What does the CPTPP mean for services?

Summary/overview

• The CPTPP offers Canadian services suppliers improved protection, predictability and transparency for conducting business, and expands access to large and growing CPTPP markets.
• This will benefit Canadian companies in areas such as financial, professional (e.g. engineering and architecture), computer-related, research and development, construction, education, environmental and mining-related services.
• Canada maintains policy flexibility in sensitive areas such as Indigenous^{Footnote 1} and minority affairs, culture, fisheries, social services (including health and public education) and certain transportation services, among others.

Trade snapshot

The services sector is by far the largest part of Canada’s economy, accounting for almost 70% of Canada’s GDP, and employing close to three out of four working Canadians (more than 13.6 million people).

Key facts and figures

• Canada’s services exports to CPTPP countries were worth at least $6.6 billion per year in 2016, accounting for 6% of Canada’s total trade in services—with a great potential for growth.

Canada’s top five services exports to CPTPP countries (2015)

• Transportation: $1.3 billion
• Management: $497 million
• Architectural, engineering and other technical services: $393 million
• Financial: $302 million
• Maintenance and repair: $200 million

How the CPTPP benefits services suppliers

Free trade agreements (FTAs) facilitate more than the import and export of tangible goods. Ideas and expertise are also exchanged, in large part, through trade in services, such as architecture, engineering, information management, environmental protection and monitoring, mining and energy development, transportation and financial services. Services account for some of the highest-paying jobs in Canada.

The CPTPP cross-border trade in services (CBTS) and financial services chapters contain rules aimed at facilitating the exchange of services, building on commitments made under the 1995 WTO General Agreement on Trade in Services (GATS):

• National treatment: trading partners should not discriminate against each other's services suppliers to favour their own services suppliers
• Most-Favoured Nation treatment: trading partners should not discriminate against services suppliers to favour services suppliers from any other country. and
• Market access: trading partners cannot impose certain restrictions that make it difficult for services suppliers from CPTPP countries to compete in the host market.

Under the CPTPP, Canada also maintains policy flexibility to regulate in the public interest through reservations known as “non-conforming measures.” Non-conforming measures allow governments to maintain exceptions to the CPTPP services and investment chapters by listing the specific measures activities or sectors where obligations under these chapters do not apply. This helps ensure that governments can continue to keep measures and policies on services and investment in place, based on domestic priorities. These non-conforming measures are identified in Annexes I and II of the Agreement.

Cross-border trade in services (CBTS)

The CPTPP’s CBTS chapter makes commitments that go beyond GATS and Canada’s existing FTAs with CPTPP partners (such as Chile, Mexico and Peru).

In the CPTPP, Canada gains access to new markets in sectors such as:

• professional services (e.g. legal, engineering and architectural) and transport services from all 10 partners
• computer-related services from Australia, Chile, Malaysia and Mexico
• research and development services from Australia, Chile, Japan, Malaysia, New Zealand, Singapore and Vietnam
• construction services from Australia, Mexico, New Zealand and Vietnam
• education services from Malaysia, New Zealand, Singapore and Vietnam
• environmental services from Australia, Brunei, Japan, Malaysia, Mexico, New Zealand, Peru and Vietnam
• mining-related services from Brunei, Chile, Malaysia and Singapore, and
• services incidental to energy distribution from Brunei, Chile, Malaysia, New Zealand and Singapore.

In addition, every CPTPP country has specific measures, activities or sectors that it may reserve, as listed under Annexes I and II of the Agreement.

In Annex I, each CPTPP country has a list of non-conforming measures affecting services and investment that existed in the country at the time the CPTPP was concluded and that the country intends to maintain. These measures do not need to be changed even if they are inconsistent with certain obligations in the Agreement. Countries also made the commitment that the non-conforming measures listed in Annex I would not become more restrictive in the future.

In Annex II, each CPTPP country has reservations for sectors or activities where it wishes to retain complete policy flexibility, now and in the future. This allows Canada to maintain policy flexibility in sensitive areas such as Indigenous and minority affairs, culture and social services (including health and public education), and certain transportation services. These reservations allow Canada to introduce new measures in these areas in the future based on domestic priorities, irrespective of Canada’s commitments in the CPTPP.

Financial services

The CPTPP Financial Services chapter applies to measures adopted or maintained by CPTPP countries relating to financial institutions, investors and their respective investments in financial institutions, and cross-border trade in financial services. Building upon the obligations on national treatment, MFN treatment and market access under GATS, the chapter:

• includes obligations regarding transparency to help financial services providers better navigate regulatory regimes in CPTPP countries (for example, by establishing rules for CPTPP countries to publish in advance proposed financial sector regulations)
• provides an opportunity for financial authorities to discuss through a committee any matter related to the financial sector (for instance, to avoid or resolve unnecessary barriers to entry experienced by financial institutions in CPTPP countries)
• incorporates protections from the investment chapter to protect financial services investors and investments, and
• includes a robust prudential exception, which ensures that financial authorities can take measures for prudential reasons to protect the soundness of the financial system and the interests of consumers of financial services without violating the CPTPP.

Importantly, the chapter tailors the CPTPP’s dispute settlement provisions to the unique nature of financial services. For example, the chapter sets out special expertise requirements for arbitrators in the event that there is a dispute pertaining to financial services. The chapter also establishes a formal process for financial authorities to jointly determine if a CPTPP country’s use of the prudential exception is a valid defence of an investor’s claim (and not in contravention of the CPTPP).

Under Annex III of the Agreement, each CPTPP country lists non-conforming measures in the area of financial services, organized into two sections:

• Section A contains reservations for existing non-conforming measures that CPTPP countries may not make more restrictive in the future; and
• Section B contains reservations for sectors or activities for which CPTPP countries may wish to retain policy flexibility, now and in the future. For transparency purposes, Section B may also include a non-exhaustive list of existing measures that applies to sectors or activities covered by the reservation.