Why China got excluded from the TPP

The implications are also potentially damaging for the country – the TPP members account for almost half of global GDP, meaning zero tariffs will be imposed on around 20,000 kinds of products which creates pressure on China's foreign trade. The partnership prevents China from enjoying new tariff reductions and preferential market access, and may divert trade and manufacturing to TPP members. The loss of trading opportunities may initially knock 0.5% off China's annual economic growth.

Nevertheless, China conducts enough international economic negotiations to sustain itself, with active discussions for bilateral and regional trade agreements with countries including Chile, Pakistan, New Zealand, Singapore, Peru, Costa Rica, Iceland, Switzerland, South Korea and Australia. China maintains successful relations with partners outside the TPP and has developed the Association of Southeast Asian Nations Free Trade Area, which supports local manufacturing in all ASEAN countries, and is in the process of participating in the Silk Road Project, the Asian Infrastructure Investment Bank, the New Development Bank and other high-level economic structures.

The importance of IP in trade

IP plays an essential role in fostering economic growth. The TPP's chapter on IP covers topics including patents, trademarks, copyrights, industrial designs, geographical indications, trade secrets and enforcement. It also focuses on implementing greater cooperation among offices, facilitating greater IP utilization and economic integration among member nations and further cooperating to obtain genetic resources, access to medicine, knowledge and skills to reflect the interests of developing countries.

China is member to all major treaties required for TPP accession, which include the Madrid Protocol, the Budapest Treaty, the Singapore Treaty, the WIPO Copyright Treaty, the WIPO Performance and Phonograms Treaty, the Patent Cooperation Treaty, the Paris and Berne Conventions and the TRIPS Agreement. It is not, however, party to the International Convention for the Protection of New Varieties of Plants (UPOV).

China is not prepared for a major regional IP-related pact such as the TPP. It has handled a relatively limited range of issues and types of IP rights in its free trade agreements, and also faces significant challenges brought by other chapters of the partnership that affect IP commercialization and utilization, such as market access for lawyers, restrictions on state-owned enterprises, e-commerce and investor-state dispute resolution.

Furthermore, other member nations have acknowledged the challenges in attempting to engage China on IP issues, with one senior diplomat saying, “rampant violations of intellectual property continue, state-owned enterprises have advantages over private competitors, and United States companies invested in China have become increasingly disillusioned by China's unique standards and preference for indigenous innovation – not to mention evidence of large-scale cybersecurity violations. Therefore, the TPP allows the member nations to offer a high-standard, rules-based alternative to China's state capitalism”. Also, in 2013, the National Bureau of Asian Research issued a report on the Theft of American Intellectual Property, which revealed that virtually every sector and technology has been impacted by trade secret theft, and further estimated that between 50% to 80% of IP theft in all categories – both globally and in the U.S. – the theft can be traced back to China. The lack of regulation and enforcement of IP is one of the many reasons China been excluded from the TPP.

Trademarks

The Trademark Law section of the TPP provides protections for brand names and other signs that businesses and individuals use to distinguish their products in the marketplace.

The chapter requires member nations to maintain efficient and transparent procedures governing trademark applications, including through electronic registration mechanisms. It also calls for transparency and due process safeguards with respect to the protection of new geographical indications (recognized by international agreements or not) and their relationship to trademarks, as well as safeguards for commonly-used terms. Furthermore, the TPP standardizes trademark procedures by simplifying the means for businesses to search, register and protect their IP rights in new markets.

China's trademark laws and enforcement are insufficient for the country to be granted TPP membership, for the following reasons:

1. the TPP allows smells to be registered as trademarks;
2. the TPP does not require the trademark office to handle filings;
3. the TPP allows for geographical indication registrations in relation to goods coming from external locations under certain conditions, whereas China prohibits the registration and use of such marks, except those that were bona fide registered; and
4. the TPP requires strict enforcement on violations of trademark laws, while China falls behind on enforcing issues such as counterfeits, imposing tougher penalties and simplifying the calculation of loss.

Copyright

The TPP's chapter on Copyright Law establishes commitments requiring protection for works, performances and phonograms such as songs, movies, books and software, and includes provisions on technological protection measures and rights management. Complementary to these, member nations are encouraged to achieve balance in copyright systems through exceptions and limitations for legitimate purposes such as criticism, comment, news reporting, teaching, scholarship and research. They also need to establish or maintain a framework of copyright safe harbors for internet service providers (ISPs), as well as allow legitimate cloud computing providers, user-generated content sites and other internet services to develop while effectively tackling online copyright piracy.

China's copyright laws contain many insufficiencies compared with the comprehensive coverage of copyright laws in the TPP, including:

1. the TPP sets a minimum term of life plus 70 years for works of authorship and 70 years for works with a publication date-based term, whereas China provides protection for life plus 50 years;
2. the PRC Tort Liability Law only requires network service providers to take measures following users' complaints, while the TPP views this as insufficient and requires them to proactively identify copyright-infringing users.

Patents

The Patent Law chapter of the TPP contains pharmaceutical-related provisions that facilitate both the development of innovative, life-saving drugs and the availability of generic medicines, taking into account the time certain member nations may need to meet these standards. It pushes for the availability of patents that entail new uses, methods or processes of existing products, as well as those for inventions that meet internationally-recognized criteria, subject to exceptions and limitations drawn from the TRIPS agreement. Members must allow a grace period of 12 months during which public disclosures of an invention will not be used for invalidation. This allows inventors to present their research findings without forfeiting their chances of patenting – and making money from – their products.

The TPP provides a range of commitments designed to boost both innovative and generic drugs. For instance, patent terms must be adjusted when the marketing approval process unreasonably cuts into the effective term of a pharmaceutical patent, and a system for addressing issues related to marketing drug products must be established. This includes notifying a patent holder when a competitor is seeking to market a generic or follow-on product and providing enough time and opportunities to seek available remedies.

With respect to data protection for small molecule pharmaceuticals, TPP nations must provide at least a 5-year period for the protection of undisclosed tests or other information concerning the safety or efficacy of new drugs, which companies must submit to secure marketing approval for their products. For the first time in a trade agreement, the TPP also requires an extended term of effective market protection for biological medicines, which is key for future medical advancement.

Among many other issues, China's patent laws are hugely lacking when compared with the provisions in the TPP. China needs to address the following:

1. the protection of undisclosed drug development data should be enhanced;
2. the conditions for the registration of a new drug invention should be reduced to conform with those of the TPP;
3. the protection term of drug patents should be extended; and
4. the enforcement of patent laws should be strengthened.

The need to catch up

The TPP seeks to secure a strong and balanced framework for intellectual property rights protection to promote innovation, encourage creativity and reduce obstacles to developing new technology and business models throughout Asia. But its comprehensive IP provisions are one of the many reasons China has been excluded. It is vital for China to enhance its IP laws and increase enforcement and regulation so as to match the goals of the TPP and join one of the greatest global trade agreements to date.

Matthew Murphy and Joyce Chng, MMLC Group, Beijing