Why China got excluded from the TPP

Signed on October 5 2015, the Trans-Pacific Partnership (TPP) is considered to be one of the biggest trade deals ever established. It is an agreement among twelve countries: the U.S., Japan, Malaysia, Vietnam, Singapore, Brunei, Australia, New Zealand, Canada, Mexico, Chile and Peru, and covers approximately 40% of the world's economy.

It is the most ambitious multilateral proposal in its reach of signatories to regulate investment, capital flows and state-owned enterprises. A major feature of the TPP is intellectual property (IP) rights and protection for their role in boosting trade and economic growth. It is one of the many reasons China has not been included in the partnership despite its position as the world's second largest economy, as its IP laws and enforcement are considered insufficient.

The TPP's goal is to promote economic growth and ties; support the creation and retention of jobs; enhance innovation, productivity and competitiveness; raise living standards; reduce poverty in member countries; and promote transparency, good governance and enhanced labor and environmental protection. The TPP therefore contains measures to lower trade barriers such as tariffs, sets common standards for member countries to follow and establishes investor-state dispute settlement mechanisms.

The costs of excluding China, however, may be significant. China has one of the largest IP systems in the world and contains rapidly-growing innovative sectors and global business models. It could greatly strengthen the global trading system by playing a constructive role, conforming and joining the TPP, illustrated by studies by the United States International Trade Commission, which estimated China's improvement in IP rights to a level comparable to the U.S.' would increase U.S. net employment by 2.1 million jobs and increase annual sales by $107 billion for American companies.

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.