signs the Comprehensive and Progressive Agreement for Trans-Pacific Partnership

On March 8, 2018, Canada signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), an agreement between the 11 remaining signatories to the Trans-Pacific Partnership (TPP) after the United States withdrew from the TPP. Canada was joined in signing the CPTPP by Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.

Upon entry into force, the CPTPP will be one of the world’s largest free trade agreements, covering countries with economies having a combined GDP of C$13.5-trillion. The entry into force of the CPTPP will see the immediate elimination of customs tariffs on the vast majority of tariff lines, with tariffs on certain select items being reduced gradually in stages. Gaining market access to Japan, Vietnam and Malaysia is of particular significance for Canada, as those countries were not covered by any of Canada’s previous free trade agreements, and they are countries that impose steep tariffs on imports.

Like Canada’s other recent free trade agreements, such as the Canada-European Union Comprehensive Economic and Trade Agreement (CETA), the CPTPP extends beyond the traditional areas covered by free trade agreements — tariff reduction, dispute settlement, investment and trade remedies — and contains chapters covering: telecommunications, electronic commerce, government procurement, capacity building, development, small and medium-sized enterprises, transparency and anti-corruption.  

A Short History of the TPP

In October of 2012 Canada joined the TPP negotiations, an agreement intended to promote trade between Asia and the Americas. Three years later, negotiations on the TPP were concluded on October 5, 2015, and the agreement was signed on February 4, 2016 by 12 parties, including the United States.

Following through on statements made during his presidential campaign, President Donald Trump notified the TPP signatory states on January 30, 2017 that the United States did not intend to ratify the agreement. As it was drafted, the TPP could not come into force without the United States, since the agreement would only come into force if it was ratified by at least six states that together had a GDP of more than 85 per cent of the GDP of the signatory countries. With the withdrawal of the United States, the future of the TPP was thus uncertain.

TPP 2.0

After the withdrawal of the United States from the TPP, the remaining 11 TPP signatory countries continued to discuss the possibility of moving forward with the agreement without the United States. Meetings were held by the so-called “TPP11” in May, July, August and September of 2017.

In November of 2017, during a meeting of senior officials held on the margins of the Asia-Pacific Economic Cooperation Leader’s Meeting in Da Nang, Vietnam, the TPP11 ministers agreed on the core elements of a new agreement, the CPTPP, which incorporated the text of the TPP. While the text of the TPP had not been altered, 22 items from the TPP were suspended, and will thus have no effect when the CPTPP comes into force.

The suspended TPP items relate to certain provisions in the agreement concerning intellectual property and investor-state dispute settlement (ISDS). For instance, the scope of the ISDS mechanism has been narrowed for the purposes of the CPTPP such that claims cannot be made by investors in relation to “investment agreements” entered into by the investor with a government, and claims will not be allowed where a government withdraws approval of a foreign investment. On the intellectual property front, the provisions in the TPP relating to patent term adjustment have been suspended, as have the provisions requiring the term for copyright protection to be extended from 50 to 70 years.

The suspended TPP provisions are largely those that reflect the negotiating priorities of the United States, which explains why the TPP11 were inclined to suspend the effect of those provisions in the CPTPP. It is noteworthy that the provisions in question were not removed from the text of the CPTPP, and thus could be given effect should the signatory countries unanimously agree to do so, which may be viewed as an open invitation for the United States to consider rejoining the agreement at some point in the future.  

A Comprehensive and Progressive Agreement

It was widely reported in the media that Canada was the lone party that was not prepared to sign the CPTPP during the TPP11 ministers’ meeting in Da Nang, Vietnam. However, doubts about Canada’s willingness to cut a deal were put aside on January 23, 2018, when Canada’s Minister of International Trade, Francois-Philippe Champagne, announced the conclusion of the CPTPP discussions.

Minister Champagne explained that Canada had agreed to the CPTPP after obtaining additional commitments — to be reflected in legally binding side-letters — on culture and the automotive sector. Canada’s additional outcomes on culture have been described by the government as providing necessary flexibility to adopt cultural policies in the digital environment. Canada’s additional outcomes in the automotive sector are more concrete: Canada has obtained a commitment from Japan to remove non-tariff barriers on automobiles, and has also secured a most-favoured-nation commitment, such that any more preferential arrangement that Japan enters into with another country will also apply to Canada.

As is to be expected given that Canada was responsible for the agreement’s new name, Canada has been quite vocal in endorsing the CPTPP as an extension of the Canadian progressive trade agenda. In particular, the CPTPP will be Canada’s first free trade agreement with fully enforceable provisions covering labour and the environment. Under the CPTPP’s labour chapter, signatory countries have committed to reflecting, both in law and practice, the rights of workers set out in the International Labour Organization 1998 Declaration on Fundamental Principles and Rights at Work, which includes a commitment to respect the right of association and the right to collective bargaining. While the CPTPP’s environment chapter allows each signatory country to establish its own levels of domestic environmental protection and priorities, lax enforcement of those protections would run afoul of a provision prohibiting signatory countries from failing to effectively enforce their environmental laws through a sustained or recurring course of action, or inaction, in a manner that affects trade or investment between the signatory countries.

The Canadian progressive trade agenda is also reflected in the CPTPP chapters on small and medium-sized enterprises (SMEs), as well as the chapter on transparency and anti-corruption. The CPTPP’s chapter on SMEs is intended to allow SMEs to benefit from international trade to a greater extent than was previously possible. In this regard, the chapter requires signatory countries to make available online information about the agreement, as well as information designed specifically for SMEs that may be useful to them in pursuing opportunities provided by the CPTPP. Finally, the CPTPP chapter on transparency and anti-corruption includes both provisions regarding the publication of laws, regulations, procedures and administrative rulings respecting matters covered by the CPTPP, as well as a commitment by signatory countries to establish measures in order to combat corruption, such as criminalizing certain practices in matters affecting international trade or investment (e.g., bribery of public officials).

Next Steps

Now that the CPTPP has been signed, the next step will be for the signatory countries to begin the process of implementing the agreement into domestic law. In Canada, this will involve the tabling of the CPTPP before Parliament and the drafting of implementing legislation. While it is difficult to predict how long the domestic ratification process may take, we can perhaps expect to see the agreement come into force in early 2019. 

While awaiting the domestic ratification of the CPTPP, Canada is currently engaged in several other negotiations that will further expand opportunities for Canadian businesses. Canada is presently engaged in negotiations on a free trade agreement with the Pacific Alliance — consisting of Chile, Colombia, Mexico and Peru — and is set to begin negotiations towards a free trade agreement with the Mercosur trade bloc — consisting of Argentina, Brazil, Paraguay, Uruguay and Venezuela. With the ongoing renegotiation of the North American Free Trade Agreement thrown into the mix, as well as exploratory discussions with China on the possibility of a free trade agreement, there has perhaps never been a time when Canada has been more active on the trade front.

For further information, please contact:

Greg Kanargelidis                      416-863-4306
Roy Millen                                 604-631-4220
Zachary Silver                           416-863-2970

or any other member of our International Trade group.

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