- UK Accession CPTPP
Protocol on the Accession of the United Kingdom of Great Britain and Northern Ireland to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and associated side-letters
3.1UK Accession CPTPP was referred to the Committee on 2 May 2024.
3.2The Committee received three submissions and one response to Questions on Notice. The Committee held a public hearing in Canberra on 18 June 2024. A list of submissions can be found at Appendix A. The hearing and witnesses are listed at Appendix B. The transcript of evidence from the public hearing can be accessed through the Committee’s website.
Overview
3.3The proposed major treaty action (Category 1) is the ratification of the Protocol on the Accession of the United Kingdom of Great Britain and Northern Ireland to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and associated side-letters (the Protocol).
3.4The United Kingdom (UK) formally agreed to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) by signing the Protocol in July 2023. The Protocol would enter into force 60 days after the date on which the UK and other CPTPP Parties notify the Depository of the completion of their applicable domestic legal processes. The UK would be the first country to accede to CPTPP and its accession expands the trade partnership beyond the Pacific region.
Background
CPTPP
3.5The CPTPP is a free trade agreement that was signed by 11 countries in March 2018, namely Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, Peru, New Zealand, Singapore and Vietnam. The CPTPP is one of the world's most comprehensive free trade agreements. It eliminates 98 per cent of tariffs in a trade zone with a combined GDP of US$14.6 trillion.
3.6The CPTPP's rules on investment, intellectual property, e-commerce and rules of origin allows member economies to be more deeply integrated and supports more resilient regional value chains. The CPTPP promotes foreign investment in Australia by liberalising the threshold at which private foreign investments in non-sensitive sectors are reviewed by the Foreign Investment Review Board. The CPTPP also promotes outbound Australian investment through preferential investment screening thresholds in CPTPP member states.
3.7The CPTPP is open to accession by states that are committed to its objectives and demonstrate they can meet, implement, and adhere to its rules and standards, have a record of complying with trade commitments, and can gain consensus support from CPTPP members.
Australia-UK Relationship
3.8The UK is one of Australia’s most important partners in economic issues, security and defence, people-to-people links and culture. Australia and the UK have a number of bilateral agreements including:
- Australia-UK Free Trade Agreement (entry into force 31 May 2023)
- Defence and Security Cooperation Treaty
- International Tax Agreement
- Reciprocal Health Care Agreement
- Mutual Assistance in Criminal Matters
- UK-Australia FinTech Bridge
- UK-Australia Clean Technology Partnership
- Australia-UK Nuclear Cooperation
- Agreement on Trade in Wine
- Mutual Recognition Agreements.
Australia-UK free trade agreement
3.9Australia’s bilateral free trade agreement with the UK, the Australia-United Kingdom Free Trade Agreement (A-UKFTA), entered into force in May 2023 and is Australia's second most comprehensive free trade agreement (FTA). DFAT explains that ‘Australia has pursued an ambitious and comprehensive FTA with the UK that drives increased two-way trade in goods and services, economic growth and job creation.’ The FTA delivers in the areas of services, digital trade, goods, investment, high-quality rules and standards and ease of doing business.
3.10Further, DFAT explains that, ‘Through improved market access for goods and services, the FTA gives Australian exporters a competitive edge when entering the UK market.’ In addition, ‘Australian businesses and consumers also benefit from greater access to competitively priced goods and services, new technologies and innovative practices.’ Other benefits are that the FTA ‘strengthens investment flows between the UK and Australia, playing an important role in growing and diversifying the economy and creating jobs.’
3.11Both Australia and the UK agreed not to seek any additional goods market access, or faster tariff reduction, through accession negotiations than provided for in the A-UKFTA.
Justifications
3.12Key justifications for Australia ratifying the Protocol include:
- The UK is a G7 Member and the world’s sixth-largest economy, committed to high standards and rules-based trade therefore the Government notes that the UK’s accession to the CPTP would ‘significantly benefit the Membership, and augment the scope and span of the CPTPP, providing opportunities to expand trade and investment.’
- The CPTPP parties that would benefit the most from the accession would be those without a FTA with the UK. The Government has said, ‘Compared to the strong market access outcomes contained in the A-UKFTA, the economic gains to Australia flowing from the UK’s accession to the CPTPP would be modest’. There would be minor improvements to market access for Australian services; non-application of Investor-State Dispute Settlement (ISDS) and the better incorporation of UK products into CPTPP supply chains.
- Strategic benefits including greater economic engagement in our region by a close partner.
Obligations
3.13The Protocol is the Accession of the UK to the CPTPP. Article 1 provides that the UK shall become a party to the CPTPP upon entry into force of the Protocol pursuant to Article 21 (Entry into Force) and Article 5 (Accession).
3.14Pursuant to Article 2, the Protocol will incorporate UK-specific-definitions, including setting out the geographical scope of the CPTPP in relation to the UK.
3.15Other provisions relate to changes with respect to the UK’s accession including for:
- Goods – including the application of tariff commitments and reductions in the CPTPP to the UK and geographical scope.
- Services, Investment, Financial Services, Entry for Business Persons – including variants that are specific to the UK such as that decisions by the UK on whether or not to permit a merger or acquisition based on national security or public interest grounds shall not be subject to dispute settlement under the CPTPP.
- Digital Trade – this chapter remains unchanged.
- Intellectual Property - this chapter remains unchanged aside from the side-letter between CPTPP Parties and the UK intended to provide the UK with a temporary exemption from the application of Article 18.38 of the Chapter.
- Government Procurement – some CPTPP parties may supply additional information regarding their market access commitments to the UK.
- State-Owned Enterprises – includes commitments from State-owned Enterprises in the UK.
- Environment, Transparency and Anti-Corruption, and Non-Conforming Measures – clarifies the meaning of particular terms or phrases for the UK and certain CPTPP parties.
- Dispute Settlement – the rules regarding instruments entered into between two or more Parties in connection with the conclusion of the CPTPP, also apply to any instruments entered into in connection with the Conclusion of the Protocol. Australia and the UK concluded by side letter an agreement with respect to ISDS in connection with the Protocol.
- General Exceptions – relates to inconsistency between the CPTPP and the Windsor Framework.
- References to the Asia-Pacific Economic Cooperation (APEC) – certain provisions do not apply to the UK as they are not a part of APEC.
- Schedules and Annexes – Schedules of the UK annexed to the Protocol are part of the CPTPP
Side letters
3.16Two sets of side letters were signed by Australia and the UK:
- The first is intended to provide the UK with a temporary exemption from the application of Article 18.38 of the Trans-Pacific Partnership (TPP)'s Intellectual Property Chapter, which was incorporated into CPTPP and relates to aspects of patent law. Article 18.38 will not apply to the UK until it is able to make the legislative changes necessary to bring it into conformity with the Agreement. The UK has exchanged equivalent side letters with each of the other Parties to the CPTPP.
- In the second side letter, the UK has agreed that CPTPP’s ISDS provisions will not apply between Australia and the UK. This means UK investors would not have recourse to dispute settlement against Australia and Australian investors would not have recourse to dispute settlement against the UK. The side-letter ensures the UK's accession is in-line with the Australian Government's commitment to not include ISDS in new trade agreements.
Implementation
3.17To enable the entry into force of the Protocol, Australia will need to amend the Customs Tariff Act 1995 (Cth) to establish preferential rates of duty and establish provisions for CPTPP originating goods from the UK. There are no other legislative amendments necessary.
Costs
3.18There are not anticipated to be any additional costs in relation to the UK accession to the CPTPP.
Issues
Value of the CPTPP
3.19At the public hearing, DFAT explained that the CPTPP ‘is one of the world's most comprehensive and ambitious trade agreements, eliminating 98 per cent of tariffs in a trade zone which represents a combined GDP of US$14.6 trillion and a population of 580 million people.’ DFAT further said, ‘The CPTPP's rules on investment, intellectual property, ecommerce and rules of origin provide a platform for deepening economic integration and more resilient regional value chains in the Indo-Pacific region and beyond.’
3.20The Committee heard that the UK is a G7 member and has an economy committed to rules-based trade which will ‘significantly benefit the existing membership by providing opportunities to expand trade and investment’.
3.21In a submission to the inquiry, Australian Grape and Wine ‘welcomes the opportunity to support progression of the Protocol’, noting ‘We will advocate strongly for swift and bipartisan support for the Protocol’s progression and adoption through the Australian Parliament.’
Services
3.22DFAT explained that the members that will benefit most from the UK joining the CPTPP will be countries that do not have a FTA with the UK. As Australia already has a FTA with the UK with strong market access outcomes, the economic gains to Australia from the UK accession to the CPTPP will be modest. The UK’s commitments on services in the CPTPP is only a slight improvement over commitments in Australia’s bilateral FTA with the UK.
Supply chain benefits
3.23The Committee inquired into consequential supply chain benefits. They noted that the benefit of the Protocol is not so much about direct market access or tariff reduction benefits but that when you get harmonisation and integration across a regional group of trading partners and partners in the full spectrum of the manufacturing goods production processes, there are consequential supply chain benefits.
3.24DFAT has identified that the main benefit of the UK accession to the CPTPP to Australia is in the area of supply chains as the UK’s products will be able to qualify as being eligible for access benefits that are negotiated in the Agreement. Australian manufacturers will be able to use UK-made components in their production processes and export to CPTPP countries at preferential CPP tariff rates. This will result in greater choice for Australian manufacturers with respect to their manufacturing processes and also greater opportunities internationally.
3.25The Committee inquired into the extent the Government was trying to improve the way supply chain benefits are assessed. The Government explained that ‘relevant government agencies do, in particular circumstances, examine sector-specific supply chain issues in consultation with industry stakeholders.’ They went on to provide the example of the Office of Supply Chain Resilience which ‘assesses disruption risk in Australia’s critical supply chains, including monitoring Australia’s supply chain vulnerability and criticality through data analysis and engagement with stakeholders in industry.’
Professional mobility
3.26DFAT explained that there are additional commitments in relation to the provision of audio-visual services. There are also narrower exemptions for entertainment services which reflects a slight improvement. There is also the ability to lock in future improvements to UK portfolio management services. In addition there are also commitments to provide access for professionals working for non-profit organisations.
3.27The Government conceded that these are however minor improvements. The FTA between Australia and the UK was quite comprehensive and covered more than 99 per cent of tariff lines in terms of elimination. In addition, there was an agreement made at the same time as the negotiation of the UK FTA whereby both parties agreed not to re-open the discussion on market access in the contact of the CPTPP.
Strategic benefits
3.28By joining the CPTPP this will enhance the UK’s engagement in the Indo-Pacific region, ‘supporting Australia's interest in working with like-minded partners to realise an open, inclusive and prosperous region.’
Side letters and ISDS
3.29The Committee was informed that, ‘Together, the side letters suspend the application of the CPTTP's investor state dispute settlement provisions vis-a-vis Australia and provide the United Kingdom with a grace period for applying certain intellectual property provisions.’
3.30In a submission to the inquiry, the Australian Fair Trade and Investment Network recommended that the ISDS provisions in the investment chapter be reviewed and removed and failing that, ‘the Australian Government should negotiate with other CPTPP members bilateral side-letters which agree not to apply the ISDS provisions to each other, as it has been done with New Zealand and the UK.
3.31The Committee inquired into whether there was an obligation on CPTPP members to make public bilateral arrangements such as the Side Letters and the Government explained that there were no explicit requirements in the Protocol, CPTPP or Commission decisions that obligate parties to publish side letters. Side letters between Australia and CPTPP countries are however published on the DFAT website.
Pensions
3.32British Pensions in Australia, a registered charity that cares for British pensioners and their families and dependents living in Australia made a submission to the inquiry and noted that ‘We believe that the inclusion of the United Kingdom as a party to the CPTPP is inappropriate. This is not based on geography but on the continuing discrimination by the United Kingdom in the way it freezes the age pension it pays to residents of the other countries within the CPTPP.’
3.33The UK Government pays the UK state pension worldwide; however, pensioners will only receive an increase each year if they:
- live within the European Economic Area and Switzerland, or
- a country that has a social security agreement with the UK that allows for cost of living increases to the state pension, with the exception of New Zealand and Canada.
- Upon prompting by the Committee on this issue, the Government said that the non-indexation of pensions predates both the CPTPP and Australia’s FTA with the UK. DFAT said that this issue is not connected to the CPTPP as pensions are not a trade issue and they were not covered in the FTA negotiations. DFAT said ‘while the non-indexation of pensions is a policy decision for the UK government, the Australian government does continue to pursue the non-indexation issue, but through other channels, not through the FTAs we are talking about today.’
- DFAT further said that ‘the Australian Government also continues to engage with the UK Government on this issue through other channels, including representations by the Australian High Commission in London.’ They explained, ‘To date, the UK Government has indicated it has no plans to change its policy on indexation or enter into negotiations for a social security agreement with Australia.’
Changes in the application procedure
3.36The Committee discussed changes to the way aspirations to the CPTPP are ranked or the order in which they are assessed. Further, whether the process is changing from what the UK went through and how they will decide on which nation to next do a detailed assessment of their application to join. DFAT said, ‘Since the UK applied, the membership has put in place a process to discuss applications. So there is now an informal standing forum to discuss applications’.
Committee comment
3.37The Committee believes that the UK accession to the CPTPP is in the national interests of Australia. The UK is a strong bilateral partner to Australia with economic, defence, people-to-people and cultural links. Australia and the UK have joined together for numerous bilateral and multilateral treaties.
3.38The Committee acknowledges that the CPTPP is one of the world’s most comprehensive and ambitious free trade agreements which eliminates 98 per cent of tariffs in a trade zone that represents a combined GDP of US$14.6 trillion. The population of this area is over 580 million people (including the UK).
3.39There are benefits in the CPTPP for Australian exporters of goods and Australian exporters of services. The Protocol enhances the level of transparency and predictability for Australian services exporters, reducing regulatory risks. The Protocol also provides opportunities or Australian businesses to bid for government procurement services contracts. The Protocol also helps to deliver a more liberalised and predictable regime for the regulation of foreign investment.
3.40The Committee held an inquiry into this the Protocol and in doing so addressed a number of issues relating to the Protocol including the value of the CPTPP, services, supply chain benefits, professional mobility, strategic benefits, side letters and ISDS, pensions and changes to the application procedure. The Committee learned that while the benefits to Australia of the UK joining the CPTPP are modest due to Australia’s already comprehensive free trade agreement with the UK, the accession is still beneficial to Australia particularly in terms of supply chain benefits. The Committee believes that these issues have been adequately addressed by the inquiry.
3.41The Committee supports the Protocol on the Accession of the United Kingdom of Great Britain and Northern Ireland to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and associated side-letters and recommends that binding treaty action be taken.