With the signing of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) on March 8 2018, Canadian insurance companies can expect to provide coverage for increased trade transactions and agreements with companies in the Asian-Pacific region.

Overview

The CPTPP is a revised version of its parent, the Trans-Pacific Partnership (TPP), from which the United States withdrew in 2017. The 11 signatories are Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. Once fully ratified and in force, the CPTPP will reduce or eliminate almost all tariffs between its member countries, a trading bloc that will represent 495 million people and a combined gross domestic product of CAD $13.5 trillion, or 13.5% of the global GDP. The agreement will also establish high-standard rules that will make business environments more transparent and predicable for Canadian exporters and investors.

George Karayannides, a partner at Clyde & Co's Toronto office, says the "key for Canada in the CPTPP is access to new free trade partners and, in particular, Japan, Australia, Vietnam, and Malaysia."

America’s absence also means new trade opportunities for Canadian exporters, who could have a competitive advantage over their US counterparts in important international markets. It’s unclear, though, how the CPTPP will affect North American Free Trade Agreement negotiations given Canada and Mexico's inclusion within the CPTPP.

Impacts on insurance and dispute resolution

Canadian insurers can expect to provide coverage for increased business transactions and trades with signatories of the CPTPP. Depending on the region, this may entail also considering additional factors such as political risk when determining the terms of coverage. For example, Brunei has implemented Sharia law's penal code which has attracted international criticism. Alternatively, with many of the signatories being located in the Asian-Pacific region, insurers will have to consider the increased risk of damage to or loss of goods when transported by freight across long distances.

Should issues arise between an insurer and an insured with regards to coverage, the CPTPP will provide for separate dispute resolution methods depending on whether actual State signatories are parties to the dispute.

State

The actual text of the CPTPP consists of only seven articles and one brief annex, though more substantive negotiated outcomes of the CPTPP can be found in its side instruments.

Under the State dispute resolution process outlined in Chapter 28 of the TPP, any party can request consultations with another party over any matter covered under the scope of the provisions. If they fail to reach an agreement, the party that initiated consultations may request a panel of three members be set up to decide on the dispute. All panelists must have relevant legal expertise. Chapter 28 provides its own rules of procedure which are to be used by the panel in the dispute.

Private

For the settlement of private international commercial disputes in the free trade regions covered by the CPTPP, parties are directed inasmuch as possible toward arbitration and other means of alternative dispute resolution. Moving forward, Canadian businesses and individuals that engage in trade with other private-sector persons from member States of the CPTPP should prepare for this possibility.

In reaching contractual agreements, it is important to include clear and thorough dispute resolution or arbitration provisions covering choice of jurisdiction and choice of law clauses to determine where and under what legal regime disputes are decided. Also, contracts should outline the requisite experience of any arbitral panel.

Given the international scope of potential disputes, it is likely that the Model Law on International Commercial Arbitration of the United Nations Commission on International Trade Law (Model Law) and the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) will apply to arbitral proceedings. However, it is important to note that Brunei is not a party to either agreement. Vietnam is not a party to the Model Law. Insurers and other parties in private trade should accordingly take note of such considerations when negotiating arbitral clauses or while in the midst of arbitral proceedings. Insurers may find that trade agreements with private parties in Brunei, for instance, may require high-risk coverage given that an arbitral award may not be recognized.

It will also be important to consider each CPTPP member state's approach to arbitration and the interplay with domestic courts. The key question is whether arbitral disputes will stay in the course of arbitration or whether an action arising from the dispute and brought in a relevant court will be conclusively determined by the region's judicial system.

  • While the CPTPP will bring about increased trade benefits for Canada, it also serves as a reminder to Canadian insurers and traders to ensure their policies or trade agreements take into account coverage risk and the applicability of appropriate dispute resolution methods.