The United Kingdom (“UK”) is in the market for trade deals, with potential new benefits for a number of States and both inbound and outbound investors. As of 1 January 2021, following its exit from the European Union (“EU”), EU trade agreements no longer apply to the UK. It is now in the process of finalising a UK-Australia trade deal and a UK-New Zealand trade deal, having recently published an Agreement in Principle for each of them.
In the same vein, the UK is negotiating trade deals with the 11 Pacific Rim States forming the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (“CPTPP”). It has also expressed an interest in joining the US-Mexico-Canada trade pact and in trade deals with other States, such as India. This follows recent new trade deals signed with Japan in late 2020 and with Norway, Iceland and Liechtenstein in July 2021.
UK-Australia trade deal
On 17 June 2021, the UK and Australia published an Agreement in Principle, setting out broad terms of their deal. It followed the launch of negotiations between the UK and Australia from June 2020. The UK government expects to publish the legal text of the deal by the end of 2021, although Australia has not yet shared any timing expectations.
The deal will include the following:
Notably, the UK is the third largest source of foreign direct investment in Australia, with foreign direct investment valued at $123 billion in 2020. The UK is likewise the second largest recipient of Australian foreign direct investment.
Despite the agreement’s wide-ranging investment provisions, the UK-Australia trade deal will not include any investor-State arbitration provisions. As such, the UK-Australia trade deal will not allow Australian or British investors directly to commence investor-State arbitrations against the UK or Australia respectively.
UK-New Zealand trade deal
On 20 October 2021, the UK and New Zealand also published an Agreement in Principle, setting out broad terms of their deal. It followed the launch of negotiations in June 2020 and, as expected, closely resembles the UK-Australia trade deal in multiple key respects. The deal will include, for instance: significant tariff liberalisation; Most Favoured Nation provisions and protection for UK and New Zealander investors, including from unfair and discriminatory treatment and expropriation of assets without due compensation. As with the UK-Australia trade deal, the UK and New Zealand have agreed not to include any investor-State arbitration provisions. Indeed, they have gone even further to agree prospectively that, if and when the UK accedes to the CPTPP, the investor-State arbitration provisions in the CPTPP also will not apply between the UK and New Zealand.
The New Zealand government aims to conclude the UK-New Zealand free trade agreement by the end of 2021, although the UK has not yet shared any timing expectations.
UK membership in the CPTPP
On 28 September 2021, the UK attended its first meeting with the 11 members of the CPTPP to negotiate the UK’s potential accession. This followed the UK’s formal application to join the CPTPP on 1 February 2021.
The CPTPP is a £9 trillion free trade area of 11 States: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. In broad terms, it removes 95% of tariffs between its members. The UK has expressed its hope that CPTPP membership will help secure exports to CPTPP members’ growing markets, which are home to some 500 million people and include some of the world’s biggest current and future economies. Even if approved, the UK is unlikely to achieve accession to the CPTPP before 2022 at the earliest. In addition to the UK, n 16 September 2021, China also officially applied to join the CPTPP.
Under the CPTPP’s investment terms, States that are party to the CPTPP undertake to treat each other’s investors and their investments in accordance with a number of substantive treatment standards. These include the fair and equitable treatment standard and the prohibition on expropriation without compensation. The CPTPP also contains provisions on investor-State arbitration. In the event of an investment dispute, those provisions allow qualifying investors from one CPTPP State party to commence an investor-State arbitration directly against the other CPTPP State party, in which their investment is located.
The negotiation and signing of new trade agreements by the UK was an anticipated consequence of Brexit. Their impact on foreign investment will depend on the final terms of the deals, but is likely to include a number of significant benefits to the relevant States and their investors.
Under both the UK-Australian trade deal and the UK-New Zealand trade deal, based on the Agreements in Principle, provisions on the protection of investments will be included, even though access to investor-State arbitration will not be part of the treaties. Pending the UK’s possible entry into the CPTPP (and beyond, in the case of New Zealand), certain investors in the UK and other CPTPP member States may wish to consider, on a proactive basis, the optimal structuring of their investments to protect against possible adverse measures. States are also well-advised to consider the protection of investors under international law regardless of whether investor-State arbitration appears immediately available.