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Free Trade Agreements: Hegemony Or Harmony
 9811330379,  9789811330377,  9811330387,  9789811330384

Table of contents :
Preface......Page 6
Acknowledgements......Page 8
Contents......Page 9
Editors and Contributors......Page 10
1 Introduction......Page 14
2 A Brief History of Trade Agreements......Page 15
3 Free Trade in the Regions......Page 20
The Trans-Pacific Partnership Agreement and the Regional Comprehensive Economic Partnership: A Battleground for Competing Hegemons?......Page 24
1 Introduction......Page 25
2 The USA’s Demonisation of China......Page 26
3 Divergent Agendas......Page 30
4.1 The Trans-Pacific Partnership......Page 32
4.2 The Regional Comprehensive Economic Partnership......Page 37
5.1 TPP: Overall Content......Page 39
5.2 RCEP: Overall Content......Page 40
5.3 Intellectual Property......Page 41
5.4 Investment......Page 42
5.5 Services......Page 43
5.6 Electronic Commerce......Page 44
6 Reflections on a Battle for Hegemony......Page 46
1 Introduction......Page 48
2 Open Science, Copyright Overprotection and International Law......Page 49
3.1 Intellectual Property Rights in the FTAs: Two Approaches......Page 54
3.2 Issues in the Proliferation of Free Trade Agreements and IP......Page 57
3.3 Trans-Pacific Partnership (TPP) and Copyright: A Paradigmatic Example......Page 59
3.4 FTAs and IPRs: A “Marriage of Convenience”......Page 61
4 Conclusions......Page 63
South Korea’s Agricultural Trade Dilemma: Open Markets or Protectionism? Beyond the China-South Korea Free Trade Agreement......Page 65
1 Introduction......Page 66
2 Agricultural Trade and the Reasons for South Korea’s Protectionism......Page 67
3.1 Strengths of Protectionism......Page 69
3.2 Weaknesses of Protectionism......Page 70
4.1 Reconciliation......Page 72
4.2 Mission: Possible......Page 73
4.3 Viable Strategies......Page 74
5 Conclusion......Page 87
1 Introduction......Page 89
2.2 The Vision and Development of BampR......Page 91
2.3 Infrastructure Investment in BampR and PPP......Page 92
2.4 Limited Public Finance Support......Page 93
2.6 Inefficient Public Service and Governance......Page 94
3 Role of PPP in BampR Initiative......Page 95
3.1 PPP International Legal Principles......Page 97
3.2 Scientific Government Decision......Page 98
4.1 Current PPP Laws in China......Page 99
4.2 Government Support and Related Regulations......Page 101
5 Developing a Comprehensive PPP Legal Structure Under the BampR Initiative......Page 103
5.1 Enacting National Level PPP Laws, Distinguishing Other Legislations......Page 105
5.3 Strengthening the Development of PPP Unit......Page 106
5.4 Establishing PPP Risk Prevention and Control System......Page 107
6 Enhancing Inclusivity and Embracing Sustainable Development......Page 108
Breeding Exemption in Plants Under Intellectual Property Regimes......Page 110
1 Introduction......Page 111
2.1 The Relevant Provisions of the Breeding Exemption Under the PVR Systems......Page 112
2.2 Non-commercial Purposes Are not a Prerequisite for Breeding Exemption......Page 115
2.3 Limitation of Breeding Exemption—Essentially Derived Varieties......Page 116
3.1 The Distinction of Research for Commercial or Non-commercial Purposes......Page 118
3.2 The Distinction Between Research on or with the Patented Invention......Page 121
4 The Ways to Extending the Breeding Exemption into the Patent System......Page 123
4.1 Expand the Interpretation of Research Exemption......Page 124
4.3 Create a Separate Breeder Exemption in the Plant Patent Law......Page 125
5 Conclusion......Page 128
1 Introduction......Page 129
2.1 Basic Information about FTA between China and Australia......Page 130
2.2 Changes Brought by ChAFTA......Page 131
3 Important Role and Significance of ChAFTA......Page 132
4.1 Overview of Intellectual Property Agreement in ChAFTA......Page 133
4.2 ChAFTA, the Implementation on International Intellectual Property Protocols......Page 135
5.1 Overview of Australian Intellectual Property Law and Its Amendments......Page 137
5.2 The Interest Balance in Australian Intellectual Property Law......Page 138
5.3 The Important Meaning of Interest Balance in Intellectual Property Law......Page 139
6.1 An Appeal Against the TPPA......Page 141
6.2 TPPA Causes International Disputes......Page 142
6.3 Analysis on TPPA According to Intellectual Property Dimension......Page 143
7 The Choice of Chinese Intellectual Property Law on the Interest Balance......Page 144
7.1 The Laws and Regulations on Chinese Tobacco Products Packaging......Page 145
7.2 Summary of Chinese Current Intellectual Property Law and Interest Balance......Page 146
8 Conclusion......Page 147
Denouncing Trade Agreements Validating Pharmaceutical Developers’ Term Extensions......Page 148
1 Introduction......Page 149
2.1 TRIPS Compliant Patent Regime for Pharmaceutical Innovation in India......Page 152
2.2 Legal Background and Theoretical Justifications......Page 155
3.1 Revisiting Opinions of Courts and the Competition Commission of India......Page 160
3.2 Government Position on Patent Linkage......Page 163
4 Measures Relating to Pharmaceutical Products Under CPTPP......Page 164
4.1 Chapter 9 Defines ‘Investment’ Protection Rights......Page 165
4.2 Chapter 18, Section F on Patents and Undisclosed Test or Other Data......Page 166
5 Conclusion and Suggested Way Forward......Page 169

Citation preview

Lillian Corbin · Mark Perry   Editors

Free Trade Agreements Hegemony or Harmony

Free Trade Agreements

Lillian Corbin Mark Perry •


Free Trade Agreements Hegemony or Harmony


Editors Lillian Corbin University of New England Armidale, NSW, Australia

Mark Perry University of New England Armidale, NSW, Australia

ISBN 978-981-13-3037-7 ISBN 978-981-13-3038-4


Library of Congress Control Number: 2018958943 © Springer Nature Singapore Pte Ltd. 2019 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721, Singapore

For Zoe Lash


This book is aimed at reaching all people interested in the global evolution of free trade agreements, particularly given the recent turbulence in this realm instigated by the USA. This probably means every thinking person, as who could not be interested in one of the underlying foundations of modern trade? Readers who are stakeholders in the provision of goods or services, or consumers of goods and services, will be interested in our regional developments in free trade. It should be noted that this is a snapshot from early 2018, and the details of current agreements are in a state of rapid change and challenge. The editors ask readers to contemplate the work as a whole and to see how the authors who come from the region and outside have reflected on issues in global trade. The provenance of this work started with the idea for a collaboration between Beijing Foreign Studies University and the University of New England (Australia) for a conference in the area of free trade agreements. This rapidly developed into a conference in May 2017, ‘Free Trade Agreements: Hegemony or Harmony’, with a theme following the changes and challenges in free trade and whether these can be seen to be advantageous to all parties. Readers may be surprised at the diversity of approaches to free trade, from the assumption adopted over the last 70 years that such agreements are for the benefit of all parties, the institution of the World Trade Organisation, and its major trade impact, notably including rights over intangibles via its Agreement on Trade-Related Aspects of Intellectual Property. There have been very recent upheavals in the trade realm, from negotiations that have progressed with the Trans-Pacific Partnership without the USA, which withdrew in 2017, to become a new incarnation known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. This new agreement was signed by the 11 participants in March 2018. This year has also seen the introduction of tariffs by the USA, principally on imports from China but also on the European Union, Canada and Mexico. Some commentators see this as a potential new era in trade wars based on a new paradigm of overt protectionism, but how this pans out is yet to be seen.




The assumptions underlying free trade as manifested by free trade agreements are being challenged, and some of the effects of agreements already made are yet to be fully understood by participating nations. Within this work, the editors hope that readers will find materials to challenge preconceived ideas and perhaps see ‘free’ trade in a different light. Armidale, Australia

Lillian Corbin Mark Perry


Works such as this depend on the direct input from many people and indirectly from many more. Although it is not possible to thank everyone, there are some to thank specifically. Starting at the end, Springer clearly has had a great role in bringing this work to your hands or screen, in particular Thangarasan Boopalan for bringing this project to press. The beginning of this project has its origin in the Free Trade Agreement Conference held in 2017 and co-hosted by Beijing Foreign Studies University (BFSU) and the University of New England, Australia (UNE). In this regard, we especially thank Professor Wan Meng and Associate Professor Lijuan Liu from BFSU for their efforts. There has been a great deal of work by many people in between these two times, a little over a year. To the many others who helped, including our colleagues and friends at the University of New England, Armidale, NSW, Australia, such as Amanda Kennedy, who often provided assistance without even knowing, a word, a thought-provoking comment, we give our thanks. Of particular importance to this mission has been Dr. Priti Krishna for her encouragement and her own stamina for research that provides daily inspiration. We thank you all. Armidale, Australia August 2018

Mark Perry Lillian Corbin



Turbulent Times for FTAs: Australia and the Region . . . . . . . . . . . . . . Lillian Corbin and Mark Perry The Trans-Pacific Partnership Agreement and the Regional Comprehensive Economic Partnership: A Battleground for Competing Hegemons? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Jane Kelsey Copyright Overprotection Versus Open Science: The Role of Free Trade Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Roberto Caso and Paolo Guarda South Korea’s Agricultural Trade Dilemma: Open Markets or Protectionism? Beyond the China-South Korea Free Trade Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ying Chen





China’s Response to Protectionism: PPP Under “One Belt One Road” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Hongyu Fu


Breeding Exemption in Plants Under Intellectual Property Regimes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Zhiqian Wan and Mark Perry


The China-Australia Free Trade Agreement and the Choice of Intellectual Property Interest Balance in the Two Countries . . . . . . . 119 Henry Yan Denouncing Trade Agreements Validating Pharmaceutical Developers’ Term Extensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139 Sunita Tripathy


Editors and Contributors

About the Editors Lillian Corbin’s research has focused on legal ethics, practice and education ranging from issues relating to good practice, such as effective assessment tasks in Succession Law and Business Law; through issues relating to contemporary teaching and learning problems, such as intent in breaches of academic integrity; diminishing rates of student attendance; an analysis of the meaning of student engagement; and current trends in legal ethics; through ‘big picture’ issues, such as the rise of neoliberalism and performativity in the tertiary sector and the opportunities to exercise academic freedom. She examines the role of the lawyer and the meaning of professionalism and the duties that attach to that role. Published output includes a number of articles addressing professionalism, the lawyer–client relationship, communities of practice, duties of civility, duties of mediators and the professional conduct rules. Mark Perry is Professor of Law at the University of New England, Australia, and Barrister and Solicitor of the Law Society of Upper Canada. He is also Professor Emeritus (Computer Science) at Western University in Canada. His research is on the nexus of science and law, in particular focusing on biotechnology and intellectual property. He has prelected audiences around the world, including Brasil, China, India, Japan, New Zealand, the USA, UK and Australia. He has been an invited and keynote speaker at many international conferences regarding technology and law. Along with invitations to speak, he has organised several global conferences in Canada, Australia and China and been an advisor on other symposia overseas. He has published widely in both law and technology journals and has supervised many postdoctoral, graduate and undergraduate students, who have gone on to work at law firms, industry, non-governmental organisations or taken positions in universities.



Editors and Contributors

Contributors Roberto Caso is Co-Director of Trento LawTech Group and is Associate Professor of Comparative Private Law at the University of Trento, Faculty of Law, where he teaches civil law [Diritto civile], comparative intellectual property law, comparative privacy law, copyright law and art, private law and ICTs. He is author and editor of many publications in the field of Intellectual Property, Privacy, Contract Law and Tort Law. He is President of the Italian Association for the Promotion of Open Science (Associazione Italiana per la promozione della Scienza Aperta, AISA) and an associate member of the Centre for Intellectual Property Policy (CIPP) di McGill University, Faculty of Law (Montréal). Ying Chen’s research interests are primarily in the areas of International Trade and Investment, Food and AgLaw, Human Rights, and Comparative Law (specialising in comparative study of Chinese Law and US Law). Her research has been published in leading US and European law journals, such as Cardozo Journal of International and Comparative Law, New York International Law Review, Columbia University Journal of International Affairs, European Journal of Law Reforms, and Indiana International and Comparative Law Review. Her monograph entitled Trade, Food Security, and Human Rights—The Rules for International Trade in Agricultural Products and the Evolving World Food Crisis was published in 2014. She has taught in the USA, China, Mexico and Australia. She is also very active in speaking at international conferences. Hongyu Fu is Associated Dean Deputy Director, China-Foreign Financial and Economic Law Institute at Beijing Foreign Studies University. He has bar admissions in New York and Minnesota in the USA, as well as in China. His practice has been in intellectual property law with a focus on domestic and transnational intellectual property counselling, including intellectual property licences, transfers and other related agreements, corporate patent portfolio, IP due diligence and mergers and acquisitions transactions. Paolo Guarda, Ph.D. in Comparative Private Law, is Research Fellow at The Trento Law and Technology Research Group. At the University of Trento, Faculty of Law, he teaches, among others, ‘Comparative ICT Law’ and is the author of several articles about issues related to Digital Age Law (Privacy, Copyright, Technology Transfer, etc.). Jane Kelsey is one of New Zealand’s best-known critical commentators on issues of globalisation and neoliberalism. She has taught at the University of Auckland since 1979, specialising in socio-legal studies, law and policy and international economic regulation. She is active internationally as a researcher, analyst, adviser and media commentators on globalisation, especially the Trans-Pacific Partnership Agreement,

Editors and Contributors


trade in services, and investment agreements. She is an active member of a number of international coalitions of academics, trade unionists, NGOs and social movements working for social justice. A follow-up to her best-selling book on the neoliberal restructuring of New Zealand, ‘The New Zealand Experiment. A World Model for Structural Adjustment?’, was published in 2015. Sunita Tripathy is Associate Professor, Jindal Global Law School, O. P. Jindal Global University in Haryana, India. She has pursued Master of Laws as a NALSAR-Western scholar at the University of Western Ontario, Canada, and is currently conducting doctoral research at the European University Institute, Italy. She has also been a teaching and research fellow at the University of Washington School of Law, Seattle; the Singapore Management University School of Law, Singapore, and Nanjing University of Information Science and Technology, China. She assists in directing research activities at the Centre for Intellectual Property and Technology Law (CIPTEL) and in her administrative capacity directs the Office of Student Welfare of O. P. Jindal Global University in Haryana, India. She enjoys advanced scholarship and research about law and its role in society with special focus on its nexus with technology, intellectual property and public policy. She has published on issues interfacing intellectual property law and competition policy, led seminars and lecture series on traditional and alternate approaches to intellectual property protection and management and has spoken in several intellectual property conferences and forums in India and overseas. Zhiqian Wan’s research is in Intellectual Property Rights and Public Policy and his doctoral dissertation focuses on the Ecologicalisation of the Intellectual Property Rights System. His current research primarily focuses on (1) food security and intellectual property (supported by my book Food security and China’s Intellectual Property Policy Choice); (2) intellectual property and technological innovation (supported by articles published in academic journals) and (3) protection of new varieties of plants and right to save seed (supported by the research project of study on saving seeds of farmers under different protection manners of new plant varieties). Henry Yan is the Attorney-at-Law of DeHeng Law Offices who specialises in intellectual property law and civil law matters. He is Deputy Secretary-General of DeHeng BCC, the member of China Intellectual Property Society and the member of China Law Association on Science and Technology. He graduated from Zhongnan University of Economics and Law (Wuhan City, Hubei Province) and was granted LLM in Intellectual Property Law. Before joining in DeHeng Law Offices, He worked in a famous enterprise as lawyer specialist and Wan Hui Da IP Law Firm as Attorney-at-Law, and he has rich experiences in dealing with varieties of legal disputes and management matters, including IP disputes and management. Now, he focuses at DeHeng Law Offices on: providing legal advice and strategy for protecting IP rights of client in China; protecting IP rights of client via judicial and administrative measurements;


Editors and Contributors

and fighting infringement. All this work involves IP protection areas: trademark and unfair competition, copyright, patent, domain name, IP online protection, etc. He provides or provided legal services mainly for Disney, Marvel, Pernod Ricard, Suning, Unicom, ResMed, Leatherman, Hennessy and other large corporations.

Turbulent Times for FTAs: Australia and the Region Lillian Corbin and Mark Perry

Abstract Trade agreements have always been a very active contributor to the development of modern history, although the rationale for those agreements has changed over time. Such changes over time reflect the focus of the countries concerned, which, in general, has determined whether the agreements formed favour protectionism and mercantilism or free trade and liberalisation. This tension continues today and continues to revolve around world events and political goals. This chapter initially provides a brief history of trade agreements, and then outlines the focus of each of the following chapters. Keywords FTA history · Protectionism · Mercantilism · Liberalisation Economic Nationalism · Trans-Pacific Partnership

1 Introduction Trade agreements have always been a very active contributor to the development of modern history, although the rationale for those agreements has changed over time. Such changes over time reflect the focus of the countries concerned, which, in general, has determined whether the agreements formed favour protectionism and mercantilism or free trade and liberalisation. This tension continues today and continues to revolve around world events and political goals. This chapter initially

1 Heckscher

Eli F (Nov 1936) Revisions in Economic History: V. Mercantilism. The Economic History Review 7(1): 44–55. L. Corbin · M. Perry (B) The University of New England, Armidale, NSW, Australia e-mail: [email protected] URL: L. Corbin e-mail: [email protected] URL: © Springer Nature Singapore Pte Ltd. 2019 L. Corbin and M. Perry (eds.), Free Trade Agreements,



L. Corbin and M. Perry

provides a brief history of trade agreements, and then outlines the focus of each of the following chapters.

2 A Brief History of Trade Agreements From the 16th to the 18th centuries the accumulation of wealth, primarily through expansionist colonialism, was the priority of European countries. The approach to trade in this environment drew upon Mercantilism—a theory that a nation could amass wealth and power by limiting exports and maximising exports and supportive 1 regulation. The pursuit of wealth and power played a great part in achieving “the unification of the territory of the State economically and the use of the resources of their countries in the interests of the political power of the State”.2 In terms of supportive legislation, this usually came through the introduction of tariffs on imported goods, with the intent to dissuade citizens of a country to purchase goods produced within their own country.3 Often the main utilisers of tariff controls were those countries that at least until very recently, trumpeted the benefits of free trade, namely the United States and the United Kingdom. In general, countries that adopted trade management as economic policy were very powerful and had absolute control over their subjects.4 However, historically it has been shown that this approach to trade ultimately resulted in conflict over scarce resources.5 It is interesting to note that Mercantilism and Protectionism both seek to achieve economic nationalism—a goal that seeks to prioritise the nation’s interests over those of the individual subjects of the nature and those of other countries. However, there are distinctions. Protectionism seeks to grow domestic markets, and in this regard, so does Mercantilism. But Mercantilism also has an interest in expanding into international markets for domestic products.6 Although recent commentators suggest that this interest is not necessarily for the nation’s benefit, but for the industrial2 Ibid.,

45. use of tariffs within international trade have been exercised for many centuries. For example, Henry VII of England imposed tariffs on wool exports in the fifteenth century and attempted to discourage raw wool exports to the Netherlands and encourage the import of skilled labour to work the wool. See Chang Ha-Joon (1 September 2002) Kicking Away the Ladder: How the Economic and Intellectual Histories of Capitalism Have Been Re-Written to Justify Neo-Liberal Capitalism. Post-Autistic Economics Review 15(1): article 3. 4 Heilperin Michael A.: Economic Nationalism: From Mercantilism to World War II. Mises Institute. 13 July 2010. Excerpted from Chapter 3 of Studies in Economic Nationalism (http:// Accessed 1 May 2018. 5 Investopedia. What is ‘Mercantilism’. Accessed 10 May 2018. 6 Quora. What are Some Major Differences Between Protectionism and Mercantilism? Morrison Spencer P (22 April 2017) Accessed 1 August 2018. 3 The

Turbulent Times for FTAs: Australia and the Region


ists—something that Smith warned about.7 Talipi distinguishes Mercantilism from Protectionism as ‘protectionists are happy with their economic pie, they just don’t want to share; mercantilists not only want their pie, but they want some of yours too.’8 A more open and liberalised approach to trade was adopted in the Industrialisation Age of the 19th century. Countries, like Great Britain, began to realise that their economic power gave them a superiority that made them less vulnerable to competitors.9 This understanding was explained by David Ricardo, a British economist, in his book titled ‘On the Principles of Political Economy and Taxation’ published originally on April 19, 1817, where he outlined a theory that he called ‘comparative advantage’.10 In that book he focussed on the need for workers to show that it made sense for England (experts in textile manufacture) to produce cloth and export that to Portugal, and Portugal (a traditional wine producing country) to produce wine and export that to England. His argument was that Portugal’s wine production expertise meant they had the workers with the appropriate knowledge to produce wine. On the other hand, England had workers with the appropriate knowledge to produce cloth. Therefore, Portugal could make wine much more efficiently than England, and visa versa for cloth, meaning both countries would benefit by trading in the areas where they had competitive advantage.11 In the same period, Adam Smith was advocating for free trade, arguing that impediments to trade made products more expensive, and so making a country’s products less attractive to others. He argued that people should purchase the products that are the cheapest and so maximise their own interests and ultimately those of society—the invisible hand argument—first outlined in The Wealth of Nations.12 Both Ricardo and Smith’s theories were influential and used by politicians to make policy and legislate as a kind of roadmap to deal with uncertainties. For example answering the questions ‘what would happen if import duties on wool were raised? Would protection of manufactures increase agricultural production as well?13 7 Quora.

How Different is Trump’s Economic Model from Mercantilism? Feigenbaum James (16 March 2017) Accessed 1 August 2018. 8 Investopedia, supra note 6. 9 World Trade Organization (2011) World Trade Report 2011. The WTO and Preferential Trade Agreements: From Co-existence to Coherence. p. 49. Accessed 1 August 2018. 10 David Ricardo, On the Principles of Political Economy and Taxation, (John Murray, AlbemarieStreet, 1817), para 364. 11 Ibid., para 156–170. 12 Bishop John D. (1995) Adam Smith’s Invisible Hand Argument. Journal of Business Ethia 14: 165–180, 1995; Also see S. M. Soares (ed.), Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations. MetaLibri Digital Library, 29 May 2007. SmithA_WealthNations_p.pdf. Accessed 1 August 2018. 13 Liu Glory M. (2018) The apostle of free trade:’ Adam Smith and the nineteenth-century American trade debates. History of European Ideas 44:2, 210–223, p. 215. doi: 01916599.2018.1429709.


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However, given that politicians inevitably have different goals, it is probably not surprising that some of the major trade deals negotiated demonstrate that the goals of economic growth, the creation of new markets, and new employment opportunities may sometimes be achieved through perverse and unequal arrangements. One instance is where Britain increased their control over a number of trading ports, including Hong Kong, as a result of winning the Opium Wars against China. These wars began because China tried to close its borders to foreign traders (mostly British) from illegally importing opium into China from India. It has been reported that as many as 20,000,000 Chinese people died as a result of opium addiction during the wars (1839–42 and 1856–60).14 When the fact that this huge loss of life occurred over drugs, the British diverted the public’s attention to argue that this occurred for a greater good i.e., that they were upholding the right to free trade. So, rather than acknowledging that this was a drug deal gone wrong, Britain ran a free trade argument i.e., that there should be free trade for all goods between nations.15 Other instances, which could be said to be unequal treaties, that were signed in the 19th century can be seen in the Convention of Kanagawa (1854) and the CobdenChevalier Treaty (1860).16 It was in response to US military threats that Japan signed the Convention of Kanagawa (1854). Up to this time (since Japan closed its doors to foreigners in 1683) Japan had only traded principally with the Netherlands and China. While there was an element of threat involved, and the treaty included some conditions that were unfavourable to Japan in that it weakened their sovereignty, overall it can be seen that it ultimately improved Japan’s economic situation. This period would eventually known as the Maiji Restoration.17 Cobden-Chevalier Treaty (1860): This treaty was the first to include the ‘most favoured national clause’, a clause that is now a usual inclusion in global trading legislation. It is also to support the argument that trade can promote peace between countries. The treaty came about to end the naval arms race between the UK and France. It effectively significantly reduced tariffs between the two countries and doubled the value of exports of Britain over a decade.18 This momentum moved away from trade and towards protectionism (i.e. by the introduction of external tariff barriers) at the end of the 19th century. Three events in particular generated this move i.e., the worldwide depression 1873–1877; the efforts of Italy and Germany to establish themselves as nations; and the United States’ refusal to be participants in Europe’s non-discriminatory treaties, causing European traders to see the US as ‘free riders’. Furthermore, the world’s economic powers all invoked policies of colonial expansion at the end of the 19th and beginning of the 20th centuries. They did this to 14 Larson Jonathan (1993) The History of ‘Free Trade’. TVAfretr.html. Accessed 1 August 2018; Also see Shuyong Liu (1997) Hong Kong: A Survey of Its Political and Economic Development over the Past 150 Years. The China Quarterly, 151: 583–592. 15 Larson, supra note 13. 16 World Finance (undated) Top 5 Trade Deals that Changed History. infrastructure-investment/government-policy/top-five-trade-deals-that-changed-history. Accessed 1 August 2018. 17 Ibid. 18 Ibid.

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create exclusive markets, but also to make themselves self-sufficient in terms of raw materials.19 Again, this move back to protectionism or the theory of mercantilism leads to disputes, as World War I (1914–18) and the accompanying Great Depression in the 1920s. Although it cannot be definitively stated, there are suggestions by historians that the Recession of 1929 morphed into the Great Depression because of the fact that many countries introduced import barriers and entered into preferential export markets leading to a detrimental effect on international trade.20 After World War II, there was again a period of liberalisation/free trade. There was consensus to lower tariffs and remove any restraints to free trade, but there were ongoing conflicts, especially between Britain and the US as to how the current regional arrangements could fit within this new structure. Britain wanted to retain its system of ‘Imperial Preferences’, i.e. favouring colonies, but the US saw that their exports into Britain and Canada would be adversely affected. Ultimately, the General Agreement on Tariffs and Trade (GATT) was formed in 1947 to oversee the development of non-preferential trading system and designed to encourage member nations to reduce their reliance on tariffs. As such the GATT was lauded as the default for international trade. However, within a period of less than five years the European Coal and Steel Community (1952) was created which was designed to encourage European integration—regionalism. In effect, it encouraged its member states to trade with each other for coal, iron ore and scrap metal. This was the early beginnings of its successor the European Economic Community [top 5 trade deals etc.]. A focus on regionalism and ‘a single market’ mentality to disband tax barriers with Europe continued into the 1990s when the European Economic Community’s name was changed to the European Community (EC) in the Maastricht Treaty (1993).21 In an effort to renew and expand the monitoring of the world’s trading system, the World Trade Organization (WTO) succeeded GATT in 1995. The WTO includes policies on services, intellectual property, and investment. In other words, it has a much broader scope than that of GATT—which only dealt with goods. While GATT and WTO were multilateral agreements, it could be argued that bilateral and regional agreements are more commonplace, perhaps due to their agility: they can be created faster and be more targeted to the interests of the participants as the participant countries are likely to be neighbouring countries and the number of members much smaller. However, all three categories advocate for liberalisation of trade and promotion of free trade. Given the benefits of bilateral and regional agreements, these have proliferated in Asia, including Australia and New Zealand. In Asia the Association of Southeast Asian Nations (ASEAN) was formed in 1967 with just five member states, but it has now expanded to 27 states. It then created the ASEAN Free Trade Area (AFTA) in order to have the strength to resist economic crises through cooperationAustralia and New Zealand entered into a comprehensive bilateral free trade agreement—the 19 World

Trade Organization, supra note 9, p. 50.

20 Ibid. 21 Ibid.,

p. 52.


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Closer Economic Relations Trade Agreement (ANZCERTA) in 1983.22 Its focus is to allow Australia and New Zealand goods to be traded freely across the Tasman Sea and it is consistant with the free trade provisions of the WTO. However, the question is will free trade continue to be the goal? Can we be certain that the direction of free trade will continue into the future? Given the history of trade agreements, it is probably safe to say that there is a direct correlation between trade and uncertainty. For instance, we are constantly hearing about issues relating to trade and customs, particularly within recent political comments e.g., Brexit, Trump’s rejection of the TPP, the impostion of China and US trade tariffs, etc. These recent events may be seen as signalling a return to protectionism or mercantilism. If we look to the US for answers, we see quite clearly that President Trump has much to say on the topic of trade, and many commentators are describing his approach as Mercantilism. However, in this regard, Trump has his critics, some of whom are quite scathing of his approach. For instance, Prof. James Feigenbaum, Professor of economics at Utah State University, states: Trump wants to take us back to the dark age of economics. In the end, the only people who are going to benefit from this are the wealthy. This is something also that Smith warned about. Mercantilist policies are designed to maximize the profits of businessmen, which means minimizing the wages of laborers. Unfortunately, because businessmen understand their business so much better than everyone else, they are very good at convincing people that they know what is best for the country as a whole when in fact they have a huge conflict of interest. What is good for General Motors (or Exxon Mobil) is not good for the U.S. as a whole.23

Yet, other authors draw a distinction between the commonly understood tenets of Mecantilism. For instance, Ahmed and Black argue that Trump’s ‘aversion to government regulation … is entirely at odds with the strong belief among mercantile writers that the state can, and should, directly intervene in the economy to promote the national interest.’24 In fact, they suggest that Trump is taking a neo-mercantilist approach – one that sacrifices free trade to achieve the goals of domestic constituencies with the support of the state. This approach consequently reduces a state’s interest in cooperating internationally to deal with common problems, human rights and democracy. This, it is argued again by Ahmed and Black, raises some questions: • Does Trump (and by extension the US) view trade in both economic and strategic terms? • How does this relate to US and China relations?25 While the US is an important player in terms of free trade, the following chapters, written by authors from a variety of countries, primarily focus on other countries in 22 ANZCERTA, 23 Quora, supra note 7. 24 Salman Ahmed, Alexander Bick (17 August 2017) Trump’s National SecurityStrategy: A New Brand of Mercantilism? Accessed 1 August 2018. 25 Ibid.

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the Pacific region. They provide a commentary on what is currently happening, and the tension of protectionism and mercantilism with free trade which, it is hoped, will help inform interested stakeholders in determining future policies.

3 Free Trade in the Regions Chapter 2 is authored by Jane Kelsey, from New Zealand—The Trans-Pacific Partnership Agreement and The Regional Comprehensive Economic Partnership: a battleground for competing hegemons? This paper focuses predominantly on the US and China, as the world’s preeminent economic powers, and their efforts to create multi-lateral agreements, along the lines of GATT and WTO. While the US was initially the lead player in the Trans-Pacific Partnership Agreement, China drove and still drives The Regional Comprehensive Economic Partnership. The author points out that both countries area seeking to gain world dominance to ultimately allow them to rewrite the rule book for international trade, and in this regard she concludes that China is likely to be the victor. The author highlights that both countries are taking a neo-liberal/mercantilistic approach,26 but they are employing different methods. Trump in the US, is running a fear campaign against China, assumedly to undermine it as a competitor for world supremacy, and thus flexing its muscles in an authoritative way. China, on the other hand, is pursuing the One Belt One Road strategy, by taking a soft approach that seeks to secure relationships by providing infrastructure to developing countries, designed to serve its own domestic economic, social and political objectives. Kelsey’s chapter is followed by that of Caso and Guarda from Italy—Overprotected Copyright versus Open Science: The Role of Free Trade Agreements. These authors consider the case of copyright law as it has been discussed in relation to the Trans-Pacific Partnership (TPP) to discuss the effects of protectionism and that of free trade, and conclude that the latter is a more balanced way to regulate intellectual property rights (IPRs). They argue that overprotection can potentially stifle science and innovation, which is fed by those creations and inventions that may be subject to IPRs, whereas free trade and healthy open access will allow ideas and information to flow across borders and boost innovative developments. They use the tenets of Open Science (OS) to argue that free trade would lower the economics, technology and legal barriers to allow access to information. In this regard, they explain that OS is a formula to achieve openness with respect to the use of scientific materials, including software, accessibility to research publications and data, educational sources, and innovative technologies. In identifying IP rules a type of ‘bargaining currency’ in agreements they argue that this has resulted in tightening the rules, and a blossoming of overprotective IPRs. 26 Some argue that the neo-liberal approach is in fact Mercantilism e.g., Gee Tim (2009) The World System is Not Neo-Liberal: The Emergence of Structural Mercantilism. Critique 37(2): 253–259.


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Therefore they argue that this assumes that decisions are made based on exchange and negotiation, without given due regard to the importance of those types of intellectual expression. In many cases by overprotection has restricted the flow of information and this consequently leads to a less cooperative, less inclusive, and less democratic approach with respect to sharing IP sources. The authors thus argue for free trade agreements to more specifically include a more innovative and developmental approach that sees the true value of an open science approach to IP regulation. Ying Chen is a Chinese author who is an Academic in Australia. Her topic is—South Korea’s Agricultural Trade Dilemma: Open Markets or Protectionism? Beyond the China-South Korea Free Trade Agreement. This author also discusses the tension between open markets (free trade) or protectionism noting that South Korea take a predominantly open approach in market access, with the noteable exception of agriculture. She uses the China—South Korea Free trade agreement as a case study to discuss South Korea’s decision to take a protectionist approach to agriculture. She notes that this agreement, as a whole, is really one-sided as there is very little that South Korea can export to China, and in fact, she states that ‘Chinese agricultural products play a critical role in supplementing South Korea’s domestic food supply’. So, the South Korean government have to make some very difficult decisions to ensure food supply, while, at the same time protecting their rural workers and domestic farmers’ ability to work for their existence. In effect this is a decision to take a protectionist or trade liberalisation approach. The author considers both the need for protectionism, but also highlights the weaknesses. With respect to the latter she notes that South Korea’s overall commitment to trade liberalisation and the very powerful farm lobby results in the government having to provide compensation to the farmers for the decisions that negatively affect them. She also argues that this protectionist approach to farming may potentially lessen the agricultural sector’s interest in improving their methods. The author ultimately determines that the free trade approach is the solution and recommends a number of initiatives to suggest that this ‘bring more opportunities and dynamic gains to South Korea’. Another paper that advocates for free trade is that written by Hongyu Fu, A Chinese academic—PPP Lawmaking under ‘One Belt One Road’ Initiative—China’s Responses against Protectionism Hongyu Fu. The author is arguing against Protectionism and advocating that China’s One Belt, One Road (B & R) initiative is the better path to take. Yu argues that the B & R initiative is a multilateral system that promotes free trade, which aligns with the United Nations 2030 Agenda for Sustainable Development. If this is the case, then perhaps it can be argued that the B & R Initiative might actually reflect what the WTO, which replaced GATT, was intended to do. Primarily the paper argues that the winning element to the ultimate success of this initiative is its adoption of the Public-Private Partnership model—PPP—but notes that there are some deficiencies which need to be addressed and he strongly recommends that there be a strong legal system that outlines the rights and responsibilities of all those involved. He refers to China’s draft PPP Regulation but recommends that

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there should be PPP legislation that regulates the current conflicts that exist between the ministries and that this new law should be promoted with China’s B & R partner countries. The next chapter has two authors, an academic from China Zhiqian Wan and an Australian academic, Mark Perry—The Breeding Exemption for Plants: The Interplay of Free Trade and International Convention. Sometimes there can be extremely different outcomes within jurisdictions, despite compliance with WTO and its TRIPS Agreement that is aimed at the harmonisation of intellectual property rights. Such is the case with an important area for all nations, that is the breeding of plant materials for innovation in food supply. Depending on jurisdiction there can be different implementations of what is known as the “plant breeding exemption”, which allows breeders to use biological material protected under intellectual property regimes for creating new plant varieties. The Chinese Plant Variety Protection Act provides for a breeding exemption, for any purpose, but the Patent Act’s research exemption does not extend to plants. This is in contrast to Australia where both patents and plant breeders protection hold a limited research exemption, but the patent exemption does not extend to breeding new varieties for commercial use. This paper explores the dimensions surrounding such exemptions, looking to China, Australia and other countries for different approaches, within the context of Free Trade Agreements and the broad worldwide adoption of one of the International Conventions for the Protection of New Varieties of Plants (UPOV). Australia is a party to UPOV 1991 and China a party to UPOV 1978 which have slightly different breeding exemptions. The authors argue that it is desirable for a harmonised regime to allow for innovation in plant breeding to develop of new varieties. They argue that this would to maximise desirable outcomes for breeders, farmers and civil society as a whole, whilst allowing for needed jurisdictional differences. Henry Yan, who works for the Beijing IP Agency writes specifically on the intellectual property (IP) aspects of the China-Australia Free Trade Agreements (ChAFTA)—Studies on China-Australia Free Trade Agreement and the Choice of Intellectual Property Interest Balance in the Two Countries. It is fitting that this chapter is the last in the series, as it may well demonstrate that there are instances when both free trade and protectionist approaches need to be applied to support the best outcomes for society at large. The author uses the agreement between Australia and China to frame a discussion around Australia’s introduction of legislation that requires tobacco companies to use “plain packaging” as a means of protecting the public’s health. This is where tobacco producers are mostly deprived of the ability to determine the “look and feel” of their packaged tobacco, and instead Australia insists the packaging is covered with graphic images of the damage caused by such products. He identifies that both Australia and China seek to abide by international rules and protocols and at the same time protect the health of their citizens. In suggesting that China might wish to follow that lead, he undertakes a comparison between the legislation currently in China with Australia’s Tobacco Plain Packaging Act passed by the Commonwealth in 2011. Ultimately, it might be argued that this author is opting for a protectionist approach, but recognising that this is an important issue that needs to be balanced against free trade generally, he is advo-


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cating that China follow Australia’s lead. In this situation there would be harmony between both countries with neither being affected detrimentally by the agreement that has been made between them to limit the ability of tobacco producers to brand their products as they wish. The final chapter in this work Denouncing Trade Agreements Validating Pharmaceutical Developers addresses free trade from and Indian perspective—Sunita Tripathy delves into the complex area of pharmaceutical test data, which can be protected and can be seen, in its effect, as another means of protection for new pharmaceuticals over and above that provided by patent law. She argues that Patent term extensions, combined with enhanced test data exclusivity and the ability for big pharmaceutical companies to utilise these with patent linkage, have come about because of the influence they have had in reiterating their interests through FTAs. Public interest, in particular the access to affordable medicines, particularly in developing countries remains an illusory concept despite the advances of science and technology. These chapters, from very different perspectives, are aimed at giving readers some pause for thought when they see grand announcements about the latest free trade agreement being negotiated or concluded by nation states. There may be a great deal more than the claims that ‘open trade means prosperity for all’ and other statements that make a good political catch phrase, but often obscure the complexity and compromise that is inherent in each and every free trade agreement.

The Trans-Pacific Partnership Agreement and the Regional Comprehensive Economic Partnership: A Battleground for Competing Hegemons? Jane Kelsey Abstract The proponents of mega-regional trade, investment and economic integration agreements over the past decade aim to set the rules for global capitalism in the twenty-first century. In the United States negotiations for the Trans-Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP) have been portrayed as a struggle for hegemonic dominance between the USA and China over who writes the rule-book. The American narrative feeds a domestic political sentiment that is hostile to and fearful of China, and which oversimplifies China’s role and strategic interests in such negotiations. The TPP and RCEP include overlapping negotiating parties and substantive texts, even after the USA’s withdrawal from the TPP. A review of four areas—intellectual property, investment, services and electronic commerce—shows the RCEP negotiating parties have adopted a complex matrix of positions within a legal framework that overlaps significantly with the TPP. Ironically, the RCEP parties have continued negotiating provisions that have been suspended from the TPP by the remaining eleven countries. This chapter urges a more nuanced view of international trade and investment agreements as one of a plurality of factors that are reshaping the global political economy, as China’s hegemonic power grows and that of the USA declines. Those dynamics are unpredictable. As the Trump administration reverts to unilateral power and regional relationships that seek to target and isolate China, it is possible that China, rather than the USA, may emerge as the champion of a rules-based regime. But any quest for dominance would not be pursued through mega-regionals, such as the TPP and RCEP. An equally unpredictable factor is the growing popular antipathy to the model of international capitalism and associated rules that beset the original TPP, and has been ignored by the negotiating parties in the revised TPP and the RCEP.

This is a revised version of a paper delivered at a conference at the Beijing Foreign Studies University Law School in May 2017 funded by the University of New England. The research has been conducted in part with assistance of a New Zealand Royal Society Marsden Fund Grant. J. Kelsey (B) Faculty of Law, The University of Auckland, Auckland, New Zealand e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2019 L. Corbin and M. Perry (eds.), Free Trade Agreements,



J. Kelsey

Keywords Trans-Pacific partnership agreement Regional comprehensive economic partnership · Trump administration Bilateral and unilaterial sanctions · Anti-China sentiment

1 Introduction The past decade has seen the rise of mega-regional trade, investment and economic integration agreements whose proponents aim to set the rules for global capitalism in the twenty-first century. The United States of America (USA) was the lead player in the most prominent—the 12-party Trans-Pacific Partnership Agreement (TPPA or TPP)1 and the Transatlantic Trade and Investment Partnership (TTIP) with the European Union (EU)—and a major force in the 23-party Trade in Services Agreement (TiSA).2 At the same time, America’s political leaders attacked another mega-regional, the Regional Comprehensive Economic Partnership (RCEP) among 16 countries excluding the USA, as a vehicle for the People’s Republic of China to challenge the hegemonic dominance of the USA. There is no disputing that America and China, as the world’s pre-eminent economic powers, have been pursuing rules through trade and investment negotiations to advance their national interests, as each defines them. To that extent there has been a battle over who makes the rules for the global economy in the 21st century. Neither state’s ambition is benign. But nor are they directly comparable. China’s role in and objectives for RCEP are quite different from the USA in the TPP. Their divergent approaches reflect disparate economic models, contrasting perceptions of the nature and role of the state, fundamentally different legal traditions, and distinct strategic priorities and alliances. Characterising the two negotiations as a battle for hegemony also ignores the synergies between the agreements in constructing a new mega-regional normative framework. The new positioning of the Trump administration in the USA, and China’s elaboration of the One Belt One Road strategy, make claims of hegemony through mega-regional agreements, and the shape of rules for the 21st century, even more uncertain. This article begins by recounting the American narrative of the TPP and RCEP as competing hegemonic strategies, and situates it within a domestic political discourse that is hostile to and fearful of China. Section two compares the strategic objectives of the USA and China for such agreements. This leads to a discussion in section three of how the different purposes, politics and trajectories of the negotiations belie the simplistic claim of contested hegemonies. Whereas the USA totally dominated the TPP and dictated its substance, China is one of several big players, alongside 1 Australia,

Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States of America, Viet Nam. 2 Australia, Canada, Chile, Chinese Taipei, Colombia, Costa Rica, European Union, Hong Kong, Iceland, Israel, Japan, Liechtenstein, Mauritius, Mexico, New Zealand, Norway, Pakistan, Panama, Peru, South Korea, United States of America, Switzerland, Turkey.

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India, Japan and ASEAN, who are negotiating the highly contested RCEP. Seven countries overlap both the mega-agreements. An overview of their content shows these differences are unlikely to produce widely divergent agreements. Rather, the RCEP negotiating parties have adopted a complex matrix of positions within a legal framework that overlaps with the TPP. This complexity is examined in more depth in section four with reference to four chapters: intellectual property, investment, services and electronic commerce. The article concludes with some tentative thoughts on the USA’s new position under the Trump administration, which uses raw power in a combination of aggressive bilateralism and unilateral sanctions, and China’s strategic engagement with the international rule making arena as part of One Belt One Road initiative.

2 The USA’s Demonisation of China3 The USA has long treated trade and investment agreements as instruments of its hegemonic power. The TPP was the beachhead through which it planned to establish new generation 21st century rules. The TPP text has several novel chapters, such as disciplines on ‘anti-competitive’ SOEs and processes and rules to stop ‘unjustified and overly burdensome’ regulation, including regulation of digital technologies or electronic commerce, and protections for new areas of intellectual property rights.4 A number of these were transposed to the TiSA and TTIP negotiations in an attempt to consolidate a new normative framework. The Americans clearly felt threatened by the prospect of China, as the ascendant hegemon, writing its own rulebook,5 and ensured that China was not a participant in any of these USA-led negotiations.6 Despite its absence, China was the ultimate target of the most radical proposals. It is unclear whether the USA expected the 3 Part

of this section has previously been published in Kelsey J (2013) Hidden Agendas? What we need to know about the TPPA. Bridget Williams Books, Wellington. 4 The USA pushed an adaptation of the same texts in TiSA, having blocked China from joining those negotiations: China in push to join U.S.-led $4tn services trade talks. Financial Times, 24 September 2013, Accessed 04 April 2018. Donnan S (2013) China in push to join U.S.-led $4tn services trade talks. Financial Times. Accessed 04 April 2018. 5 Obama B (2016, May 2) President Obama: The TPP would let America, not China, lead the way on global trade. Washington Post Accessed 18 March 2018. Obama B (2016) President Obama: The TPP would let America, not China, lead the way on global trade. Washington Post Accessed 18 March 2018. 6 Donnan, supra, note 5.


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TPP to impact on China through an encirclement strategy, creating a model that dominated the Asia Pacific and forced China to adjust, and ultimately to accede to the agreements; or targeted China’s allies and operations outside China to undercut its economic foothold and strategic influence in the region. Secretary of State Hillary Clinton first articulated the strategy in the October 2011 issue of Foreign Policy magazine,7 insisting that the security and economic challenges that currently confront the Asia Pacific ‘demand America’s leadership’. The TPP would provide the economic pivot for ‘America’s Pacific Century’, while the security pivot involved relocating the USA’s military resources from Iraq and Afghanistan to the Asia Pacific region. Clinton’s article coincided with the USA hosting of the annual APEC summit in Honolulu. American officials portrayed the country as ‘the anchor of stability in the region’, committed to ‘managing the relationship with China, economically and militarily’.8 According to President Obama’s advisers he made it ‘very clear’ during his bilateral discussions with China’s President Hu Jintao ‘that the American people and the American business community were growing increasingly impatient and frustrated with the state of change in the China economic policy and the evolution of the US-China economic relationship’.9 China had failed to show the same sense of ‘responsible leadership’ that the USA had endeavoured to do.10 At the TPP leaders’ meeting on the margins of APEC Obama talked about establishing international norms that would ‘be good for the United States, good for Asia, good for the international trading system—good for any country in dealing with issues like innovation and the discipline of state-owned enterprises (SOEs), creating a competitive and level playing field’.11 Above all, the TPP would create international norms that would strengthen USA strategic and economic hegemony. China’s public response was measured. In late September 2011, China’s Ambassador to the World Trade Organization (WTO) said they had ‘no objections to the TPP’ and were waiting to see whether there was a possibility that China might be involved

7 Clinton

H R (2011) America’s Pacific Century, Foreign Policy, 11 October 2011, http:// Accessed 04 April 2018. 8 Press Briefing by Deputy National Security Advisor Ben Rhodes and Admiral Robert Willard, US Pacific Command, Honolulu, 13 November 2011. pid=97049. Accessed 18 March 2018. Obama B (2011) Press Briefing by Deputy National Security Advisor Ben Rhodes and Admiral Robert Willard, US Pacific Command. The American Presidency Project. Accessed 18 March 2018. 9 Press Briefing by Press Secretary Jay Carney, Deputy National Security Advisor for Strategic Communications Ben Rhodes, Deputy National Security Advisor for International Economic Affairs Mike Froman, and National Security Council Senior Director Daniel Russel, Honolulu, 12 November 2011. Accessed 18 March 2018. 10 Obama B. 2011. Opening Remarks by President Obama at APEC Session One, Honolulu. The White House Office of the Press Secretary. 2011/11/13/opening-remarks-president-obama-apec-session-one. Accessed 18 March 2018. 11 Press Briefing by Carney, supra note 10.

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in the discussions.12 Speaking immediately before the APEC Summit in 2011, a senior Chinese official more sharply criticised America’s goals as ‘too ambitious’ and called for a balance between the TPP and ‘other paths to achieve multilateral and regional trade liberalisation’.13 The TPP negotiations should be ‘open’, but China had not been invited to participate. The USA replied that any country must apply to join and demonstrate that it is prepared to operate by the TPP’s gold standard 21st century rules.14 The Americans’ tone became more strident during the presidential election campaign in 2012. Republican candidate Mitt Romney complained that Obama had not been tough enough with China, and endorsed the TPP as a ‘dramatic geopolitical and economic bulwark against China’.15 Obama’s response was equally belligerent. While China could be a partner, America was ‘sending a very clear signal’ that it is a Pacific power and intended to have a presence there. In a coded reference to the TPP he said ‘we’re organizing trade relations with countries other than China so that China starts feeling more pressure about meeting basic international standards. That’s the kind of leadership we’ve shown in the region. That’s the kind of leadership that we’ll continue to show.’16 Obama revived the anti-China rhetoric in 2016 as his administration battled to secure approval of the TPP under his presidency. His pitch to the public in the Washington Post in May 2016 made a rare direct reference to the RCEP17 : As we speak, China is negotiating a trade deal that would carve up some of the fastestgrowing markets in the world at our expense, putting American jobs, businesses and goods at risk. This past week, China and 15 other nations met in Australia with a goal of getting their deal, the Regional Comprehensive Economic Partnership, done before the end of this year. That trade deal won’t prevent unfair competition among government-subsidized, state-owned enterprises. It won’t protect a free and open Internet. Nor will it respect intellectual property rights in a way that ensures America’s creators, artists, filmmakers and entrepreneurs get their due. And it certainly won’t enforce high standards for our workers and our environment. 12 ‘Official says China Open to TPP Negotiations’, 29 September 2011, Shanghai WTO Affairs Consultation Centre, Shanghai, China viewIndex1.action?menuid=e36db09f-3dbc-4f2d-b815-46aa90d25174&id=ac2e2ba6-a8e0-4b7fabf6-c472d4095100. Accessed 18 March 2018. 13 (2011, November 8). China Criticizes U.S. Agenda for APEC Summit. Wall Street Journal. On file with author. China Criticizes U.S. Agenda for APEC Summit. Wall Street Journal. http://online. Accessed 18 March 2018. 14 Press Briefing by Carney, supra note 10. 15 (2012, November 22). Trade Talks Aim to Expand United States Asia Presence with China on the Horizon. Washington Post. Accessed 18 March 2018. 16 (2012, October 22) Transcript of Presidential Debate on Foreign Policy at Lynn University. Fox News. Accessed 18 March 2018. 17 Obama, supra note 5.


J. Kelsey Fortunately, America has a plan of our own that meets each of these goals. As a Pacific power, the United States has pushed to develop a high-standard Trans- Pacific Partnership, a trade deal that puts American workers first and makes sure we write the rules of the road for trade in the 21st century. … The world has changed. The rules are changing with it. The United States, not countries like China, should write them. Let’s seize this opportunity, pass the Trans-Pacific Partnership and make sure America isn’t holding the bag, but holding the pen.’18

Such attacks appealed to the lowest common denominator of anti-China sentiment as a matter of domestic politics. The same attitude was echoed by domestic think tanks and lobbies, and by diplomats from other TPP countries who warned that America would cede its authority in Asia to China.19 The Obama administration was now between a rock and a hard place. Most Congressional Democrats opposed new market access concessions that would impact on jobs, increased investment protections for major corporations, and stronger intellectual property monopolies for pharmaceutical companies, while demanding more effective and enforceable labour and environmental protections. Obama had to seek support from the Republicans, who were demanding greater rights for corporate interests and fewer concessions to other countries. Ultimately, the Republicans were unwilling to hand the Democrats such a win in an election year and to give Obama the TPP as part of his legacy. A new imperative emerged as the election campaign gained momentum: to neutralise opposition from Democratic Party presidential candidate Bernie Sanders who branded the TPP ‘a disastrous trade agreement designed to protect the interests of the largest multi-national corporations at the expense of workers, consumers, the environment and the foundations of American democracy. It will also negatively impact some of the poorest people in the world.’20 Sanders’ critique so resonated with American voters that Republican candidate Donald Trump embraced it and Democrat candidate Hillary Clinton had to implicitly renounce her own 2011 strategy to become an opportunistic critic of the TPP. Newly-elected President Trump withdrew the USA’s participation from the TPP in January 2017.21 Media publicly portrayed the withdrawal as a gift to China, enabling it to dominate world trade through the RCEP,22 while Japan was left to play the role 18 Ibid. 19 Denyer S and Fifield A (2016, October 20) China is the big winner as Clinton, Trump disavow hard-fought Asia-Pacific trade deal. Washington Post. asia_pacific/china-the-big-winner-as-clinton-trump-disavow-hard-fought-asia-pacific-trade-deal/ 2016/10/20/1d0de3be-9605-11e6-9cae-2a3574e296a6_story.html?utm_term=.42dcbd0f0245. Accessed 18 March 2018. 20 Sanders B (undated) The Trans-Pacific Trade Agreement Must be Defeated. https://www. Accessed 18 March 2018. 21 Pagan M (2017, January 30) Acting United States Trade Representative to the Trans-Pacific Partnership Depositary. 22 Kleiner F (2017, March 2) Trump leaves Asia door open for China to dominate trade. Financial Times. Accessed 18 March 2018.

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of American proxy and defend the TPP model in those negotiations.23 From a longerterm perspective, it is significant that Obama and other champions of the TPP chose to defend it by attacking China, rather than engaging with the growing resistance from diverse communities to the model itself—a sentiment also reflected in Britain’s vote to exit the European Union. This shift pre-dated the advent of the Trump administration. His withdrawal was consistent with this trend, and not simply the rogue action of an accidental maverick politician. But his subsequent repositioning in the name of ‘making America great again’ also rests on the demonisation of China as a competing hegemon.

3 Divergent Agendas A more nuanced assessment of the place of TPP and RCEP in the new wave of mega-regional agreements is essential to understanding their functions and how this relates to the USA-China dynamic. Both agreements belong to a new incarnation of a neoliberal regulatory regime developed since the late 1970s to foster a highly integrated and financialised model of global capitalism. Key elements of trade liberalisation, market-based regulation, protection of property rights and mobility of capital were promoted through agreements establishing the World Trade Organization (WTO) and the North American Free Trade Agreement (NAFTA), mirrored to a larger extent by the European Union. The USA has been the main architect of that evolving regime. China has become an increasingly active and confident participant since its accession to the WTO in 2001. But they approach the rule-making regime from fundamentally different perspectives. The Americans’ portrayal of international trade and investment agreements as a battleground for competing hegemonies reflects a tendency to fetishise law as determinative in shaping and reshaping the global political economy. The USA has used international trade and investment agreements to secure the liberalisation and deregulation of other countries’ economies, and heighten protections for intellectual property rights and investments on a global scale. Binding and enforceable rules enable its powerful corporations to maximise their international penetration and profitability and to dominate ‘free markets’ through advantages of scale, linkages and technology. After early success in establishing the WTO agreements, USA-led attempts to expand that regime were frustrated by developing countries’ insistence on first addressing development asymmetries within the existing rules. It turned to bilateral free trade agreements (FTAs), and then to the more ambitious new generation mega-regional negotiations to secure those new ‘gold standards’. Pre-Trump, the overlapping membership of the TPP, TTIP and TiSA were expected to consolidate 23 Hardin R, Mitchell T, and Peel M (2017 March 14). China and Japan vie for control of Asian trade deal. Financial Times. Accessed 18 March 2018.


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America’s authority and the interests of its corporations across most of the world’s powerful economies, as well as the growth regions of Latin America and Asia. China’s international outreach has instead emphasised soft power, promoting a form of global economic integration that serves its domestic economic, social and political objectives, while building geopolitical relationships, especially with other developing countries. It has treated trade and investment agreements as facilitating, rather than defining, China’s broader national development and geopolitical strategy. The level of engagement, and its offensive and defensive positions in negotiations, have evolved with the Chinese economy. Competitive advantage as a low-wage manufacturing exporter was boosted by a long-delayed accession to the WTO in 2001, where China secured significant market access in return for major concessions on other rules. Those gains have since been eroded through rising wages and external competition, and shifts in the domestic economy. The transition towards a servicesbased model of consumer capitalism serves the political imperative to create a prosperous middle class that provides social and political stability for the one-party state.24 That is reflected in China’s approach to recent negotiations, including the RCEP. The current approach to international engagement is multi-faceted. The One Belt One Road (OBOR) initiative seeks to build supply and value chains into and out of China, including the digital OBOR spearheaded by Ali Baba,25 supported by investments in other countries’ natural resources and infrastructure. While some see the funding of those initiatives through the China-led Asian Infrastructure Development Bank as another example of China’s challenge to America’s influence in the region through the World Bank and Asian Development Bank, others view it as a move towards competitive pluralism.26 To date, China has cautiously balanced its defensive interests in trade and investment agreements, including RCEP, to ensure that it retains regulatory authority over finance, services, technology and knowledge, with a more aggressive approach on matters of offensive interest, such as investment agreements that guarantee rights of entry and protection of investments once established.

24 Hsu S. (2017, February 21). China takes another step towards a service economy. Forbes. Accessed 18 March 2017; Sagami T. (2017) China’s transformation into a consumer driven economy. Money and Markets. misc/chinas-transformation-into-a-consumer-driven-economy. Accessed 18 March 2018. 25 Shuiyu J, Xin Q, and Wei H (2017, April 24). Ali Baba bringing Belt, Road benefits to SMEs. China Daily. Accessed 18 March 2018. 26 Hanlon R (2017) Thinking About the Asian Infrastructure Development Bank: Can a Chinaled Development Bank Improve Sustainability in Asia? Asia and the Pacific Policy Studies (4(3): 541–554.

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4 Anatomy of the Negotiations A review of the negotiating dynamics of the TPP and RCEP shows quite different geopolitical forces at play. The participation of the USA was the raison d’être for the TPP. The Americans’ demands and proposals dominated the negotiating agenda, even after the inclusion of Japan, and they made the adoption of controversial new provisions on intellectual property rights, and chapters on SOEs and e-commerce, pre-conditions for a final deal. The other eleven countries participated for their own reasons, but they accepted the reality of negotiating within parameters set by the USA, even when their domestic economic analysts questioned the net benefit.27 Following the Trump administration’s withdrawal, their determination to rescue the deal resulted in the signing of a Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) that retains the original text intact, but suspends rather than removes some of the items the USA demanded so as to facilitate its future re-entry.28 The RCEP has a very different dynamic. There are six TPP countries also involved in these negotiations. Japan has taken the lead in tabling and advocating for TPP proposals, notably the new texts on e-commerce and SOEs and extended market access commitments on goods, agriculture, services and investment. Despite the secrecy surrounding the negotiations it is clear that China has been opposing aspects of that agenda. But so have India and ASEAN, who are hardly minions in the 16-country negotiation. ASEAN, with four TPP parties and three least-developed countries, struggles for consensus on at least some of those issues. These tensions are set out in more detail below.

4.1 The Trans-Pacific Partnership The Trans-Pacific Partnership Agreement has been constantly evolving. Formally, it was an expansion of the Trans-Pacific Strategic Economic Partnership Agreement (known as the ‘Pacific-4’ or ‘P-4’) that came into force between New Zealand, Singapore, Chile and Brunei Darussalam in January 2006. The P-4 included a precommitment to begin negotiating additional chapters on financial services and investment within two years.29 In February 2008 American President George W Bush announced the USA would ‘join’ those negotiations as a platform for it to establish a

27 See, for example, Australian Government Productivity Commission (2015), Trade and Assistance

Review 2013–2014. Canberra. 162. 28 Trans-Pacific Partnership Ministerial Statement, 10 November 2017. Da Nang, Viet Nam. https:// pdf. Accessed 18 March 2018. 29 Articles 20.1 and 20.2 of the Trans-Pacific Strategic Economic Partnership Agreement 2006.


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stronger presence in Asia.30 New Zealand was formally the P-4 depository, but there was never any doubt that the USA would drive the negotiating agenda. By the end of 2008, Australia and Peru had also joined and the P-4 had expanded to a full-scale renegotiation of the economic integration agreement. The first formal round of talks for the expanded TPP was held in March 2010. Five other countries eventually joined the negotiations: Malaysia and Vietnam moved from associate members in 2008 to full participants in 2010; Canada and Mexico were accepted in 2012; and Japan, after intense bilateral negotiations with the USA, in July 2013. The agreement was concluded in November 2015, after almost six years of negotiations. While there had been many leaks during the negotiations, this was the first time the 30 chapters of the text were made public. The catalyst for closure was the vote in the American Congress to grant President Obama Fast Track or Trade Promotion Authority, which meant Congress would have to endorse or reject the text in toto. The parties hoped they could move fast enough to secure its passage under the Obama presidency. The final agreement was signed on 4 February 2016 in Auckland, New Zealand. By that time, it was election year in the United States. As noted earlier, political and public sentiment had swung against the deal. Despite strenuous efforts, Obama could not secure a Congressional majority, even with Fast Track authority, and never put the agreement to a vote. Within days of taking office in January 2017, President Trump issued an executive order withdrawing the USA as a signatory of, and from negotiations on, TPP.31 He remained resolute in that decision. However, the TPP’s problems were not limited to the USA. When Trump withdrew only Japan had ratified the agreement. Canada was still holding heavily contested ‘consultations’.32 In Australia the TPP faced possible rejection in the Senate, which the government did not control.33 Chile had not presented the deal to its Congress. Viet Nam had delayed a vote so it could assess

30 Rajamoorthy T (2013, March). The Origins and Evolution of the Trans-Pacific Partnership (TPP). Third World Resurgence, 275. Accessed: 18 March 2018. 31 Presidential Memorandum Regarding Withdrawal of the United States from the TransPacific Partnership Agreement, 23 January 2017, Accessed 18 March 2018. 32 Dey S. (2016, March 29). TPP Consultations: Now you see them, now you don’t!. Council of Canadians.’t. Accessed 18 March 2018. 33 Chan G. (2017, January 26) Malcolm Turnbull cools on TPP ratification in face of hostile Senate. The Guardian. Accessed: 18 March 2018; Morgan M (2017, 16 January) TPP Dead in the Water: Shorten. SBS News. 16/tpp-dead-water-shorten. Accessed 18 March 2018.

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the American situation.34 New Zealand was the only other country to proceed to ratification, with the implementing legislation passing by a single vote. Yet commentators who declared the TPP ‘dead in the water’35 were premature. The remaining eleven signatories met six times in 2017: once each in Chile, Canada and Australia and three times in Japan. They started tentatively. Chile convened a crisis meeting in March 2017 to discuss the rescue options for the TPP and the broader free trade and investment model in what it called a High-Level Dialogue on the Integration Initiatives in the Asia-Pacific Region. All twelve TPP signatories were invited, including the USA, as well as the Latin American Pacific Alliance countries (three TPP countries plus Colombia), South Korea and China.36 They all came, but with different levels of commitment. The USA was represented by its ambassador to Chile for some parts of the meeting and was not present at the TPP discussion. Singapore was the only Asian country to send an actual minister. The invitation to China gave an important signal that countries that were previously within the America’s orbit may have dual allegiances. An article by Chile’s ambassador to China called the country ‘a crucial piece in the jigsaw puzzle of designing an architecture that will give new impetus to trade across the Pacific’.37 China agreed to attend the meeting to exchange broad ideas, but sent a low-level delegation. It reportedly insisted the meeting was not about TPP, which was ‘too complex and political’.38 Chile doubtless discussed the invitation to China with the other TPP countries. Media reported that Japan was unhappy, saying that risked boosting China’s influence and diluting the ‘gold standard’ rules.39 Presumably Japan’s response reflected the foreign policy tensions between the countries and the political cost to the Abe government, which had used significant political capital to push the deal through the Diet.

34 Minh HB (2016, November 17). Vietnam PM backs off from U.S.-led TPP, emphasizes independent foreign policy. Reuters. Accessed 18 March 2018. 35 Yoshida R. (2016, December 9) Diet ratifies TPP but trade deal remains dead in the water without U.S. Japan Times. Accessed 18 March 2018. 36 (2017, February 21). China among 12 invitees slated to attend Chile trade summit; U.S. still silent. Inside US Trade. 37 (2017, February 18). Chile seeks free trade commitments in Asia-Pacific. Xinhua. http://www. Accessed 18 March 2018. 38 Shepherd C. (2017, March 13). China says Pacific trade meeting not about TPP. Reuters. http:// Accessed 18 March 2018. 39 Sieg L, Nakagawa I. (2017, January 25). Japan cool to inviting China into TPP as Abe repeats free trade mantra. Reuters. Accessed 18 March 2018.


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The TPP-11 meeting did not seem to achieve much, aside from announcing plans to meet again during the APEC trade ministers’ meeting in Hanoi in late May.40 New Zealand’s trade minister Todd McClay and his Australian counterpart refused to declare the TPP dead, holding out the prospect for developing some workable options. Others said the TPP should live on in other FTAs, a strategy already welladvanced through the tabling of similar texts in numerous negotiations that became known as ‘organ harvesting’41 —an outcome that would ironically give America’s corporations the benefits for free. The Pacific Alliance (Chile, Colombia, Peru and Mexico) said it would create associate membership and negotiate new TPP-style deals. New Zealand and Australia were first in line.42 Chief negotiators from the eleven countries met again in Toronto in early May 2017, under a veil of secrecy, to prepare a game plan for their ministers’ meeting in Hanoi. The most consistent reports, emanating from Japan, suggested a majority had decided there was no benefit from resurrecting a deal that was designed for and largely by the USA.43 Some of the ASEAN TPP parties seemed wary of the message that proceeding with the original TPP text for the sake of it would send to China, and restrict their new-found flexibility in the RCEP negotiations then underway in Manila. Chile and Peru were apparently not interested either, while Canada and Mexico were preoccupied with the pending renegotiation of the North American Free Trade Agreement (NAFTA). Australia and New Zealand remained publicly committed to the original text with minor modifications and changing the provisions for entry into force.44 Japan joined them, despite earlier having dismissed the value of a TPP without the USA.45 All three had invested a lot of political capital in seven years of negotiations. As champions of the neoliberal trade model, they wanted to keep the TPP alive for ideological 40 Joint Statement by TPP Partners, 16 March 2017, Accessed: 18 March 2018. McClay T (2017) Joint Statement by TPP Partners. Accessed 18 March 2018. 41 Hawke, G. (2017, June 25) Is the TPP a sleeping beauty or an organ donor?. East Asia Forum. http:// Accessed 18 March 2018. 42 New Zealand—Pacific Alliance FTA. New Zealand Ministry of Foreign Affairs and Trade. https:// Accessed 18 March 2018. 43 Chandran N (2017, July 13). Vietnam, Malaysia stand in way of Japan’s TPP dream. CNBC. Accessed 18 March 2018; Riordan P. (2017, August 21). USA opens the door to Mexico market for Australia. The Australian. Accessed 18 March 2018. 44 (2017, July 20). TPP-11 examine options for advancing deal without US. Bridges, 21(6) Accessed 18 March 2018. 45 Harding R (2016, November 21) TPP ‘has no meaning’ without US, says Shinzo Abe. Financial Times. Accessed 18 March 2018.

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reasons. They were apparently prepared to keep the politically toxic elements on pharmaceuticals, investment and SOEs they had reluctantly accepted when the USA insisted they were essential to a deal. From this point onwards Japan, as the remaining major power, took over as the TPP’s principal proponent. When they met in Sydney in late August 2017 the TPP-11 officials had four choices: (1) abandon the agreement; (2) renegotiate its terms, especially those reluctantly adopted in the expectation of access to the American market or to keep the deal alive; (3) suspend such elements unless and until the USA re-joined the pact; or (4) ratify the agreement with the text unchanged, aside from the terms for entry into force.46 New Zealand’s trade minister announced the week before the meeting that the eleven parties had agreed to proceed with the minimal number of changes possible to the original agreement.47 That statement was premature, but the tide was turning. Three further meetings were held in Japan. No information was formally released, but the Japanese government briefed its media. The eleven parties had decided to freeze or suspend provisions, rather than change the text. Australia, New Zealand and Japan sought to minimise suspensions, while Vietnam and Malaysia wanted to retract major concessions made in the expectation of access to American markets. All agreed to suspend the unprecedented commitment to a minimum monopoly period for marketing biologic medicines. An original list of 80 other items was reduced to 50, with three task forces working on legal matters, intellectual property, and ‘other items’ that included the chapter on SOEs and the liberalisation of government procurement. The final officials’ meeting was one week before trade ministers were due to decide on the options on the margins of the APEC summit in Da Nang, Viet Nam. Twenty items were agreed for suspension. The newly elected New Zealand government, which had criticised the original TPP in opposition, sought side-letters on ISDS to placate domestic pressure. The Canadians said they would not be rushed into agreement. After several crises, the parties announced agreement on the suspension of twenty items, with ‘consensus remaining to be finalised’ on four matters, the most problematic being a cultural exception demanded by Canada.48 The final agreement was signed in Chile on 8 March 2018. A new nine-page text set out rules on accession, entry into force, review and reactivating the suspensions, and listed the items to be suspended. That text was docked onto the old TPP.

46 Article

30.5 Entry into Force was weighted by the number and GDP of the original signatories, meaning it could not enter into force without both the USA and Japan. 47 McClay T (2017, August 17) Government approves TPP11 mandate, media statement. https:// Accessed 18 March 2018. 48 Trans-Pacific Partnership Ministerial Statement, 10 November 2017, Da Nang, Viet Nam, https:// pdf. Accessed 18 March 2018.


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The CPTPP required ratification by six original signatories to enter into force. There was no guarantee that would happen. But assuming it did, has the TPP served its purpose as a hegemonic strategy for the USA? Without leverage in the negotiating room, the Americans lost control of the content and trajectory of the TPP. Japan acted as its proxy, but lacked the ability to coerce compliance. Yet the rules it demanded have survived. Innovations, such as the e-commerce and SOE chapters, remained basically intact and would benefit American corporations for free. Other rules, such as extended monopoly protections for pharmaceuticals, were in limbo, but remained as precedents for future negotiations, including the RCEP. There was the additional prospect of the USA seeking to re-enter the original pact. In March 2018 President Trump mused on that possibility, noting the rules would have to be much more favourable to the USA.49 Nominally, any one of the eleven could insist that some items remained suspended; their collective capitulation to new demands from the USA seemed more likely.

4.2 The Regional Comprehensive Economic Partnership The RCEP negotiations were launched in November 2012, two and a half years after the first TPP round. The official rationale for the RCEP was to consolidate and extend the bilateral free trade agreements between the ten Association of South East Asian (ASEAN) nations (Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar/Burma, Philippines, Singapore, Thailand, Viet Nam) and six of its dialogue partners: Australia, China, India, Japan, New Zealand and South Korea (known as ASEAN FTA Partners or AFP). That explanation puts the ASEAN countries, not China, at its centre. To complicate the dynamics further, seven countries overlap the RCEP and TPP: four are within ASEAN (Singapore, Malaysia, Brunei Darussalam and Viet Nam) and three are non-ASEAN countries (Japan, Australia and New Zealand). South Korea also has strong TPP-style commitments in its free trade agreement with the USA. For convenience, this paper refers to Japan, Australia, New Zealand and South Korea as the TPP-4. All trade negotiations are notorious for missed deadlines. The RCEP is no exception. The 19th negotiating round was held in Hyderabad in July 2017. That was followed by a ministerial meeting in the Philippines in September, which reported that they were seeking ‘flexibilities’ and to identify ‘realistically achievable outcomes’ to meet their latest target of concluding the pact by the end of 2017.50 Another round in Incheon, South Korea, in October was the last before the RCEP summit in November,

49 Donnan S, Sevastopulo D (2018, January 25) Trump opens door to rejoining TPP. Financial Times. Accessed 18 March 2018. September 10) RCEP ministers redouble efforts to conclude APEC talks. Xinhua. http:// Accessed 18 March 2018.

50 (2017,

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coinciding with the 50th anniversary of the founding of ASEAN.51 Despite repeated calls for faster progress, the talks were moving slowly in key chapters, especially market access for goods and agriculture. A low-profile announcement deferred the target date until November 2018.52 The complexities of interests, history of agreements, and negotiating priorities were far greater than in TPP, where the USA effectively set the bottom lines and the rest negotiated around them. ASEAN is a regional entity and negotiates as a bloc. That requires its TPP members to reach a consensus with others who would find those rules unpalatable. Consensus-making is a slow process. Meanwhile, the TPP-4 made aggressive demands on market access for goods and services, and tabled texts on intellectual property, investment, state-owned enterprises and e-commerce that were based on, or went further than, the TPP.53 Australia and New Zealand, especially, were apparently very demanding,54 even though their open investment regimes and absence of tariffs meant they had little to offer in return. India was commonly blamed for the slow progress. The government was reluctant to make the deep cuts to tariffs that were being demanded in sensitive sectors such as agriculture and for Chinese manufactured goods that could swamp its economy.55 It insisted on a single undertaking, where any movement on market access was conditional on securing concessions on labour mobility (‘mode 4’ of trade in services), which involved highly sensitive issues of immigration.56 India’s government also published a model bilateral investment treaty in early 2016 that was incompatible with the TPP template, although India has shown some pragmatism (discussed below). The number of large players or blocs in RCEP means there was more parity among the parties than in the TPP. It was certainly not dictated by China. The most that could be claimed was that China would be one of the ultimate arbiters of the terms of any final agreement. Put another way, there would not be a final agreement that China was not happy with. That meant the RCEP, if concluded, would not include many of the novel elements the USA insisted were part of the TPP, and which were 51 Jaewon

K (2017, October 27) RCEP deal unlikely this year: South Korean official. Nikkei Asian Review. Accessed 18 March 2018. 52 (2017, November 16) RCEP likely to be signed in December next year. United News of India. 1049020.html#g58XTJw3dEbSZIdU.99. Accessed 18 March 2018. 53 Leaked investment and intellectual property texts from August 2015 can be accessed at https:// Accessed 18 March 2018. 54 Personal information to the author. 55 (2017, July 19) With India and China standing eyeball to eyeball in Doklam, matters may come to a head in Hyderabad. The Economic Times. foreign-trade/china-border-tensions-cloud-asia-trade-pact-talks-in-india/articleshow/59658703. cms. Accessed 18 March 2018. 56 (2017, May 24) Trade calculations: India offers to parley on RCEP tariff terms. The Economic Times. Accessed 18 March 2018.


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designed largely with China in mind. The lower ambition triggered calls from some TPP countries to walk away from the RCEP.57

5 Crossovers and Contrasts Between TPP and RCEP These complex over-lapping dynamics generated a vigorous contest within the RCEP about rules that are found in or derived from the TPP. This section provides an overview of each agreement, then discusses four common chapters.

5.1 TPP: Overall Content From its inception, the TPP was conceived as a ‘high ambition’, ‘gold standard’, ‘21st century’ agreement.58 Despite its formal origins in the P-4, the USA’s standard template for free trade agreements dictated the framework of the text, and the United States Trade Representative, informed by the American corporate lobbies, designed the novel chapters on e-commerce and SOEs. The final 30 chapters in the agreement fall into three categories: 1. Increased market access for goods, textiles, agriculture, services and investment through negotiated annexes, many of which used new scheduling structures and presumptions. Any new market access to the USA was limited by defensive devices, such as the yarn-forward rule that said garments and textiles could only receive duty free treatment if made from yarn produced in TPP countries. 2. Expanded substance and scope of the regulatory disciplines compared to previous agreements among the parties. These covered technical barriers to trade, sanitary and phytosanitary, government procurement, intellectual property, investment, financial and telecommunications services. There were some refinements to the investment chapter, which had been a particular target of public criticism, but they were limited in number and effect. 3. Novel chapters and rules that combined substantive regulatory constraints and process obligations. These involved e-commerce, SOEs, monopoly protections for new generation biologic medicines, processes for procuring pharmaceuticals, regulatory coherence, transparency and, for some countries, obligations on labour and environment that were reinforced through side letters. 57 O’Meara P (2018, March 5) Stalled RCEP trade pact raises questions about NZ involvement. Radio New Zealand. foreign-trade/trade-calculations-india-offers-to-parley-on-rcep-tariff-terms/articleshow/58814035. cms. Accessed 05 April 2018. 58 U.S. Embassy and Consulate in New Zealand (undated). Summary of the Trans-Pacific Partnership Agreement. Accessed 18 March 2018.

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5.2 RCEP: Overall Content The RCEP parties adopted and published a set of eight guiding principles before negotiations began.59 The principles set out the parties’ ambitions for trade in goods, trade in services, investment, economic and technical cooperation, intellectual property, competition, dispute settlement and ‘other issues’ that may be identified. A significant difference from the TPP was the promise to address development asymmetries: 4. Taking into consideration the different levels of development of the participating countries, the RCEP will include appropriate forms of flexibility including provision for special and differential treatment, plus additional flexibility to the least-developed ASEAN Member States, consistent with the existing ASEAN + 1 FTAs, as applicable. The RCEP negotiations were as secretive as the TPP, but without the same formal secrecy pact.60 Only a small number of RCEP chapters leaked, compared to repeated leaks of certain TPP chapters, especially those on intellectual property, procedures for procuring medicines and investment. The dearth of RCEP texts made it difficult to monitor the extent to which the guiding principles have been honoured, and especially how the promise of development flexibilities was being reconciled with the demands made by the TPP-4. In response to an Official Information Act request the New Zealand government revealed there were 23 chapters, two annexes and four schedules proposed for RCEP as of May 2016.61 Notable omissions when compared to the TPP were the sensitive areas of government procurement, textiles and apparel, trade remedies, temporary entry for business persons, SOEs, labour, environment, regulatory coherence, and transparency and anti-corruption. However, the titles of five chapters, one annex and one schedule were redacted from the information supplied, which suggests at least some of these had been proposed.

59 1. WTO consistency; 2.broader and deeper than ASEAN + 1FTAs, while recognising diverse circumstances of individual participating countries; 3. Include trade facilitation, transparency, and facilitate participation in global and regional supply chains; 4. Consider different levels of development and appropriate development flexibilities; 5. Co-existence with existing FTAs among the participants; 6. Participation by further ASEAN FTA partners in negotiations would be allowed by consensus and in the final text by accession provisions; 7. Technical assistance and capacity building may be available to developing and least developed countries in ASEAN to assist participation and implementation; 8. Negotiations on goods, trade in services, investment and other areas will occur in parallel to seek a comprehensive and balanced outcome. Guidling Principles and Objectives for Negotiating the Regional Comprehensive Economic Partnership. trade/agreements/rcep/Documents/guiding-principles-rcep.pdf. Accessed 18 March 2018. 60 The negotiating parties to the Trans-Pacific Partnership Agreement agreed not to release negotiating documents for four years after the agreement comes into force. See the template letter at: https:// Accessed 18 March 2018. 61 Hon Todd McClay to Jane Kelsey, 12 May 2016. On file with author.


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Four leaked RCEP texts, dating from late 2015, allow for some comparison with the TPP and reveal a vigorous contest within RCEP across a range of parties, China being just one.

5.3 Intellectual Property The leaked RCEP chapter on intellectual property, dated October 2015, showed Japan and South Korea had tabled a text based on TPP.62 In a paper comparing the RCEP and TPP texts in relation to access to medicines, Townsend, Gleeson and Lopert warned that the TPP rules would have more severe consequences in low and middle income RCEP countries than for most parties to the TPP.63 The RCEP text included the controversial minimum exclusivity period for marketing of biologic medicines of five years-plus, which the authors projected would add hundreds of millions of dollars to health budgets of most RCEP countries. In the case of China and Lao, whose laws already exceeded this period, RCEP would bind that period and prevent them from lowering it in the future.64 Other TPP requirements, such as patent term extensions, would also be new for non-TPP parties. Japan even made a TPP-plus proposal to limit the grounds to refuse a patent, including patent ‘ever-greening’,65 which would delay the entry of generics into countries’ markets. Townsend et al. note that this would conflict with recent Chinese practices. These provisions have since been suspended in the TPP, posing the prospect that RCEP could end up with a significantly TPP-plus intellectual property regime. As most of those rules would apply across the board, the USA would get the benefits ‘for free’. The RCEP chapter also copied the TPP obligation to adopt a number of United Nations conventions, notably the International Convention for the Protection of New Varieties of Plants (UPOV 1991), which guarantees monopoly rights over new plant varieties. Many ASEAN countries, as well as China, India and New Zealand, are not party to that convention. Its inclusion in RCEP would be extremely controversial and is likely to be vehemently opposed by India. This obligation remains operative in the revised TPP. Copyright was another problematic area for China, which currently has a copyright term of life plus 50 years in most instances; the proposed RCEP text followed the TPP by proposing an increase to life plus 70 years. The extension to 70 years has been suspended in the revised TPP. More generally, the Electronic Frontier Foundation 62 Single Working Document on the Intellectual Property Chapter. Regional Comprehensive Economic Partnership. 15 October 2015. Accessed 18 March 2018. 63 Townsend B, Gleeson D, and Lopert R (2016) The Regional Comprehensive Economic Partnership, Intellectual Property Protection and Access to Medicines. Asia Pacific Journal of Public Health 28(8): 682–693. 64 Ibid, 686. 65 Extending the period of patents by claiming new patents for slight modifications or new uses for existing patented medicines.

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reported that the RCEP proposed some improvements on the TPP text in relation to copyright, but that some errors had been repeated.66

5.4 Investment The RCEP leaked investment text was also dated October 2015.67 The positions of India, China, South Korea and New Zealand spanned a broad spectrum. South Korea promoted the standard USA-style approach found in TPP.68 India proposed elements from its new model bilateral investment agreement that preserves greater regulatory space for governments and restricts foreign investors’ access to the controversial investor-state dispute settlement (ISDS) mechanism.69 New Zealand’s position was similar to South Korea’s on the investment rules, but did not specify a position on ISDS. Subsequently, the New Zealand government elected in October 2017 instructed its negotiators to reject ISDS in future agreements, including the RCEP.70 China’s position reflected its growing offensive interest in investment protections and enforcement.71 The leaked text showed it supported most of the USA-style investment provisions, including an extensive definition of investment, and the prohibition on a range of performance requirements for investments relating to goods, services and technology (even though it uses such requirements itself). It endorsed a negative list approach to scheduling protections for existing and future non-conforming measures from certain of the chapter’s rules, which has the effect of maximising coverage. China also wanted investors to have access to the ISDS mechanism to enforce investment contracts that involve natural resources, services infrastructure, and infrastructure projects, even when the investor does not seek to enforce investment protections in the chapter. This provision has been suspended in the TPP. China’s defensive national security interests were framed as an exclusion for ‘cultural industries’, defined as media, audio-visual, Internet and telecommunications, and application of strict confidentiality to investment disputes. The RCEP investment chapter again illustrates the Trump-paradox: the USA has dramatically altered its position on investment, removing ISDS from the US-Canada aspect of the North American Free Trade Agreement (NAFTA) and severely curtail66 In February 2017 EFF published an open letter from 60 copyright scholars setting out necessary improvements. Malcolm J (2017, February 24) Law Professors Address RCEP Negotiators on Copyright. Electronic Frontier Foundation. Accessed 18 March 2018. 67 RCEP Draft Investment Text as of 16 October 2015. 08/03-rcep-wgi10-draftconsolidated-investmenttext.pdf. Accessed 18 March 2018. 68 Extracted from text at note 69. Accessed 18 March 2018. 69 Accessed 18 March 2018. 70 Hon David Parker to New Zealand Council of Trade Unions, 20 February 2018, on file with author. 71


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ing it between the US and Mexico.72 If that position runs through its other agreements, and the RCEP follows China’s preferred approach, then RCEP would be significantly stronger in its investor-protection and enforcement rules than the USA regime.

5.5 Services The leaked RCEP services chapter from August 2015 showed the TPP-4 had made aggressive proposals for rules and scheduled commitments that would maximise the exposure of all parties to constraints on their autonomy to regulate services and their services markets.73 The architecture and level of commitments they proposed would strengthen their own positions in globalised markets and integrated supply and value chains, and boost their attempts to create a new normative threshold for services agreements, and correspondingly increase the dependence and compliance burdens on developing countries in RCEP. Much of the proposed text was common to TiSA, a mega-regional negotiation specialising in services in which Australia and New Zealand were especially active players. The RCEP proposed rules were relatively standard. The schedules of commitments that bring services under the core rules are the crucial factor, and these would be heavily negotiated. China sided with ASEAN and India in seeking to preserve regulatory space on services, including support in principle for an article on special and differential treatment and that parties should provide commercial opportunities for least developed countries—something Australia and New Zealand opposed. While the developing countries also insisted on maintaining a positive list approach to scheduling their commitment of services sectors to the chapter’s main rules, the TPP countries sought to impose a standstill on existing liberalisation of a minimum number of sectors, with a ratchet to lock in future liberalisation.74 Only Australia opted to use a negative list, but the TPP-4 pushed for the scheduling of ‘value added’ elements that would enable the transformation of RCEP’s positive list schedules into negative lists in the future.75 This would have little impact on the TPP-4, who have already liberalised most of their services markets, and bound them in existing negative list agreements. Requiring a similar level and form of commitments from

72 ‘US accepts Canadian proposal to remove ISDS from NAFTA’, Latin L23 February 2018, lawyer, Accessed 05 April 2018. 73 Extracted from text, supra n 69. 74 Chapter on Trade in Services in the Regional Comprehensive Economic Partnership, draft as of RCEP WGTIS 90, draft text of 5 August 2015. Article XX. Schedules of Specific Commitments, paras 3 and 4, proposed by Australia, New Zealand and South Korea. https://rceplegal.files. Accessed 18 March 2018. 75 Ninth Meeting of the Regional Comprehensive Economic Partnership Working Group on Trade in Services, 3–7 August 2015, para 7. of_discussion_wgtis_aug_2015.pdf. Accessed 18 March 2018.

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the developing countries in RCEP would constitute a highly asymmetrical level of liberalisation, and effectively negate negotiating principle 4. The RCEP was also expected to follow the trends in TPPA and TiSA, where countries are asked to promise not to regulate services that are delivered from offshore or new technologies for delivering the services they have committed in their schedules. That minimises the need for foreign firms to invest inside the country that receives their services, employ local workers, comply with local regulations and pay local taxes.

5.6 Electronic Commerce More extensive commitments on cross-border services would cross-fertilise with the electronic commerce chapter. This chapter is arguably the most significant, and least remarked on, innovation in both the TPP and RCEP. If any aspect of the agreements reflects a contest for hegemony between the USA and China, this chapter is it—even though the USA has no formal role in the RCEP negotiations and is no longer in the TPP. The TPP chapter aims to prevent governments from regulating the digital platforms and technologies that will drive the world’s economies and societies in the coming decades (at least until some new technology makes them redundant). This would have huge social, economic and political ramifications. The TPP text was developed for, and largely by, the powerful USA industry lobby,76 and reflects American domestic law, which regulates telecommunications and protects the Internet from regulation.77 Far from creating a level playing field, this hands-off approach has allowed American firms (symbolised by the acronym GAFA—Google, Apple, Facebook and Amazon) to secure an oligopoly over key areas of the world’s digital infrastructure. Top priority for the major technology corporations is their right to control data, considered the new gold of the 21st century, and to decide where in the world data is held and hence, under what laws.78 Other industry demands include unrestricted rights to supply services across the border, a ban on requirements for cross-border suppliers to have a local presence, or that firms who are present use local content or

76 See

Kelsey J (2017) TiSA- Foul Play. UNI Global Union, Brussels. 33–46. stated goals of the United States of America Telecommunications Act of 1996 (Code 47 U.S.C.¶230(b)) were to ‘promote competition and reduce regulation in order to secure lower prices and higher quality services for American telecommunications consumers and encourage the rapid deployment of telecommunications technologies’ but to ‘preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services, unfettered by Federal or State regulation’. 78 Obligations to allow the cross-border transfer of financial data were excluded from the TPP. The e-commerce chapter in the EU-Japan FTA does not exclude financial services, but Article 6 in the Financial Services Chapter has square brackets. 77 The


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computer facilities. Technology transfer requirements would be prohibited, including obligations to disclose source codes, whether for algorithms, apps or ‘smart’ products. China’s systematic digital industrialisation strategy, which relies heavily on technology transfer, was a major impetus for the USA to develop the TPP rules.79 Strengthening the regulation of the Internet was listed as a key goal in China’s 12th Five Year Plan in 2011.80 Expansion of the ‘digital Silk Road’ is integral to China’s One Belt, One Road project.81 In contrast to the American quest for dominance, China presents its digital outreach as pro-development and supportive of small and medium enterprises.82 Technology giant Alibaba is promising to provide the ‘ecosystem’ for regional e-trade platforms, the first being a pilot Digital Free Trade Zone in Malaysia in partnership with government companies.83 Despite the development rhetoric, there is a parallel risk that Alibaba and its affiliates will control Asia’s regional infrastructure, platforms and data, and become the gatekeepers for ASEAN countries wanting to harness new technologies and value chains for development. In that sense, China’s strategy is just as self-interested and potentially anti-competitive as the USA. Japan took the lead in promoting the TPP’s e-commerce rules in RCEP.84 In February 2015, the Trade Negotiation Committee (TNC) of RCEP endorsed a proposal to establish an e-commerce working group and approved terms of reference for negotiations on e-commerce that largely follow the TPP (and TiSA) template.85 The e-commerce text tabled and promoted by Japan in RCEP largely mirrors the TPP.86 At the time of writing, it was not publicly known how other countries responded, but many of the rules would be anathema to China and some non-TPP ASEAN countries.

79 Dragoo H (2017, August 7) China’s Cybersecurity Law: The Impact on Digital Trade. Accessed 18 March 2018. 80 Ibid note 81. 81 Greiger G (2016, July 7) One Belt, One Road (OBOR): China’s Regional Integration Initiative, Briefing to the European Parliament. European Parliament Think Tank: Brussels. BRI(2016)586608. Accessed 18 March 2018. 82 Shuiyu J, Xin Q, and Wei H. (2017, April 24) Ali Baba bringing Belt, Road benefits to SMEs. China Daily. Accessed 18 March 2018. 83 Alibaba (2017, March 22) Alibaba turns eWTP into reality with the Creation of the First Overseas E-hub. Accessed 18 March 2018. 84 This is also evident in its new bilateral free trade agreements, including chapter 8 of the Japan European Union (EU), dated 7 December 2017. 85 Terms of Reference. Working Group on Electronic Commerce. Regional Comprehensive Economic Partnership. February 2015. Accessed 18 March 2018. 86 Confidential communication with the author.

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China is not averse to international rules on digital trade. It chaired the G20 when the group adopted a broad list of principles on digital trade in 2016.87 But it does not support the USA-led model. In a paper tabled in the WTO in late 2016,88 in response to an earlier ‘non-paper’ from the USA that proposed new negotiations,89 China argued for a gradual approach within the existing mandate of a WTO working group on electronic commerce that was set up in 1998 to discuss the issue. China said WTO members should avoid polarisation by giving priority to ‘easy issues’ of promotion and facilitation of cross-border trade in goods and support services like payment and logistics services—areas in which China can compete. This is clearly one area in which China would have a final say on the rules for RCEP, and play a strong role in shaping them in other arenas, including the WTO.

6 Reflections on a Battle for Hegemony This chapter has offered a comparative and contextual analysis of the TPP and RCEP negotiations, and the roles of the USA and China in them. It reveals complex dynamics that belie the simplistic dichotomy that USA politicians presented to their domestic constituency, and that some countries have echoed in seeking to bring the Americans back into the fold. Ironically, the RCEP continued negotiating proposed rules that had been suspended from the revised TPP. The RCEP was far from being at China’s diktat. It was a highly contested negotiating arena in which rules designed by and for the USA were competing with proposals from a range of powerful players, of which China is just one. In some instances, such as investment protections and ISDS, China actually sided with the TPP model against other developing countries in RCEP. In other chapters, notably the rules that would dictate the future of the global digital economy, China could be expected to reject the USA-driven agenda. Both sets of negotiations have continued to advance a normative rule-book that is heavily contested and that faces an increasing crisis of legitimacy. It is impossible to predict how this will play out in the next few years. The Trump administration is seeking to renegotiate various other agreements, notably NAFTA and the FTA with South Korea, to secure outcomes even more favourable to USA interests. At the APEC meeting in Viet Nam in 2017, as the TPP-11 countries staged a rear-guard action to defend the Obama administration deal, Trump talked in opaque terms of a 87 G20

(2016, September 5) Digital Economy Development and Cooperation Initiative. Hangzhou, China. pdf. Accessed 18 March 2018. 88 WTO (2016, November 16), Work Programme on Electronic Commerce. Aiming at the 11th Ministerial Conference. Communication from the People’s Republic of China and Pakistan, JOB/GC/110/Rev.1. Accessed 05 April 2018. 89 WTO (2016, July 4) Work Programme on Electronic Commerce. Non-paper from the United States, JOB/GC/94. Accessed 05 April 2018.


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‘new paradigm’ that seems to be premised on bilateral relations (and power plays) and embraces a newly devised Indian-Pacific region intended to isolate China.90 China, meanwhile, may become more reliant on the rule-book in the face of America’s resort to market power backed by unilateral sanctions. For example, President Trump in August 2017 ordered an investigation into China’s technology transfer requirements with a view to imposing unilateral sanctions using the so-called special 301 provision of the United States Trade Act of 1974.91 The China Daily warned that ‘instead of advancing the United States’ interests, politicising trade will only exacerbate the country’s economic woes, and poison the overall China-US relationship’, and urged to Trump to avoid a ‘trade war’.92 In March 2018 he announced unilateral tariffs on steel and aluminium imports, purportedly to protect national security.93 The Beijing government responded by calling for the USA to respect the international trading order.94 There may well be a battle for hegemonic dominance, but it will not be pursued through the TPP and RCEP. China may emerge as the contestant who champions the rules. The takeaway message from this chapter is the need to look beyond the Western fetishisation of international trade and investment agreements as the vehicles for exercising that aspect of economic and geopolitical power. They are important for their substantive rules and their strategic alliances (a dimension this paper has not discussed in depth). But they just one of a plurality of factors that are reshaping the global political economy as China’s hegemonic power grows and that of the USA declines.

90 Ono

K (2017, November 2) Abe, Trump seek Indian-Pacific strategy to counter China. Asahi. Accessed 18 March 2018. 91 McDonald J (2017, August 15) China attacks Donald Trump’s trade investigation and pledges to ‘resolutely safeguard’ interests. The Independent. asia/china-donald-trump-trade-investigation-response-protect-businesses-companies-commerceministry-a7893856.html. Accessed 18 March 2018. 92 Aleem Z. (2017, August 21) Trump’s new attack on the Chinese economy, explained. Vox. https:// Accessed 18 March 2018. 93 Office of the USTR. 2018. USTR Robert Lighthizer’s Statemment on President Trump’s Decisions on Imported Steel and Aluminum. Accessed 18 March 2018. 94 Ma W (2018, March 9) China “Strongly Opposed” to Trump’s Tariffs. Wall Street Journal. Accessed18 March 2018.

Copyright Overprotection Versus Open Science: The Role of Free Trade Agreements Roberto Caso and Paolo Guarda

Abstract This chapter aims to map the impact of copyright law on the circulation of information, progress of knowledge, innovation and development within some selected case studies extracted from a paradigmatic Free Trade Agreement (FTA): the Trans-Pacific Partnership (TPP). On the one hand, excessively restrictive copyright rules—the Western overprotection approach—may threaten policies to foster science and innovation. On the other hand, Open Science (Open Source software, Open Access publications, Open Research Data, Open Educational Resources, Open Peer Review)—based essentially on lowering economic, technological and legal (copyright and contract) barriers to access information—seem to boost a more fair and global development approach, by stimulating free flow of ideas and information across borders. If the latter more flexible regime of intellectual property could be accepted as a favourable context for Open Science, we argue in favour of a more balanced copyright law in the FTAs context. Keywords Open science · Free trade agreements · Copyright overprotection International law

1 Introduction Two different visions are facing each other in regulating copyright and in general intellectual property rights. The overprotection approach, based on strict rules and

Roberto Caso is the author of Sect. 2. Paolo Guarda is the author of Sect. 3. Roberto Caso and Paolo Guarda co-authored Sects. 1 and 4. R. Caso (B) · P. Guarda Faculty of Law, University of Trento, Via Verdi 53, Trento 38122, Italy e-mail: [email protected] P. Guarda e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2019 L. Corbin and M. Perry (eds.), Free Trade Agreements,



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strong protection of the rights holder; and an open one, based on a more flexible and dynamic approach to the management of the author’s rights as well as on some users’ rights. The first is affirmed and reiterated in the various documents and regulatory provisions that govern the subject at international and national level, with an approach that is influenced by the origin and the historical and technological context in which those rules have taken shape. This way of understanding copyright, as will be shown, finds (an even more restrictive) expression in free trade agreements. The second approach is promoted within Western countries by some sectors of society (e.g. free software developers, academics, etc.) and also at international level by some developing countries. This second approach is an essential tool to develop Open Science. Open Science makes flexibility its “watchword”. It is based on lowering economics, technology and legal (copyright and contract) barriers to access information as well as on democracy, transparent, pluralistic and inclusive approach to science and innovation stimulating free flow of ideas and information across borders. These considerations lead us to consider desirable that, even at the level of treaties and international agreements, a more flexible IP regime will be considered acceptable and thus be an incentive for the development of creative works and innovative ideas. The chapter, relying on what we believe are the seminal literature on the topic, argues in favour of a more balanced copyright law in the context of Free Trade Agreements (FTAs). Following this introduction, the second section will be devoted to the description of the Open Science movement in an international perspective; the third section will provide some examples of how the rules relating to copyright are incorporated in the Free trade agreements, taking the Trans-Pacific Partnership (TPP) as an emblematic case; finally, the concluding section of the chapter will set out some general considerations.

2 Open Science, Copyright Overprotection and International Law1 Open Science (OS) represents a form of scientific communication. The use of the label OS is fairly recent.2 In the past, the term Open Access (OA) was more commonly 1 This

paragraph is essentially based on Caso R (2017) Scienza aperta. The Trento Law and Technology Research Group. Research Papers Series; nr. 32. Trento: Università degli Studi di Trento. 2017. Accessed 20 December 2017. 2 See, e.g., Bartling S, Friesike S (Eds.) (2014) Opening Science - The Evolving Guide on How the Internet is Changing Research, Collaboration and Scholarly Publishing, Springer, 2014 http://; Margoni T, Caso R, Ducato R, Guarda P, Moscon V (2016) Open Science, Open Access, Open Society. Trento law and Technology Research Group Research Papers; 27. Accessed 20 December 2017; and Caso R, and Ducato R (2016) Open bioinformation in the life sciences as a gatekeeper for

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used.3 OA is a social movement born at the beginning of the Internet. OA started in the late 80s, when the Internet was not dominated by commercial interests and private platforms. At that time, the first OA scientific journals and repositories appeared. OA is, in many aspects, a social movement close to the Open Source world.4 The core of OA philosophy is that the Internet constitutes an unprecedented opportunity to improve and strengthen science.5 In fact, the Internet provides a powerful form for communication, different from that based on orality, writing and printing press technology.6 The conceptual underpinnings of OS go back to enlightenment philosophy emphasising the “public use of reason”,7 and the modern scientific revolution with science centered on the public communication of research results as opposed to the previously used secrecy practices.8 Further, an emerging stream of literature frames OS and OA within the theory of a knowledge commons.9 There are no universal definitions of OS.10 Generally, it can be stated that OS is a formula intended to encompass many phenomena: open software, open access to research publications and data, and open education (so called Open Educational Resources). The common core of these phenomena is the free (as in ‘no charge’) and “libre” (with right to reuse) access to on-line scientific and teaching materials. Moreover, OS promotes publicity and transparency of the reviewing process (Open Peer Review). Furthermore, some connect the notion of OS to the concept of Open Innovation (OI) to describe the form of production of new technology based not only innovation and development, in G. Bellantuono, F. T. de Rezende Lara, (Eds.), Law, Development and Innovation, Springer, 2015, 115. 3 Suber P (2012) Open Access, MIT Press. 4 David Paul A (2014) The Republic of Open Science: The Institution’s Historical Origins and Prospects for Continued Vitality. Stanford Institution for Economic Policy Research, Stanford University. Accessed 20 December 2017 p. 33. 5 Guédon JC (2017) Open Access: Toward the Internet of the Mind. In: Budapest Open Access Initiative. Budapest Open Access Initiative. Available via http://www.budapestopenaccessinitiative. org/open-access-toward-the-internet-of-the-mind. Accessed 20 December 2017. 6 Harnad S (1991) Post-Gutenberg Galaxy: The Fourth Revolution in the Means of Production of Knowledge, Accessed 20 December 2017. 7 Kant I (1784) Beantwortung der Frage: Was ist Aufklärung? in Berlinische Monatsschrift, 04 (Dezember); Pievatolo M C (2003) I padroni del discorso. Platone e la libertà della conoscenza, Edizioni PLUS,; and Di Donato F (2009) La scienza e la rete. L’uso pubblico della ragione nell’età del Web, Firenze University Press, Firenze, http://www. Accessed 20 December 2017. 8 Merton R K (1942) Science and Technology in a Democratic Order. 1 Journal of Legal and Political Sociology, p. 115; Rossi P (2007) La nascita della scienza moderna in Europa, Roma-Bari; and David, supra note 5. 9 Madison M J, Frischmann B M, Strandburg K J (2010) Constructing Commons in the Cultural Environment. Cornell Law Review, Vol. 95, p. 657, 2010; U. of Pittsburgh Legal Studies Research Paper No. 2008–26. Accessed 20 December 2017. 10 Fecher B, Friesike S (2013) Open Science: One Term, Five Schools of Thought (May 30, 2013). RatSWD_WP_ 218. or Accessed 20 December 2017; Caso and Ducato, supra note 3, pp. 120 ff.


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on internal resources of the organisation—typically, the firm—but also on external ones.11 Although there are no universally shared definitions of OS, in three statements of the early years of the third millennium, members of the scientific community have tried to delimit OA. These are the declarations of Budapest (2002),12 Bethesda (2003)13 and Berlin (2003).14 From the perspective of these three famous statements, the removal of economic, legal and technological barriers to access to research results would be the focus of the OA.15 While the classic economic exploitation of IP is based on the logic of a strong copyright in the hands of some intermediaries such as publishers—a logic summarised in the ubiquitous copyright notice “all rights reserved”, the OA is based on the idea that a more or less broad range of economic rights are transferred directly from the author to the public—“only some rights are reserved”—while the author retains the right to paternity, i.e. the right to be acknowledged as the author of the work. In other words, the OA is necessarily linked to permissive licenses such as Creative Commons licences.16 The scientific author is interested in claiming the right to authorship of the scientific work, because recognition through the quotation of the previous work is, in the current system of science, a powerful incentive from which others derive, including career progression, the acquisition of funds for research projects, scientific prizes and awards. The emphasis on the incentive linked to reputation, however, reflects a certain vision of science, focused on the exaltation of the individual contribution to progress and on an exclusively hierarchical and competitive structure of research. In reality, the protection of the right of attribution or paternity may also have a different meaning: the defense of freedom and the autonomy of science in turn related to freedom of thought,17 a goal that inspires the promoters of free software and in particular

11 OI is also linked to the mobility of creative talents involved in the invention of new technologies. On the concept of OI see Chesbrough 2003. For a market oriented perspective on the relationship between OI and OS see, e.g., European Commission 2016. For a critical perspective on the relationship between OI and Open Development see de Beer J (2017) de Beer, Jeremy, Open Innovation in Development: Integrating Theory and Practice Across Open Science, Open Education, and Open Data (January 26, 2017). Open AIR Working Paper No 3/17. Accessed 20 December 2017. 12 Budapest Open Access Initiative of 2002 (2002) read. Accessed 20 December 2017. 13 Bethesda Statement on Open Access Publishing of 2003 (2003) fos/bethesda.htm. Accessed 20 December 2017. 14 Berlin Declaration on Open Access to Knowledge in the Sciences and Humanities of 2003 (2003) Accessed 20 December 2017. 15 Suber, supra note 4. 16 Lessig L (2004). Free culture: How big media uses technology and the law to lock down culture and control creativity, Penguin, New York, Accessed 20 December 2017. 17 Moscon V (2015) Academic Freedom, Copyright, and Access to Scholarly Works: A Comparative Perspective, in Caso R, Giovanella F, Balancing copyright law in the digital age: some comparative perspectives, Springer, 2015, p. 99.

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the ideas of Richard Stallman.18 For example, retaining the right of attribution means being able to speak in the name of science and not the institution or corporation to which the individual belongs. On the other hand, from an ethical perspective, the engine of progress should not be led by individual affirmation and acquisition of positions of power, but by being part of a community and a cooperative enterprise (to put it with an expression from the evocative accent: the search for truth).19 Framing the question in Mertonian terms, there is a balance between the norm of priority—which means competition to be recognised as the first who has discovered a nature’s law—and the norm of communism—which means putting the scientific results in the public domain to foster cooperation.20 However, the commodification of science and university is altering the traditional balance between competition and cooperation. More and more science appears to be dominated by the market and competitive logic.21 From a wider perspective, science is facing a fundamental turning point of its history.22 Never, as in this historical moment, has science appeared to be this massive and powerful, and yet so fragile: the concentration of information and power in the hands of a few commercial groups, the inequity, indeed iniquity, of a system formed to benefit developed countries, the restriction of academic autonomy by political and economic power, the precariousness of working conditions of young researchers, the increase in the number of cases of scientific fraud and misconduct,23 the questioning of its authority by a portion of the public. In this context, can openness be understood as a system capable of strengthening science and treating the diseases that afflict it? 18 Stallman R M (2010) Free Software, Free Society—Selected Essays of Richard M. Stallman, II ed., Boston (MA), Free Software Foundation, Accessed 20 December 2017. 19 Swartz A (2006) Legacy, Accessed 20 December 2017. 20 Merton R K (1957) Priorities in Scientific Discovery: A Chapter in the Sociology of Science, American Sociological Review, Vol. 22, No. 6 (Dec., 1957), 63. 21 David, supra note 5, p. 24: “The resultant government efforts to favorably adjust domestic and international IPR regimes, combined with budgetary pressures to curtail public expenditures for scientific and engineering research, abetted by other transient circumstances (some of which already were noticed in the Prologue), produced a marked shift in the structure of national research policies. This movement was in the direction of further ‘commodification’ of science, and gave greater weight to near-term ‘market valorization’ (rather than long-term ‘social valorization’) in assessing the likely pay-offs for tax supported ‘applied research’”; Caso R (2016) La scienza aperta contro la mercificazione della ricerca accademica? - La scienza aperta contro la mercificazione della ricerca accademica? The Trento Law and Technology Research Group. Research Papers Series; nr. 28. Trento: Università degli Studi di Trento. Caso__LTRP_28_def.pdf. Accessed 20 December 2017. 22 Caso R (2017) Scienza aperta. The Trento Law and Technology Research Group. Research Papers Series; nr. 32. Trento: Università degli Studi di Trento. 2017. 11572/183528/148898/LTRP_32.pdf. Accessed 20 December 2017. 23 Edwards M A, Roy S (2017) Academic Research in the 21st Century: Maintaining Scientific Integrity in a Climate of Perverse Incentives and Hypercompetition, Environmental Engineering Science, Volume 34, Number 1, 2017,


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It is difficult to answer this question, but we can say that Open Science is still in an evolving state whose development is largely inhibited by an increasing degree of legislation at both the international and national level that regulates intellectual property.24 This has consequently provoked a decrease in the public domain.25 In the field of copyright law, overprotection means the extension of an exclusive right to cover not only texts and images, but also simple data and information (e.g. through the Technological Protection Measures or the sui generis legislation such as the European right over databases).26 In this paper we will focus on the overprotection of copyright law at the international level, through the negotiation and the implementation of the Free Trade Agreements (FTAs). If it is thought that we are facing a new generation of legislation in some western countries that is aimed at fostering Open Science (e.g. Open Access funder mandates or right to re-publish scientific articles),27 then it can be argued that legislation to protect copyright at the international level can be considered to be the polar star.28 Despite the power of a bottom up legal system to share knowledge based on contracts such as GNU GPL and CCLs, without a more balanced copyright law at the international as well as national level it is impossible to imagine that there will 24 The are other obstacles to the affirmation of Open Science: see Caso, supra note 23; Caso R (2016)

La scienza aperta contro la mercificazione della ricerca accademica? - La scienza aperta contro la mercificazione della ricerca accademica? The Trento Law and Technology Research Group. Research Papers Series; nr. 28. Trento: Università degli Studi di Trento. 2016: https://iris.unitn. it/retrieve/handle/11572/142760/76403/Caso__LTRP_28_def.pdf. Accessed: 20 December 2017; and Caso and Ducato, supra note 3. 25 Lessig, supra note 17; Boyle J (2008) Public Domain. Enclosing the Commons of the Mind, Yale University Press, New Haven & London, 26 Reichman J H and Okediji R (2012) When Copyright Law and Science Collide: Empowering Digitally Integrated Research Methods on a Global Scale (September 19, 2012). Minnesota Law Review, Vol. 96, No. 4, 2012; Minnesota Legal Studies Research Paper 12–54. abstract=2149218. Accessed: 20 December 2017, pp. 1369–1370, “Since the 1990s, in particular, there has been an unprecedented extension of copyright law and related rights protecting both literature and collections of data into the realm of basic science, with no adequate exceptions for research as such […]. The end result is a growing conflict between private rights and public goods at the core of today‘s most promising research techniques […]. [I]ntellectual property laws now impede access to scientific data and literature, just at the time when developments in scientific research methods require the use of automated knowledge discovery tools that depend on unfettered access and re-use conditions for their successful applications”; David, supra note 5 p. 24: “the legal protections now afforded to private property owners under the copyright regime now extend far beyond the arena of printed texts and images. They potentially cover all forms of data and information that can be digitally inscribed […]”. 27 See, e.g., Moscon V (2016) University knowledge Transfer: From Fundamental Rights to Open Access Within International Law, in G. Bellantuono, F. T. de Rezende Lara, (Eds.), Law, Development and Innovation, Springer, 2015, 147, pp. 169 ff; Caso R and Moscon V (2016) Open Access implementation: from a bottom-up order to a top-down disorder? “The Italian job” in Raquel Esther de Román Perez (a cura di), Propiedad intelectual en las universidades públicas: titularidad, gestión y trasferencia, Albolote (GRANADA): Editorial Comares, p. 377–393. 28 Malcolm J (2015) How Trade Agreements Harm Open Access and Open Source. EFF. Accessed 21 April 2018.

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be further development of Open Science in the future.29 From this perspective, it is worth exploring the intersection between free trade agreements and intellectual property (with special attention to copyright law).

3 Free Trade Agreements and Intellectual Property Regulation 3.1 Intellectual Property Rights in the FTAs: Two Approaches For some years, several industrialised nations have engaged in an activity aimed at increasing the levels of international protection of Intellectual Property Rights (IPRs).30 This strategy culminated in the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).31 Simply put, we argue that the creation of the WTO was made possible through negotiation involving the inclusion of two new agreements under the multilateral system of trade governance (GATS32 and TRIPS)—which was a priority for negotiators of industrialised countries in exchange for regulation on agricultural trade and the dismantling of the quota system governing textile and clothing trade—a priority for developing countries. The success of these attempts to further strengthen global IPRs protection through negotiation of trade agreements turned out to be a “two-edged sword”, as it triggered the reaction of affected trade partners.33 For instance, it had a direct impact on multilateral agreements such as the Doha Ministerial Declaration (2001), the related 29 Reichman and Okediji, supra note 27, p. 1477, “A top priority for policymakers should be to avoid generating legally established fiefdoms, in which a few private rights holders can combine the bulk of all scientific data and literature into monopolized repositories where access and use are restricted and controlled from the top down, and in which the commodified inputs of publicly funded science are distributed on a proprietary basis. Failure to achieve such a shift in priorities places digital and computational science in developed countries at risk of becoming progressively entangled in ‘copyright thickets’”; David, supra note 5, p. 36 “‘Bottom up’ initiatives on the part of publicly funded researchers have been creating specialized and sophisticated technical, organizational and legal infrastructures appropriate for their collaborative scientific work. But, the existence of those structures had further, external effects. They provided concrete exemplars that stimulated and rendered more feasible a variety of policy actions and regulatory measures by government science agencies, which in turn reinforced and broadened the movement to provide and protect conditions of open and timely global access to scientific data and information”. 30 See, in particular, the Tokyo Round of 1973–79 and the 8th round of multilateral trade negotiations (the Uruguay Round) under the GATT stated in 1986. 31 Agreement on Trade-Related Aspects of Intellectual Property Rights, opened for signature 15 April 1994, 1867 UNTS 299 (entered into force 1 January 1995) Annex 1C to the Marrakesh Agreement Establishing the World Trade Organisation (TRIPS Agreement). 32 General Agreement on Trade in Services (GATS) of 1995. 33 See for example in the case of TRIPS and their impact with regard to access to medicines amid public health crises.


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Declaration on the TRIPS Agreement and public health, and the consequent decision on compulsory licensing with particular attention to the needs of less developed countries. Thus, the prospect of achieving levels of protection that were even higher than the standards established under the WTO/TRIPS 1994 Agreement, while remaining within the framework of the WTO, finally proved to be unsatisfactory.34 For this reason, the United States (US) and the European Union (EU) have begun to shift their attention from these global instruments to bilateral agreements to be negotiated from time to time with overseas partners. This has led to an increased use of bilateral free trade agreements (FTAs) in an attempt to impose what some describe as excessive obligations in terms of IP.35 This phenomenon affected all countries, but predominantly Asian countries. Until a few years ago many of them were totally unaffected by IPR legislation or had regulation that stemmed from the colonial period, which was poorly modified after obtaining independence, and had fallen into disuse.36 However, attention to this type of regulation has increased since the 1970s and 1980s, when investors who had become interested in the Asian market began complaining about the lack of discipline in this area and put pressure on local governments to bridge the gap.37 IP thus became one of the many political and economic factors considered in the bargaining in trade discussions. This led to a considerable increase in the breadth IP legislation in those countries that agreed to adopt high levels of protection, often for reasons that go

34 For further analysis see Primo Braga C A (2016) Innovation, trade and IPRs: Implications for trade negotiations, (March 2016). Working Paper, East-West Center Workshop on Mega-Regionalism New Challenges for Trade and Innovation, pp. 7–8. Accessed 20 December 2017; see also Watal J (2014) Is TRIPS a balanced agreement from the perspective of recent free trade agreements? In: Drexl J, Grosse Ruse-Kahn H, Nadde-Phlix S (eds) EU bilateral trade agreements and intellectual property: for better or worse? Springer, Berlin, pp. 41–6. 35 Hilty R M, Jaeger T (2015) Legal Effects and Policy Considerations for Free Trade Agreements: What Is Wrong with FTAs? In: Antons C, Hilty R (eds) Intellectual Property and Free Trade Agreements in the Asia-Pacific Region. MPI Studies on Intellectual Property and Competition Law, vol 24. Springer, Berlin, Heidelberg, pp. 56–57. 36 Antons C, Hilty R (2015b) Introduction: IP and the Asia-Pacific ‘Spaghetti Bowl’ of Free Trade Agreements. In: Antons C, Hilty R (ed) Intellectual Property and Free Trade Agreements in the Asia-Pacific Region. MPI Studies on Intellectual Property and Competition Law, vol 24. Springer, Berlin, Heidelberg, pp. 2–3. 37 Ibid., p. 3: “The conclusion of the WTO Agreement on Trade-related Intellectual Property Rights (TRIPS) in 1994 was regarded as a breakthrough in this discussion. It brought IP demandeurs from industrialized economies considerably higher protection standards and, for the first time in an IP law agreement, a chapter on enforcement. However, while developing countries were hoping that they had agreed to standards that would provide the maximum level of protection for some time, governments from industrialized economies saw gaps and much unfinished business in TRIPS. When it became clear that the current Doha round of WTO negotiations would not help in this regard, the governments of developed nations began to shift the discussion back to the bilateral level and to include provisions and entire chapters related to IP law into bilateral free trade and partnership agreements”.

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beyond the official justifications that emphasise the simplistic rationale of providing incentives for technological progress.38 Existing ad hoc regulation of IPRs in a context traditionally characterised by different trading principles and methodologies, such as those typical of free trade, has been criticised by some commentators as producing less than positive effects, at least for the current ‘weak’ parts of the agreement.39 From another point of view, given that IP is a fundamental asset for technological development and innovation, it is necessary to treat it as part of a more general and articulated international agreement with the aim of regulating all legal and economic interests that affect the interaction between the countries involved.40 The underlying idea is that investors may be deterred, if not entirely scared away, from investing in foreign markets where “piracy” could reduce or in any way strongly affect economic gain in these industries.41 Intrinsically, FTAs are flexible tools by their nature. For this reason, they have established themselves as a privileged context to set IP rules that go far beyond the immediate trade indications.42 This said, the phenomenon is sensitive and needs to be analysed. While generalising, for descriptive purposes two general approaches to the inclusion of IPRs clauses in FTAs can be identified.43

38 Indeed, even alternative visions of IP development have begun to emerge, especially after the recent “financial crisis”: for example, “soft diplomacy” of China, the “brick by brick” building IP protection in a String of ASEAN agreements, or in the focus on ‘new types’ of IPRs such as for traditional know-how in the agreements concluded by developing countries. Ibid., p. 4 and the footnotes cited there. 39 Bhagwati J (2002) Patents and the Poor: Including Intellectual Property Protection in WTO Rules Has Harmed the Developing World. Financial Times, 16 September; Panagariya A (1999) TRIPS and the WTO: An Uneasy Marriage. TRIPSWTO2.pdf. Accessed: 20 December 2017. 40 “The relationship between trade and innovation is a ‘two-way process’. On the one hand, trade liberalization and investment flows contribute to technology diffusion and innovation. (…) trade restrictions reduce the supply of intermediate goods to an economy, hampering productivity and technology diffusion. (…) On the other hand, strengthening national innovation capabilities improves a country’s ability to engage in and benefit from the international trading system”, in Primo Braga, supra note 35, p. 3. 41 Primo Braga, supra note 35, p. 7: “It is important, however, to recognize that the impact of strengthening IPRs in terms of bilateral trade flows between an innovation-leader and a hypothetical developing (imitation-prone) country is in the end an empirical question”. 42 Parisotto L and Puutio T A (2016) Intellectual Property Rights in the Asia-Pacific Trade Context. Trade, Investment and Innovation Working Paper Series No. 02/May, UN ESCAP, Bangkok, pp. 1–2. Accessed 2 December 2017. 43 Antons C, Thampapillai D (2015) An Overview of Free Trade Agreements in the Asia-Pacific Region with a Particular Focus on Intellectual Property. In: Antons C, Hilty R (eds) Intellectual Property and Free Trade Agreements in the Asia-Pacific Region. MPI Studies on Intellectual Property and Competition Law, vol 24. Springer, Berlin, Heidelberg, pp. 28–29. For a detailed overview of FTAs within the Asian context, 29–33. See also Hilty and Jaeger, supra note 36, p. 44.


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On the one hand, there are FTAs with no or very few provisions on IP with substantive content.44 Some of them, taking as a reference Art. XX GATT, do not mention IP, but do stress general exceptions (i.e. art. 15 CIS FTA; art. IV Free trade agreement between India and Sri Lanka, etc.); others provide single permissive provisions, again shaped around Art. XX GATT, establishing that the agreement shall not avoid the adoption or enforcement of measures needed for the protection of IPRs or the prevention of unfair, deceptive or misleading and deceptive practices (the wording of these clauses may differ, but the intent tends to be the same; such as Pacific Islands Countries Trade Agreement (PICTA); Agreement on Trade and Commercial relations between Australia and Papua New Guinea (PACTRA II, etc.). On the other hand, we may register FTAs with entire chapters dedicated to IP issues.45 They provide detailed obligations that go even beyond the TRIPs (so called TRIPS Plus).46 For example, facilitation in the patenting process (such as the Korea Singapore Free Trade Agreement, where corresponding applications have been filed in both countries),47 accession to further international treaties (such as the Singapore Australia Free Trade Agreement, with reference to a number of international agreements, as WIPO Copyright and the WIPO Performances ad Phonograms Treaty),48 border enforcement measures, UPOV standards for plant varieties, and so forth.49 This kind of approach represents a rapidly growing trend.50

3.2 Issues in the Proliferation of Free Trade Agreements and IP We described above the trends with reference to the proliferation of IP rules in Free trade agreements. Two different processes seem to operate: on the one hand, US and EU are modifying Free trade agreements by means of TRIPS-plus processes; on the other hand, Asia-Pacific countries, motivated by a regional supply chain, are looking to increase and deepen their trade linkages to benefit from increasingly inter-mediated production processes. 44 Antons

and Thampapillai, supra note 44, pp. 43–45. pp. 47–49. 46 With reference to the so-called TRIPS plus standards, see Ruse-Khan HG (2009) Time for a paradigm shift? Exploring maximum standards in intellectual property protection. J. Trade Law Dev 1:56–102; and Sell S (2011) TRIPS was never enough: vertical forum shifting, FTAs, ACTA and TPP. J Intellect Prop Law 18:447–478. 47 See art. 17.6 and 17.7 Korea-Singapore Free Trade Agreement, sg/Trade-From-Singapore/International-Agreements/free-trade-agreements/KSFTA. Accessed 20 December 2017. 48 Art. 2 Singapore-Australia Free Trade Agreement (SAFTA), safta/pages/singapore-australia-fta.aspx. Accessed 20 December 2017. 49 Hilty and Jaeger, supra note 36, pp. 47–49, 77. 50 Another opportunity for discussion on copyright rules within FTAs was represented by the Australia Free Trade Agreement: see Burrel, Weatherall 2008. 45 Ibid.,

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However, there are no clear empirical nor theoretical indications that this move toward the implementation of stronger standards of protection will necessarily lead to welfare enhancing results.51 What is certain is that this proliferation of regulation has produced some unintended and negative effects, which need to be seriously considered.52 First, it must be assumed that these binding agreements condition and define both national and international law. In fact, in most cases, free trade agreements result in legislative reforms affecting the states involved and the outcomes of dispute settlement mechanisms. They may, therefore, create regulatory controls that may prevent future reforms from being made on the issues subject to trading, causing an unalterable effect in current regimes.53 Moreover, we have confusion created by the simultaneous existence of overlapping obligations and norms: the so called “Spaghetti Bowl”.54 This phenomenon leads to a multiplication of IP-related provisions, so that states are bound by a multitude of parallel obligations vis-a-vis different trade partners.55 TRIPS’ strict most-favourednation clauses further complicate the task of properly determining the privileges and current obligations.56 Finally, embedding IP rules within free trade agreements may present significant biases to the process and outputs. The IP rules traditionally deal with trade; IPRs are about aspects related to modern life, such as health, agriculture, etc. It is quite obvious therefore how the stakeholders involved, the methodologies used and the underlying principles governing the negotiation of free trade agreements significantly differ from those used in non-trade related aspects of IPRs. This is even clearer with reference to possible conflicts of interests that arise, for example, between IPRs and public health or biological diversity.57

51 Primo Braga, supra note 35, p. 5, in part.: “Moreover, as some analysis argue, there is no conclusive evidence that strengthening, for example, patent regimes will lead to more innovation”. 52 See Parisotto and Puutio, supra note 43, pp. 2–3. 53 Ibid., p. 2. 54 Hilty and Jaeger, supra note 36, p. 58; In part.: “The ‘spaghetti bowl’ of FTAs leads to a multiplication of IP-related provisions, so that states are bound by a multitude of parallel obligations vis-a‘-vis different trade partners”. 55 Ibid., p. 57, stress this criticality: “the relationship under international law of TRIPS-plus FTAs to the pre-existing TRIPS regime and the relationship among the provisions of the various FTAs require examination, particularly as concerns conflicting provisions. On that basis, the combined legal effect of the applicable rules of international law and of the TRIPS-plus obligations laid down in FTAs can be assessed. Do the various FTA obligations mutually add-up in the sense of a regulatory race to the top’, or do they cancel each other out or apply only inter partes, or do they have any other effect and, if so, under what circumstances do these legal effects occur?”. 56 Ibid., pp. 58–65. 57 Parisotto and Putio, supra note 43, pp. 2–3: “However, the very fact that IPRs are negotiated in the FTA setting imply a certain imbalance of interest. Were interest fully aligned, there would be no need for a treaty as one could expect national legislation to reflect said interest without any added benefit from FTA obligations. Diverging interest are often combined with imbalances of power – a consequence of a world where countries fall along a wide spectrum of economic and social power”.


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This fatal combination of imbalances and fragmentation that characterises free trade agreements can ultimately be dangerous. At a more general level, the tendency to include particularly stringent and restrictive IP clauses often results in overprotection. The protection of IPRs, in fact, goes beyond the level that is economically and socially justifiable. This, absurdly, has an effect of hampering innovation and promoting the creation of technological and knowledge monopolies.58 Thus, it becomes clear how the ideology of free trade can lead to an unstable international economy and ultimately fails to favor progress and innovation. Lastly, a high level of IP protection may be inappropriate for developing countries, rising issues linked to legitimacy and poverty alleviation.

3.3 Trans-Pacific Partnership (TPP) and Copyright: A Paradigmatic Example A paradigmatic example of what we have argued is represented by the famous TransPacific Partnership (TPP)—a trade agreement among Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Perù, Singapore, USA and Vietnam. The finalised proposal was signed on 4 February 2016 in Auckland, New Zealand. According to the opinion of many commentators, the TPP could have significant economic-global implications, covering countries accounting for 40% of world’s GDP.59 It also inaugurated a new period with reference to trade governance. It currently cannot be ratified due to the USA’s withdrawal from the agreement on 23 January 2017.60 However, since then negotiations have continued on the Regional Comprehensive Economic Partnership (RCEP). Recently, trade ministers from eleven Pacific Rim countries reached an agreement in principle on core elements of the TPP, now renamed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). It is not surprising, therefore, that the most controversial parts of this agreement are those in the field of IPRs, where it is clear that the USA would like to “impose” higher standards of IPRs that better reflect US law now in force.61 Although we do not know what will happen to this Free trade agreement and whether from its ashes, the above mentioned RCEP or CPTPP will eventually 58 Hilty and Jaeger, supra note 36, p. 73: “The practice of laying down TRIPS-plus standards in FTAs is commonplace in the Asia-Pacific ‘spaghetti bowl’ and outside it, in spite of the fact (highlighted earlier) that the provisions of such agreements are either irrelevant because they duplicate preexisting obligations or that they drive protection standards ever further upward. Yet, there appears to be no significant opposition from Asian governments in this regard”. 59 Primo Braga, supra 35, p. 8. 60 Ibid., pp. 8–10. 61 This is about: longer terms of protection (for copyright, trademark, and patent, by means of regulatory changes, in comparison with TRIPS provisions); additional rules for biologic medicines (pharmaceutical products developed from living organisms), including minimum standards for data protection.

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emerge,62 the TPP, with reference to IP rules, can rightly be cited and used as a model of a TRIPS Plus agreement.63 In particular, we will refer to two clear examples of copyright protection. First, we analyse the copyright terms of protection policy. Article 18.63 TPP establishes: Each Party shall provide that in cases in which the term of protection of a work, performance or phonogram is to be calculated: (a) on the basis of the life of a natural person, the term shall be not less than the life of the author and 70 years after the author’s death; and (b) on a basis other than the life of a natural person, the term shall be: (i) not less than 70 years from the end of the calendar year of the first authorised publication of the work, performance or phonogram; or (ii) failing such authorised publication within 25 years from the creation of the work, performance or phonogram, not less than 70 years from the end of the calendar year of the creation of the work, performance or phonogram.

In relation to art. 18.63 (a) and (b) art. 12 (Term of protection) TRIPS provides: Whenever the term of protection of a work, other than a photographic work or a work of applied art, is calculated on a basis other than the life of a natural person, such term shall be no less than 50 years from the end of the calendar year of authorized publication, or, failing

62 The Canadian government took a strong stance on the Intellectual Property (IP) chapter and made a significant improvement to the TPP’s original unbalanced copyright rules by suspending the IP provision almost in its entirety (the suspended chapters in the new agreement are still subject to discussion and could be reopened, should the U.S. decide to rejoin the deal down the line). See:; Accessed 4 December 2017. The Canadian government took a strong stance on the Intellectual Property (IP) chapter and made a significant improvement to the TPP’s original unbalanced copyright rules by suspending the IP provision almost in its entirety (the suspended chapters in the new agreement are still subject to discussion and could be reopened, should the U.S. decide to rejoin the deal down the line). See: Geist M (2017) Bursting the IP Trade Bubble: Canada’s Position on IP Rules Takes Shape With Suspended TPP Provisions, Accessed 29 January 2018. 63 See Primo Braga, supra note 35, p. 9. The Author particularly emphasises that: “It is worth noting that some of these provisions go beyond the “TRIPS plus” aspects that the USA had already negotiated on a bilateral basis in the context of its FTA treaties with countries such as Australia, Chile, and Perù”. For further analysis see Yu P K (2017) TPP, RCEP and the Future of Copyright Normsetting in the Asia-Pacific. In: Corbet S, Lai J (eds), Making copyright work for the asian pacific? Juxtaposing harmonisation with flexibility, ANU Press, 2017, Forthcoming; Texas A&M University School of Law Legal Studies Research Paper No. 17–82, 3054328. Accessed 29 January 2018; Lee J-A (2017) Digital Copyright in the TPP. In: Chaisse J, Gao H, Lo C (eds), Paradigm Shift in International Economic Law Rule-Making: TPP As a New Model for Trade Agreements? Springer, pp. 371–388; The Chinese University of Hong Kong Faculty of Law Research Paper No. 2017–24, Accessed 29 January 2018.


R. Caso and P. Guarda such authorized publication within 50 years from the making of the work, 50 years from the end of the calendar year of making.

The above clearly shows that the 50-year-long term after having been subjected to criticism primarily from the USA, has been altered in the TPP to ‘not less than 70 years’, in line with the standard already adopted by many western countries.64 Another example that is worth mentioning. It relates to copyright enforcement. Article 18.68 (Technological Protection Measures (TPMs)) of TPP states: 1. In order to provide adequate legal protection and effective legal remedies against the circumvention of effective technological measures that authors, performers, and producers of phonograms use in connection with the exercise of their rights and that restrict unauthorised acts in respect of their works, performances, and phonograms, each Party shall provide that any person that: (a) knowingly, or having reasonable grounds to know, circumvents without authority any effective technological measure that controls access to a protected work, performance, or phonogram; or (…) is liable and subject to the remedies provided for in Article 18.74 (Civil and Administrative Procedures and Remedies). (…) Each Party shall provide for criminal procedures and penalties to be applied if any person is found to have engaged wilfully and for the purposes of commercial advantage or financial gain in any of the above activities (…)”.

Explicit civil and administrative sanctions are therefore foreseen to punish those who, knowingly or having reasonable grounds to know, circumvent without authority any effective technological measure; penalties that may even be of a criminal nature for those who have put into practice the stigmatised conduct wilfully or even for commercial advantage or financial gain. On this point, TRIPs does not set any rules, leaving the various contracting States free to provide remedies and modularise them with reference to the cultural and legal sensitivity of the relevant legal order. Furthermore, other critical requirements are those related to: the creation of new threats for journalists and whistleblowers, due to a dangerously vague text on the misuse of trade secrets; the enaction of a “Three-Step Test” language that puts restrictions on fair use, due to restrictive language in the TPP’s IP chapter; greater liability that has been placed on Internet intermediaries which has forced the adoption of the U.S DMCA.65

3.4 FTAs and IPRs: A “Marriage of Convenience” It is evident that IP rules in the context of FTAs represent a sort of “bargaining currency”, used as a trading tool to obtain a different result from the core legal entitlement.66 In the literature, the emphatic expression of ‘marriage of convenience’ 64 The RCEP contains, indeed, no requirement for countries to extend the copyright term beyond the minimum specified in the Berne Convention (50 years). 65 Electronic Frontier Foundation (undated) Accessed 17 December 2017. 66 See Primo Braga, supra note 35, pp. 6–7. See also: Hilty and Jaeger, supra note 36, p. 77: “If TRIPS-plus IP standards become a kind of ‘bargaining currency’ to negotiate FTAs, there is an

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has been used to explain this eventuality.67 Indeed, IPRs are territorial. The attempt to promote harmonisation at the international level dates back to the nineteenth century. We may recall the Paris Convention 1883 on patent, and the Berne Convention 1886 on copyright, which adopted national treatment provisions as a benchmark for international harmonisation. The trend then accelerated after World War II. Already in the 1970s, the United States had begun lobbying for the adoption of IP rules (see, for example, the Anti-Counterfeiting Code at GATT level, which laid the foundations for extending these ‘Harmonisation’ activities, and which possibly forced their adoption in other areas of IP). Some countries may be required to accept high levels of IP protection dealing with technology exporting to country partners where they are seeking market access. Conversely, the same countries might be tempted to omit IP rules when negotiating with developing country partners who are unaware of the importance of higher IP standards.68 An example is the IP obligations under the free Trade Agreements, and the implications of the USA’s attempt to establish a strong IP regime. In other words, the USA is using negotiating instruments to foster and improve, from its perspective, global intellectual protection. Moreover, supporters of high levels of IPRs protection are typically the countries that are characterised as innovation leaders. This relationship is not always true. Once an economy has reached a certain level of development, the pressure from local entrepreneurs to gain access to technology developed in foreign countries often pushes down the standards of protection and encourages imitation activity (sometimes characterised by “piracy” phenomena to the detriment of foreign rights holders).69 The world is actually composed of countries with different degrees of development, which may have different and sometimes conflicting interests in this type of scenario. By trying to schematise, we can state that there are basically four groups of countries with substantially different interests with respect to FTAs70 : (a) “Traditionally developed countries”: they have already enhanced standards of domestic IP protection, most of them going beyond TRIPS; their interests in FTAs lies in a geographical expansion of such standards. (b) “Newly developed countries”: they have standards based on their own economic development and have an interest in enhanced IP standards. (c) “Developing countries”: they lack sustainable economic development and would not yield their own interest in enhanced IP standards; some IP protection might

obvious risk that substantially more or broader IP protection than would be required from an economic point of view is established”. 67 Primo Braga, supra note 35, pp. 6–8. 68 Hilty and Jaeger, supra note 36, pp. 28–29. 69 Primo Braga, supra note 35, p. 5. 70 For a precise classification of the groups of states characterized by different interests, see Hilty and Jaeger, supra note 36, pp. 73–77.


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foster incentives to the domestic industries to invest in knowledge and innovation. (d) “Underdeveloped countries”: IP protection might not lie in their interest at all; indeed, to allow some development, the domestic population should be free to get access to the global state of the art standards to then become developing countries. In conclusion, the risk is to establish substantially more or broader IP protection than required from an economic point of view.

4 Conclusions As the third section demonstrated, the inclusion of the intellectual property discipline in Free trade agreements, traditionally used to manage only strictly commercial issues, leads in some cases to even a tightening of the rule in a perspective based more on the logic of exchange and negotiation, rather than on a correct balance of the interests involved. The strengthening of a certain way of understanding intellectual property (especially as followed by some Western countries) risks to determine a cascading effect towards increasingly less profiled solutions on the new technological context and new creative phenomena. This kind of approach leads to a lesser diffusion and sharing of intellectual works and ideas, with a definitely negative impact on creative and innovative processes. A more balanced approach to IP and copyright promises different approaches instead. It promises to make science more open, that is more cooperative, inclusive, democratic and based on integrity. In addition, Open Science can be included among the grounds for innovation and development of all countries, including non-Western countries.71 The OS is hampered, inter alia, by the overprotection of intellectual property rights in general. FTAs are one of the tools for extending copyright protection. International agreements represent a stage of a long process that may lead to the effective extension of the right of exclusivity. But they obviously also have a symbolic value. Even from this point of view, the extension of copyright protection is one of the most serious threats to the development of the OS. How is it possible to reverse the tendency to widen the copyright protection through FTAs? An initial strategy is to make the process of negotiating treaties more transparent and inclusive.72 Some steps have been made to achieving this goal in recent years. With reference to some treaties we have moved from total secrecy to the publication of the reference texts. This is also the result of the commitment of various actors in the system (such as associations to defend individual freedoms and rights) who 71 Caso

and Ducato, supra note 3; Moscon, supra note 28. further details on the issue on open trade negotiations and transparency, see Limenta, M (2012) Open Trade Negotiations as Opposed to Secret Trade Negotiations: From Transparency to Public Participation. New Zealand Yearbook of International Law, vol. 10, p. 73. 72 For

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are determined to make the negotiation process more transparent. Yet, much still remains to be done to give voice to all stakeholders. A second strategy may be to include general clauses in the FTAs that give flexibility to the protection system.73 The chessboard of international bargaining has become increasingly complex. The advent of the Trump administration seems to have changed the role of the US taken after it joined the Berne Convention to one where it seeks to impose high standards of copyright protection on the world, but at the same time defend the flexibility of the general fair use clause. Their withdrawal from TPP represents an emblematic example of that. In addition, other Western countries such as Canada and other international players such as China and Australia can play a major role in the regulation of intellectual property. In this scenario, the European Union may assert its own role. Unfortunately the EU has an ambiguous position on the subject of Open Science. On the one hand, it seems a great supporter of OS and OA,74 but on the other hand the recent policies for the digital single market are pushing for a further extension of copyright.75 If those responsible for IP rules appreciate that copyright requires lower levels of protection and greater flexibility, then Open Science will have a greater chance to develop and establish itself; and this new policy will benefit the whole of humanity. The historical moment is propitious, the indiscriminate extension of property is the subject of considerable attention by stakeholders and has attracted wide criticism from scholars. The equation between the extension of intellectual property and economic development is no longer an established truth immune from criticism. Acknowledgements We would like to thank Prof. Lillian Corbin and Prof. Mark Perry for their valuable feedback. All errors remain our own.

73 Some

authors have proposed to foster the role of the “misuse of right”. See Hilty and Jaeger, supra note 36, p. 81: “conclusion of a global accord on the prevention of a misuse of rights that goes beyond the sphere of just antitrust law. Such an accord would fix specific countermeasures to be taken by states parties to forestall or end certain kinds of abuses of individual IP rights upon enforcement”. 74 See, e.g., European Commission 2016. 75 See Proposal for a Directive of the European Parliament and of the Council on copyright in the Digital Single Market—COM (2016) 593.

South Korea’s Agricultural Trade Dilemma: Open Markets or Protectionism? Beyond the China-South Korea Free Trade Agreement Ying Chen Abstract The China-South Korea Free Trade Agreement (FTA) was signed in June 2015, and entered into force in December of the same year. The FTA features wide coverage. It also presents a high degree of openness in market access. However, whilst South Korea sees economic globalisation and trade liberalisations as desirable goals, it maintains a high level of protection over agriculture in that major agricultural products are either completely excluded from tariff elimination or subject to minimal tariff reduction. This is not something that is specifically targeted at agreements with China. Indeed, South Korea has a long tradition of protectionism and treating agricultural trade differently because of deep concerns about domestic food security and preserving the livelihoods of rural workers/domestic farmers. Given these restraints, whether or not it will grant foreign competitors greater access to its domestic markets for agricultural products, or continue to maintain protectionist policies is questionable. This paper uses the China-South Korea FTA to analyse South Korea’s decades-old agricultural trade dilemma of subscribing to open markets or adhering to protectionism, and further identifies potential strategies to resolve the conflict between the emerging global trend and national interests. It concludes that in the future South Korea will eventually need to open its domestic markets. Open markets will not ruin South Korea’s agricultural and rural economy. Instead, they will bring more opportunities and dynamic gains to South Korea and help it use its resources in the most efficient way. Keywords China-South Korea Free Trade Agreement · Market access Agricultural trade · Protectionism · Open market · Food security South Korea’s rural livelihoods

Y. Chen (B) University of New England School of Law, Armidale, NSW 2351, Australia e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2019 L. Corbin and M. Perry (eds.), Free Trade Agreements,



Y. Chen

1 Introduction The China-South Korea Free Trade Agreement (FTA) was signed in June 2015, and entered into force in December of the same year.1 The agreement has broad coverage, including 17 areas, such as trade in goods and services, investment, intellectual property protection, movement of natural persons, and dispute settlement.2 It presents a higher degree of openness in market access than the previous agreement, especially in the area of trade in goods. Over a 20-year implementation period, the agreement states that China will eliminate tariffs on 91% of all goods imported from South Korea.3 Meanwhile, South Korea will remove tariffs on 92% of all products from China.4 However, whilst South Korea sees economic globalisation and trade liberalisations as desirable goals, it maintains a high level of protection over agriculture in that major agricultural products are either completely excluded from tariff elimination or subject to minimal tariff reduction.5 This is not something that is specifically targeted at agreements with China. Indeed, South Korea has a long tradition of protectionism and treating agricultural trade differently because of deep concerns about domestic food security and preserving the livelihoods of rural workers/domestic farmers.6 Given these restraints, whether or not it will grant foreign competitors greater access to its domestic markets for agricultural products, or continue to maintain protectionist policies is questionable. This chapter uses the China-South Korea FTA to analyse South Korea’s decadesold agricultural trade dilemma of subscribing to open markets or adhering to protectionism. First, it examines agricultural trade under the China-South Korea FTA and the reasons for South Korea’s protectionism. Then, it assesses the strengths and weaknesses of protectionism, arguing that the weaknesses outweigh its strengths, and opening up the market in the agricultural sector is a better option for South Korea. Although there is a significant debate surrounding the feasibility of approaches other than protectionism, this chapter asserts that achieving a resolution that favours free trade, is, without doubt, a realistic goal. Further, this chapter proposes a number of strategies that may help South Korea remove the constraints of protectionism while ensuring food security and supporting the agricultural economy in a more sustainable way. In concluding, this chapter paper suggests that in the future South Korea will need to eventually open its domestic markets. Open markets will not ruin its agri1 China

FTA Network (2015) China-Korea Free Trade Agreement officially signed. http://fta. Accessed 17 Jul 2017. 2 Ibid. 3 PWCCustoms (2015) Improving market access under the China-Korea and China-Australia Free Trade Agreements: China customs and trade alert. recent-developments/assets/cn-trade-alert-improve-mkt-access-cnkr-cnau-fta-en.pdf. Accessed 18 Jul 2017. 4 Ibid. 5 Im JB (2014) Impacts of Korea-China FTA on the Korean agriculture db.php?id=353&print=1. Accessed 17 Jul 2017. 6 Beghin JC, Bureau JC, Park SJ (2003) Food security and agricultural protection in South Korea. Amer J Agril Econ 85(3): 618–619.

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cultural and rural economy. Instead, they will bring more opportunities and dynamic gains to South Korea.

2 Agricultural Trade and the Reasons for South Korea’s Protectionism Next to the United States (US), China is South Korea’s second largest agricultural exporter, supplying a wide range of products, including fish and fishery products, vegetables, cooking oil, and meat among the major items.7 Fish and fishery products, as well as vegetables, are the top export products; they together account for 50% of South Korea’s agricultural imports from China.8 Cooking oil is the third largest export item, contributing nearly 11% to the total amount of South Korea’s agricultural imports from China.9 This is followed by meat, medicinal herbs, fruits, and sugar.10 South Korea’s dependence on Chinese agricultural products is high, as evidenced by the all-time trade deficit.11 In the agricultural sector, South Korea had a total negative trade balance of USD 32.6 billion from 1990 to 2013, meaning a yearly average of USD 2.5 billion in trade deficits.12 In the year of 2014 alone, South Korea’s trade deficit with China swelled to a record high of USD 4.11 billion.13 This number has continued to grow since the implementation of the FTA in 2015. In the meantime, there are only a limited variety of products that South Korea can offer to China, mainly beverages and other processed foods.14 The Korean export volume is low as well. Thus, agricultural trade between the two countries is clearly one-way i.e., China exporting to South Korea. Chinese agricultural products play a critical role in supplementing South Korea’s domestic food supply.

7 Shanghai

Agriculture (2014) China-South Korea agricultural trade: the increase and the relevant factors. Accessed 19 Jul 2017. 8 Kim HK (2016) Impact of the Sino-Korea Free Trade Agreement on China’s agricultural industry. Journal of Economics and Sustainable Development 7(10): 83. 9 Ibid. 10 Ibid. 11 Moon HP (2011) Korea-China agricultural trade: competitiveness and trade barriers. http://www. p_p_mode=view&p_p_col_id=column-1&p_p_col_count=1&_EXT_BBS_struts_action=% 2Fext%2Fbbs%2Fview_message&_EXT_BBS_sCategory=&_EXT_BBS_sKeyType=&_EXT_ BBS_sKeyword=&_EXT_BBS_curPage=34&_EXT_BBS_messageId=385884. Accessed 17 Jul 2017. Noting that in the agricultural sector, it is a clear one-way trade from China to South Korea. 12 Shanghai Agriculture (2014) supra note 7. 13 Liu YZ, Li T, and Deng MC (2015) The establishment of China-Korea Free Trade Zone and its impact on agricultural trade. World Agriculture (436): 110. 14 Kim, supra note 8.


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However, under the FTA, South Korea has only agreed to eliminate tariffs on 64% of the agricultural imports from China over a 20-year implementation period.15 The rest (36%) are considered sensitive or highly sensitive products. They are “either permanently excluded from liberalisation or [a]ttract only partial tariff reduction.”16 Apart from tariffs, South Korea imposes other trade barriers on sensitive or highly sensitive products. Tariff-rate quotas (TRQs) is one of the major protection measures frequently used by the South Korean government. The FTA also includes a list of products subject to TRQs.17 According to the list, for example, small red beans and sesame seeds are subject to TRQs of 3000 tons per year and 24,000 tons per year, respectively. Vegetable materials, vegetable waste, vegetable residue and by-products together are subject to a TRQ of 38,000 tons per year. A number of fish and fishery products such as baby clams, squids, bigeye tunas, angler (monkfish), and loaches are included in the TRQs category as well.18 As well, safeguard measures are permitted under the FTA so that the South Korean government can take emergency action to protect the demand for sensitive agricultural products from being detrimentally affected by a sudden surge in imports.19 South Korea only opens its domestic markets to Chinese agricultural products to a very limited extent. Its market access commitments are not as meaningful from a trade perspective. Two key issues flow from this approach by South Korea to agricultural trade with China: (1) concerns about Korean domestic food security and preserving the livelihood of rural workers/domestic farmers; and (2) the overwhelming imbalance of trade between China and South Korea. Geographically, South Korea is a small country (100,266 km2 ) with only about 17% arable land.20 Urbanisation and industrialisation have further decreased the available farmland.21 In the meantime, the country has 50.5 million people22 ; population density is 519.4 people per km2 , which is ten times the global average.23 The combination of a large population and limited farmland means it is not easy for 15 Im, supra note 5. Noting that these 64% of agricultural products are considered less sensitive, which includes tropical fruits and most processed foods. 16 Schott JJ, Jung EJ, Cimino-Isaacs C (2015) An assessment of the Korea-China Free Trade Agreement: Peterson Institute for International Economics policy brief. pb15-24.pdf. Accessed 20 Jul 2017. Noting that the highly sensitive list in the China-South Korea FTA covers 581 tariff lines. 17 See Appendix 2-A-1 for the TRQs that South Korea is allowed to apply to agricultural goods imported from China. China-South Korea Free Trade Agreement (2015) korea/annex/xdzw_en.pdf. Accessed 21 Jul 2017. 18 Ibid. 19 Ibid., Chapter 7 is about safeguard measures. 20 American Farm Bureau Federation Economic Analysis Team (2014) Implications of a South Korea-U.S. Free Trade Agreement on U.S. agriculture. uploads/2014/12/AFBKORUSFTAReport.pdf. Accessed 22 Jul 2017. 21 Ibid. 22 UN Data (2017) Republic of Korea. 20of%20Korea. Accessed 22 Jul 2017. 23 Ibid.

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South Korea to produce sufficient food to feed its people. However, the South Korean government is reluctant to completely open its agricultural markets due to concerns that heavy dependence on imports may be detrimental to domestic farmers, as well as national food security. Thus, the desire for food self-sufficiency has compelled the government to slow down the process of trade liberalisation in the agricultural sector.24 The widening trade deficits in the agricultural sector, as discussed previously, has resulted in an overwhelmingly imbalance between China and South Korea. Research also shows that “a majority of Korean agricultural products have weaker price competitiveness against Chinese products.”25 This is causing South Korea to have a sense of disquiet in relation to granting greater market access to Chinese agricultural produces fearing that this may have a devastating impact on the Korean agricultural sector.26 Therefore, despite some concessions under the FTA, the South Korean government has essentially stalled further liberalisation on agricultural trade. A close examination of the FTA reveals that, once again history has repeated itself, and South Korea’s protectionism prevails. Consequently, this chapter argues, that South Korea’s agricultural sector will eventually be left behind if the South Korean government continues to resist the global trend of free trade. To confirm this, we must first assess South Korea’s protectionism in agriculture by examining the competing options of an international demand for free trade in the agricultural sector and South Korea’s national interest in food security and preserving the livelihood of rural workers/domestic farmers.

3 Open Markets or Protectionism? 3.1 Strengths of Protectionism Generally speaking, agriculture is inextricably linked to a nation’s economic, social and political stability. It provides food and raw materials for human consumption and ultimate survival. It also employs a large proportion of a nation’s labour force, including small farmers whose livelihoods are dependent on agriculture, workers who are hired by large farms to cultivate crops and farm animals, and those who are involved in agricultural processing industries. Governments, regardless of financial ability, support farming and protect their agricultural industry. The South Korean government engages in agricultural protectionism for the same reasons stated above. 24 Aggarwal SN, Aggarwal VK (2015) Competitive framing: agricultural protection and trade liberalisation in the Korea-US FTA negotiations. Ewha Journal of Social Sciences 31(2): 23–24. See also Beghin, Bureau, Park, supra note 6, at 619. Noting that “Korea has […] openly pursued food self-sufficiency as the desirable way to achieve the stated objection of FS”. 25 Schott, Jung, Cimino-Isaacs, supra note 16, at 6. 26 Seung KM (2016) Can South Korean agriculture survive free trade? econ-business/south-korea-agriculture-free-trade/. Accessed 25 Aug 2017.


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In the area of trade, South Korea continues to enforce significant protections for agriculture in an attempt to minimise the potential negative impact that may result from the import of foreign goods. These restrictions on market access make imports less competitive when compared to local goods. On a positive note Korean farmers can be less worried about foreign competition and their income adequately secured. Thus, in the short term, market access restrictions protect Korea’s domestic food security and rural livelihoods. Rice is a good example to demonstrate the advantages of protectionism. As the most important agricultural product for South Korea,27 rice accounts for 18.3% of its total agricultural production and more than 74.8% of farming income.28 It is not surprising then, that South Korea enforces a strict policy of rice protectionism. Despite its World Trade Organisation (WTO) promises, South Korea has continually renewed the waivers to delay the opening of its rice market.29 Until now, rice is still essentially exempted from trade liberalisation. These protectionist measures enable South Korea to keep its rice farmers in business and maintain selfsufficiency in rice production.30 Obviously, protectionism has undeniable benefits. However, these benefits come at a substantial cost. For example, rice protectionism requires direct government subsidies of KRW15.1 billion (USD14.4 million) per year.31 In addition, indirect support provided by the government is enormous but difficult to measure. In the long term, protectionism also has a variety of other damaging consequences, which will be discussed in detail below.

3.2 Weaknesses of Protectionism First, South Korea has a powerful farm lobby that often opposes proposals for further trade liberalisation in agriculture.32 As a result of these political obstacles, when the South Korean government makes trade deals with its international partners, it often provides some compensation to the farmers for the loss and damage caused by trade liberalisation.33 This compensation may come in various forms, including government support such as direct payments, input subsidies, and loan programs.34 27 Kwon Y (2014) South Korea’s free trade dilemma.

free-trade-dilemma/. Accessed 25 Aug 2017. Aggarwal, supra note 24, at 16. 29 Jeong IJ, Martini R (2008) OECD report: evaluation of agricultural policy reforms in Korea, at 7. Accessed 27 Aug 2017. 30 Aggarwal, Aggarwal, supra note 24, at 12. 31 Food and Agricultural Organisation (2014) South Korea increases direct subsidies to rice farmers. Accessed 28 Aug 2017. 32 Kim YB (2007) Is agricultural protectionism an inviolable area? design2/layout/content_print.asp?group_id=101537. Accessed 28 Aug 2017. 33 Ibid. 34 Under the WTO, South Korea has successfully negotiated a number of flexibilities to deal with sensitive products such as rice. South Korea is allowed to provide a number of agricultural subsidies. See Beghin, Bureau, Park, supra note 6, at 621. For details regarding South Korea’s various subsidies, 28 Aggarwal,

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For example, South Korea signed a free trade agreement with Chile in 2004. Under the FTA with Chile, the estimated damage for Korean farmers over a ten-year implementation period was KRW586 billion. Meanwhile, the South Korean government set up a fund valued at KRW1.5 trillion to subsidise its farmers for the damage.35 This is only one example out of many. Indeed, South Korea’s agricultural subsidies are egregiously expensive, harvesting millions of dollars every year from taxpayers’ pockets. The overall package of government support for agriculture accounts for nearly 2% of South Korea GDP.36 However, the support is not efficient if compared to the contribution of agriculture in the Korean economy, which is only 2.3% of GDP.37 In addition, taxpayer dollars are limited. The greater support given to agriculture, the less funds there are available for other measures. Second, as noted previously, protectionist measures result in less competition for local goods, which means agricultural product prices in the domestic markets are much higher. Korean consumers are forced to spend an excessive amount of money on food.38 They pay up to five times as much as the global market price for rice, and twice as much as the global market price for other foods.39 The situation is getting worse as food prices continue to grow rapidly. According to the Organisation for Economic Cooperation and Development (OECD) reports, in 2016, South Korea’s food prices show an annual growth rate of 2.31%, as compared to the OECD (total) average of 0.2%.40 An increase in food prices downgrades the quality of life of the Korean people. For the consumers who are financially disadvantaged, the impact can be detrimental. This is inconsistent with the South Korean government’s goal of ensuring food security.41 It may also significantly increase government spending on social welfare. Furthermore, elevated food prices may trigger other serious issues such as pressure to increase salaries, deepened social polarisation, and even social unrest resulting from a food crisis.42 The removal of trade barriers, including both tariff and non-tariff barriers, will potentially mitigate the problem. An open market brings in affordable food as well as competition to local producers, although potential high dependence on imports is another issue yet to be discussed. Third, agricultural protectionism provides an unfair advantage to Korean agriculture versus foreign competition, benefiting Korean farmers in the short term. However, in the long term, high protection weakens the industry, leaving Korean agriculture ill prepared for market access. Competition, as is widely recognised, improves see Im JB (2013) Korea’s countermeasures on agricultural trade liberalisation. http://ap.fftc.agnet. org/ap_db.php?id=53. Accessed 28 Jul 2017. 35 Kim, supra note 32. 36 Aggarwal, Aggarwal, supra note 24, at 7. 37 Ibid. 38 Kim, supra note 32. 39 Aggarwal, Aggarwal, supra note 24, at 15. 40 Data is from OECD Data. See OECD Data (2017) Inflation (CPI), food, annual growth rate (%), 2011–2016. Accessed 29 Aug 2017. 41 Beghin, Bureau, Park, supra note 6, at 619. 42 Kim, supra note 32.


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quality and efficiency. But South Korea’s government intervention reduces or even eliminates foreign competition. As a result this lessens the incentive for Korean agriculture to improve and innovate. Protectionism does not enhance agricultural performance; rather, it leads to decline in quality and efficiency, and impairs South Korea’s agricultural competitiveness in global markets.43 Therefore, to improve the overall performance of the agricultural sector, South Korea should reduce unnecessary government intervention, and allow market demand to play a major role in driving productivity and efficiency reforms. In the long term, the weaknesses of protectionism outweigh its strengths. High protection is costly and ineffective. It also weakens the agricultural industry for global competition. Thus, opening up the market in the agricultural sector is a better option for South Korea.

4 A Transition to Free Trade in the Agricultural Sector: Viable Solutions 4.1 Reconciliation The South Korean government faces a significant challenge in reconciling the demand from the international community to promote greater market access with the demand from the domestic protectionist farm lobby to restrict foreign imports.44 On the one hand, despite the US shift towards protectionism under the Trump Administration, global economic integration is growing rapidly; trade liberalisation is an irresistible trend. Global expansion of free trade is the key to long-term survival and success. Also, under the WTO framework, free trade is the ultimate goal. In the process of trade liberalisation in the agricultural sector, some flexibility is permitted, but it is only for a limited period of time to protect sensitive products for food security concerns. Special treatment will eventually be phased out in accordance with the WTO Agreement on Agriculture (AoA).45 South Korea, as a WTO member, is required to fulfil its international obligations and open its domestic markets to foreign agricultural imports. On the other hand, South Korea has a difficult time deciding what to do with its less-competitive agricultural sector at the domestic level. As noted previously, South Korea has deep-rooted political support for agriculture. Farmers and interest groups are worried that agricultural industry will collapse if border protections are completely removed. They are reluctant to make any substantial concessions. Rather, they try to maintain the existing protectionist policies and push back proposals that 43 Beghin,

Bureau, Park, supra note 6, at 618.

44 Burm LL (1990) South Korea’s rural development dilemma: trade pressures and agricultural sector

adjustment. Asian Survey 30 (7): 711. Explaining that the challenge results from “the coexistence of uncompetitive national agricultures within a liberalised global trading regime”. 45 Ibid.

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promote further trade liberalisation.46 On the contrary, there are also some strong voices in the Congress supporting free trade, attempting to break away from the outdated and inefficient tradition of protectionism. How to justify the contradictory voices on this matter remains. South Korea’s agricultural sector still requires some government assistance in improving performance and competitiveness in global markets. However, the support should not be as significant as what farm lobbyists have requested. Most importantly, agricultural protectionism needs to be minimised. It goes against the global trend and the WTO principle of free trade, and it has been proven to be inefficient in many ways. In the face of many challenges, the best practice in achieving reconciliation is to adopt approaches that comply with South Korea’s WTO obligations, and in the meantime, minimise the negative impact on South Korea’s domestic food security and rural livelihoods.

4.2 Mission: Possible While there is a significant debate surrounding the feasibility of approaches other than protectionism, achieving a resolution that favours free trade, is, without doubt, a realistic goal. South Korea’s long lasting concern over trade liberalisation in the agricultural sector resembles China’s heated debates regarding economic reforms back in the late 1970s. From the Chinese experience, the removal of protectionism does not destroy an industry or a country’s economy. Instead, it promotes structural reform, making an industry more competitive and the economy more efficient. However, this is conditional on the strategies adopted by the government being viable and effective. Prior to the 1978 reform, China’s economy was centrally planned; the Chinese government essentially closed its door to international trade, isolating the country from the rest of the world. Strong opposition to international trade resulted from the fear of foreign domination. There was a concern that the Chinese economy would collapse and eventually be controlled by western countries. Despite the opposing views, Xiaoping Deng pursued economic reforms, increasing China’s engagement with the international community.47 Since the 1978 reforms, China has not lost its economy to foreign competitors. On the contrary, it has gained so much from international trade. South Korea would do well to draw from the Chinese experience. The strengths of protectionism, as discussed previously, primarily focus on South Korea’s rural livelihoods and domestic food security. But the reality is that Korean agriculture has already been in decline, accounting for only 2.3% of the country’s

46 Kim,

supra note 32. Kim argues that the South Korean government “tends to be motivated more by the some clamorous interest groups than by the welfare of the entire nation.” Noting that political groups are primarily responsible for maintaining protectionist policies in the agricultural sector. 47 Kong QJ (2014) China in the WTO and beyond: China’s approach to international institutions. Tul. L. Rev. 88: 959, 963.


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GDP and 5.7% of its labour force.48 As compared to 1963 when 63% of the population were farmers or lived in rural areas. This demonstrates that agriculture is not as important as it used to be in terms of rural livelihoods.49 South Korea has grown from “a predominantly rural, agricultural nation” into “an urban, [r]ecently industrialised country.”50 The decline of agriculture’s contribution to its national income means the transition from protectionism to trade liberalisation will not be as detrimental to the farmers and rural economy as what farm lobbyists have claimed. In other words, the strengths of protectionism are decreasing over time. Further, research has shown that about 50% of South Korea’s food and fibre needs, including wheat and animal feed, already relied on imports by the late 1980s.51 This number continues to grow as a result of South Korea’s urbanisation, industrialisation and decrease in farmland.52 Nowadays, food security is not a valid reason to restrict market access. To summarise, replacing protectionism with a policy of trade liberalisation is desirable. It is crucial that South Korea opens its domestic markets to embrace more opportunities.

4.3 Viable Strategies The question that remains unanswered is how South Korea can remove the constraints of protectionism while ensuring food security and supporting the agricultural economy in a more sustainable way. There are three main strategies that South Korea may consider adopting. At the international level, global economic integration is not the root of all evil. Free trade will not open Pandora’s Box for South Korea. Instead, South Korea should, and most importantly, be capable of turning its disadvantage into an advantage by liberalising trade in the agricultural sector. But this does not mean South Korea should simply remove protectionism without proper strategies in place. While opening domestic markets, South Korea should focus on diversifying its trading partners rather than relying on one or a small number of specific partners for agricultural imports. In this way, South Korea will expand the sources of food supply and avoid manipulation from specific suppliers, and minimise concern about its domestic food security. At the national level, improving South Korea’s agricultural performance is critical. This can be achieved through rural reconstruction, including a series of social, economic, and rural changes. Meanwhile, investment in food-processing assets in other countries is another viable alternative, although there are differing views on what will be the impact on local communities.

48 Aggarwal,

Aggarwal, supra note 24, at 7. at 16. Noting that “[b]y 1990, Korea had 10 million farmers. However, 20 years later in 2010, there were only 3 million”. 50 American Farm Bureau Federation Economic Analysis Team, supra note 20, at 4. 51 Ibid., at 5. 52 Ibid. 49 Ibid.,

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Diversification of Trading Partners in the Agricultural Sector

Free trade is the future of Korean agriculture. However, in the process of removing protectionism, sustainable access to adequate food must be guaranteed for the Korean people. Expanding trading partners is an effective strategy, particularly for fooddeficit countries like South Korea. Heavy dependence on agricultural imports is arguably problematic. For the importing countries, it is not a reliable option. Agricultural imports are not solely based on the needs of importing countries. They are largely decided by the availability of products in exporting countries. Any disruption in the supply chain may result in undesirable consequences. For example, South Korea’s Napa cabbage, the most common ingredient for Kimchi, primarily comes from China. Any natural disasters or other disruptions that reduce China’s cabbage outputs would significantly affect the availability and the price of Kimchi in the Korean market. Also, exporting countries often use agricultural trade as a tool to achieve their commercial or political goals. For example, recently, the Chinese government’s disapproval of South Korea’s deployment of its Terminal High Altitude Area Defence (THAAD) system, resulted in the imposition of a wide range of economic sanctions, pressuring the South Korean government to reverse its decision. At this stage, the sanctions include, placing travel bans on all Chinese tour groups to South Korea, closing down a number of Korean-owned stores in China, and freezing the sale and distribution of South Korean TV dramas and music products (one of the major exports to China).53 The Chinese sanctions have hit South Korea hard, leading to a substantial decline in South Korea’s GDP growth.54 This demonstrates that China is capable of crippling South Korea’s economy in many ways. In the agricultural sector, for the moment, China only implements minimal sanctions, slowly reducing exports to South Korea. Agricultural trade has not been used as a major tool to achieve China’s political goal, but it does not mean China would not do this in the future. China’s market share in South Korea’s agricultural markets is huge, although the US and the European Union (EU) are also important suppliers. If China declares a full-scale trade war, South Korea’s food supply could be severely affected. To summarise, if a food deficit country, such as South Korea, relies on the imports from one or a few specific countries, any factors that cause a decrease in supply may result in food insecurity. However, having more trading partners in the agricultural sector can potentially correct an imbalance in trade, and reduces the risk of manipulation, as well as the risk of food insecurity. It is imperative that South Korea rethinks its heavy reliance on China. South Korea has been making an effort to engage in global economic activities. As of January 2017, South Korea has signed 15 FTAs with 52 countries, including Chile, Singapore, the European Free Trade Association (EFTA), the Association of 53 BBC

News (2017) South Korea complains to WTO about China over THAAD. com/news/business-39324536. Accessed 8 Aug 2017. 54 Yang QH (2017) BBC News China’s THAAD revenge: how South Korea faces the challenges. Accessed 8 Aug 2017.


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Southeast Asian Nations (ASEAN), India, the European Union (28 countries), Peru, the United States, Turkey, Australia, Canada, China, New Zealand, Vietnam, and Colombia.55 These FTAs have provided South Korea with enormous opportunities in trade. However, the main purpose of these FTAs, from a Korean perspective, is not to encourage imports, but to increase South Korea’s exports in manufactured products such as semiconductors, motor vehicles, computers, ships, and petrochemicals.56 Therefore, to increase the number of overseas food suppliers, the first thing that South Korea should do is to take advantage of the existing FTAs and enhance the vertical as well as the horizontal engagement in agricultural trade. South Korea has granted some market access to its partners in the agricultural sector; meat and dairy products from the US, EU, and Australia,57 wheat products from Canada, and vegetables, fish and fishery products from China, just to name a few. However, trade volumes of these products are relatively small under existing FTAs. To ensure sufficient food supply vertically, South Korea should deepen its cooperation and boost import volumes. FTAs provide a great platform for South Korea to conduct further discussion on agricultural trade in a broader sense. Thus, horizontally, expanding trade to other agricultural products can significantly increase the variety of food supply. Under the existing FTAs, potential opportunities include, for example, rice import from Vietnam, fruit, wine, beef, pork, poultry, and dairy imports from Chile,58 and rice, buffalo (beef), soybean, and corn imports from India.59 55 Korea Customs Service (2017) FTA trend in Korea. main/content/ Accessed 22 Aug 2017. 56 International Monetary Fund (2018) World economic outlook database—South Korea. https:// Accessed 26 Feb 2018. See also Workman D (2018) South Korea’s top 10 exports. Accessed 26 Feb 2018. 57 South Korea has trade relations with the US, the EU, and Australia in the agricultural sector, allowing the imports of cereals, meat products and dairy products from the US, pork, chocolate, beer, and dairy products from the EU, and beef, wheat, sugar, dairy products, wine, and seafood from Australia, respectively. For more details, see Zhuang RN, Mattson JW, Koo WW (2007) Implications of the U.S.-Korea Free Trade Agreement for agriculture and other sectors of the economy. At 5. Accessed 19 Sept 2017. See also European Commission (2017) Agri-food trade statistical factsheet: European Union–South Korea. Accessed 19 Sept 2017. See also Australian Government Department of Foreign Affairs and Trade (2017) Australia and Korea FTA (KFTA)—key outcomes. Accessed 19 Sept 2017. 58 Jensen A (2012) Danish Embassy in Santiago fact sheet–agro industry and food technology in Chile, world food power with economic growth in a healthy business environment. 20Food%20Technology.pdf. Accessed 20 Aug 2017. Noting that Chile’s major agricultural exports include fruits, wine, beef, pork, poultry, and dairy product. However, according to the South KoreaChile FTA, only kiwi, grape, pork, and wine had seen tariff elimination by 2014. 59 United States Department of Agriculture Foreign Agricultural Service (2014) India’s agricultural exports climb to record high. Accessed 8 Aug 2017 Noting that “India has become a very important player on

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Moreover, South Korea is also urged to expand its scope beyond the existing FTAs. Whilst South Korea has only signed 15 FTAs with 52 countries, there are still over 140 countries in the world that South Korea with whom it could sign FTAs. Among these countries there are a significant number of agricultural exporters. Even without an FTA in place, South Korea can still reach out to some of these countries and initiate negotiations specifically in the agricultural sector, for example, fruit and vegetable imports from Mexico,60 and beef imports from Brazil, Argentina, and Uruguay.61 While expanding trading partners, South Korea also needs to recognise the recent change in consumer needs and its impact on agricultural imports. There is a tendency towards dietary diversification. In South Korea, rice is still a dominant staple, but the consumption is in decline.62 Wheat, soybeans, corn, and other grains have become more popular than ever before.63 Meanwhile, vegetables are in high demand, and meat and dairy consumption has increased dramatically.64 Fruit consumption has also extended from typical temperate fruits such as figs, persimmons, apples, and pears to almost all available fruits in the world. South Korea has gradually shifted towards a more globalised diet. Dietary diversification is good news for South Korea, meaning agricultural imports do not have to be restricted to traditional dietary requirements. This change gives South Korea more flexibility in terms of product variety and foreign suppliers. In summary, expanding trading partners provides South Korea with the opportunity to minimise trade-distorting agricultural protectionism, and ensures South Korea’s compliance with WTO commitments. Most importantly, it secures more and varied overseas suppliers so that South Korean people will have sustainable access to adequate food. As for Korea’s agricultural industry, in the short term, free trade may result in an immediate decrease in domestic agricultural production. However, in the long term, competition arising from trade liberalisation will promote meaningful reforms. Rural reconstruction will make South Korea’s agricultural industry much stronger. Farmers can also survive and grow in a more sustainable way.65

the global market, especially for rice, cotton, sugar, and beef (buffalo).” “India has also become a sizeable exporter of soybean meal, guar gum, corn, and wheat, as well as a diverse range of other products”. 60 United Nations (2012) Mexico’s agricultural development: perspectives and outlook. http:// p 8. Accessed 8 Aug 2017. Noting that Mexico is the major supplier of vegetables and fruits for the US. 61 Daley E (2010) South America: the world leader in beef exports. Beef Issues Quarterly (online). Accessed 9 Aug 2017. Noting that Brazil, Argentina and Uruguay are “major players in the global beef market”. 62 Lee HS, Duffey KJ, Popkin BM (2012) South Korea’s entry to the global food economy: shifts in consumption of food between 1998 and 2009. Asia Pac J Clin Nutr 21(4): 618–629. 63 Ibid. 64 Ibid. 65 Kim, supra note 32.



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Rural Reconstruction

Over the years, South Korea has undergone a number of reforms in the agricultural sector. Its focus has changed from improving agricultural productivity and achieving rice self-sufficiency in the period between 1950s and early 1970s, to reducing income disparity between urban and rural areas in the 1970s and 1980s,66 and to making structural adjustments in compliance with South Korea’s obligations under the WTO AoA in the 1990s.67 Since the 2000s, the South Korean government has implemented a series of agricultural policies in response to significant changes at both the international and national levels.68 Facing increased global competition in the agricultural sector, South Korea’s focus has been moving towards promoting a sustainable development approach of its rural economy, while in compliance with its WTO obligations, although at a very slow pace.69 Many efforts have been made to help improve agricultural performance, such as investing in agricultural science and technology, increasing the size of landholdings to reduce production cost, and offering low interest loans to attract young skilled farmers to work in the agricultural industry.70 Other public interventions in agriculture involving environmental protection are widespread as well. Nevertheless, farmers’ incomes are still ensured primarily through trade-distorting support programs. Examples of rural income support include conditional early retirement payments for farmers over 65 years old,71 a direct income support mechanism for paddy field (rice) farmers,72 and a direct payment for farmers in lessfavoured areas.73 Trade-distorting government purchase programs have also been implemented to ensure the prices of staples such as barley, maze, and soybean; while the Agricultural Products Price Stabilisation Fund has been established to stabilise 66 Savada AM, Shaw W (1997) South Korea: a country study. Diane Publishing, US, p 84. Noting that “Park Chung Hee government launched the Saemaul Undong (New Community Movement) as a rural reconstruction and self-help movement to improve economic conditions in the villages, close the wide gap in income between rural and urban areas, and stem urban migration.” See also Bedeski R (2002) The transformation of South Korea: reform and reconstitution in the sixth Republic under Roh Tae Woo, 1987–1992. Routledge, UK, p 24. 67 Jeong, Martini, supra note 29, at 27. Noting that a series of government support programs were provided to strengthen the agricultural sector and rural development. 68 Ibid., at 7. 69 Ibid., at 28. Noting that priorities have been placed on rural development, agricultural competitiveness, the quality of life in rural areas, and environment. 70 Song JH (2007) Perspectives on agricultural development in the Republic of Korea: lessons and challenges. Accessed 18 Aug 2017. 71 Jeong, Martini, supra note 29, at 28. Noting that “[f]armers over 65 years of age who were willing to sell or rent their land to full time farmers for a period of more than five years” were eligible to receive a payment. 72 Ibid. Noting that as part of the rice deal under the WTO, a direct payment support mechanism, including both fixed payment and variable payment, was made to rice farmers. 73 Ibid.

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vegetable prices.74 Additional efforts, such as the promotion of rural tourism, have been made to develop and expand off-farm income sources. These off-farming activities are not directly associated with agricultural production; therefore, they are mostly less- or non-trade distorting.75 South Korea’s agricultural subsidies, mainly in the form of direct payment and price support, are fundamentally discouraged by the WTO. According to the AoA,76 they are trade-distorting and fall into the category of either Amber Box or Blue Box, and therefore, should be reviewed, reduced, and eventually removed.77 It is unlikely that South Korea can rely on these subsidies to support agriculture and farmer’s income in the long term. Nevertheless, some of the support programs listed above are reasonably constructive. Specifically, investment in rural infrastructure and agricultural technology as well as rural environmental protection not only strengthens the performance and resilience of South Korea’s agriculture sector, but also promotes sustainable development of its rural economy. Farmland consolidation and strategies that attract young skilled farmers better prepare Korean agriculture for global competition. Rural tourism brings additional income and opportunities for farmers as well as rural communities. According to the AoA, these support programs, categorised as Green Box measures, are non- or less-trade distorting, and therefore, not subject to reduction schedules.78 In fact, all generalised government service programs that are decoupled from production and price fall into the category of Green Box measures, such as government support programs in the areas of agricultural research, pest and disease control, training services, extension and advisory services, inspection services, marketing and promoting services, and infrastructural services.79 South Korea should take advantage of the Green Box measures and make them one of the key components of rural reconstruction. However, the existing Green Box measures are quite general and not sufficiently aggressive to reshape South Korea’s agricultural industry for a better future. There remains room for improvement. These are various strategies South Korea is urged to adopt in order to promote sustainable development of agricultural production as well as its rural economy. Yet, this research only high-

74 Ibid.,

at 29. at 30. 76 WTO Agreement on Agriculture (15 Apr 1994) 1867 U.N.T.S. 410. Art. 6 is about domestic support commitments. 77 For more details regarding Amber Box and Blue Box measures, see World Trade Organisation (2017) Domestic support: Amber, Blue and Green Boxes. agric_e/negs_bkgrnd13_boxes_e.htm. Accessed 18 Aug 2017. See also Chen Y (2014) Trade, food security, and human rights. Routledge, UK pp 91–93 “Amber Box measures include those domestic support programs that are directly related to production and price. These measures are considered to be highly trade-distortive.” As for Blue Box measures, they are subsidies tied to programmes that restrict agricultural production. They are less likely to artificially depress market prices. Therefore, they are considered to be less trade-distorting. 78 Agreement on Agriculture, supra note 76, Annex 2. 79 Ibid. 75 Ibid.,


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lights three areas that the South Korean government should particularly reinforce: agricultural science and technology, product differentiation, and rural tourism.


Agricultural Science and Technology

Nowadays, agricultural competitiveness is not solely decided by natural conditions; rather, it is largely based on the advancement of agricultural science and technology.80 Science and technology can truly make a dramatic change to a country’s agricultural industry.81 Israel, known as a world leader in agricultural technology, is a good example. South Korea can certainly draw on Israel’s experience in improving the agricultural sector through technological innovation. Geographically, Israel is not conducive to agriculture given that most of its land is desert. Its success heavily “relies on an ‘induced’ rather than ‘natural’ comparative advantage, one built on knowledge and technological progress.”82 Through a series of innovations in technology, such as the development of drip and micro-irrigation systems, as well as reusable plastic trays to collect dew from the air, Israel has effectively transformed desert into farmland.83 Israel agricultural experts have also been dedicated to the development of hardier seeds that “enables the introduction of genetic materials into seeds without modifying their DNA.”84 These seeds are developed with a special consideration of Israel’s natural conditions. Further, to promote sustainable agriculture, Israel improves and commercialises technologies on biological pest control, slow-release herbicides, and targeted insecticides.85 These technologies greatly minimise the undesirable environmental impact of agricultural activities. Beyond that, Israel emphasises the application of technology in agriculture, strengthening the communication between agricultural experts who develop all these technologies and farmers who practically use these technologies. The Agricultural Knowledge On-Line (AKOL) service has been established to provide tailormade farm solutions.86 This service has been commercialised and is accessible to all farmers. Innovation in agricultural technology results in significant increases in the quality and quantity of agricultural products, enhancing Israel’s agricultural competitiveness as well as sustainable rural development.87

80 Seung

supra note 26.

81 Ibid. 82 OECD (2017) OECD review of agricultural policies: Israel. In: Agricultural Policies and Support. OECD. htm. Accessed 20 Aug 2017. 83 Leichman AK (2012) 12 top ways Israel feeds the world. Accessed 20 Aug 2017. 84 Ibid. 85 Ibid. 86 Ibid. 87 Ibid.

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As for South Korea, agricultural performance can also be improved through transforming labour- and land-intensive agriculture into a technology-intensive industry.88 The South Korean government has realised the importance of agricultural science and technology. The Agricultural Research and Development Promotion Centre (ARPC) was formed in 1995.89 Millions of dollars have been provided to support agricultural research projects.90 As a result, South Korea has made some achievements in the areas of “biotechnology, breeding, soil and nutrition management, agricultural mechanisation, and post-harvest management.”91 However, these research projects are not efficient enough to solve South Korea’s agricultural problems. A number of issues are raised in relation to South Korea’s agricultural technological innovation. First, the development of agricultural science and technology requires significant policy and financial support from the government. However, the existing policies have been disproportionately focused on providing trade-distorting subsidies to farmers. Public resources should be re-allocated to promote research on agricultural science and technology for long-term sustainable agricultural and rural development. Meanwhile, policy support that attracts more private funds to invest in this sector is also critical. Second, existing research projects cover a wide range of agricultural issues. To improve efficiency, research should be more strategically focused on addressing South Korea’s emerging needs. The key to South Korea’s agricultural success depends on locally adaptive technological innovation. Israel’s emphasis has been placed primarily on farming in arid conditions given that most of its land is desert. Drawing from Israel’s experience, South Korea should be committed to research on farming in mountainous areas. Beyond that, as discussed previously, Korean consumers’ dietary preference has changed over the years. South Korea should also take this factor into consideration when designing locally adaptive research projects, particularly noting that rice does not hold the only lifeline for South Koreans anymore. Third, South Korea faces practical difficulties in the application of agricultural science and technology. Korean agriculture was traditionally characterised as small-scale farming.92 By law, farmers were not allowed to own more than 3 hectares of farmland before 1992.93 From 1992 to 2002, the South Korean government made a series of changes to consolidate farmland. It was not until 2002 when the limit on farm size was eventually removed; however, this reform came with conditions.94 For a long time, this old-fashioned small-scale farming system made 88 Seung, 89 Jeong,

supra note 26. Martini, supra note 29, at 32.

90 Ibid. 91 Cho GR (2011) South Korean strategy for agricultural technology transfer to developing countries: case of rural development administration. ChoGyoungRaeStrategyforTechnologyTransfertoDC7thver.pdf. Accessed 25 Aug 2017. 92 Jeong, Martini, supra note 29 at 31. 93 Ibid. 94 Ibid. Noting that “[i]n 2002, the Farmland Act was revised to allow farmland to be owned by agricultural corporations under the conditions that investment by farmers represented at least half of the total investment, the representative of the corporation is a farmer and more than half of the executive board are farmers”.


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it difficult for Korean farmers to adopt a greater number of new technologies due to financial and technical difficulties. The recent farmland consolidation improves South Korea’s agrarian structure; it also enhances the management of agricultural resources, promoting the wide application of agricultural technology as well as further research in related areas. However, the 2002 farm consolidation reforms only allowed farmland to be owned by agri-businesses under the conditions that “investment by farmers represented at least half of the total investment, the representative of the corporation is a farmer and more than half of the executive board are farmers.”95 These requirements fundamentally restrict the consolidation of farmland. Given that large agri-businesses can play a critical role in promoting the application of agricultural science and technology, South Korea’s land reform might benefit from being more aggressive. Further, similar to Israel’s AKOL, the South Korean government also launched a regional agriculture cluster program in 2006 to “develop regional networks among the academic community, research institutes, the industrial sector and local governments for the provision of technical and marketing assistance to farmers.”96 However, different from AKOL, Korea’s network system mainly serves as a communication platform for interest groups. It is not commercialised to deliver tailor-made farm solutions. Therefore, this is an area that South Korea should explore for future improvement. Not only the government, but also individual research institutes and agribusinesses may be interested in developing a Korean version of AKOL. Technological innovation can substantially contribute to the modernisation of South Korea’s agricultural sector, increasing its efficiency and global competitiveness. It is imperative that the South Korean government provides sufficient policy and financial support to assist the development of agricultural science and technology.


Product Differentiation

In an era of open markets, South Korea’s agricultural competitiveness can be improved through product differentiation.97 Research that distinguishes Korean agricultural products from others should be particularly reinforced as it enables South Korea to construct specific competitive advantages over its competitors. Three areas that Korean agriculture may focus on to improve differentiation are: organic agriculture, traditional Korean food, and processed food. Organic Agriculture A growing number of consumers are concerned about the negative effects industrial agricultural practices have made on human health, the environment and the society.98 They prefer unpolluted organic food or at least less95 Ibid. 96 Ibid.,

at 32.

97 Seung, supra note 26. Noting that it is difficult for South Korea to compete on price. Instead, Min

suggests a breakthrough through differentiation. JS (2007) Putting your money where your mouth is: preserve food subsidies, social responsibility & America’s 2007 Farm Bill, Environs Envtl. L. & Pol’y J. 31(1): 4 & 26. Noting 98 Windham

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polluted premium food; they want their food produced in ways that are more socially and environmentally responsible, although this also means they may have to pay more for food. In a free market, consumers should be the ones to decide “the desired quality of food and how much they are willing to pay for it.”99 Therefore, providing high quality organic agricultural products should be an important aspect of modern agricultural policy in South Korea. Some Korean farms may be interested in adopting organic farming practices. Meanwhile, government policy support is essential to facilitate the transition of agriculture towards a more market-oriented future. Traditional Korean Food The South Korean government’s aggressive tourism marketing and promotional activities have resulted in significant revenue increases. In 2014, the total contribution of travel and tourism to South Korea’s GDP was 5.8% of GDP. It is expected to rise by 2.5% pa to KRW114,457 billion (6.0% of GDP) in 2025.100 Aside from the direct economic contribution to the South Korean GDP, the booming tourism industry also brings enormous opportunities to the agricultural and food sectors. Specifically, it promotes Korean food to international visitors, not only the traditional Korean cuisine that they consume during the trip, but also the packaged Korean food that they take home. International tourists may also play an important role in consuming and promoting Korean traditional food and cuisine in their home country. In fact, as a result of the South Korean government’s effective promotion, Korean traditional food and cuisine has gained a growing reputation worldwide. Despite the achievement to date, the main issue South Korea has been struggling with is the difficulty to export traditional Korean food at a much larger scale. A weak link in the supply chain is to blame: it lacks strong collaboration between regional specialty agriculture and the food processing industry.101 These two sectors are largely isolated from each other in practice, which constrains the export of traditional Korean food. To further promote traditional Korean food and cuisine in global markets, additional efforts are necessary to strengthen communication and cooperation between regional specialty agriculture and the food processing industry.102 Processed Foods Apart from the issue regarding the weak link in the supply chain, another major challenge Korean agriculture faces is the under-developed food processing industry.103 Value-added processed food has huge market potential. In the case of South Korea, it is particularly promising if combined with the concept of traditional Korean food and cuisine. However, compared to other manufacturing sectors such as motor vehicle and electronics, South Korea’s food-processing companies are

that “[s]tudies show that consumers are concerned about health and nutrition, taste, food safety, and the environment”. 99 Ibid., at 31. 100 World Travel and Tourism Council (2015) Travel and tourism economic impact 2015: South Korea, countries%202015/southkorea2015.pdf. at 1. Accessed 21 Aug 2017. 101 Jeong, Martini, supra note 29, at 34. 102 Ibid. 103 Ibid., at 20. Noting that it is an industry that is not well developed in South Korea.


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much smaller in size and lack proper standards and controls.104 They fail to grow for two reasons: insufficient government policy support, and inadequate investment from both the public and private sectors. Food-processing companies, especially small businesses, suffer enormously from poor infrastructure for food production, processing, and distribution. Also, technology is more of a curse than a blessing for most small businesses because they do not have the necessary financial, technical or human resources to develop and adopt new technologies, or simply to solve a technical difficulty. Government intervention is of great importance in supporting the industry and attracting public and private capital for infrastructure improvement, food-processing-related research, and the application of new technologies. Thus, efforts that promote the production and export of value-added processed Korean food should be intensified.


Rural Tourism

As discussed previously, one of the major concerns for the South Korean government is the need to support the livelihood of rural workers/domestic farmers. To maintain adequate incomes for farm households and to further improve the quality of life of those people living in rural areas, the South Korean government needs to develop policy measures around two areas: agriculture, and agriculture-related activities. While agriculture is an important source of rural income, the rural economy does not only consist of farming. There are numerous other off-farm activities that the rural population could potentially explore in order to increase their income. Rural tourism, fusing the agricultural sector with various other industries, is one of the key tools for rural development. Rural tourism has multiple benefits. First and foremost, it brings economic prosperity to local people, encouraging the retention of the rural population.105 Second, through diversifying rural income, it absorbs shocks from trade liberalisation in the agricultural sector, and largely stabilises rural economy and reduces farmers’ concerns over free trade. Third, with more tourists coming to visit the countryside, rural infrastructure will be upgraded accordingly, which also benefits rural populations. Fourth, the main purpose of a rural visit, from a tourist perspective, is to experience agriculture and rural life. In this sense, rural tourism encourages agricultural activities, enabling villages to preserve the traditional landscape. South Korea started promoting rural tourism from the mid-1980s.106 However, it has developed at a very slow pace has not been particularly successful. It was not until after the 2000s that rural tourism became increasingly popular.107 The heart of South Korea’s success lies in its creative marketing. In addition to the traditional tourism 104 Ibid.,

at 8. Noting that the development of rural infrastructure increases the desirability of rural areas and the opportunities for off-farm work. 106 Ibid., at 37. 107 Ibid. Noting that “[t]he Green Tour Villages was introduced in 2002”. 105 Ibid.

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campaigns, South Korea’s rural tourism marketing is largely embedded in TV dramas, films, and entertainment shows. These entertainment programs have successfully converted audiences into tourists. However, at this stage, the popularity of rural tourism is mostly among Korean tourists. Therefore, increased efforts should be made to attract international visitors to rural areas. Accordingly, rural infrastructure such as accommodation, transportation, and health facilities should be upgraded to meet international standards. Efficient tourism management should also be provided to ensure the quality of the rural visit. There are numerous strategies that South Korea could potentially explore to promote rural tourism, but it is beyond the scope of this chapter.


A Debatable Alternative: Investment in Foreign Farmland

Since the 2008 food crisis, an increased number of countries have been pursuing overseas farmland acquisitions as an alternative to secure sources of food supply. Along with China, Japan, the United States, and the Gulf States such as United Arab Emirates, Qatar, and Saudi Arabia, South Korea is also an aggressive foreign farmland investor.108 The majority of farmland acquisitions take place in African countries, but also in Pakistan, Kazakhstan, Cambodia, and Brazil.109 Recently, acquisition of Australian farmland has become increasingly popular due to advanced agricultural management systems.110 State-owned enterprises have shown a strong interest in purchasing and leasing foreign farmland, so has privately-owned agribusiness. For example, the stateowned Korea Rural Development Corporation directly owns and operates farms overseas. With the support of the South Korean government, some large privatelyowned Korean agribusinesses are also involved in foreign farmland acquisitions and farm operations.111 Investing upstream in the food supply chain is an effective long-term strategy for South Korea, mainly for two reasons. First, South Korea is a food deficit country relying on imports for a significant share of its food supplies. Producing and importing 108 Muller

AR (2011) South Korea’s global food ambitions: rural farming and land grabs. Accessed 29 Aug 2017. Noting that China, Japan, United Arab Emirates, and Saudi Arabia have been pursuing overseas farmland acquisitions since 2008. See also Australian Government Rural Industries Research and Development Corporation Department of Agriculture, Fisheries, and Forestry (2011) Foreign investment and Australian agriculture. https:// at 2. Accessed 29 Aug 2017. Noting that Europe and North America, the Gulf States and some Asian countries have also “shown increased interest in investing in Australian agriculture seeking to expand their activities by securing sources of supply”. 109 Australian Government Rural Industries Research and Development Corporation Department of Agriculture, Fisheries, and Forestry, supra note 108, at 7. 110 For more details regarding foreign farmland acquisitions in Australia, see Australian Government Rural Industries Research and Development Corporation Department of Agriculture, Fisheries, and Forestry, supra note 108. 111 Muller, supra note 108.


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agricultural products from its own farms overseas largely expands the sources of food supply, supporting South Korea’s food security and reducing its dependence on global markets. Second, unlike poor food-deficit countries, South Korea, as the world’s 11th largest economy, has the resources to invest in food-producing assets overseas.112 Therefore, from a Korean perspective, improving food security through securing farmland overseas should be strongly encouraged. Apart from providing additional food to the investing countries, foreign investment in farmland also brings enormous opportunities to lessor states. Investment in farmland is often associated with investment in other agriculture-related activities. Often, increased supply of capital leads to “higher levels of production, employment and income”113 in lessor states. Foreign investment in agriculture is particularly meaningful for African countries and other poor developing countries that have long suffered from low productivity due to poor infrastructure and lack of technology.114 Despite the advantages stated above, foreign farmland acquisition remains a debatable alternative. Major concerns associated with farmland acquisition include, for example, environmental degradation and loss of livelihood and indigenous farming knowledge, among others.115 Also, for lessor states, there is a risk of market distortion resulting from foreign investment by state-owned enterprises. To secure farmland for domestic food supply, foreign state-owned enterprises may not be bound by commercial principles such as profit-making considerations.116 For example, they may bid the price of farmland higher than its market price, leading to distortion in the farmland market of lessor states and possibly food security issues in the lessor states as well. Further, foreign state-owned enterprises may also “channel production through non-market avenues to customers in their home countries,”117 which may distort global food markets. There is also a concern that global land acquisition represents neo-colonialism.118 For example, in 2008, a private-owned South Korean enterprise, Daewoo, made a deal to lease 1.3 million hectares of farmland in Madagascar for 99 years. 1.3 million hectares of farmland is almost half of Madagascar’s arable land. It is not a surprise that the land acquisition deal received strong public opposition. It escalated to public unrest in Madagascar. Under such pressure, the government of Madagascar had to reverse the deal.119 112 Jones

R (2016) Korea’s economy: finding a new momentum. fullstory.php/aid/5649/Korea_s_economy:_Finding_a_new_momentum.html. Accessed 28 Aug 2017. 113 Australian Government Rural Industries Research and Development Corporation Department of Agriculture, Fisheries, and Forestry, supra note 108, at 3. 114 Ibid., at 7. Noting that lack of investment has, in the past, been identified as “a fundamental cause of low productivity and stagnant agricultural production in developing countries”. 115 Robertson B, Pinstrup-Andersen P (2010) Global land acquisition: neo-colonialism or development opportunity? Food Security 2(3): 275–276. 116 Australian Government Rural Industries Research and Development Corporation Department of Agriculture, Fisheries, and Forestry, supra note 108, at 4. 117 Ibid. 118 For more details, see Robertson, Pinstrup-Andersen, supra note 115, at 271–283. 119 Muller, supra note 108.

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Foreign farmland acquisition is an effective alternative for South Korea to expand the sources of food supply and should be strongly encouraged. However, for lessor states, opportunities and risks co-exist. It is important to mitigate the risks and maximise the development opportunities for lessor states.120 The risks discussed above can be substantially mitigated if lessor states have proper impact assessment and management policies in place, which is a topic worthy of further exploration.

5 Conclusion Korean agriculture faces many challenges at both the international and national levels. At the international level, the increasing economic integration largely exposes Korean agriculture to global competition, resulting in important changes in this sector. Protectionism will eventually be phased out, and the opening of agricultural markets is an irresistible trend that South Korea must follow. Meanwhile, at the national level, South Korea’s deep concerns regarding domestic food security and rural livelihoods are undeniable, and certainly should not be overlooked. It is unlikely that open markets will result in the collapse of the agricultural industry, but this is dependent on the South Korean government having effective strategies in place. Amidst the many internal and external pressures, South Korea is gradually reducing protectionism and adjusting its agricultural policies to promote agricultural performance and the sustainable development of the rural economy. But there remains room for improvement. Most of the existing government support programs are still trade distorting under the WTO, and are not efficient. It is important that South Korea implements deeper reforms towards free trade, and takes advantage of the WTO-permissible Green Box measures to support its agricultural industry as well as rural development. Under the FTA, the Chinese and South Korean governments have reached a compromise on a concession list of agricultural products, although these commitments were not as meaningful from a trade perspective. Therefore, efforts to increase the quantity and variety of the Chinese agricultural imports should be continued. Meanwhile, beyond the FTA, diversification of trading partners in the agricultural sector should be South Korea’s main focus. There are two major benefits for South Korea to deepen and broaden its engagement with its existing and potential trading partners in the agricultural sector. First, it expands the sources of food supply, enhancing South Korea’s domestic food security. Second, by minimising South Korea’s reliance on one or a few specific agricultural exporting countries, it reduces the risk of manipulation and food shortage caused by natural disasters, human activities, or a combination of both in the exporting countries. Trade liberalisation thus has the potential to bring enormous opportunities for South Korea. Green Box measures, being non-trade distorting and permitted by the WTO, should also be widely used to improve South Korea’s agricultural sector and the sus120 Robertson,

Pinstrup-Andersen, supra note 115, at 275–283.


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tainable development of its rural economy. Government support for the advancement and application of agricultural science and technology is critical to South Korea’s agricultural performance, and therefore, should also be strengthened. Moreover, product differentiation is an effective strategy to strengthen a country’s agricultural competitiveness in global markets. In the case of South Korea, organic agriculture, traditional Korean food, and processed foods have the most potential to meet market demand, and deserve more attention and support from the South Korean government. Further, rural tourism provides additional income for rural populations, and therefore should be promoted on a larger scale. To be more specific, the promotion should be extended to international visitors. To ensure sustainable access to adequate food, foreign farmland acquisition is also an effective long-term strategy for South Korea. However, the potential risks associated with foreign farmland acquisition should not be overlooked. Social, economic, and environmental effects of these acquisition plans must be carefully assessed to minimise the negative impact on lessor states as well as global agricultural markets. It is inevitable that in the future South Korea will eventually need to open its domestic markets, importing more agricultural products from more countries than ever before. South Korea should not be afraid. Open markets will not ruin South Korea’s agricultural and rural economy. Instead, they will bring more opportunities and dynamic gains to South Korea and help it use its resources in the most efficient way.

China’s Response to Protectionism: PPP Under “One Belt One Road” Hongyu Fu

Abstract The year of 2016 saw a rise in global protectionism, yet China, though its outbound investment surpassed its inbound investment, turning it into a major capital export country with a substantial amount of outbound investment in the form of infrastructure investment to the One Belt and One Road countries. In this regard, China is using a public and private partnership (PPP) model—a model that is rarely utilised in the Chinese Belt and Road Initiative (B&R) countries, thus providing China with an opportunity to lead the harmonisation and modernisation of PPP laws. Moreover, China is developing its domestic legal institutions that are charged with enacting PPP laws and modernising PPP policymaking. This suggests that China may, at the same time, have the opportunity to facilitate the formation of a harmonised PPP legal regime in the B&R region, incorporating good governance and the principles of inclusivity and sustainable development, contributing to regional economic integration and providing a good example for international economic cooperation. Keywords One belt one road · Protectionism · Trans pacific partnership Public and private partnership

1 Introduction Since late 2016, populism and protectionism have again gained momentum. As a result, the USA withdrew from the Trans Pacific Partnership (TPP) and has even threatened to leave the World Trade Organisation (WTO). The European Union not only experienced a fiscal crisis, but also its political structure has been endangered since Brexit, and existing international economic systems are facing possible collapse. However, at this point no new regime is being proposed to respond to these challenges.

H. Fu (B) Beijing Foreign Studies University School of Law, Beijing, China e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2019 L. Corbin and M. Perry (eds.), Free Trade Agreements,



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China’s response to the downward economic pressures it has been experiencing, is to pursue internal political and economic reforms. In doing so, China is calling for international cooperation, emphasising the importance of globalisation and multilateralism not only to China, but also to the global community at large. A possible solution proposed by China is the Belt and Road Initiative (B&R), an initiative that focuses on regional integration and sustainable development, creates an inclusive economic policy which aims to meet common needs such as United Nations Sustainable Development Goals (SDGs) for all people, and focusing on infrastructure investment and development.1 However, there are still other issues to be addressed, for example, how to institutionalise these approaches, respond to challenges to current schemes, set up international best practice models, and formulating international norms that are based on consensus. The Public and Private Partnership (PPP) has been utilised traditionally as an investment vehicle for infrastructure. Yet under the B&R, its flexibility, inclusivity and substantial engagement with multiple stakeholders have made it a viable means through which to gain a consensus on regional cooperation and a valuable forum for multilateral agreement on economic development. China has been pushing forward its own PPP laws for its domestic market, shedding light on the form and content of the PPP legal regime in the B&R. This article focuses on the above issues, provides insights, and raises questions for discussion. Sections 2 and 3 are an analysis of the role that PPP plays in B&R and international infrastructure investments by which China exports a substantial amount of capital into countries of strategic importance; an argument that there is a need to modernise and harmonise PPP legal regimes among the participating countries; and a suggestion China has a unique opportunity to set an example and initiate negotiations to develop the PPP law. Section 4 provides a general illustration of the current PPP legal system in China, discussing recent legislation and policies introduced or amended since 2014. Issues including coordination among government departments, a lack of centralised legislation, and the disparities among different subnational governments in project implementation have been addressed. Section 5 proposes pragmatic suggestions in response to above issues, in view of forming a harmonised PPP legal regime in B&R. Suggestions include enacting national PPP legislation, enhancing financial accountability of PPP projects, promoting PPP expertise by forming specialised PPP units, controlling project risks to public finance and to private financial institutions. The goals of inclusive economic growth and sustainable development should also be incorporated. In this regard, China may not only assist B&R countries with infrastructure investment, but also take the lead in modernising PPP laws, providing a good example for international economic cooperation.

1 Larçon

Jean-Paul (ed) (2017) The New Silk Road: China Meets Europe in the Baltic Sea Region: A Business Perspective. HEC, Paris.

China’s Response to Protectionism: PPP Under “One Belt One Road”


2 China’s Response to Populism and Protectionism 2.1 China’s Belt and Road Initiative Under the new epochal theme of peace, development, cooperation and mutual benefit, China has long upheld the “good-neighbourliness, safe-neighbourliness and rich-neighbourliness” foreign policy which adheres to the principle of peaceful rise. Recently China proposed the initiative of the “Silk Road Economic Belt and 21st Century Maritime Silk Road”2 (B&R for short) to promote international cooperation on capacity and encourage Chinese funds to “go out”, turning China from a capital import country to a major capital export country. B&R was first promulgated by President Xi Jinping in September and October of 2013 during his state visits to Kazakhstan and Indonesia, respectively. It attracted wide-spread attention from the International Community and, more recently as an initiative, it is gaining traction politically and economically. This is evidenced by statements made by various governments and by the substantial investments already made to finance and construct the Initiative since 2013. It calls for countries along and beyond the historical Silk Road to work together to achieve common prosperity and political stability. It runs through three continents, Europe, Asia and Africa, giving the participating countries enormous geographical advantages which resonate with the region’s history and its current political and economic reality. In spite of the anti-globalisation trend, this initiative has energised the rest of the world to embrace new initiatives to build even stronger forms of globalisation. The B&R has thus gained new support and new popularity worldwide. The enthusiastic support from the Asia Infrastructure Investment Bank (AIIB), which has almost 100 member states to date, is another example of endorsement of the initiative by the international community. The initiative aims to achieve global consensus and a platform for common prosperity.3

2.2 The Vision and Development of B&R The B&R fits well into the context of the United Nations 2030 Agenda for Sustainable Development. With an emphasis on infrastructure investment and connectivity between regional economies, this initiative aims to achieve concrete long-term cooperation on regional trade and investment and spur regional economic growth in a sustainable way, eventually benefiting all those involved. It is devoted to helping 2 In

September 2015, China’s National Development and Reform Commission (NDRC), Foreign Ministry and Ministry of Commerce (MOFCOM) jointly announced that the official English expression of the initiative should be “the Silk Road Economic Belt and the 21st-Century Maritime Silk Road”, or simply “The Belt and Road” for short, abbreviated as ‘B&R’. 3 Asian Development Bank (2017) Meeting Asia’s Infrastructure Needs. default/files/publication/227496/special-report-infrastructure.pdf. Accessed 15 Sep 2017.


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build open economies, and promote free and inclusive trade, and form a multilateral trading system featuring open, rule-based and non-discriminatory cooperation instead of trade protectionism. The B&R provides an instructive framework for economic and financial cooperation between China and African, European and Asian countries, coupled to as well as aligning with and coordinating the transnational projects of the Master Plan on ASEAN Connectivity 2025 (MPAC 2025), Asia-Europe Meeting Pathfinder Group on Connectivity (ASEM APGC) as well as the North-South Economic Development Corridor in Africa. There is an aim to realise the various SDGs. The Initiative will definitely change the trade mode between China and B&R countries, and generate more funds, technology and human resources for infrastructure development to accelerate the integration and modernisation of B&R countries. In January, 2015, China and Africa signed a Memorandum of Understanding on the promotion of infrastructure cooperation at the African Union headquarters, which facilitates the establishment of a long-term and profound framework for cooperation in the fields of railway, highway, regional aviation networks and infrastructure industrialisation in Africa (“three networks and industrialisation”). In reality, many efforts predate the Initiative, like Bangladesh-China-India-Myanmar Corridor (BCIM) and China-Pakistan Economic Corridor (CPEC) launched early in 2013. As stated in the Joint Communique of the Leaders Roundtable of the Belt and Road Forum for International Cooperation passed in May 2017 by heads of state and international institutions, the Initiative is a platform for promoting trade and investment liberalisation and facilitation and enabling the general public to benefit from trade. So far, more than 100 countries and international organisations have already participated in the B&R, and agreements with more than 30 countries along the routes have been executed, while hundreds of projects in terms of infrastructure have been launched, creating more than 160,000 local jobs.

2.3 Infrastructure Investment in B&R and PPP Deficiency of infrastructure is a major obstacle of economic and social development of every country. Especially for developing countries, deficiency of infrastructure and low quality of basic public services lead to a limited life for citizens and economic development. However, the current situation is that, on the one hand, many countries are confronted with low coverage, bad quality and unreliability of infrastructure; and on the other hand, the public sector is impeded by limited finance, space and shortages of management ability when trying to address the problems mentioned above so that

China’s Response to Protectionism: PPP Under “One Belt One Road”


they cannot provide infrastructure which can fulfil economic and social development initiatives effectively.4 The B&R Initiative might be construed as a national vision or foreign policy to some degree, but should be more than a bundle of regional cooperation about infrastructure investment and development including airports, railways, roads, power plants, etc. Centring on policy coordination, facilities connectivity, unimpeded trade, financial integration and people-to-people bonds, the Initiative seeks to coordinate with economic development strategies of countries along the B&R and strengthen regional cooperation, among which the cooperation on infrastructure construction comes as the top priority, aiming at jointly pushing forward the construction of international trunk passageways, so as to form an infrastructure network connecting Europe, Asia and Africa. In the implementation of the B&R, infrastructure construction is the most fundamental and vital element affecting the outcome of this Initiative. To provide infrastructure investment under B&R, there are a couple of major issues which need to be addressed, as discussed below.

2.4 Limited Public Finance Support As part of public investment, the infrastructure investment is constrained by financial policies. In the context of tight financial resources, public financial input of infrastructure is further compressed. At present, in most B&R countries public financial investment in infrastructure construction cannot meet the social demands of economic growth. The World Bank study on African infrastructure in 2010 showed that a gap in the annual infrastructure investment of Sub-Saharan African countries is $48 billion. The Infrastructure strategy report of the Asian Development Bank in 2013 showed that, Latin America had an annual increase of $100 billion in infrastructure investment to meet the local needs, while another study by the Asian Development Bank estimated that the infrastructure investment needs from 2016 to 2030 might amount to 26 trillion U.S. dollars, i.e. 1.7 trillion U.S. dollar per year. However, the current level of annual investment in the region is estimated to be around 881 billion U.S. dollars, only half of the investment needed. The lack of financial investment in infrastructure has not only restricted the economic development of developing countries, but also widened the gap between the financial capacity of the public sector and the investment demand for infrastructure in developing countries. A critical theory underlying the B&R Initiative is to bridge the infrastructure investment gap through various ways, thus breaking the bottleneck restricting economic growth and social welfare development.

4 Serebrisky

T (2014) Sustainable Infrastructure for Competitiveness and Inclusive Growth: IDB Infrastructure Strategy. Accessed 18 September 2017.


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2.5 Insufficient Infrastructure Project Planning Capacity The paucity of adequate planning and coordination within and among public sectors and lack of comprehensive analysis of projects prior to the implementation of infrastructure projects could lead to low value-for-money evaluation of projects, inability to meet established targets and a waste of limited financial resources. From national experience, due to lack of corresponding project planning and analysis, the government’s assessment of infrastructure projects tends to incorrectly overestimate project returns and underestimate project costs. A study by Flyvbjerg, an Oxford University professor and project management planning expert, shows that the cost of public infrastructure projects around the world is often underestimated: in the case of large transport projects, the actual cost of 258 traffic facilities projects exceeded the planned cost by about 28%, while the projects outside Europe and North America exceed the budged figure by as much as 65%. Surveys of 25 railway projects show that the government’s estimate of traffic flow was twice the actual flow of the project, which grossly overestimated the project’s benefits.5 The widespread problem of power rent-seeking and corruption in infrastructure projects has exacerbated this phenomenon, causing the overall cost of the project to be underestimated and the government taking on greater risks from the medium to long term.

2.6 Inefficient Public Service and Governance Infrastructure investment requires a stable, predictable legal environment where multiple stakeholders can negotiate, cooperate and communicate along the life cycle of the project, serving the interests of different parties while preserving the fruits for public welfare. Limited by the public sector’s incapacity and lack of incentives, the public sector provides poor quality infrastructure construction, operation and maintenance services, and low service efficiency and output. From a regional level, countries at different development stages or in different political systems may have different interests regarding current needs in infrastructure investments, especially when such projects have a life span that far exceeds the term of the current administration. According to the World Bank’s anarchically study, sub-Saharan Africa has resulted in an annual increase in infrastructure costs of nearly $6 billion due to the government’s administrative incapacity and inefficiency.

5 Flyvbjerg Bent, Mette K, Skamris Holm and Søren L. Buhl (2002) Underestimating Costs in Public

Works Project: Error or Lie? Journal of the American Planning Association, 68(3): 279–295.

China’s Response to Protectionism: PPP Under “One Belt One Road”


3 Role of PPP in B&R Initiative On the basis of these problems, the traditional public finance model cannot meet the needs of the existing infrastructure development, suggesting that harmonisation and coordination among B&R countries could be extremely difficult. Thus, the public sector began to seek to develop a new model of infrastructure construction, through the establishment of PPP (Public-Private Partnership, PPP) cooperation mechanism with private capital and the establishment of risk and benefit sharing mechanisms to make up for the infrastructure investment gap, and, at the same time, optimise the project structure, improve service quality, and achieve greater social benefits. Compared with the traditional infrastructure investment management mechanism, which is dominated by financial investment, PPP has the following advantages: First, under PPP, private capital is usually responsible for the financing of the project, which greatly reduces the financial burden. For economic infrastructure, the project proceeds are paid through charges for use, and the infrastructure expenditure is covered by the project profit. And for the public sector that uses cash basis measure criterion, compared to the traditional model of paying the full cost of capital at the start of the project, PPP’s spending is generated at all stages of the project’s life cycle, avoiding the government’s short-term cash budget constraints.6 Secondly, under PPP, private capital and project creditors with rich experience and expertise will analyse and evaluate a project from the angle of project economy. In particular, creditors of project financing, in order to ensure predictable capital returns, usually require a comprehensive due diligence process, and the resulting project evaluations tend to be more objective. If the project is not profitable, it will not attract private capital and financial institutions to participate in the investment. These projects without economic value will therefore be automatically screened out. At the same time, private capital can provide the public sector with effective project plans, make up its short board of project plans and design inability, and provide references for optimising its management and supervision. Furthermore, compared with projects constructed and operated by the public sector under the traditional model, PPP projects are constructed, operated and maintained by private capital with experience and expertise, which can shorten the project time and reduce the costs. This is because, under the contract relationship, private capital undertakes the risks of construction, operation and maintenance. Its performance is directly related to project income. Therefore, private capital is more cautious and conservative in the initial appraisal, and is more active in enhancing efficiency in the late operation and management of the project. Research in Australia shows that, in PPP projects, the probability of capital overspending and performance overrunning is lower than that of traditional projects. Along with the above advantages addressing issues in infrastructure investment, PPP also effectively serves the B&R Initiative, as B&R projects and PPP projects share common features. The proposed projects for B&R and PPP are characterised as 6 Since

an increasing number of countries started to adopt accrual basis standard in government accounting, this advantage becomes less obvious.


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capital-intensive, long-term, high-risk, large-scale and complicated, which are usually in need of cooperation of public and private sector, private sector undertaking design, management and financing so as to reasonably allocate risk and share benefit.7 Therefore, PPP could be an innovative tool to facilitate and achieve the goals of Belt and Road. The PPP approach is often communicated as a financial tool, attributed to alleviate the financial pressure of government. The mode of capital and production capacity cooperation has been increasingly diversified. By virtue of its flexibility and tailored design, the PPP model could ideally combine either party’s advantages, namely private capital’s good management capability and technology and public government’s policy support, respectively, thus having been adopted in various infrastructure areas. In the implementation of PPP, risks concerning infrastructure investment, construction and operation etc. would be properly allocated among different parities in accordance with the general risk sharing principles. Nowadays PPP has been deemed an extremely effective and efficient approach to compensating for the deficiency of financial investment in infrastructure by the government, improving the output efficiency of public goods and services, and creating greater social value and welfare. Besides, the PPP approach fits well with B&R. It provides a viable means to finance infrastructure investment, enhancing coordination between and among private and public sectors on subnational, national, and regional levels. Under the PPP model, private capital would be introduced to ease the financial pressure faced by government: equity financing, syndicate loan, trust, asset-backed security, bond, etc. Meanwhile, it could adopt flexible payment mechanisms. Under the user charge or viability gap fund, there is no direct and instant fiscal responsibility occurrence on the financial statement. Off-balance financing offers the public sector more fiscal space. PPP extends multilateralism horizontally among states, and vertically into each end user of public goods and services, initiating reconsideration and adjustment of the government’s role as regulator and market participant. It allows inclusive trading, fair participation and benefit sharing of various stakeholders within the region, in view of providing public goods and services more efficiently with better quality. PPP works as a laboratory for new-era multilateralism: a combination of international trade on goods, services, and IPs, and international investment and finance; providing alternate forum for state-state, state-investor and investor-investor relationship building. As an achievement of this year’s Belt and Road Forum for International Cooperation, the Memorandum of Understanding on cooperation on PPP under B&R has been co-executed by and between China’s National Development and Reform Commission (NDRC) and United Nations Economic Commission for Europe (UNECE), which contains an agreement on establishing a PPP legal system and framework, building PPP case databases, setting up international expert pools of PPP for B&R and creating a dialogue mechanism. It is expected to promote the PPP model under the Belt and Road Initiative.

7 Irwin

Timothy C. Government Guarantees: Allocating and Valuing Risk in Privately Financed Infrastructure Projects, World Bank. Washington, D.C.

China’s Response to Protectionism: PPP Under “One Belt One Road”


3.1 PPP International Legal Principles The successful implementation of the PPP model relies on sound institutional and legal systems, which clearly stipulate the rights and obligations of all parties so as to ensure the stability of the cooperation framework and enhance the predictability of project returns. Several international organisations have issued guidelines and exemplary documents for countries, particularly in the less-developed countries. Among these are the OECD Principles for Private Sector Participation in Infrastructure8 and Recommendation of the Council on Principles for Public Governance of PublicPrivate Partnerships by OECD9 and Guidebook on Promoting Good Governance in Public-Private Partnership and A guidebook on Public-Private Partnership in Infrastructure by UN. Though those guidelines and principles target different communities, they all have mentioned and emphasised PPP’s regulatory framework, projects selection, bidding process of proposed projects, performance and management of PPP contracts, and disputes resolution. It is suggested that before launching a project under the PPP, the competent authority shall conduct a cost-benefit analysis and government capacity analysis to decide on public or private provisions of infrastructure services. In addition, the country is supposed to establish transparent and sound legislation and thus enhance business enabling environment. To ensure the implementation of PPP laws and regulations, the public sector at all levels should be equipped with qualified staff and PPP units consisting of experts of laws, finance, technology and consultation if necessary. The capacity building process is important in the whole life cycle of PPP projects, including the project selection, contract management. The principles also underline the importance of communication between stakeholders. They are embodied in the timely information disclosure, adequate public promotion to gain the user acceptance and understanding from the public. As for the parties of projects, they encourage responsible business conduct. Instant and effective communication contributes to mutual trust and mutual understanding so as to cause the observation of rules. Although PPP can bring a win-win situation to public sector and private capital, it depends on scientific system design, rigorous structure arrangement, accurate professional judgment and close cooperation. The economic, political and cultural level and system maturity of every country varies considerably, but they experience similar experiences and lessons in the implementation of PPP. According to the practice of various countries, many international economic organisations and international financial institutions have put forward international PPP standards for the reference of every country’s government, and also have instructed private capital to participate in the PPP projects of different countries and regions on a global scale. In the process 8 OECD (2007)

OECD Principles for Private Sector Participation in Infrastructure, OECD Publishing, Paris. Accessed 18 September 2017. 9 OECD (2012) Recommendation of the Council on Principles for Public Governance of PublicPrivate Partnerships, OECD Publishing, Paris. Accessed: 10 September 2017.


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of project implementation, both the public sector and private capital need to have the necessary professional ability, draw on the international practice, and obey the following international principles, in order to promote the realisation of cooperation and mutual benefits.

3.2 Scientific Government Decision Before deciding to use PPP to carry out infrastructure construction, decision-making organs of the public sector must, based on cost-benefit analysis, carry out the necessary feasibility study and compare the advantages and disadvantages of traditional procurement model and PPP. The public sector should not have blind faith in the advantages of PPP, but should consider various factors according to the actual situation of the sector, including analysing the ability of the sector to develop the PPP project, the capital attraction of the project, and the response and evaluation of the public. When necessary, the public sector should consult with independent experts and other sectors, in order to analyse the project objectively and make a considered decision.


Reasonable System Construction

Having a rigorous and scientific legal framework guarantees the successful implementation of PPP projects. Fair, transparent and reasonable legislation is conducive to attracting more private capital investment, which can also provide accurate guidance for project development and reduce transaction costs. In addition, open markets are conducive to capital flows, the elimination of trade restrictions, open competition, and the outcome of market competition to the benefit of society. The abolishment of red tape, simplification of procedures, and promotion of the idea of convenience help to improve project efficiency and reduce wastage of resources. The advocacy of integrity, vigilance on power-for-money deals, an increase in government accountability, and a decrease in rent-seeking space, can ensure that the operation of the PPP project is more transparent and stable.


Continuous Improvement of Government Capacity

In order to promote the successful implementation of PPP projects, the public sector needs to have the corresponding professional capabilities, including the necessary legal, financial, technical and regulatory capabilities to comprehensively assess the feasibility of the project. Therefore, the public sector should allocate corresponding specialised agencies and a clear division of labour, to provide necessary technical support for PPP projects. In addition, enhancement of cooperation and relations among the public sectors, reasonable allocation of resources, and provision of multi-

China’s Response to Protectionism: PPP Under “One Belt One Road”


directional support for projects, can reduce resistance from other sectors in the process of project implementation, and increase project experience of the relevant public sector.


Effective Public-Private Partnership

PPP projects must have the cooperation of the public sector and private capital, so transparent information and unblocked communication are necessary factors to guarantee the success of projects. In the process of project procurement, the public sector ensures that private capital has full right to know and participate in the competition, while private capital should disclose necessary information to the public sector. After identifying the partner, the public sector shall communicate fully with the selected private capital to ensure that both parties have a full and complete understanding of their rights and obligations as set out in the project agreement in order to avoid unnecessary disputes.

4 China’s PPP Legal Framework 4.1 Current PPP Laws in China China has provided the finance for projects since last century when a project concerning the construction of an electricity plant in Shenzhen was first commenced under the BOT model.10 Therefore, the conception of PPP is new and its legal system is not known by the public. Only in recent years when the public authority promulgated a series of relative policies and measures has the PPP been formally introduced, and the legal system in this regard is being developed rapidly to deal with any gaps that exist. Since 2014, the adoption of the PPP in China has expanded. Meanwhile, appropriate legislation is being created. As at the end of 2016, there are 11,260 projects, valued at 1.35 billion RMB, approved by competent authorities included in the projects database. These projects cover 19 fields of social life, from which China’s public sector and private capital have gained a lot of information and experience. In China, the PPP is more than a method of project finance, but an institutional reform. It is a new way of conducting public administration, working as an approach to achieve the government’s goals and provide a structure through which social services can be provided to the public. The PPP model is gradually replacing the traditional investment model where government financial input dominates the infrastructure investment. It

10 The State Council Information Office of the People’s Republic of China. How the ‘Belt and Road’ is boosting the global economy. 1539339.htm. Accessed 15 September 2017.


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is therefore assumed that this model will become the major and crucial model of infrastructure for development in China and R&B countries.11 The need for wider participation of the private sector into infrastructure investment and public service procurement has been widely discussed, and China has taken a wait-and-see approach, turning the positive effects into drivers for legislative improvement. This piece-meal approach seems less efficient, and lacks coordination compared to a centralised approach, yet it reflects the fact that the PPP in practice has been regulated by several government agencies, including NDRC, Ministry of Finance, and potentially China People’s Bank and other financial regulators. Coordination among the ministries has long been problematic, let along effective in terms of cooperation. For instance, Guidelines for General Contract of Public-Private Partnership Project (2014) issued by National Development and Reform Commission define private sector as “eligible state-owned enterprises, private enterprises, foreigninvested enterprises, mixed ownership enterprises, or other investment and operation bodies”, while Guidelines of the Ministry of Finance for Contract of PPP Project (2014) issued by Ministry of Finance stipulate that private sector means “lawfully established and validly existing enterprises with legal person qualification, including private enterprises, state-owned enterprises, foreign enterprises and foreign-invested enterprises”.12 The Guidelines, however, further stipulate that “the government financial platform companies subordinate to those at the same level in government and other state-owned enterprises held by such governments (excluding listed companies) must not participate in PPP projects as private sector organisations in the jurisdiction of the people’s government at the same level”. The stipulations of the two are completely different. Another reason why centralised legislation is currently impractical is that, considering its effect, a PPP project is local. Fiscal capacity, private investment, project construction and operation as well as potential social and economic effect are mostly related to projects at the provincial level, where smaller projects are purely municipal. China’s PPP law, if promulgated by the People’s Congress in a centralised decision-making process, has to consider different conditions and needs of local governments across the country, where wide disparity still exists regarding infrastructure investment and the provision of public services. And lastly, debates regarding PPP’s nature and risk exposure leads to both financial and political risks of hesitation to harmonise the PPP laws, and China is still looking for consensus on whether to initiate a codification process on a national level for PPP legislation. After years of struggle, the PPP Draft Regulation in Infrastructure and Public Service Sectors (hereinafter referred as “PPP Draft Regulation”) has been issued by the State Council in July 2017 and is currently open for public comment. This is the new development of China’s PPP legislation, gaining confidence on a more pre11 People’s

Daily. “ ” (New Review: From “Open Reversely Compels Reform” to “Reform Stimulates Open”). p. 5, 12 Dec 2013. n/2013/1212/c1003-23818100.html. Accessed 20 September 2017. 12 Ministry of Finance of PRC. (Notice on issuing the Interim Measures for the Fiscal Administration of PPP Projects). http:// Accessed 20 September 2017.

China’s Response to Protectionism: PPP Under “One Belt One Road”


dictable PPP legal environment. The draft regulation has drawn on many existing best practices at international level. With the guidance of standards set by international organisations, the legal framework has been polished to reflect the widely accepted mechanism as well as the specific Chinese characteristic, including the principles of openness, fairness and transparency for public procurement, adopting competitive bidding procedures, introducing multiple payment mechanisms, establishing effective communications between government and private capital, and providing alternative dispute resolution methods. Aiming at setting up a harmonised PPP legal framework for a general PPP market, this PPP Draft Regulation is monumental. Nonetheless it should be noted that the PPP Draft Regulation has made significant compromises. Provoking wide criticism from the Ministry of Finance and other government finance experts, as the concept of Value-for-Money (VfM) is not mentioned, since VfM has already been addressed in detail in a provisional departmental rule, and it is expected that such a core term should have been incorporated in this national regulation. The PPP Draft Regulation intends to rely on the current Government Procurement Law and Bidding Law for project procurement procedures, a practice that has been widely criticised since the latter two laws do not fit well with the intricacy and complexity in PPP project procurement. Good governance has been called for during the drafting process, yet in the PPP Draft Regulation the regulatory power is delegated to the agencies within the State Council which shall cooperate within their authorities. Therefore, the PPP Draft Regulation doesn’t authorise or delegate centralised regulatory authority to a specialised PPP unit, a practice that has been questioned by PPP experts in which de-centralised governance has proved to be less efficient and lacked expertise. The PPP Draft Regulation attempts to reconcile government’s double-identity, balancing its roles both as a referee and as a player in the PPP playfield, however the overall impression is that this is more of a burden than fair play, and the utilisation of administrative proceedings for resolving certain disputes further complicate the process, leaving much legal uncertainties haunting existing and potential investors.

4.2 Government Support and Related Regulations In December 2015, the Ministry of Finance promulgated Notice of the Ministry of Finance on Implementing the Policy of “Awards in place of Subsidies” for PublicPrivate-Partnership Projects, adopting the policy of “Awards in the place of Subsidies”. A project with the investment scale of less than RMB 300 million will be awarded RMB 3 million; a project with the investment scale of not less than RMB 300 million or up to RMB 1 billion will be awarded RMB 5 million; and a project with the investment scale of RMB 1 billion or more than RMB 1 billion will be awarded RMB 8 million. The award funds will be used by the public finance department on the basis of an overall consideration of various financial expenditures in the full life cycle of a project. For an eligible project, where a local financial platform company implemented in a standardised manner and transformed into a PPP project,


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the Ministry of Finance will, through a merit-based selection, grant an award of 2% of the scale of the existing debts of the local government actually dissolved by the project transformation. In addition, the Ministry of Finance has also issued a Notice of the Ministry of Finance on Issuing the Interim Measures for the Administration of Government Investment Funds. It encourages all levels of government departments to create government investment funds in innovation and entrepreneurship, SME development, industrial transformation, upgrading and development, and infrastructure and public services area to provide security and the necessary financial support for corporation financing including financing of infrastructure projects. Nevertheless, recently no introductory supporting fund regulations or management rules have been issued for setting up PPP Funds. Fund support in project financing is still available to restricted projects. Correspondingly, the National Development and Reform Commission (NDRC)and the China Development Bank also issued a Notice on the Relevant Work concerning the Promotion of the Development Financial Support for Public-PrivatePartnership in an effort to encourage development banks to open green channels to finance PPP projects, provide priority support, and provide up to 30 years of project loans; they also published “Guiding Opinions of the banking sector to support key areas of major construction”, requiring financial institutions to provide the necessary credit support for PPP projects. In September, 2015, the NDRC solicited opinions on the “Interim Measures for government and private capital cooperation project pre-subsidy fund management”, which proposed for the government to develop PPP projects to provide one-time special subsidies to improve the quality of project development. In addition, at the beginning of 2015, China Banking Regulatory Commission issued the “Official Reply of China Banking Regulatory Commission on CITIC Bank and other 27 banks qualification of securitisation of credit assets”, approved the 27 banks’ applications on the establishment of credit asset securitisation business and opened the credit assets securities filing system. These banks in the issuance of securitised instruments may file for registration without the need for approval. The policy reduces securitisation threshold of credit assets in financial institutions. The term of credit assets securitised instrument is usually long, which meets the PPP project financing requirements and thus increases the project’s ability to access funds from a bank. Although China has introduced the above supporting policies for the PPP model to provide a favourable environment, it is not feasible as designed. Not only has it no unified legislation, but also it lacks detailed guidance regarding the norms of this process. In fact, the government-support policy provided by China in accordance with the above provisions for the PPP project is relatively complete, but the overall conditions for implementation still remain at the framework of the provisions. Without the specific application, assessment and audit rules, the government lacks substantive guidance on which to base its implementation, private capital also finds it difficult to obtain the appropriate policy support. Furthermore, considering the longer duration and wide audience of the PPP project, in order to achieve the project’s overall success, the government should

China’s Response to Protectionism: PPP Under “One Belt One Road”


emphasise the management and supervision of the project through the life cycle from the project agreements to implementations and cooperation of the specific circumstances. The government establishes horizontal or vertical regulatory agencies to ensure compliance with the project to fulfil the project agreement, and timely detection response to project risks. Thus, it aims to build a healthy cooperative relationship. Nowadays, China is at the stage of rapid development of the PPP model, by drawing on each country’s experience in the development, to establish a stable, reliable and effective PPP system. Those valuable experiences can help China break through the bottleneck of limited private capital participation, correctly guiding the direction of the PPP model. The PPP model will provide a higher quality infrastructure and public services on the basis of the realisation of government, private capital risk sharing and win-win cooperation, and it will lay a solid foundation for economic development and social progress in China.

5 Developing a Comprehensive PPP Legal Structure Under the B&R Initiative Longitudinally, countries are increasingly inter-dependent and inter-connected. This calls for a new type of international relations regime featuring an approach that is focused on win-win cooperation in order to respond to anti-globalism. The Belt and Road Initiative, an innovative development of multilateralism, echoes the trend of the times and facilitates the achievement of inclusive development. It advocates an open, fair, all-round and innovative development and encourages peaceful and harmonious co-existence of countries despite their differences, aiming to boost the productivity of B&R countries while maintaining a friendly and social well-being environment that aims to achieve sustainable growth. This Initiative adopts the principles and goals of 2030 Agenda for Sustainable Development within the UN frameworks. Based on co-consulting, co-building and sharing principles, B&R construction is devoted to strengthening the connectivity between countries along the route and expediting the development of the Eurasian continent and the world. The key is to advance the interconnectivity of infrastructure by virtue of working on mutually beneficial projects under the Initiative. That the B&R countries have shared features in terms of development path, development requirements and interests provide this Initiative with a firm and solid foundation. Nevertheless, it still needs to learn from international principles, and when necessary to standardise basic rules and technical norms, so as to achieve the maximum of synergistic effect on infrastructure planning and construction and provide friendly and a predictable legal environment. Creating a predictable and reliable PPP institutional environment is crucial for the success of infrastructure investment projects under B&R Initiative. China has undergone reform and been opening up for forty years, and those experiences have allowed it to apply solutions it has learned in order to modernise its program of


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domestic developments. This has been the rhetoric of “Reform Stimulates Open”, and in turn “Open Reversely Compels Reform”, reflecting China’s path of 17 years since joining the WTO back in 2001.13 The lesson to learn, or the wisdom to spread, is that a leading player in international economic cooperation and globalisation doesn’t have to be 100% perfect in its domestic development. However, it has to be open and adaptive, embracing internationally recognised principles, addressing the need of developing and developed countries, and being vocal in cutting edge issues. Reaffirmed openness works both as reliance by international stakeholders and as impetus to domestic reformers. Protectionism achieves nothing, and while the path may not be ideally designed, in practice it works closely with the then current conditions, reacting to multilateral interests in order to promote reform and openness. This pragmatic and consensus-driven approach is the key to progressive and sustainable development, and it is China’s unique contribution to the international society. The B&R is one icon that symbolises China’s approach to reform and openness, inter-linking domestic economic development, institutional modernisation and social welfare improvement with active and responsible participation in international economic transactions. China is now leading a new international economic order, whereby infrastructure investment in B&R plays an important role in bridging the gap between substantial need for public investment and a lack of government funding for it. PPP is one method that is both an investment vehicle and a concept of modern governance. Successful PPP projects require a stable and predictable legal environment, a requirement for project host countries as well as investors’ home countries. Therefore, what China should do regarding PPP laws is two-fold. On the one hand, regionally and under B&R, China should promote harmonisation of PPP laws in participating countries, with the purpose of providing efficient infrastructure investment, prompting economic growth and promoting social welfare, as well as encouraging good governance, responsible conduct and sustainable development. One the other hand, China should take the opportunity to update and modernise its domestic PPP laws and regulations, directing more public interest into PPP projects, and setting up better practices for B&R countries. These two objectives will, when approached together, in a systematic and well-organised manner, result in producing a better PPP legal environment both domestically in China and regionally along B&R. Therefore, the following suggestions are proposed both for further development of China’s domestic PPP laws and for harmonising PPP legal institutions under the B&R.

13 “Open

Reversely Compels Reform” is one of the two major approaches China has implemented during its reforms in economy and governance, by introducing legal institutions with open international trade and commerce. Another approach is the internal reform, comparing to the external reform illustrated above.

China’s Response to Protectionism: PPP Under “One Belt One Road”


5.1 Enacting National Level PPP Laws, Distinguishing Other Legislations Many B&R countries have legislated to incorporate the PPP model by enacting specialised PPP laws and regulations, which can be divided into unified PPP laws (including concession law and procurement law) and departmental special laws to distinguish its different forms. Russia has also made a clear distinction between concessions and PPP projects: projects belonging to PPP where private capital owns project assets during the project, while others are concession projects. Accordingly, in the application of laws, the unified PPP law, namely the Russian Federation, Regional Governments and Private Capital Partnership and Russian Federation Specific Regulation Amendment Law, has exclusive jurisdiction over PPP projects, while concession projects are governed by the Concession Act. Egypt has enacted a special Public and Private Partnership Law, as unified PPP law, where they effectively complement each other with universal concession laws and the Bidding Law. The PPP project in Egypt is only governed by Public and Private Partnership Law, while projects that fall outside the jurisdiction of this law are carried out under the Bidding Law.14 At this stage China has not yet enacted a uniform PPP law, but mainly relies on regulations issued by ministries and commissions to regulate it. However, this results in some overlap of legal regulations and causes some difficulties in implementation. PPP legislation is of low level and rough stipulation, and lacks unity and linkages with laws of other departments and industries. Conflicts of application of laws increase costs of administration and the private sector’s participation, decreases overall efficiency of PPP model, gives rise to institutional barriers of private sector’s participation in PPP investment, and diminishes the enthusiasm of the private sector’s participation. The paucity of national legislation also leads to disputes of functions among different ministries and commissions. Both the Ministry of Finance and National Development and Reform Commission issued a series of guidance documents and policies concerning the PPP model, in order to guide and regulate the development and implementation of specific projects. Nonetheless, the regulations between the two conflict and overlap, which makes the actual implementation of PPP highly uncertain and the private sector very confused. Legislation of national PPP laws is not only able to regulate the administration of PPP projects in various areas, reduce institutional conflicts and blind zones, effectively address the foregoing issues of conflicts among ministries, and avoid unnecessary loss caused by policy conflicts. It can also provide the private sector with effective legal support, furnish project identification, authorisation, financing, construction, operation and maintenance with specific and unequivocal guide, and enhance capital attraction of projects. 14 Foster

Vivien and Briceño-Garmendia Cecilia (2010) Africa’s Infrastructure: A Time for Transformation, World Bank, Washington, D.C. pp. 6–9, 65–86; and Inter-American Development Bank (2014) Sustainable infrastructure for competitiveness and inclusive growth: IDB Infrastructure Strategy, Washington, D.C.


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5.2 Intensifying Financial Accountability of PPP Although PPP projects can effectively alleviate the pressure of government finance, in many cases, financial support and incentive government policies are necessary so as to promote PPP development.15 To avoid transference of costs from inside budget to outside budget through PPP, direct and indirect costs of government’s participation in PPP projects should be subject to explicit financial restraint. It is necessary to set up procedures and index for controlling the upper limit of PPP budget costs, analyse and evaluate financial affordability of liability by the subject government, and strictly control government debt at each level. Meanwhile, it is also important to regulate the government accounting systems of PPP projects, adopt the accrual system, verify and calculate government revenue and expenditure scientifically and precisely, and prevent government from using PPP to evade financial liability.16 When employing PPP, it would be useful to refer to countries such as USA and Australia’s use of cost-benefit analysis to screen projects, determine the baseline of reference value for public agencies, resort to value-for-money evaluation systems, to help determine which projects are most suitable for PPP and avoid financial risk and damage to the public interest incurred by abuses of PPP.

5.3 Strengthening the Development of PPP Unit From the experience of countries that have already developed a PPP system, it is obvious that a PPP unit is significant to project identification, procurement and implementation and create a bond between public and private sectors. Legal, financial, technical and vocational personnel can provide government procurement departments with professional advice, offer suggestions to institutional design and agreements, and supervise and administer the implementation of projects. The structure and legal status of PPP units vary depending on the PPP policy or legal provisions of each country. In B&R countries, PPP units are usually under a ministry or cabinet, with the Ministry of Finance being the main department that acts as the regulator. It can also be set up under the public sector which specifically carries out project procurement, in order to provide technical support for the development, procurement and management of PPP projects in this sector. In Indonesia, the PPP Unit and Committee on Policy for the Acceleration of Infrastructure Development (KKPPI) are set up under the National Development Planning Agency. India’s PPP Cell is set up under the Department of Economic Affairs of the Ministry of Finance. As the cen-

15 OECD (2007) Infrastructure to 2030 Volume 2: Mapping Policy for Electricity, Water and Trans-

port (French version: Les infrastructures à l’horizon 2030), Paris. 16 McKinsey Global Institute (2013) Infrastructure productivity: How to save $1 trillion a year, Seoul, San Francisco and London. documents/webpage/pga_083856.pdf. Accessed 10 September 2017.

China’s Response to Protectionism: PPP Under “One Belt One Road”


tral coordinator of the administration of PPP, it helps the Public-Private Partnership Appraisal Committee (PPPAC) examine projects. China has established a PPP unit under the Ministry of Finance, but because its establishment lacks legislative support, its function and position remain uncertain, and it plays a limited role in operational matters. The absence of a specialised PPP unit with supreme authority results in deficiencies in the overall plan and administration of the structure, and guidance and implementation of the PPP system in China. The central government should formally establish the legal status of the PPP unit and ascertain its major function and responsibility to ensure that it plays a better role as a PPP pivot. Furthermore, in view of China’s vast territory and significant regional difference, it is necessary to establish a PPP unit at each level in each local government, to help local government work out localised PPP systems and supervise and administer any local PPP projects. Central and local PPP units may set up good information interaction platforms and form an expedited communication mechanism, to propel overall effective development of PPP in China. In addition, in order to ensure that the project achieves its established goals and provide value for money, the public sector should set up different levels when carrying out the PPP project and audit the project plan strictly and carefully. In this process, the financial sector has the dominant position in terms of economic and fiscal policy because of its control over government resources. In addition, the planning department, the project agent association and the audit department all play important roles in the audit and supervision of projects. Project analysis planning power and project approval power can be differentiated, the latter is generally enjoyed by cabinet or cabinet-level committees and financial departments.

5.4 Establishing PPP Risk Prevention and Control System PPP projects have a complex structure, great investment potential, and focus on large projects that take a long time and involve multiple parties. The whole life cycle of projects is confronted with many uncertain elements which interact with each other and give rise to an increase in the projects’ overall risks. In order to guarantee successful development of projects, the PPP legal system should design reasonable risk and profit sharing mechanisms. In accordance with risk control rules, the party who has the most controlling power of risk shall assume it. Scientific and reasonable systems of risk control and distribution can also improve the project’s ability to access bank funds to a certain degree.17 In addition, the establishment of relevant risk and benefit sharing mechanisms in financing, refinancing and operation charges, and reasonable distribution of risk of market rate change and risk of supply and demand between public and private sectors, could also, in the meantime, stimulate both parties to actively cooperate to reach agreements about the project, improve project performance, and achieve a win-win situation. In particular, the agreements 17 Flyvbjerg,

supra note 5.


H. Fu

can refer to the more mature international risk allocation principle: (a) the one most able to control the occurrence of risk assumes the risk. For example, the construction company usually can control the construction process, and thus it shall take the risk of delay; (b) the one most able to control the impact of risk assumes the risk. For example, the occurrence of earthquakes is uncontrollable, but private capital responsible for designing the project can use science and technology to reduce the losses caused by earthquakes; (c) if the occurrence and consequence of risk are all uncontrollable, the one most able to mitigate the risk at the lowest cost assumes it.18 The B&R Initiative provides a unique forum for cooperation in risk allocation and distribution among stakeholders. China has a rich experience in infrastructure construction and development, adequate technology transfer and human capital input to substantially reduce risks in the project development stage. Multilateral or regional financial institutions may provide debt services or guarantees, enhancing the financial capacity of the projects and attracting participation of more financial institutions. Risk in project revenue may be dispersed among several projects which are located among different countries or regions, and friendly inter-governmental relationships also reduce political risks and the need for political insurance. The B&R Initiative therefore utilises multilateralism to better manage PPP risks, by introducing responsible participants, and spread country-specific risks into the region while eliminating substantial costs. The concept of “Supply Side Reform” and “Hybrid Ownership” also provide guidance to China’s management of its domestic PPP market, pushing forward a comprehensive and coherent internal PPP market with an overarching PPP legal system.

6 Enhancing Inclusivity and Embracing Sustainable Development In conclusion, the purpose of B&R is to promote economic growth with a view to achieving social welfare development in the region, and by infrastructure investment, interests from different parties should be served. PPP projects closely engage not only investors, financial institutions, host country governments, but also local contractors, suppliers, ends users, and the public. Traditional international project investment focuses more on the return of capital in the investment, however China has been pushing forward a more comprehensive agenda regarding the coverage of interests that should be protected at the international aspect. The G20 Guiding Principles on Global Investment Policymaking reflect China’s view regarding international investment, adding new features into international investment legal regimes. Inclusive economic growth and sustainable growth should be promoted, inter alia, together with open, transparency and other principles. Inclusivity in infrastructure 18 Flyvbjerg Bent, Mette K. Skamris Holm and Søren L. Buhl (2005). How (in)accurate are demand

forecasts in public works projects? The case of transportation, In: Journal of the American Planning Association, 71(2): 131–146.

China’s Response to Protectionism: PPP Under “One Belt One Road”


investment takes into account the interests of players that have been traditionally neglected in project development, serving the needs of much more parties pertinent to the progress and effect of such investment. PPP therefore provides ample opportunities to test China’s wisdom in formulating its definition of inclusivity, and its strength to push forward into international consensus. Regarding sustainable development, it is worthy to note that China’s commitment under the Paris Accord signals its decision on whether economic growth could be made at the expense of the environment, and policy coherence requires it to act consistently and integrally inside and outside its boundary. The B&R Initiative thus requires China to be more responsible as a regional leader, not merely an economic giant. Law-making should entail policy, implementing principles and commitments into obligations that provide restraint and remedies. Considering China’s experience in taking a piece-meal approach when enacting PPP laws, a general agreement on PPP laws in B&R may not be realistic considering all the relevant features and intricacies. However, the above could be incorporated into bilateral investment treaties, cooperation memorandums, or possibly free trade agreements. A bottom-up approach could be fashioned from bilateral agreements, addressing development issues in designated countries, and gradually incorporating these into regional consensus regarding what PPP laws should be included in relation to the B&R Initiative. In this way, China would be proactively responding to populism and protectionism, meanwhile, emerging as a responsible leader in building up new international economic order.

Breeding Exemption in Plants Under Intellectual Property Regimes Zhiqian Wan and Mark Perry

Abstract Despite the aims of harmonisation under the General Agreement on Tariffs and Trade under its Trade Related Aspects of Intellectual Property Rights Agreement, and subsequent trade agreements, there are still non-harmonised aspects of many intellectual property regimes. Depending on jurisdiction, the plant breeding exemption, which allows breeders to use biological material protected under intellectual property regimes for creating new plant varieties, are handled in different ways. In some cases, such as China, the Plant Variety Protection Act provides for a breeding exemption, for any purpose, but the Patent Act’s research exemption does not extend to plants. This is in contrast to Australia where both patents and plant breeders protection hold a limited research exemption, but the patent exemption does not extend to breeding new varieties for commercial use. This paper explores the dimensions surrounding such exemptions, looking to China and Australia for different approaches, within the context of Free Trade Agreements. Some exemptions are available under the International Convention for the Protection of New Varieties of Plants 1991 (UPOV 1991), to which Australia is a party, and although this is a different version to UPOV 1978 to which China is a party, the breeding exemption is essentially preserved. Naturally, it is desirable to design a harmonised regime that promotes the development of new varieties, to maximise desirable outcomes for breeders, farmers and civil society as a whole, whilst allowing for needed jurisdictional differences. Notably, the Trans Pacific Partnership requires all members to sign up to UPOV 1991. Keywords Breeding exemption · Plant variety rights · Plant patent Research exemptions · Free trade agreements

Z. Wan College of Humanity & Law, Huazhong Agricultural University, Wuhan, China e-mail: [email protected] M. Perry (B) University of New England, Armidale, Australia e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2019 L. Corbin and M. Perry (eds.), Free Trade Agreements,



Z. Wan and M. Perry

1 Introduction By granting intellectual property rights (IPRs) for the protection of new plant varieties, governments aim to promote innovation in plant breeding, and typically this is implemented by granting breeders exclusive rights over the plants that they have bred as well as the components and products of such plants.1 It can be said that the need for monopoly rights granted by IPRs is overemphasised, while ignoring the need for breeders to have some free access to, and the use of, biological materials protected by IPR, which may be seen as a challenge to the protectionist aspects of the IPR system. Some limits on patent or plant variety rights (hereinafter PVRs),2 which are often set by legislation to foster another aspect of IPRs, namely the need for access to current developments to foster future innovation.3 One of them is the breeding exemption,4 which allows others to use protected varieties for breeding activities without authorisation of IPR owner to ensure free access to and use of breeding material to develop new varieties. Two main approaches to granting IPR protection for plant innovation is the patent system and/or a sui generis system that focuses on the protection of varieties. Both are contemplated under the Trade Related Aspects of Intellectual Property Agreement (TRIPS).5 The former under Article 27.1 and the latter under Article 27.3 (b), which provides that members may also exclude from patentability: plants and animals other than micro-organisms, and essentially biological processes for the production of plants or animals other than non-biological and microbiological processes. However, Members shall provide for the protection of plant varieties either by patents or by an effective sui generis system or by any combination thereof.

Looking at China, the breeding exemption is prescribed clearly in its PVR system, but there are no similar provisions in patent system. However, in Australia the Patents Act carries a general experimental exception,6 and the PVR legislation, in the Plant Breeders Rights Act, provides for certain exceptions for private, experimen1 See

International Union for the Protection of New Varieties of Plants, What It Is, What It Does, UPOV Publication No 437(e) (UPOV, 2011) p. 1. 2 In Europe, Australia and Canada, this is often referred to as Plant Breeders Rights (PBR), in China, Plant Variety Rights (PVR) is the official name of the right conferred by law. 3 Sir Isaac Newton expressed this sentiment in a letter to Robert Hooke, February 5, 1676 “If I have seen further it is by standing on the shoulders [sic] of giants”, although the idea of relying on earlier work to make advances had been expressed some centuries prior to Newton. See discussion in Perry, Mark (ed) (2016) Global governance of intellectual property in the 21st century: reflecting policy through change. Springer, Berlin. 4 Breeding exemption sometimes called breeders’ exemption, breeders’ exception, breeders’ privilege, and so on. 5 Agreement on Trade-Related Aspects of Intellectual Property Rights, adopted 15 April 1994, 1869 UNTS 299 (entered into force 1 January 1996). The various versions of the International Union for the Protection of New Varieties of Plants (UPOV) provide the protection of new plant varieties satisfying the need for an effective sui generis system in proviso to Article 27.3 (b) of TRIPs. 6 Patents Act 1990 (Cth), No. 3, 1990.

Breeding Exemption in Plants Under Intellectual Property Regimes


tal and breeding purposes.7 With rapid developments in the field of biotechnology, more innovation in plants will be able to be protected under patent regimes in both countries, as well as having the plant variety protection under the PVR system.8 The use of authorised variety for breeding can be exempted according to PVR system; however, the use of patented material in China expressly requires the authorisation of the patent holder. As a consequence, the breeding exemption in PVR system cannot be effectively used in China as the other protection, namely patent, that is typically available prevents such use, although this exemption to patents is available in Australia. In order to effect the kind of harmonisation of intellectual property rights envisaged under TRIPS, the introduction of an exemption into Chinese patent law is necessary. This paper will analyse the connotation and applicable conditions of breeding exemption in the Chinese PVR system, and then analyse how far an exemption in the patent system covers the breeding exemption, and finally probe how to introduce breeding exemptions into the plant patent law to further the harmonisation intent of the free trade agreements.

2 Breeding Exemption in the PVR Systems Whether it is traditional breeding or modern biotechnology breeding, existing cultivars are necessary for cultivating new varieties. Free access and use of the breeding material, including the latest varieties, local varieties or wild species is one of the conditions of plant breeding innovation. Breeding exemptions can ensure breeders can openly access and use protected plant varieties, which can promote the continuous improvement of varieties and the sustainable development of the plant breeding sector.

2.1 The Relevant Provisions of the Breeding Exemption Under the PVR Systems The breeding exemption was initially established in the 1961 Convention on the Protection of New Varieties of Plants (UPOV 1961).9 Subsequent 1972, 1978 and 1991 amendments retained the breeding exemption. UPOV 1978 states: Article 5: Rights Protected; Scope of Protection (3) Authorisation by the breeder shall not be required either for the utilisation of the variety as an initial source of variation for the purpose of creating other varieties or for the marketing 7 S.16

Plant Breeder’s Rights Act 1994, No. 110, 1994. variety protection system provides for breeders’ rights on the plant variety as whole, patents provide for a protection by covering not only plants, but parts of plants, single genes, and production methods. 9 Article 5(3) of the UPOV 1961 Convention. 8 The


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of such varieties. Such authorisation shall be required, however, when the repeated use of the variety is necessary for the commercial production of another variety.

UPOV 1991 states: Article 15: Exceptions to the Breeder’s Right (1) [Compulsory exceptions] The breeder’s right shall not extend to […] (iii) acts done for the purpose of breeding other varieties, and, except where the provisions of Article 14(5) apply, acts referred to in Article 14(1) to (4) in respect of such other varieties.

The varieties Article 14(5) refers to are: (i) varieties which are essentially derived from the protected variety, where the protected variety is not itself an essentially derived variety; (ii) varieties which are not clearly distinguishable from the protected variety; and (iii) varieties whose production requires the repeated use of the protected variety. UPOV 1991 categorised these varieties as Essentially Derived Varieties (EDV).10 In other words, to use the protected variety for breeding varieties other than EDV is legitimate under UPOV and does not constitute infringement. If the breeding research results in another new variety which is not EDV, the new variety is eligible for additional variety protection subject to novelty, distinctness, uniformity and stability requirements laid down in Article 5 to Article 9 of UPOV 1991. When UPOV 1991 was promulgated in Europe, the European Union correspondingly published Council Regulation (EC) No. 2100/94 on Community Plant Variety Rights, in July 1994, namely Regulation of Community Plant Variety Protection, which clearly defined the scope of community plant variety rights in Article 13(2).11 At the same time, the Regulations impose the necessary restrictions on Community Plant Variety Rights, leaving sufficient space for breeding research. Article 15 provides: Limitation of the effects of Community plant variety rights The Community plant variety rights shall not extend to: (a) acts done privately and for non-commercial purposes; (b) acts done for experimental purposes; (c) acts done for the purpose of breeding, or discovering and developing other varieties; (d) acts referred to in Article 13 (2) to (4), in respect of such other varieties, except where the provisions of Article 13 (5) apply…

Article 13(5) operates to exclude the exception from essentially derived varieties (EDVs), which is consistent with the provisions of the UPOV Convention. Based on EC 2100/94, some members of the European Union have amended their legislation 10 It is worth noting that the stipulation on EDV was not seen in the previous UPOV1978 Convention. 11 Article 13.2 of EC 2100/94 states that: …the following acts in respect of variety constituents, or harvested material of the protected variety … shall require the authorization of the holder: (a) production or reproduction (multiplication); (b) conditioning for the purpose of propagation; (c) offering for sale; (d) selling or other marketing; (e) exporting from the Community; (f) importing to the Community; (g) stocking for any of the purposes mentioned in (a) to (f).

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to address the issue of research exemption; these include the UK,12 Germany,13 and the Netherlands.14 In the US breeders of new varieties can obtain protection under patent, utility patent protection and plant variety protection.15 However, there is no breeding exemption provision in the patent legislation. Under to the US Plant Variety Protection Act (PVPA) provisions,16 the breeding exemption (research exemption) refers to the use and reproduction of a protected variety for plant breeding or other bona fide research shall not constitute an infringement. And the new variety can be sold or applied for protection of its own, as long as it is new, distinct, uniform, and stable.17 In other words, other breeders in their breeding programs can use legally protected varieties to develop new commercial varieties without the person’s authorisation of varieties rights holder, as long as the new variety does not belong to EDV protected by original variety. The United States is a signatory of UPOV 1991. The research exemption under the PVPA is not absolute, but rather limited to those parties who approach the statute and proprietary plant varieties with clean hands. A party wishing to invoke the PVPA’s research exemption must engage in bona fide research intended to yield new plant varieties.18 In addition, a plant variety certificate entitles its holder “to exclude others from selling the variety, or offering it for sale, or reproducing it, or importing it, or exporting it, or using it in producing (as distinguished from developing) a hybrid or different variety therefrom.”19 So to produce a hybrid or different variety can constitute infringement of the breeder’s exclusive rights under the PVPA,20 but “to develop a hybrid or different variety” can be allowed. The statute’s definition of so-called “produce” and “develop” are absent, but “produce” seems to mean unauthorised use of a protected variety without adding any innovation, and “develop” refers to innovate new varieties based on the protected variety.

12 Plant

Variety Act 1997 s 8. Variety Protection Act 1997, Article 10(a) (1). 14 Article 30 Indent 3, the Netherlands’ Seeds and Planting Material Act 2005. 15 The Plant Patent Act 1990 (PPA) provides for asexual reproduction protection. In parallel with that, the Plant Variety Protection Act 1970 (PVPA) later amended in 1994 based on the UPOV 1991 Convention, grants protection for sexual and tuber plants, provided all UPOV requirements have been met. Regardless of either plant patent or PVR protection, breeders of new varieties can obtain utility patent protection, if all requirements are met. 16 7 U.S.C. § 2544. 17 Blair Debra L (1999) Intellectual Property Protection and Its Impact on the U.S. Seed Industry. 4 Drake J. Agric. L. 297, 313. 18 Chen Jim (2005) The Parable of the Seeds: Interpreting the Plant Variety Protection Act in Furtherance of Innovation Policy. Notre Dame L Rev 81(4): 105, 135–136. 19 7 U.S.C. §2483(a) (1). 20 According to the House report on the PVPA, the “use of [a] protected variety in producing the commercial class of seed of [that] variety constitutes infringement.” See H.R. REP. No. 911605(1970), 11. 13 Plant


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The US approach to the breeding exemption, has been described as having the perverse effect of inhibiting research in the American plant breeding industry.21 The 1994 amendments of PVPA added provisions on EDV which intended to limit the range of breeding exemption and prevent breeders from free-riding on others’ research investments, especially when subsequent breeders have added nothing but “slight cosmetic changes” to a protected variety.22 The Australian implementation of a breeders’ right to use protected varieties is the section 16 Plant Breeders Rights Act23 : Certain acts done for private, experimental or breeding purposes do not infringe PBR Any act done in relation to a plant variety covered by PBR that is done: (a) privately and for non-commercial purposes; or (b) for experimental purposes; or (c) for the purpose of breeding other plant varieties; does not infringe the PBR.

Thus, it is not an infringement of the Australian protected variety to use it for further breeding, with the two exceptions to the exception: first, where a protected variety is used repeatedly in the commercial production as would occur in a parent of a hybrid variety cases24 ; second, where the new variety that is bred belongs to an EDV.25

2.2 Non-commercial Purposes Are not a Prerequisite for Breeding Exemption It can be seen that having a non-commercial purpose is not a prerequisite to make use of the breeding exemption according to the relevant provisions of the Convention, nor in the jurisdictions mentioned above. Indeed, the very act of breeding typically has a commercial purpose, and falls within the exemption, as there otherwise nothing to differentiate its scope from the category of use for private and non-commercial purposes.26 Thus if the legislation does not clearly specify a “non-commercial purpose”, the breeding exemption must contemplate commercial purposes. Breeders breed new varieties by making use of existing varieties. If breeders were not free to access to the varieties materials, breeding research would be seriously 21 Chen,

supra note 18,138–139.

22 McEowen Roger (2004) A Legal Issues Related to the Use and Ownership of Genetically Modified

Organisms. Washburn L J 43: 611, 631 n.120. 23 S.16 Plant Breeder’s Rights Act 1994, No. 110, 1994. 24 Ibid. 25 Ibid. 26 Davison Mark J, Monotti, Ann L and Wiseman, Leanne (2015) Australian Intellectual Property Law. Cambridge University Press, Cambridge, p. 683.

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hampered.27 Where IPRs in the existing varieties are highly concentrated in few enterprises, it becomes very difficult to obtain permission to use these varieties for breeding research, which would hinder the subsequent innovation in breeding. To encourage breeders to develop new varieties, and achieve the progressive cultivation of new plant varieties and enhance the public interest, breeders need to be able to freely access to and use of breeding materials, including protected varieties.28 Breeders often have to invest considerable intellectual and financial in the process of cultivating new varieties, and this commercial activity is inherent in the breeding process.29 A balance needs to be achieved between protection of the new varieties, and access to protected varieties. If breeding research for commercial purposes is prohibited, the purpose of the breeding exemption clause will come to nothing.

2.3 Limitation of Breeding Exemption—Essentially Derived Varieties It is worth noting that the issue with EDVs is not specified in UPOV 1978, where breeders enjoy absolute breeding exemption and often adopt techniques to engage in “cosmetic breeding” in an attempt to bypass PVR protection. Breeders often make relatively small or unimportant changes to the protected variety by means of mutation breeding, backcrossing or transformation by genetic engineering in an attempt to use the advantages of the original breeders, which is unfair for breeders of existing varieties and obviously a case of free-riding. This situation not is unfair competition in the market, but also in the long run undermines the whole PVR system that the Convention intended to establish.30 In order to prevent the “cosmetic breeding”, UPOV 1991 has provisions around EDVs to restrict the scope of breeding exemption.31 Article 14(5)(b) and 14(5)(c) UPOV 1991: … a variety shall be deemed to be essentially derived from another variety (“the initial variety”) when

27 Roberts, Tim (2002) Plant Variety Rights—the Breeder’s Exemption. Paper presented at the WIPO–UPOV Symposium on the Coexistence of Patents and Plant Breeders’ Rights in the Promotion of Biotechnological Developments, Geneva, Switzerland, October 25, p. 13. http://www.upov. int/edocs/pubdocs/en/upov_pub_792.pdf. Accessed 1 August 2018. 28 Muscati Sina Muscati (2005) Terminator Technology: Protection of Patents or a Threat to the Patent System. IDEA 45: 477, 497. 29 Prifti V (2015) The Breeder’s Exception to Patent Rights, International Law and Economics. Springer International Publishing, Switzerland, p. 97. 30 Hsu Shun-Liang (2016) A comparative study on research exemptions in plant breeding under intellectual property rights protection. Queen Mary Journal of Intellectual Property. 6(1): p. 102. 31 Essentially derived varieties may be obtained, for example by the selection of a natural or induced mutant, or of a somaclonal (tissue cultured plant) variant, the selection of a variant individual from plants of the initial variety, backcrossing, or transformation by genetic engineering. See Article 14 (3) of UPOV 1991.


Z. Wan and M. Perry (i) it is predominantly derived from the initial variety, or from a variety that is itself predominantly derived from the initial variety, while retaining the expression of the essential characteristics that result from the genotype or combination of genotypes of the initial variety, (ii) it is clearly distinguishable from the initial variety and

(iii) except for the differences which result from the act of derivation, it conforms to the initial variety in the expression of the essential characteristics that result from the genotype or combination of genotypes of the initial variety.

(c) Essentially derived varieties may be obtained for example by the selection of a natural or induced mutant, or of a somaclonal variant, the selection of a variant individual from plants of the initial variety, backcrossing, or transformation by genetic engineering. If new varieties obtained by using a protected variety have a considerable genetic distance, breeders may be exempted. In contrast, if the new varieties are considered an EDV of the original varieties, then the breeding research exemptions do not apply. The EDV system makes the new plant variety protection closer to the patent system, which strengthens the protection of the variety right holders and restricted the breeding researchers. There are different views as to the influence of the EDV framework on the breeding exemption, One view is that the EDV is actually a restriction on the breeding exemption, and forms a barrier to breeding research. The main effects are as follows: first, it is detrimental to the research of transgenic plants, because the transgenic technology is usually to implant a foreign gene into the existing varieties, making it is easy to form a EDV; second, it is adverse to the agricultural research and development in developing countries, and makes the cultivation of new varieties more difficult.32 Another view is that protection for derived varieties is granted to innovative breeders, and not to copyists, so the breeding exemption is unaffected. A derived variety may be bred, and indeed registered: it is only commercial exploitation that requires permission. “The right to use protected varieties in breeding remains—it is only the development of close copies that is deterred.”33 In summary, the EDV system does not prevent breeders from using protected varieties for breeding. If the new varieties bred by the breeders are non-EDV, they can be commercially exploited without the permission of the original variety holder. Otherwise authorisation of original variety holder is required. In Australia, in order to prevent a subsequent breeder from taking unfair advantage of the work of the initial breeder, the Plant Breeders’ Rights Act provides that the rights of the original PBR holder extends to the EDV.34 If an initial variety holder think that the second new variety is an EDV, the breeder can put forward derived variety claims to intellectual property office. If the claims are supported, the second new variety only can be exploited with the permission of the

32 Chongxi

Li (2002) The research on intellectual property rights and regulatory systems of agricultural biotechnology. Dissertation, Taiwan University, p. 67. 33 Roberts, supra note 27, p. 5. 34 Section 22 Plant Breeders Rights Act 1994 (Australia).

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initial variety holder.35 The limitation on breeding exemption by EDV intends to keep balance between breeders to free use protected breeding materials and protection of varieties right holders.36

3 Whether Research Exemption in Patent System Can Contain Breeding Exemption The experimental or research exemption (hereinafter referred to as “research exemption”) aims to maintain the free use of innovative technologies or achievements in the research field, promote scientific progress and knowledge distribution. The concept and applicable standards of the research exemption are determined mainly by case law and legislation. Common law countries developed the concept of research exemption through judicial decisions, whereas civil law countries tend to provide research exemption by statute law. Some common law countries have introduced the research exemption into statute. Civil law countries, on the other hand, have enriched the interpretation of their statutory provisions through judicial cases. Although there exists no uniformity with respect to the research exemption, there are two models in defining research exemption to patent rights: (1) research for commercial or non-commercial purposes; (2) research on or with an invention.37 The following paragraphs offer an analysis of whether the research exemption covers the breeding exemption.

3.1 The Distinction of Research for Commercial or Non-commercial Purposes In the United States the research exemption arose very early and is mainly formed by case law. In 1813 in Whittemore v Cutter,38 Justice Joseph Story reflected on the research exemption and opined: It could never have been the intention of the legislature to punish a man, who constructed …a [patented] machine merely for philosophical experiments, or for the purpose of ascertaining the sufficiency of the machine to produce its described effects.

35 Xuhong Yang (2005) Australia plant breeders’ rights law “and the characteristics of our country” and New Plant Varieties Protection Ordinance, and Wang Limin, Huang Wushuang, editor in chief: “The research of intellectual property law” (second volume), Peking University Press, p. 54. 36 Rives Elisa (2001/2002) Comment: Mother Nature and the Courts: Are Sexually Reproducing Plants and Their Progeny Patentable under the Utility Patent Act of 1952? Cumb. L. Rev. 32:187, 204. 37 Prifti, supra note 29, pp. 93–94. 38 Whittemore v Cutter .29F.Cas.1120, 1121 (C.C.D. Mass. 1813). (No. 17600).


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In the same year, in Sawin v Guild,39 Justice Story expressed the similar views: …the making [of the invention] with the intent to use for profit, and not for the mere purpose of philosophical experimentation, or to ascertain the verity and exactness of the specification…

meaning research to use patented matter for profit constitutes patent infringement, but the research exemption shall apply when the act is done without the intent to make profit and merely for theoretical experimentation, or to ascertain the verity and exactness of the specification. The above judgments laid down a cornerstone of the research exemption in the U.S. patent system, which was later upheld by judicial practice as well as supported by academia.40 In Jones v Pearce 1832,41 the court said that research behaviour with non-commercial purposes and only for amusement did not constitute patent infringement. In addition to the research exemptions from the common law, legislators have also begun to exempt certain specific purposes of research. In response to the limitation of the common law experimental use exception in Roche Products v Bolar Pharmaceutical Company 1984,42 the statutory experimental use exception is found in 35 U.S.C.§ 271(e)(1)43 : It shall not be an act of infringement to make, use, offer to sell, or sell within the United States or import into the United States a patented invention (other than a new animal drug or veterinary biological product (as those terms are used in the Federal Food, Drug, and Cosmetic Act and the Act of March 4, 1913) which is primarily manufactured using recombinant DNA, recombinant RNA, hybridoma technology, or other processes involving site specific genetic manipulation techniques) solely for uses reasonably related to the development and submission of information under a Federal law which regulates the manufacture, use, or sale of drugs or veterinary biological products.

This allows pharmaceutical companies to conduct research on patented technologies if the research might be used in a regulatory submission to the Food and Drug Administration (FDA). In Eli Lilly & Co. v Medtronic Inc.,44 the court extended its application to “medical device”. In Intermedics Inc. v Ventritex Inc.,45 the court further clarified the applicable elements of article 271 (e) (1), holding that as long as the test conduct is required to provide FDA with administrative approval information the section can be applied regardless of a commercial purpose. This shows the court taking a more relaxed approach to statutory experimental use, and also relaxed the restrictions on commercial purposes.

39 Sawin

v. Guild, 21F. Cas. 554 (C.C.D. Mass. 1813) (No. 12391). William (1890) The Law of Patents for Useful Inventions §898, quoted in Mueller Janice M (2001) No “Dilettante Affair”: Rethinking the Experimental Use Exception to Patent Infringement for Biomedical Research Tools’. Washington Law Review, 86: 1, 21. 41 Jones v Pearce, Webster’s Patent Case 122 (K.B. 1832). 42 Roche Prods., Inc. v. Bolar Pharm. Co., 733 F.2d 858, 860 (Fed. Cir.1984). 43 35 U.S.C. § 271(e)(1) (2010). 44 Eli Lilly & Co. v. Medtronic, Inc., 496 U.S. 661, 675-76 (1990). 45 775 F. Supp. 1269 (1991). 40 Robinson

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Since then, the application of exemption has become more and more strict. The application of the research exemption is strictly limited to the purpose of pure entertainment, curiosity, and theoretical research. Any act with commercial purposes is excluded from the scope of research exemption. For example, in Deuterium Corp. v. United in 1990,46 the court held that the testing done by the private institution commissioned by the government for commercial purposes cannot be exempted. In Embrex Inc. v Service Engineering Corp. 2000, the court noted that the act with commercial purpose hidden in the cloak of scientific pursuits still cannot be exempted.47 In Madey v Duke University 2003, the United States Court of Appeals for the Federal Circuit looked at the research of a university without direct commercial purposes, which can help education development of students and teachers, to attract students and teachers, obtain research funding and enhance the institutional status. It was held not to qualify for the very narrow and strictly limited experimental use defence.48 The case was strongly criticised by academia in the U.S. Some scholars believe that the court’s interpretation of the research exemption is too narrow.49 The case extended commercial purposes, not only including the direct commercial purposes also include the potential commercial purposes, which make the application of research exemption more difficult. Thereafter, successful application of the principle of research exemption is rarely seen in judicial practice.50 Generally speaking, research exemption according to the case law in the U.S. must be met: (1) non-commercial purposes, (2) only to meet philosophical taste or curiosity, (3) simply for amusement.51 Although there is a loud voice in U.S. legal circles to relax the restrictions around the research exemption, the practical application of this principle is still very strict, only to be limited to non-commercial purposes. With respect to the distinction of non commercial purposes, the breeding process using the protected variety typically has a commercial purpose, since it mainly aims to develop other new varieties, acquire exclusive right of patent or plant variety, benefit from commercialisation. Although non-commercial purposes are not a prerequisite for application of breeding exemption under PVR system, the research exemption for patens, considering noncommercial purposes as a key condition, does not allow commercial breeding process with their commercial purposes.

46 Deuterium

Corp.v. United States, 19 Cl. Ct. 624, 634. (Fed. Cir. 1990). Inc. V. Service Engineering Corp. 216 F. 3d 1343, 1349. (Fed. Cir. 2000). 48 Madey v. Duke University, 307 F. 3d 1351 (Fed. Cir. 2002), cert. denied, 469 U.S. 856. (U.S. 2003). 49 See Cai Michelle (2004) Madey v. Duke University: Shattering the Myth of universities’ Experimental Use Defense. Berkeley Technology Law Journal. 175–192. 50 See Pate Gregory N (2002) Analysis of the Experimental Use Exception. N.C. J. L. & Tech 3: 253, 261–2. 51 Johnson Jennifer J (2003) The Experimental Use Exception in Japan: A Model for U.S. Patent Law? Pac. Rim L. & Pol’y 12(3) pp. 501–502. 47 Embrex


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3.2 The Distinction Between Research on or with the Patented Invention In Europe, as in U.S., the research exemption was initially introduced by judicial interpretation of the statutory exclusive right. Unlike in U.S., those judicial interpretations have been subsequently incorporated into the statute law by European national legislation. According to the article 64(1) and (3) of European Patent Convention (EPC), patent infringement and exceptions to infringement by use of patented inventions have always been governed by national patent laws. In order to eliminate the influence of the internal competition of regional patent protection, EU members signed the Community Patent Convention(CPC )in 1975 to unify the patent system of members, but it was never ratified. CPC and EPC constitute an important basis for the European patent system. The CPC was subsequently revised in 1989, but this also failed. Although the CPC never came into force its indirect effects must not be underestimated, as the contracting states amended their national patent laws to match the research exemption provided in Article 27(b) of the CPC, i.e. to only allow research on a patented invention to be exempted from infringement.52 Research on the patented invention aims at verifying, designing around or improving upon a patented invention; challenging the validity of a patent; confirming the value for the purpose of licensing; experimentation for the purpose of improving the invention or finding its use; research for inventing around the invention, etc.53 According to the provisions of research exemption of European countries, “research on the patented invention” that is intended to obtain information “relating to the subject-matter of the patented invention” for experimental purposes, whether or not with commercial purposes, is subject to the exemption category. Section 60(5)(b) Patent Act, United Kingdom provides relief from infringement for an act that would otherwise be infringing if the act “is done for experimental purposes relating to the subject-matter of the invention;”.54 This provision does not set non-commercial purposes as a condition of research exemption, but non-commercial purposes are emphasised on private use of patents in s.65(5)(a).55 This separates the “non-commercial purpose” from the research exemption. In patent infringement, the courts in U.K. do not have consider a commercial purpose for the research exemption. The patent laws of France and Switzerland 52 Holzapfel Henrik and Sarnoff, Joshua D (2008) A Cross-Atlantic Dialog on Experimental Use and Research Tools. The Intellectual Property Law Review 48:151. 53 Van Eecke P., Kelly, J., Bolger, P., & Truyens, M (2009) Monitoring and Analysis of Technology Transfer and Intellectual Property Regimes and their use. Results of a study carried out on behalf of the European Commission (DG Research), Brussels–Dublin. 54 Section 60(5)(b) Patent Act, United Kingdom. 55 Section 60(5) (a) and (b) of the United Kingdom Patent Act provides: “(5) An act which, apart from this subjection, would constitute an infringement of a patent for an invention shall not do so if (a) It is done privately and for purposes which are not commercial; (b) It is done for experimental purposes relating to the subject-matter of the invention”.

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also do not emphasise non-commercial purposes with experimentation, for example, under Article 613-5 of the French Intellectual Property Code56 : The rights afforded by the patent shall not extend to: b) Acts done for experimental purposes relating to the subject matter of the patented invention; …

Similarly, under the Swiss Federal Act on Patents for Inventions Article 9G. Exceptions to effects of the patent I. In general 1 The effects of the patent do not extend to: b. acts undertaken for research or experimental purposes in order to obtain knowledge about the subject-matter of the invention including its uses; in particular, any scientific research concerning the subject-matter of the invention is permitted;

Generally speaking, research activities relating to the subject-matter of the patented invention, include but not limit to testing validity of the invention, determining the scope of the patented invention, searching for improved technology or developing alternative technology and so on are not infringement of the patent.57 However, acts using patented technology to test or prove other products or methods does not apply to research exemption, as these acts are not related to patent invention itself.58 The use of a patented invention as a research tool, on the other hand, is not in order to obtain information related to the subject itself, but as a tool or means to achieve other purposes. Research tool refers to a variety of resources, which can be used scientific researchers as a tool in scientific work, such as cell lines, monoclonal antibodies, reagents, and growth factors.59 The term ‘research tool’ may have many meanings. Researchers who use them in the laboratory may view them as tools, whereas firms who primarily manufacture and sell these resources may consider them end products.60 “Patent” in “research with the patented invention” is often the research tool patent. For research tool patents, the use of the tool is the “with invention”, rather than the “on invention” for the experiment purposes. 56 BOOK VI Protection of Inventions and Technical Knowledge, Intellectual Property Code, English

translation at…/3/…/Code_35.pdf. Accessed 21 August 2018. 57 See Smith Kline & French Labs. Ltd. v. Evans Med. Ltd., (1989) 1 F.S.R. 513 (U.K.), 1988 WL 623784. 58 McMinn Anna (2005) Judicial interpretation of 35 USC section 271(e) (1): An Improper Expansion beyond the Legislative Intent. Albany Law Journal of Science & Technology. 16(1): 195–237. 59 A notice of the National Institutes of Health published in 1999 made the definition of a wide range of research tools, including cell lines, monoclonal antibodies, reagents), animal models, growth factors, combinatorial chemistry and DNA libraries, clones, cloning tools, methods and experimental device laboratory equipment and machines. 60 Mueller, J. M. (2001) No ‘Dilettante Affair’: Rethinking the experimental use exception to patent infringement for biomedical research tools’. Washington Law Review, 76:72.


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Unauthorised use of research tool patents may have significant public interest. This effect is more obvious especially when the patent holder refuses to provide the invention or unwilling to provide the invention with reasonable conditions. However, the exemption of an act to use patented invention as a research tool would obviously challenge the interests of the patent owner, and possibly reduce the incentive for research and development of technology. Because the exclusive benefit of the research tool patent mainly due to the control of the patent invention itself.61 Most countries exempt research done on the patented invention and not with the patented invention. In this regard, Belgium patent law is an exception since it exempts both types of research, i.e. both with and on the patented subject matter.62 However, with the coming of the Unified Patent Court in Europe,63 there will be further harmonisation and adjustments across Europe in terms of exceptions to patents. With regard to the distinction of research done on or with patented subject matter, the application of the research exemption does not consider whether there is a commercial purpose, which is consistent with that of the breeding exemption under the PVR system. However, breeders often use biological materials protected by patents to develop new varieties rather than patents on the breeding process. The main purpose of breeders is the use of patented traits that may be removed, replaced or added in the breeding process, and might be present in the final variety. Therefore, the breeding research is done “with protected subject matter”, rather than “on protected subject matter”.64 Thus, despite some exemptions in various patent legislation, there is no room for the application of a breeding exemption. The breeding exemption will be faced with different fate under the PVR system and the plant patent system. In order to realise the consistency and compatibility of the plant patent acts and the plant variety protection acts, it is necessary to introduce the breeding exemption into the patent system.

4 The Ways to Extending the Breeding Exemption into the Patent System The introduction of breeding exemption in patent system is based on the following considerations. First of all, it is a necessary condition for the developing new varieties to freely access and use plant variety including variety protected by PVR and patent system. If the patent law falls short of providing a breeding exemption, nowadays 61 Strandburg Katherine J (2004) What Does The Public Get? Experimental Use and the Patent Bargain. Wis. L. Rev. 81: 123. 62 Article XI.34.b Code of Economic Law, Belgium; Prifti, V (2015) The Breeder’s Exception to Patent Rights, International Law and Economics, Conceptualizing the Breeding Exception to Patent Rights: A Legal and Economic Appraisal. Springer International Publishing, Switzerland p. 94. 63 Details on the court and signatories to date, are available at, http://www.consilium.europa. eu/en/documents-publications/treaties-agreements/agreement/?id=2013001&DocLanguage=en. Accessed 21 August 2018. 64 Prifti, supra note 29, p. 96.

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it will affect the sustainable innovation of plant breeding. Secondly, if there is no breeding exemption in the patent law, it will lead to a mismatch between the patent right and the variety right, and discrimination of rights holders depending on which rights they have acquired. The patentee may use breeding material protected by PVR, which does not constitute infringement based on the provisions of breeding exemption under PVR system. However, the owner of the PVR cannot take advantage of patented the breeding materials. Finally, the purpose of breeding exemption cannot be achieved owing to the lack of the provisions of the breeding exemption in patent law, due to the widespread adoption of plant based patents. If the purpose of patent and encouraging breeding activities is considered, it is necessary to introduce the provisions similar to breeding exemptions into patent laws.65 As for how to achieve breeding exemption provisions in the patent system, there may be several ways: (1) to expand connotation of research exemption in patent law; (2) to shape informal plant breeders’ guidelines; (3) create a separate provision in patent on breeding exemptions.

4.1 Expand the Interpretation of Research Exemption The act of using patented materials as a research tool is not usually applicable in the patent research exemptions, but breeding behaviour could be used as an exception. However, this expanded research exemption, once open up for breeding, may be further extended to other areas of biotechnology, which some say may weaken the incentive for innovation in the field of biotechnology. Some studies have shown that patent protection might be important for the pharmaceutical, biofuel, chemical and cosmetic industry.66 The expansion of the research exemption into these areas may weaken the effectiveness of patent protection. Based on this consideration, Germany, France, Switzerland, and the Netherlands, however, did not broaden the scope of the existing research exemption, but introduced a specific exception for breeding purposes. The need for a specific breeding exception has also been taken into account by the recent Agreement on a Unified Patent Court (AUPC), which in its article 27(c) reproduces an identical provision to those of Germany, France, and Switzerland.67

65 Straus

Joseph (2002) Measures Necessary for the Balanced Co-Existence of Patents and Plant Breeders’Rights—A Predominantly European View, WIPO-UPOV Symposium on the CoExistence of Patents and Plant Breeders’ Rights in the Promotion of Biotechnological Developments, Geneva, October 25 2002. Accessed 15 August 2016. 66 Harabi N (1996). Patents in theory and practice: Empirical results from Switzerland. Munich Personal RePEc Archive. Accessed 15 August 2016. 67 Prifti, supra note 29, p. 97.


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4.2 Shaping Informal Plant Breeders’ Guidelines Some scholars believe that it is impossible to obtain satisfactory results by the traditional legislative and judicial methods to determine the scope of application of the research exemption rules aimed at keeping the balance of private right and public interests in plant innovation. The scope of the experiment or research exemption is more a matter of industry custom, rather than patent law doctrine.68 Therefore, a set of informal breeders’ guidelines on the allowable use of patented can be established by recording and articulating the relevant customs in the plant breeding industry. Breeding industry organisations with the participation and guidance of the government may develop clear and reasonable breeding research norms to guide breeding behaviour and to promote breeding innovation without seriously impairing the interests of patentees. However, there are many objections to this proposal as well. The plant breeding industry may not be willing to participate in such an effort, especially the competitive breeding companies, because their competitive advantage in the market could be weakened by this process. The formation of such guidelines could also constitute the anticompetitive collusion.69 Still others may wonder whether the phenomenon of patenting plant innovation is so new that customs are still evolving. The guidelines developed by breeders often do not have any coercive power and do not have any effect, with only declaratory or administrative guidance. Nevertheless, the efforts to form informal breeders’ guidelines to definite the scope of allowable research use in the plant breeding area may fail, but they could serve as the beginning of a constructive dialogue to accelerate the formation of relevant rules guiding breeders behaviour in the future plant biotechnology research. A sustainable agriculture policy should support the dialogue, and the standardisation of breeding research based on this dialogue can be used as a supplement to the patent system, and hopefully inform free trade agreements in the future.

4.3 Create a Separate Breeder Exemption in the Plant Patent Law Generally speaking, the law does not consider the creation of specific exceptions for certain technical areas, but in the field of plant invention, the situation is different. Because there are already the provisions of breeding exemption in various Plant Variety Acts, the recognition in UPOV 1991, the recognition of UPOV in free trade

68 Janis Mark D. (2001) Sustainable Agriculture, Patent Rights, and Plant Innovation. Indiana Journal

of Global Legal Studies 9(1) Article 6, p. 117. 69 Hovenkamp Herbert, Janis, Mark D Lemley, Mark A, Leslie, Christopher R and Carrier, Michael A (2002) IP and Antitrust: An Analysis of Antitrust Principles Applied to Intellectual Property Law. Wolters Kluwer Legal & Regulatory, US.

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agreements, either explicitly or implicitly,70 it should not difficult for legislators to transplant that provision into plant patent law. Breeding exemption include limited breeding exemption and comprehensive breeding exemption. The former allows plant breeders to use freely patented biological material only for breeding purpose, not for commercialising the variety. However, if the patented elements are not present in the final variety, the variety can be put into the market without prior authorisation from the patent holder. The latter allow for the breeding and commercialisation of plant varieties containing patented elements without authorisation of the patentee.71 It is easy to introduce limited breeding exemption that has less influence on the patent to the patent system. France, Germany, and Switzerland have introduced an exemption for breeding purposes into their patent laws.72 It would be difficult to introduce the comprehensive breeding exemption into the patent system because of its downstream effect on the patent right. Whether a limited breeding exemption or a comprehensive breeding exemption to be introduced to patent system, will face a number of problems. The first issue is whether the introduction of an exemption for breeding in patent laws would violate the provisions of TRIPS Article 27.1, which specifies that patent rights must be “enjoyable without discrimination as to… the field of technology…”73 This would be a technical differentiation. Article 27(3) (b) allows members to exclude plants from patent eligibility altogether if they enact a sui generis regime for plant variety protection. Thus, it could be argued that if member states have the authority to eliminate plants from the patent scheme altogether, they necessarily have some authority to place plant-specific limitations (breeding exemption) on the patent right. Since member states have the right to exclude plants from the patent system alto70 Most countries have taken UPOV as the basis for the sui generis system for plant protection demanded by TRIPS Article 27(3), even if they allow for patents. Symposium on possible interrelations between the International Treaty on Plant Genetic Resources for Food and Agriculture and the International Convention for the Protection of New Varieties of Plants, 26 October 2016 in Geneva, Switzerland. Accessed 21 August 2018. 71 Prifti, supra note 29, pp. 218–239. 72 For Germany, see section 11.2.b of the Patent Gesetz, 2005; For France, article L. 613-5-3 of the Code de la Propriete Intellectuelle 2004, and for Switzerland, article 9(e) of the Loi fe´de´rale sur les brevets d’invention, 2008. It should be noted that article 27(c) of the recent Agreement on a Unified Patent Court (Unitary Patent) also provides for a breeding exemption. It remains to be seen whether European Union (EU) countries will implement such provision into their national patent laws. 73 Article 27(1) TRIPS Agreement provides:

1. Subject to the provisions of paragraphs 2 and 3, patents shall be available for any inventions, whether products or processes, in all fields of technology, provided that they are new, involve an inventive step and are capable of industrial application. Subject to paragraph 4 of Article 65, paragraph 8 of Article 70 and paragraph 3 of this Article, patents shall be available and patent rights enjoyable without discrimination as to the place of invention, the field of technology and whether products are imported or locally produced. (Article 65 relates to Transitional Arrangements and Article 70 to Existing Subject Matter at the time of the agreement.).


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gether they could remove the plant patent from their patent law.74 Due to the specific language of Article 27.3(b) itself, which states that WTO member countries are to provide for the protection of plant varieties “either by patents or by an effective sui generis system or by any combination thereof”, prescribing a more extensive, or plant-specific research exception (breeding exemption) in the patent law is also arguable.75 Another barrier to patent breeding exemptions maybe found in the provisions of Article 30 of TRIPS: Exceptions to Rights Conferred Members may provide limited exceptions to the exclusive rights conferred by a patent, provided that such exceptions do not unreasonably conflict with a normal exploitation of the patent and do not unreasonably prejudice the legitimate interests of the patent owner, taking account of the legitimate interests of third parties.

Thus any restrictions on patent rights should meet the following three conditions: (1) limited exceptions; (2) do not conflict with a normal exploitation of the patent; (3) taking account of the legitimate interests of third parties. The exact reach of this ‘three step test’ is uncertain, but it is at least arguable that a limited breeding exemption in step with this article.76 Under a limited breeding exemption system, the restrictions on patent rights are limited; the new varieties containing patented material of commercialisation requires patentee’s authorisation, which presents no conflict to the normal use of the patent and does not affect the patentee’s market interests; and no harm to the interests of third parties at the time. On the other hand, there may be certain obstacles to the harmonisation of a comprehensive breeding exemption with Article 30 TRIPS since it is contrary to the purpose of encouraging innovation of the patent law. The patent system can encourage research and investment in the seed industry and promote innovation of breeding by granting the breeder the exclusive right of its technological achievements. In the context of a comprehensive breeding exemption system, the plant breeding behaviour and commercialisation of the new variety (whether or not it contains the patented traits) would not require the authorisation of the patentee, which would affect the market interest of the patentee and reduce the incentives for investment in the capitalintensive seed sector. The evidence from the German and British biotechnology companies shows that obtaining a patent is an important factor in attracting investors.77 To restrict patents by the introduction of a comprehensive breeding exemption would distress the market competition advantage of holding the patent right, and the role of 74 Janis,

supra note 68, p. 116.

75 McManis Charles R (2002) Are There TRIPS-Compliant Measures for a Balanced Co-Existence

of Patents and Plant Breeders’ Rights? Some Lessons from the United States of America’s Experience to Date, WIPO–UPOV. Intellectual Property Rights. bitstream/123456789/730/8/Are%20There%20TRIPS-compliant%20Measures%20for%20a% 20Balanced%20Co-existence.pdf. Accessed 15 August 2016. 76 Prifti, supra note 29, p 235. 77 Hall, B., & Harhoff, D. (2012). Recent research on the economics of patents. Annual Review of Economics, 4, pp. 541–565.

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patents to attract investment for technological innovation would be greatly reduced. Therefore, it seems that a comprehensive breeding exception conflicts with the empirical element of ‘normal exploitation’ of the patent. The objectives and principles TRIPS made considerable space for the state to take measures to promote the public interest in the field of plant breeding, under a sui generis (i.e. UPOV) system. When faced with a greater public interest the limit on the patent right maybe permitted by TRIPS, and can be seen as necessary. Contrary to conventional wisdom, patent rights should be seen as promoters of societal interests rather than instruments for profitmaking.78 Of course, in order to avoid the possible impact on the investment of the breeding industry, a compensation system may be established to overcome potential negative effects caused by breeding exemption.

5 Conclusion It should be noted that under the Trans-Pacific Partnership (TPP), even following the revisions following the Comprehensive and Progressive Agreement for the TPP Article 18.7.2. Each Party shall ratify or accede to each of the following agreements, if it is not already a party to that agreement, by the date of entry into force of this Agreement for that Party: … (d) UPOV 1991;

Under the TPP, UPOV receives another recognition by a major free trade agreement, including its breeding exemption. The issue of plant patents has yet to be addressed, and the inherent conflict between a wide breeders right under UPOV and the restrictions placed on breeders by TRIPS patent compliance needs to be addressed. It should be noted that there is no EDV restriction under the Chinese PVR system, giving a scope of breeding exemption that is too large. Patent laws give rights holder a monopoly over specific innovations, but it should also ensure that the public will be free to access and use the patented invention. Some countries do not permit whole plant patents, such as China and Canada, but do allow patents on the composition of a plant, such as gene segments and methods of breeding, but there are no clear breeding exemptions. For consistency between the plant variety laws and the patent laws, breeding exemptions akin to those in UPOV should be introduced to patent systems. This may be remit of free trade agreements in the future, given that the major intellectual property harmonisation has been drive by trade agreements in the past, from TRIPS to the TPP. This paper argues that in the interest of making a balance between plant variety protection and patents that a limited breeding exemption should apply to patents as well as the UPOV 1991 sui generis plant protection system.

78 Prifti,

V (2015) The Breeder’s Exception to Patent Rights, International Law and Economics. Springer International Publishing, Switzerland p. 146.

The China-Australia Free Trade Agreement and the Choice of Intellectual Property Interest Balance in the Two Countries Henry Yan

Abstract Trade interaction between China and Australia is frequent, leading both countries to sign the China-Australia Free Trade Agreement, known as the ChAFTA, in 2015, which has further improved the bilateral levels of trade between the two nations. In this agreement, there are some special articles related to intellectual property, which is the subject of this paper. Meanwhile, this is in coincidence with the spirit of the series of international intellectual property protocols. Australia aims to take care of its domestic intellectual property interest balance and public health protection to a great extent, especially in its recent two intellectual property law amendments. In this regard, Australia’s introduction of the Tobacco Plain Packaging Act 2011 exemplifies Australia’s approach to intellectual property in the face of public health, something which has since been adopted by other countries. In comparison, Chinese laws and regulations on tobacco packaging have remained limited, but it is argued that given the current increasing importance of public health, that the laws and regulations of tobacco packaging should be improved in the future. Keywords China-Australia free trade agreement · Intellectual property Balance of interest · Public health · Tobacco plain packaging

1 Introduction From the global perspective, it is common practice for countries to reach bilateral or multilateral free trade agreements. By signing a free trade treaty, countries wish to strengthen their friendly relationships with their trading partner countries, achieve mutual benefits and improve bilateral or multilateral business and trade interaction. Being two large countries in the Asia-Pacific, China and Australia have always played a very important role in the economic and business activities in this region. In the past

H. Yan (B) DeHeng Law Offices, Beijing, China e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2019 L. Corbin and M. Perry (eds.), Free Trade Agreements,



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few decades, both countries have maintained a good relationship, and their business and trade ties have strengthened gradually. Section 2 introduces basic information about the China-Australia Free Trade Agreement and Sect. 3 outlines its significance. It is obvious that this agreement brought lots of meaningful changes and effects to both Australia and China, and there are some statistics in this chapter showing the significant results brought by the agreement. Section 4 clarifies the intellectual property agreements in the ChAFTA demonstrating that the agreement and protections on IP in China-Australia FTA are quite comprehensive. Both Australia and China are trying to follow international rules and protocols whilst also prioritising the public health and interest balance. In Sect. 5, the chapter introduces the general conditions of Australia Intellectual Property law and its amendments. It is clear that Australia has focused on keeping the interest balance for quite a long time, due to its important role and meaning. After analysing the history and meaning of interest balance referring to copyright, trademark, patent etc., it is concluded that the existence of public interest requires that the society has to bear some limits and restrictions during the period of pursuing the private interest of owners. In this spirit, Australia passed and adopted the Tobacco Plain Packaging Act in 2011, and became the first country to compulsorily require the plain packaging of tobacco products. The detailed introduction is in Sect. 6. This Act caused Australia to face opposition both domestically and internationally. However, more and more countries have adopted Australia’s approach towards limiting the tobacco. In comparison, Sect. 7 looks at the current tobacco laws and regulations in China to see which parts should be improved. It is clear that tobacco laws and regulations will evolve for the better as China has focused on Intellectual Property law greatly in recent years, and is also paying more attention to balancing it with the public interest.

2 Brief Introduction to China-Australia Free Trade Agreement 2.1 Basic Information about FTA between China and Australia On June 17, 2015, the Chinese Minister of Commerce, GAO Hucheng, and the Australian Minister for Trade and Investment, Andrew Robb, signed the ‘Free Trade Agreement between the governments of Australia and the People’s Republic of China’ (hereinafter referred to as the ‘ChAFTA’) in a formal meeting in Canberra, Australia.1 As early as 2005, China and Australia have been involved in bilateral negotiations for free trade, and finally both parties signed this agreement in 2015. 1 BAI

Yu (2015) China and Australia Signed the Free Trade Agreement Formally. http://news. Accessed 10 April 2017.

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During the intervening ten-year period, both parties of China and Australia conducted 21 negotiations and many other smaller scale consultations. The formal file of this Agreement includes the text and four annexes.2 In addition to the Preamble, the text consists of 17 chapters, which include the Initial Provisions and Definitions, Trade in Goods, Rules of Origin and Implementation Procedures, Customs Procedures and Trade Facilitation, Technical Barriers to Trade, Trade Remedies, Trade in Services, Investment, Intellectual Property, Electronic Commerce, Dispute settlement, etc. According to official information displayed, besides the ChAFTA, both governments of P.R.C. and Australia also signed two memoranda of understanding on Investment Facilitation Arrangement and the Work and Holiday Visa Arrangement as well as the File Exchange of Cooperation on Traditional Chinese Medicine Services. It is obvious that the signing of that series of files has further strengthened the relationship between the two countries.

2.2 Changes Brought by ChAFTA The ChAFTA has allowed some significant changes to occur. For instance, it has created an environment of liberalisation which has effectively increased the economic and business interactions between China and Australia. Tariff cuts are the most representative result of the FTA. In the cargo area, 96.8% of Chinese products will get the benefit of liberalisation. In addition, China will adopt a simplified and direct tariff cut method—a linear tariff cut method. Approximately 95% of China’s products will attract a cut in tariffs in the next 5 years, and the rest will receive this benefit in the next 15 years. In the meantime, Australia will get the benefit of tariff cuts for all of its products, and the liberalisation level will reach 100%. Among them, the tariff for 91.6% of Australia’s products will be reduced to zero when the FTA becomes effective, the tariff for 6.9% of Australia’s products will be reduced to 0 after 3 years, and the tariff on the last 1.5% of Australia’s goods will reduce to 0 after 5 years. For industrial products, the proportion of Chinese industrial products of which tariffs have been already zero or will be reduced to 0 immediately after the FTA becomes effective and the volume of imports from Australia are 32.4 and 92.9% respectively. The proportion of industrial products, of which tariffs will reduce to zero through the tariff reduction period and the proportion of import volumes are 65.1 and 7% respectively. The industrial products of which tariffs will not reduce include 171 items. The proportion of tariff items accounts for 2.5% of the total items, while the proportion of import products is only 0.1%. After the FTA is effective, the average tariff rate of Chinese industrial products will be reduced from 8.8 to 0.2%, 2 Economic

and Commercial Counsellor’s Office of the Embassy of the P.R.C. in Australia (2015) Analysis and Clarification on Governments of P.R.C. and Australia Free Trade Agreement. Accessed 10 April 2017.


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and the highest customs tariff will reduce from 47 to 20%. Meanwhile, the tariff items proportion of Australian industrial products, of which tariff already becomes zero or will be reduced to zero immediately after the effectiveness of the FTA and the proportion of import volumes from China are 89.9 and 81% respectively. Moreover, the tariff proportion of industrial products, of which tariffs will be reduced to zero after 5 years and the proportion of import volumes are 1.9 and 1.7% respectively. From the amount of trade, Chinese liberalisation products imported from Australia accounts for 97% of the total volume of import products from Australia. And among them, the proportion of import products, of which the tariff will be reduced to zero, when the FTA comes into effect, is 85.4%, while the import products, of which the tariff will be reduced to zero after 5 years is 92.8%. Meanwhile, 85.4% of the volume of Australia’s imported products from China will be reduced to zero immediately after the FTA comes into force and 98.4% of Australia’s imported goods from China will be subject to zero tariff after 3 years, culminating in zero tariffs for all products within 5 years.

3 Important Role and Significance of ChAFTA All along, Australia has been an important member of the Asia-Pacific Economic Cooperation and Group of Twenty Finance Ministers and Central Bank Governors. Meanwhile, Australia ranks 12th on Gross Domestic Product among the western developed countries around the world. Furthermore, Australia has a mature market economy as well as an established legal system and management model, which has influence in the Asia-Pacific Zone and even the world. China is also Australia’s No. 1 goods trade partner, No. 1 importing origin and No. 1 exporting destination. In addition, Australia is No. 2 destination of Chinese overseas investment next to Hong Kong. Moreover, China and Australia have similar policies in terms of economic matters, and both countries have strong potential cooperation prospects with respect to mining, agricultural products, industrial products, etc. In recent years, the service trade between China and Australia has grown quickly, and their trading relationship has strengthened. In 2014, the total amount of service trade between China and Australia was 16.72 billion dollars, among which the service export from China to Australia was 3.67 billion dollars, and the service export from Australia to China was 13.05 billion dollars. Meanwhile, the scale of service trade between China and Australia has increased year by year, from the amount of 8.44 billion dollars in 2008 to a total of 16.72 billion dollars in 2014, with an annual average increase of 14%.3 At the same time, the amount of mutual investment between China and Australia has developed speedily. The amount of direct investment from China to Australia 3 Economic

and Commercial Section of the Consulate General of the P.R.C. in Melbourne (2015) ‘China-Australia Free Trade Agreement’ Official Version (Chinese & English) http://melbourne. Accessed 10 April 2017.

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increased from 587 million dollars in 2005 to 3.46 billion dollars in 2013, the increase rate per year being 54.3%. Until the end of 2014, the grand total amount of investment from China to Australia reached 74.94 billion dollars, and among this, direct investment reached 19.95 billion dollars. During the ten year period from 2002 to 2012, the actual investment amount reached 4.72 billion dollars totally, and the accumulated number of investment items was 5442. Until the end of April, 2014, the total number of Australian enterprises that have been established and invested in China reached 10,428, and the total accumulated amount of actual use of foreign investment was 7.59 billion dollars. Owing to this favourable situation in bilateral trade relations between China and Australia, the ChAFTA substantially lowers the threshold on bilateral trade and mutual investment. Further, it confirmed more open, convenient, legitimate system arrangements for future development by both countries in terms of business and trade relationships. The FTA provides the basis upon which cooperation between the two countries can be strengthened and the means to improve the mutual flow of capital, resources and persons, as well as promoting the bilateral trade relationship and enhancing the level of cooperation. At the same time, the FTA will provide important conditions for strengthening the comprehensive strategic partnership between the two countries. In addition, it will also promote the process of economic integration around the Asia-Pacific Zone, and achieve sustainable stability and prosperity.

4 Intellectual Property Agreement in ChAFTA In modern world economy and trade, Intellectual Property always plays an important role as a guarantee. Therefore, in various international protocols or agreements related to economy and trade, Intellectual Property protection always occupies a prominent position.

4.1 Overview of Intellectual Property Agreement in ChAFTA In this ChAFTA, the protection of Intellectual Property was highlighted again. Chapter Eleven of the agreement is specifically devoted to clarifying the agreement on Intellectual Property between China and Australia.4 In this chapter, there are total 24 articles concerning related articles and detailed matters. Please see the summary as follows:

4 Economic

and Commercial Section of the Consulate General of the P.R.C. in Melbourne (2015) Chap. 11 ‘Intellectual Property’ of ‘China-Australia Free Trade Agreement’. cn/Australia/annex/xdwb_11_cn.pdf. Accessed 15 April 2017.


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Relevant articles


Specific agreement

Article 1–8

Principal and general agreement

Purpose and principles, relevant definitions, minimum obligations, international agreement, national treatment, transparency, public health, exhaustion, etc

Article 9 and Article 21–24

Agreement related to the overall IP common matters

Article 10–11

Agreement on patent

Procedures on acquisition and maintenance, enforcement, border measures, general cooperation and consultative mechanism Providing patent applicants with opportunities to make amendments, corrections and observations, publish the invention application after the expiry of 18 months

Article 12–14

Agreement on trademark

Agree visual and sound signs as the types of trademarks, provide protections for collective and certification trademarks, provide protections for well-known trademarks in accordance with the agreement

Article 19–20

Agreement on copyright

Relevant to the collective management of copyright and its operations, liability of internet service providers

Article 15–18

Agreement on other IP besides Protections on geographical the patent, trademark and indications, plant breeders’ copyright rights, genetic resources, traditional knowledge, folklore and undisclosed information

According to the chapter on IP and articles relevant to the agreement, it is evident that the agreement and protections on IP in ChAFTA are quite comprehensive. The FTA not only specifies agreement on the regulation and protection of patent, trademarks and copyright, but also includes geographical indications, plant breeders’ rights, genetic resources, traditional knowledge, folklore, undisclosed information, etc. More importantly, the agreement emphasises the protections relating to the benefits of intellectual property rights for owners, while, at the same time, it also pays great attention to the ensuring that the right balance between the interests of the innovators and public health matters.

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4.2 ChAFTA, the Implementation on International Intellectual Property Protocols ChAFTA pays great attention to achieving a balance between the interests of the innovators and public health matters particularly, to ensure that international protocols including the Declaration on the TRIPS Agreement and Public Health (hereinafter referred to as the “Doha Declaration”) are followed. The famous Doha Declaration was issued on 14 November 2001 by 4th Ministerial Conference of the World Trade Organisation (hereinafter referred to as the “WTO”) held in Doha of Qatar. According to this declaration, the aims of the WTO were to have started the negotiations on public health problems, and planned to reach the coincidence agreement on implementing the compulsory license system on patented pharmaceutical items and solving the public health crisis of developing country members before the 31 December of 2002.5 Meanwhile, it is emphasised by the Doha Declaration that the Agreement on Trade-Related Aspects of Intellectual Property Rights (hereinafter referred to as the “TRIPS Agreement”) should not introduce obstacles on each of the WTO members in order to protect its own public health on the basis that members comply with the relevant obligations. Each WTO member has the right to use the flexible article confirmed by the TRIPS Agreement for protecting the public interest, which means that the government can grant a compulsory license without the permission of patentee, and allow other companies to produce some patented pharmaceutical or use some patented method. However, it also states that this article should only be used under conditions where the goal is to protect the legal rights of the patentee. Nonetheless, the Doha Declaration did not solve the fundamental conflicts between the TRIPS Agreement and public health protection. Developed country members and developing country members often have serious disagreements on this matter, and in this case the negotiation was delayed for eight months. According to the efforts of the WTO General Council, the Implementation of paragraph 6 of the Doha Declaration on the TRIPS Agreement and public health (hereinafter referred to as the “Implementation of Doha Declaration”) was confirmed and adopted by members on 30 August, 2003. This is the first successful completed negotiation in terms of the issues of Doha Development Agenda, and it is called the historical agreement of WTO. According to this agreement, WTO members are able to authorise its local enterprises to produce and export certain patented medicines with compulsory licenses under some certain conditions without having to comply with the limitations set out in the TRIPS Agreement that dictate that the usage of compulsory licenses should mainly be granted for the domestic market.6

5 State

Intellectual Property Office of P.R.C. 2003. WTO members reach the ‘Implementation of paragraph 6 of the Doha Declaration on the TRIPS Agreement and public health’. http://www.sipo. Accessed 15 April 2017. 6 LIU Chuntian (2007) Studies and Clarification on ‘The Protocol amending the TRIPS Agreement’. Accessed 7 May 2017.


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On December 6th, 2005, the WTO General Council confirmed and adopted ‘The Protocol amending the TRIPS Agreement’, and added the relevant articles in the Doha Declaration and the aforementioned agreement into the TRIPS Agreement. According to this protocol, it is confirmed that when a developing or at least a developed country who is a WTO Member suffers a crisis of public health caused by AIDS, malaria, tuberculosis and other epidemic disease, the Member can grant compulsory licenses to produce, use, sell or import the relevant pharmaceutical products in its territory without the owners’ permissions, for curing those diseases. Thus, this concession relating to the limitation contained in the TRIPS Agreement regarding compulsory patented pharmaceutical items that can only be applied to domestic market. WTO members can authorise the patent compulsory license for exporting pharmaceutical to qualified import members.7 This amendment is the compromise of developed country members to the developing and undeveloped country members, and it also provides one important flexibility for the developing and undeveloped country members. It is obvious that the ChAFTA was influenced by a series of agreements or protocols including Doha Declaration, etc. It is clearly mentioned in the ‘Purpose and Principle’ of the intellectual property agreement part of ChAFTA that efforts to achieve the goal of intellectual property systems could support open, innovative and high-efficient markets. Further, it is important to keep the effective creation, utilisation, protection and enforcement of intellectual property rights, and also to achieve the appropriate balance between the legitimate interests of right holders, users and public interest. Meanwhile, it is also emphasised that appropriate measures must be taken to protect public health and nutrition in order to achieve consistency with the TRIPS Agreement and ChAFTA. The ChAFTA also emphasised, in its other articles agreement, that it should comply with the principles established in the Doha Declaration. Meanwhile, it also confirmed that the signature of this agreement and its provisions will not affect the implementation of relevant articles or agreements in the Doha Declaration. In addition, the FTA reaffirmed its commitment to contribute to the international effort to implement the Decision of the WTO General Council on the implementation of paragraph 6 of the Doha Declaration. It can be seen that the ChAFTA respects and complies with a series of international agreements and protocols including the Doha Declaration, etc.

7 Guo Shoukang and Shi Xueqing (2010) The First Amendment of WTO Agreement—The Amend-

ment on Article 31 of TRIPS Agreement. 1993. Accessed 15 April 2017.

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5 Analysis on the Interest Balance of Australia Intellectual Property Law Based on the above, it is not hard to conclude that the ChAFTA ensures that the interests of the inventor and public health matters are reflected in the intellectual property chapter. Therefore, China and Australia are willing to sign this Free Trade Agreement, and include a chapter and articles in the agreement to regulate the relevant intellectual property and public health interests. Because both China and Australia care about the potential future for trade and attaining mutual benefits for both countries, the agreement includes statements relating to upholding the relevant interests i.e., the rights in intellectual property and public interest protection. In contrast, there are some clear regulations relevant to these matters in the Intellectual Property laws of both China and Australia.

5.1 Overview of Australian Intellectual Property Law and Its Amendments The current Australian Intellectual Property law system is mainly comprised of the Copyright Act and its Regulations, Trademark Act and its Regulations, Plant Breeders’ Rights Act (also being translated into ‘New Varieties of Plants Act’8 ) and its Regulations, Patent Act and its Regulations, Designs Act and its Regulations, and the Circuit Layouts Act and its Regulations.9 Further, amendments were made to the Intellectual Property Law Amendment Act in 2012 and 2015. The 2012 Intellectual Property Law Amendment came into effect and was adopted on 15 April, 2013. It made some important changes to the application and examination of patents. For instance, the examination standard raised the threshold on creativity of the invention patent, and the ‘common sense’ is not limited to the evidence from Australian domestic professors. Meanwhile, it asks the publicity of patent specification should clearly set out an applicant’s rights—it is not necessary to look to academic interpretations. In addition, the amendment also revises the requirement on practicability. It requires that the specification list one public, essential and reliable use, to satisfy the requirement of practicability.10 8 State Intellectual Property Office of P.R.C. (2005) Introduction on Australian Intellectual Property

Bureau Conditions. Accessed 20 June 2017. 9 WIPO (2017) WIPO Lex—Australia. Accessed 20 June 2017. According to the collections of WIPO regarding the Australian Intellectual Property Law, besides those laws and regulations mentioned in this essay, it also includes the Customs Act, Competition and Consumer Act, Agricultural and Veterinary Chemicals Act, Tobacco Plain Packaging Act, etc. as the laws and regulations related to Intellectual Property. 10 State Intellectual Property Office of P.R.C. (2015) The Hint brought by Australian Patent Law Amendment Accessed 26 June 2017.


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The 2015 Intellectual Property Law Amendment Act was adopted on 9 February, 2015. This Amendment mainly focuses on guarantees concerning the balance between the rights of the innovator and public health matters. Besides this, it also makes the intellectual property system of Australia simpler and more effective. It simplifies the application and examination system for sole patent applicants from both Australia and New Zealand. These two amendments improved both the threshold of Australian patent authorisation and the patent examination standard of Australia that is now more aligned to the international common standard. Meanwhile, these amendments also made significant changes to the protection of Australian intellectual property. According to the statistics reported in the 2014 report of the Australian Intellectual Property Bureau, the number of direct patent applications and the patent applications being publicly received by the Australian Intellectual Property Bureau was the same as those received prior to the applications received before the 2012 amendments were adopted. Further, one month prior to the amendments were made, the number of examination applications received by Australian Intellectual Property Bureau increased nine fold as compared to the average number of examination applications previously received each month in the last three years. All of these increases are due to the 2012 amandments of the patent system, such as higher examination standards and shorter examination periods, etc.

5.2 The Interest Balance in Australian Intellectual Property Law An examination of the current intellectual property laws of Australia, it is easy to conclude that the Acts and the regulations prioritise the importance of balancing the rights of the innovator and those of the public interest. For example, in the Patent Act and its Regulations, the public health and interest balance are referred to a number of times.11 In addition, this is also a priority in the Copyright Act and its Regulations.12 In recent years, in particular there has been an increased value placed on ensuring protection of the public interest. For instance, in the ‘Intellectual Property Reform in Australia—A summary of important legislative changes’ (published in July 2013), it was noted that the purpose of the 2012 Intellectual Property Law amendment was to strike a balance between public and private interests.13 It is quite different from other IP systems, because most Intellectual Property systems usually put the private interest before the public interest when determining an application. However, the Australian Intellectual Property Law Amendments prioritise the public interest. 11 Patent

Act 1990, Chap. 12 Part 3 Division 1 Section 136B, pp. 112, 115. Act 1968, Part VII Division 2 Section 183, P500. 13 Australian Government. (2013) Intellectual Property Reform in Australia—A summary of important legislative changes. australia_july_2013_final_0.pdf. Accessed 26 June 2017. 12 Copyright

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In Australia’s Intellectual Property Laws Amandment Act 2015 Australian pharmaceutical manufacturers can apply for a compulsory license on patented pharmaceutical to federal court, for producing and exporting the pharmaceutical to the certain country when other developing countries meet public health crisis. But the patentee must be paid an agreed amount of remuneration, or an amount of remuneration determined by the court. This is consistent with the principle confirmed by the Doha Declaration and the relevant new protocol. Based on this, it not only regulates the compulsory license on patented pharmaceuticals in certain conditions, but also provides a guarantee and benefits on public health for developing countries and undeveloped countries.

5.3 The Important Meaning of Interest Balance in Intellectual Property Law As we all know, ‘Interest Balance’ is the condition of peaceful coexistence and relative balance in certain interest systems.14 From a legislative point of view, Interest Balance refers to coordinating the conflicting factors through the power and authority of legislation to achieve coexistence and compatibility while, at the same time, treating interests of each party reasonably.15 The Statute of Anne Act, 1710 (also known as the Copyright Act 1710), was An Act for the Encouragement of Learning, by Vesting the Copies of Printed Books in the Authors or Purchasers of such Copies, during the Times therein mentioned the contradiction between the public who are eager to obtain the knowledge and the book printers/publishers who are trying to keep the monopoly became more and more serious. That Act solved the aforementioned sharp contradiction, but also created a new precedent. It guaranteed the author’s compulsory right over its works for publishing; and it also transferred this right to the publishers in its regulations. In this way, it protected the legal rights of authors. However, it also satisfied the requirements of publishers in terms of legal monopoly of publishing books. This Act also introduced some time limits on the monopoly right of publishers. This goal is still upheld. Even during the current era that Internet and science technology create huge impacts on current Intellectual Property law, the creative spirit enshrined in the Anna Queen Act still remains as the guiding principle. The trademark law also contains this principle. Generally, the most basic function of trademark is for marking the sources, but it also urges trademark owners to promote and enhance the quality of their products.16 Trademark is therefore naturally related to market economic development. Based on this, the public can generally recognise 14 FENG Xiaoqing (2006) The Interest Balance Theory of Intellectual Property Law. China Univer-

sity of Politic Science and Law Press, Beijing, p. 11. 15 TAO Xinliang and YUAN Zhenfu (2005) Overview of Intellectual Property Law, Intellectual Property Press, Beijing, pp. 17–18. 16 HUANG Hui (2016) Trademark Law, Law Press, Beijing.


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the contributions of trademark law of protecting the private rights of owners and maintaining fair competition in the market. Actually, trademark law also enhances the public interest according to protecting the consumers’ rights and promoting effective competition.17 By ensuring a fair competition environment and expelling the products with low quality the rights of consumers and the public generally are protected. Since the first patent was granted in the world, Inventor Bylaws, was issued, the patent systems in each country almost all point out that authorising the monopolised patent right to inventors results in improving the public’s right to the spread of technology as well as enhancing the progress and creation of science technology. During the same time in order to encourage invention and creation, it is necessary to provide enough focus and maintenance on protections of public interest. Therefore, the patent law in each country usually excludes the inventions and creations which violate the country laws, society ethics or hinder the public interest.18 In addition, accompanying the series of international agreements including Doha Declarations in recent years, the prohibitions on compulsory license of patented pharmaceutical when the public health crisis broke out were relaxed for the benefit of the public interest and health safety. These instances show how the patent law deals with the interests of owners and the public. Besides the laws of copyright, trademark and patent, the other laws relevant to Intellectual Property including statements and conditions relating to the interest balance. They not only refer to the balance between specificity of intellectual property rights and the requirements of society public on knowledge, but also refer to the balance of private interest and public interest in Intellectual Property law. Based on this, the Intellectual Property system seeks to keep the competition order among enterprises, and also seeks to consider the rights of consumers on choosing the products, in an effort to balance the private interest and public interest. It therefore ensures internal coordination among each category of intellectual property, achieving the interest balance.19 The balance between the interests of the Intellectual Property right owner and public interest is one of the important manifestations of Intellectual Property interest balance. ‘Interest Balance’ is an old legal definition. In the ancient Greece special city system, the definition of public interest referred to a relationship that has value for the whole country. The public interest is deemed the sole and abstract value that is necessary for the existence of society. It is also the public goal of all society members. Based on this, public interest is not a simple overlay of private interest, but the pursuit of overall benefits for society.20 Both the public interest and private interest are the important interests in Intellectual Property laws. However, the existence of public 17 Landes

William M and Posner Richard A. (1987) Trademark Law: An Economic Perspective, Journal of Law and Economics. 30: 265. 18 Feng, supra note 14, pp. 336–337. 19 LI Changfeng (2005) The Balance System of Intellectual Property Protection and Its Establishment. Theory Journal. 20 MA Baobin (2002) Public Interest and Public Antinomy. Jiangsu Social Sciences. 10.13858/j.cnki.cn32-1312/c.2002.01.015.

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interest requires that the society member has to bear some limits and restrictions during the period of pursuing the private interest of owners. Australia is already advanced in its treatment of the balance of public interest protection of intellectual property. The Tobacco Plain Packaging Act is one of the typical examples of interest balance and public interest protection in Intellectual Property. Although the original purpose of this Act is for regulating the packaging of tobacco products, the limitations on packaging also effect trademark rights’ usage in some certain conditions. Therefore, Tobacco Plain Packaging Act is a law related to Intellectual Property Right. WIPO also listed this Act in the same way during collecting and gathering Australian IP laws. This law will be discussed below to demonstrate Australia’s approach to dealing with the competing rights of owners and the public.

6 Summary and Analysis on Australia’s Tobacco Plain Packaging Act Australia passed and adopted the Tobacco Plain Packaging Act (hereinafter referred to as the ‘TPPA’) in November 21st 2011, and became the first country to compulsorily require the plain packaging of tobacco products.21 However, many tobacco enterprises and professors were dissatisfied with this Act and therefore raised a series of questions and critique.

6.1 An Appeal Against the TPPA There are some very strict requirements on the packaging and decoration of tobacco products according including in the TPPA, such as all tobacco products sold in Australia were required to use the same kind of packaging. The health warning (including images) had to be displayed over 75% of the front packaging and 90% of the back packaging. The remainder of the package had to be the sole dark brown colour. Further the trademark of tobacco products can only appear in small-sized, brown colour and simple description on the font without any decoration element on its exterior packaging. Meanwhile, this Act also includes some statements regarding the position and frequency of appearance of the trademark, etc.22 Consequently, the Act causes different tobacco brand products to look identical or similar in appearance

21 Jeffrey M. Samuels (2014) The U.S. Well-Known Mark Doctrine, TRIPS Agreement and Plain Packaging on Tobacco Products. Journal of Science, Technology and Law (trans: CAI Yuanzhen) 3:543. 22 Tobacco Plain Packaging Act 2011 (No. 148, 2011).


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making it quite difficult to easily distinguish between the tobacco brands. The Act attempts to decrease the attractiveness of tobacco products to consumers.23 Several tobacco enterprises including Japan Tobacco International and British American Tobacco challenged the validity of the TPPA in the courts claiming that it violated Article 51 of the Commonwealth of Australia Constitution Act (The Constitution of Australia).24 In section xxxi, Article 51 of The Constitution of Australia, Parliament is authorised to formulate laws in some circumstances, and it also allows Parliament to obtain property from any state or person based on justice for the purposes of peace, order and well governance.25 Regarding this, the court held that the core question of this case was whether the TPPA allows Australian industry to obtain IP and business fame from tobacco enterprises without reasonable conditions such as justice for the purposes of peace, order and good governance, such that it violates The Constitution of Australia. After examination, The High Court of Australia found that there is no such illegal ‘obtaining’ behaviour without reasonable conditions, and finally rejected the lawsuit of tobacco enterprises in August 15th 2012.26

6.2 TPPA Causes International Disputes Although the Australian High Court rejected the lawsuit of tobacco enterprises, and confirmed the legality and necessity of the TPPA, this Act also caused some international disputes. Five countries, including Ukraine, the Dominican Republic, Honduras, Cuba and Indonesia, filed requests for consultation separately to WTO regarding the TPPA.27 These five countries insisted that Australia’s TPPA violated articles of the TRIPS agreement, the TBT Agreement and GATT 1994.28 The main reasons to support these assertions were: A. TPPA was passed to deal with the original nature problem of tobacco products, and it therefore discriminates against the tobacco products’ trademarks; B. Australia did not take valid measures to protect the legal trademark

23 Rimmer Matthew (2013) Cigarettes Will Kill You: The High Court of Australia & Plain Packaging of Tobacco Products. Wipo Magazine. pdf/2013/wipo_pub_121_2013_01.pdf. Accessed 1 July 2017. 24 JT International SA v Commonwealth; British American Tobacco Australasia Ltd. v Commonwealth [2012] HCA 43. 25 Australian Constitution s 51 (xxxi). 26 Yang Fan (2013) Tobacco Plain Packaging Act—New Measure under the circumstance of global smoking limitation. Science Technology and Law (5):53–54. 27 World Trade Organization. (28 June 2018) Australia—Certain Measures english/tratop_e/dispu_e/435_441_458_467r_e.pdf. Accessed 4 July 2017. 28 Australian Government, Department of Foreign Affairs and Trade. WTO Disputes—Tobacco Plain Packaging. Accessed 1 August 2018.

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rights of the owners; C. TPPA unreasonably hinders the trademark use of tobacco products.29 Australia responded insisting that the TRIPS Agreement respect the differences in IP laws of each country; and allow each country to consider its own public interest and society when determining IP protection and measures. Australia also asserted that each country should be allowed to legislate to ensure the protection of public health and nutrition based on the importance of guaranteeing the balance of rights and obligations. Based on this, as a member of the TRIPS Agreement, Australia was held to have the right to promulgate the laws or regulations for protecting its own people’s health according to domestic country conditions and upholding the public interest of society. In addition, the TPPA was held to have met its international obligations on smoking control.

6.3 Analysis on TPPA According to Intellectual Property Dimension While the TPPA had to overcome some obstacles and difficulties both domestically and internationally, this Act is to be applauded. It does not constitute any substantial obstacles on intellectual property laws, especially on the trademark law. Although it introduced some limitations on the packaging and decorations of tobacco products and it may decrease the attraction of tobacco trademarks in certain conditions, the original main purpose of this Act is to protect the public health and persuade people to smoke less, and it did not intend to interfere with the daily implementation of the trademark law. Due to the original defect of the tobacco product itself, it is almost unavoidable that tobacco products will cause damage to smokers and the public in different conditions. Therefore, it is reasonable to regulate the packaging in this way. It is not discrimination, but a necessary sacrifice or compromise for achieving the purpose of protecting the public interest. In current basic theory related to trademark law, trademark contains several basic functions, such as distinguishing origin, quality guarantee, advertisement, promotion, etc.30 Meanwhile, as aforementioned, marking the origin is the basic function of trademark, and trademark also has the function of supervising the trademark rights of the owner to improve and promote the product quality. Along with the progress and development of society, trademark is used to differentiate the people who use this product. Therefore, as long as it does not hinder the common use and limit the functions of trademark, it does not violate the regulations of trademark law. It is necessary for trademark owners to make more effort to maintain the protections

29 SHI Hua, XIE Jun (2016) A Review of Disputes on the Provisions of Australian Tobacco “Plain Package Act” Related to TRIPS Agreement. Journal of Shanxi University (Philosophy and Social Science Edition). 5:110. 30 WU Handong (2014) Intellectual Property Law. Law Press, Beijing, pp. 212–213.


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on trademark. It is also important for there to be prohibitions on the behaviour of trademark owners if they act in bad faith. The restrictions on packaging and decorations of tobacco products in TPPA have the potential to negatively affect a trademark’s ability to attract consumers. It may also make it difficult for consumers to distinguish between the varieties of tobacco brands. However, the TPPA does not prohibit the use of trademarks on the tobacco products, or prohibit printing or showing the trademark on the packaging. Therefore, each tobacco product can still use its own trademark brand on the regulated area according to the required standards. As aforementioned the theory of intellectual property interest balance is necessary to balance the public and private interests in determining property rights. In order to reach this balance, it usually needs the intellectual property right owners to give up some parts of their rights, to guarantee that the public interest can be realised smoothly. Therefore, for protecting the public interest and health, the TPPA requires the trademark right owners of tobacco products to simplify the forms of the trademarks in accordance with TPPA’s limitations on tobacco products packaging and decorations. Meanwhile, it is consistent with the principles and spirit of a number of international treaties or agreements, including Doha Declaration etc. This innovative action of Australia resulted in many countries and regions adopting or learning its principles. For instance, France and the United Kingdom adopted tobacco plain packaging legislation on May 20th, 2016. While Norway and Ireland started implemented tobacco plain packaging legislation in 2017. In addition, New Zealand, Hungary and Slovenia will implement the tobacco plain packaging act during the period from 2018 to 2020.31 Besides these countries, there are other countries from each continent trying to push similar acts through their legislative bodies.

7 The Choice of Chinese Intellectual Property Law on the Interest Balance Although China joined the WTO ‘Framework Convention on Tobacco Control’, until now, China has not issued or adopted any tobacco plain packaging act or similar act. Moreover, it seems that China does not currently have any intention to do so in the near future.

31 Framework Convention Alliance (2017)

Plain packs proliferating. packaging-and-labelling/1520-plain-packs-proliferating. Accessed 8 July 2017.

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7.1 The Laws and Regulations on Chinese Tobacco Products Packaging The current new law and regulation of P.R.C. relevant to the packaging of tobacco products d is the Regulation on Tobacco Packaging Label in domestic People’s Republic of China which was issued by the State Tobacco Monopoly Administration and General Administration of Quality Supervision, Inspection and Quarantine of the People’s Republic of China together on January 22nd, 2017.32 The purpose of this regulation is to strengthen smoking control, guarantee public health and protect the benefits of consumers. It mainly regulates how to label the warning on the packaging body of tobacco, what contents should be labelled on the packaging body and what words are forbidden to be used, etc. This new regulation is also an effort to complement the global Framework Convention on Tobacco Control. According to this regulation, the warning words area should be listed on the front and back sides of strip or box packaging, and the warning words area should not be smaller than 35% of the surface on which it lies in. The background color can reflect the original trademark area’s single background color. Box packaging warning words area should lie in the bottom or right side of the surface on which it lies in, while strip packaging warning words area should lie on the right or bottom side of the surface on which it lies. The height and font describing the warning on the strip and box packaging should be no smaller than 7.0 and 4.5 mm separately. In addition, the tobacco packaging should mark the flue gas composition and released things, such as tar quantity, nicotine content, carbon monoxide, etc., according to the national standard, while the height of these Chinese words should be no smaller than 2.0 mm. It can be said that this new regulation is intended to comply with the WTO’s ‘Framework Convention on Tobacco Control’. However, after reading the full text of the regulation, it is noted that there are no limitation requirements on tobacco products plain packaging which are similar to those in the Australian TPPA. It is therefore my view, that the Chinese tobacco packaging laws still remain in the preliminary phase, and the level of limitation on the tobacco products plain packaging differs largely from Australia, France, UK, etc. This is because P.R.C. is a big country with huge numbers of people, and the numbers of smokers are also very large. Therefore, it is very difficult to impose changes in a short period of time because of habit and economic issues. However, the P.R.C. government is making an effort to limit smoking by prohibiting smoking in public areas and on high speed trains. Therefore, in the long term, it is estimated that the P.R.C. will enhance the level of smoking limitations incrementally and decrease the numbers of smokers.

32 General Administration of Quality Supervision, Inspection and Quarantine of the People’s Repub-

lic of China (2017) Regulation on Tobacco Packaging Label in domestic People’s Republic of China. Accessed 8 July 2017.


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7.2 Summary of Chinese Current Intellectual Property Law and Interest Balance Although China has not invoked a Tobacco Plain Packaging Act, the spirit of balancing the interests of intellectual property and focusing on public health does feature in current intellectual property laws. China’s intellectual property laws include: Copyright Law of the People’s Republic of China and its Implementing Regulation, Trademark Law of the People’s Republic of China and its Implementing Regulation, Patent law of the People’s Republic of China and its Implementing Regulation, Regulation of Computer Software Protection, Regulation on the Protection of the Right to Network Dissemination of Information, Regulation on the Protection of New Varieties of Plants and its Implementing Regulation, Regulation on the Protection of Layout-Design of Integrated Circuits and its Implementing Regulations, etc. Among the above mentioned laws and regulations, the Patent Law has included direct and clearly expressed wording on the balance of interest and public interest protection. First, in the principle of the law, it regulates that protecting the patent rights of invention and creation and persuading invention and creation, and its purpose is to benefit the promotion and use of invention and creation. Meanwhile, it also promotes the development of science technology and creation. All of these demonstrate China’s goal to promote the public interest purpose of Patent Law directly. Furthermore, Patent Law also excludes those inventions and creations which violate the country laws, society morality or hinder the public interest. At the same time, Patent Law regulates which kind of invention or creation can be included in the patent law protection system, and those which should be excluded. In addition, Article 49th of Patent Law regulates “Where a national emergency or any extraordinary state of affairs occurs, or where the public interest so requires, the Patent Administration Department under the State Council may grant a compulsory license to exploit the patent for invention or utility model.” And Article 50th of Patent Law also regulates “For the purposes of public health, the patent administration department under the State Council may grant a compulsory license to manufacture a pharmaceutical product which has been granted patent right and export it to countries or regions specified in the relevant international treaties to which China is member.”33 This article is similar to the regulation related to compulsory license of a patent regulated in Australian Patent Law. Besides the Patent Law, other Intellectual Property laws in China also have the clear regulations on interest balance. For example, in its Copyright Law, China always prioritises the protection of the author. At the same time, it also puts the benefits of authors and work transmitters together, and considers carefully the benefits of transmitters. Based on providing good protection on copyright, China seeks to keep the balance between protection and limitation of copyright through regulating fair use, compulsory license etc. Accordingly, China achieves the interest balance among authors, transmitters and users, and guarantees the persuasion on creation, meanwhile 33 Patent

Law Of The People’s Republic Of China (2009).

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it makes sure that the works can be transmitted legally and effectively. Furthermore, it also allows the users and consumers to obtain knowledge easily to benefit society as a whole. Chinese Trademark Law improves the public interest through guaranteeing the benefits of consumers and enhancing effective competition. Trademark not only functions to distinguish the origin of product, but also to maintain product quality. According to economic theory, trademark can reduce the need for consumers to search for appropriate products in some certain conditions. In other words, if a consumer is satisfied with a product, then the trademark will give them confidence to buy products that carry the same trademark. Therefore, regulating limitations on trademark applications and protecting the benefits of trademark owners will become very important. Chinese Trademark Law maintains the trademark function for distinguishing the origin and also guarantees the good order of the produce in market operations. In light of this, the interest balance between the rights of the trademark owner and the common consumer could be achieved.

8 Conclusion This paper has demonstrated that both China and Australia share similar views in terms of interest balance and protection of the public interest. In addition, they take similar approaches in terms of issuing applications and executing laws in relation to intellectual property. Based on this, it is very likely that China will follow suit and legislate to require plain packaging for tobacco products in the future. After all, the Chinese government has traditionally prioritised the importance of the interest balance of Intellectual Property and the guarantee of public interest.

Denouncing Trade Agreements Validating Pharmaceutical Developers’ Term Extensions Sunita Tripathy

Abstract Free Trade agreements have had extraordinary effects on the production and use of pharmaceuticals in India. Following the Word Trade Organisation’s Agreement on Trade Related Aspects of Intellectual Property, there has been a plethora of attempts at the level of international trade negotiations to extend the rights of pharmaceutical companies over medicinal compounds. This chapter explores this area’s developments showing how it has been a detrimental development for countries such as India. Keywords CPTPP · Free trade agreements · Patent linkage Pharmaceutical companies · Medicinal compounds · TRIPS plus norms Term extensions

This book chapter is a revised version of the presentation ‘Innovation Models in the Pharmaceutical Industry’ at the Second Asia-Pacific Workshop on Innovation, IP and Competition at National Law University, New Delhi, INDIA on February 07, 2018 that was later expanded and developed into a working paper entitled ‘Patent Linkage within TRIPS: A Purposive Interpretation’ presented at PatCon 8: The Annual Patent Conference held at University of San Diego School of Law, USA on March 02, 2018. S. Tripathy (B) Jindal Global Law School (JGLS), O. P. Jindal Global University in Haryana, Sonipat, India e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2019 L. Corbin and M. Perry (eds.), Free Trade Agreements,



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1 Introduction On an average, the annual increase in list prices for major originator biopharmaceutical companies of the USA was about 9% until 2018.1 Increase in off-patent drugs,2 decrease in the number of new chemical entities (NCEs) launched each year and the eroding patent estate has exacerbated the problem of exorbitant pricing of pharmaceuticals. Contemporary consolidation strategies and mergers have resulted in creation of biosimilars3 and blockbuster generics4 by way of alliances with branded pharmaceuticals for securing marketing and exclusivity rights. By filing secondary patents for derivatives and variants of the active pharmaceutical ingredient (API), biopharmaceutical companies are increasingly postponing their loss of exclusivity. An illustration of this can be seen with the world’s best-selling prescription drug, Humira. Humira’s API adalimumab, is used for the first-line biologic therapy of inflammatory bowel diseases such as ulcerative colitis as well as treating conditions of arthritis. The US patent on the molecule lapsed in 2016, however, AbbVie Inc continues to develop Humira variants such as new indications, physical variants of the API, new formulations, dosage regimens, and new methods of administering the medicine.5 Global data forecasts that by 2026, AbbVie Inc’s Humira will generate sales of more than USD $1.3 billion from its secondary patents and blockbuster therapies.6 These will delay the entry of generic and cheaper alternatives in global markets for considerable periods of time. The USPTO recognises and encourages secondary patents.7 India, on the other hand does not consider them patent eligible. A recent study examining all 1723 pharmaceutical patent applications rejected by the Indian patent office between 2009 and 1 See

Colin Terry and Neil Lesser, “A new future for R&D? Measuring the return from Pharmaceutical Innovation 2017” (Deloitte with GlobalData) online: content/dam/Deloitte/uk/Documents/life-sciences-health-care/deloitte-uk-measuring-roi-pharma. pdf. Accessed on 1 August 2018. 2 See Frost and Sullivan, “Generic Pharmaceuticals Market—A Global Analysis” (December 23, 2011) online: (Ripe for Growth and Opportunities: Several Key Blockbuster Drugs to go off-patent by 2014). Accessed on 1 August 2018—the Frost & Sullivan Report, 2011 states notable increase in off-patent drugs between 2000–17. 3 Biosimilars are antibody copy of biologics. They were first approved in Europe in 2013 for InflectraTM (Hospira), the bio-similar of Johnson & Johnson’s Remicade (infliximab) for treating inflammatory diseases such as psoriasis and rheumatoid arthritis. 4 See for example, Lipitor and Crestor by companies such as Teva, Mylan and Sandoz. 5 For Humira patent working documents, see, US Securities and Exchange Commission, Annual Report of Abbvie Inc (Form 10-K) 000104746913002827/a2213529z10-k.htm. Accessed on 1 August 2018. 6 GlobalData (January, 2017) PharmaPoint: Ulcerative Colitis—Global Drug Forecast and Market Analysis to 2025. GDHC142PIDR, Accessed on 1 August 2018. 7 35 U.S.C § 101.

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2016 revealed that 45% of these failed to meet the qualitative standard of therapeutic efficacy under Section 3 (d) of the Patent Act, 1970.8 Notably, these applications sought for grant of secondary patents and were rejected largely due to failure to meet the thresholds prescribed under sections 2(1)(ja) and 3 (d) of the Act.9 Cumulatively Sections 3(d), 3(e) and 3(i) have been instrumental in rejecting close to 1000 secondary patents for pharmaceuticals that cure diseases ranging from asthma to cancer and the like. Humira variants constitute some of these rejected secondary patents. Consequentially, while Humira costs USD $1300 (equivalent to |85,000) in the U.S., the same treatment costs only USD $200 (equivalent to |13,500) in India.10 This is also due to the price competition offered by cheaper and alternative versions in the domestic market. Novartis’ secondary patent on Glivec, used for treating blood cancer, was invalidated by the Supreme Court of India due to its ‘evergreening’ nature,11 that is, the attempt to extend original patents by filing for a new patent on an old drug with minor changes. This patent invalidation has allowed cancer patients to avail low cost alternatives in several importing countries (including US).12 However Free Trade agreements (FTAs) have had extraordinary effects on the production and use of pharmaceuticals in economies such as India due to their term extension provisions. Originator pharmaceutical companies, even after the patent expiry, enjoy a market monopoly until the drug regulator approves a generic version due to data exclusivity norms.13 This IP-like monopoly period can range from two to four years in India. 8 See,

Feroz Ali, Sudarsan Rajagopal, Venkata S Raman and Roshan John, “Pharmaceutical patent grants in India” (April 2018) online: Accessed on 1 August 2018 [Ali et al. 2018]. Also see especially, Bhaven Sampat and KC Shadlen (2018) Indian Pharmaceutical Patent Prosecution: The changing role of section 3(d). PLoS ONE 13(4): e0194714. online: 1371/journal.pone.0194714. Accessed on 1 August 2018. 9 See (Ali et al. 2018) supra note 8. For provisions, see Indian Patent Act, 1970 (as amended), Section 2(1)(ja); Sections 3(d), (e) and (i). 10 See Ali Feroz and Rajagopal Sudarsan, (8 February 2018) Biologics, patents and drug prices. The HINDU. 11 Novartis AG v. Union of India (UOI) and Ors.; Natco Pharma Ltd. v. UoI & Ors.; M/S Cancer Patients Aid Association v. UoI & Ors. CIVIL APPEAL Nos. 2706-2716 OF 2013 (ARISING OUT OF SLP(C) Nos. 20539-20549 OF 2009). 12 See also, Ali and Rajagopal, supra note 10—While the cost of a monthly dose of the medicine (Glivec) in the U.S. was |1.6 lakh, while the cost of the generic was |11,100 in India. Likewise, Spiriva, a medicine for asthma, enjoys patent protection until 2021 in the U.S., largely due to secondary patents. All of these secondary patents were rejected in India. As a result, while the monthly cost of the medicine in the U.S. is over |19,100, it costs a mere |250 in India. 13 See for example, In US, the concept of patent linkage has been statutorily provided for under the Drug Price Competition and Patent Restoration Act, 1984 (a major amendment of the Federal Food, Drug and Cosmetic Act) informally known as the Hatch-Waxman Act 1984. Linkage in US is applied though the publication of Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. The FDA cannot approve a second application in case there is a patent listed in the Orange Book for the pioneer drug on which the second application relies on. Therefore, when a second applicant submits an ANDA (Abbreviated New


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Notwithstanding the national law, the Indian government has been repeatedly sought to extend the term of data exclusivity from four years to ten years insisting that the World Trade Organisation’s multilateral Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) negotiated at the end of the Uruguay Round of the General Agreement on Tariffs and Trade in 1994 requires adoption of such ‘patent linkage’ norms. India ‘the global pharmacy of the world’14 maintains that restricting the use of test data by linking it to patent status is not envisaged within the TRIPS. Infact all use of test data, by government authorities to assess the efficacy and toxicity of a pharmaceutical product and, by third parties for experimental purposes is considered permissible under Article 39(3), as it was assumed to beneficially facilitate entry of generic versions upon the expiry of patent and/or data exclusivity period. However, such TRIPS-plus norms of term extension have been introduced through FTAs in recent times.15 The Trans-Pacific Partnership Agreement, post US withdrawal has been re-christened as the Comprehensive and Progressive Trans-Pacific Partnership Agreement (CPTPP) and continues to impose increased exclusivity and patent linkage norms. With some new members (such as the UK, post the BREXIT vote) CPTPP provides measures for regulating pharmaceuticals that go beyond the scope of Article 39(3) of TRIPS16 and adds to the politicisation of healthcare within the international trade narrative.17 Test data and clinical trial information is valuable for drug development. The phenomenon of ‘patent linkage’ requires purposive interpretation of Article 39(3) of TRIPS and clarity as regards its application to WTO members. For the sake of brevity, there are four main sections discussed below. First, a brief overview of the evolution of the Indian patent regime post-TRIPS explains the importance of balancing societal interests while determining marketing and exclusivity rights for pharmaceuticals as Drug Application (application for a typical generic drug) [filed under Section 355 of the US Code Title 21, Chapter 9, sub chapter 5] or a section 505(b)(2) application, it must include appropriate certifications that they have permission to use all of the patents listed in the Orange Book with respect to the drug which serves as the basis for their petition (US Code Title 21, Chapter 9, Subchapter 5, Section 355 (b)(2)(A) [3] and Section 355 (j)(2)(A)(vii) [4] provide that the applicants have four certification options). Also see, specific provision that requires generic be given regulatory approvals only after the expiry of patent exclusivity -- 21 U.S.C.§ 355(j)(5)(F)(ii) of the American Food and Drug Law and Section C.08.004.1(3)(a) of the amended Canadian Food and Drug Regulations. 14 India accounts for 40% of generic drugs in the drugs in the United States; see India Brand Equity Foundation “Indian Pharmaceutical Industries” June 2018, pharmaceutical-india.aspx. Accessed on 1 August 2018. 15 See for example, Article 1711 NAFTA, paragraphs 5 and 6; See also, Shaffer Ellen and Brenner Joseph. (2009) A Trade Agreement’s Impact On Access To Generic Drugs. Health Affairs. 28(5): w957. 16 See generally, Skillington G. Lee and Solovy Eric M. (2003) The Protection of Test and Other Data Required by Article 39.3 of the TRIPS Agreement. Nw. J. Int’l L. & Bus. 24(1): 1, 12-5. 17 See, Oxfam International. (March, 2007) All costs, no benefits: How TRIPS-plus intellectual property rules in the US-Jordan FTA affect access to medicine. Oxfam Briefing Paper. https://;jsessionid=089750820CF675173F0C3204C369D63F?sequence=1. Accessed on 1 August 2018.

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agreed in TRIPS. Then the legal background and theoretical justifications for conferring exclusivity over test data—a public good is discussed. This section includes an interpretative analysis of the provisions of TRIPS to address the question: “Does TRIPS require drug regulatory authorities of member states to consider patent status before approving a [generic] substitute for marketability?” The second section clarifies the Indian position and judicial approaches on the issue, and analyses whether prolonged test data exclusivity can result in abuse of market monopoly allowing for anticompetitive practices and unfair restraint of pharmaceutical trade in India. The third section analyses the clauses of CPTPP and reflects on the potential dangers to pharmaceutical availability due to introduction of enhanced exclusivity norms internationally. Finally, the concluding section discusses the exclusivity enhancing implications of patent linkage for India and suggests newer ways to adopt a balanced way forward.

2 TRIPS Obligations for Pharmaceutical Test Data Use 2.1 TRIPS Compliant Patent Regime for Pharmaceutical Innovation in India Biopharmaceutical innovation is characterised with unique challenges, ethical implications and often includes a greater expectation of social responsibility. Over time methods for drug discovery have transitioned from the use of heuristic techniques to ones that are optimal and certain. The last century saw random screening being replaced with rational drug design. Advances in science and technology have systematically pushed the biopharmaceutical companies to transition from conventional small molecule drugs to biologics and precision medicine. Indian patent law underwent significant amendments in order to comply with the minimum requirements prescribed by the TRIPS. It embraced the transitory provisions under Article 65 to introduce a temporary measure of housing product patent applications in a mailbox for examination after a period of ten years, and provided exclusive marketing rights to applicants until the amendments were made to comply with TRIPS. Subsequently the 2005 amendments led to the repeal of Section 5 of the previous Act which excluded product patents and amended the law to include TRIPS compliant exclusions for patent eligibility and inserted a new provision (under Section 3(d)) requiring mere variants of known compounds that lacked a demonstrable increase in clinical efficacy to be invalid.18 For the development of new drug candidates of the highest quality, safety and efficacy, India framed a clear regulatory framework for conducting clinical trials Table 1 that compliment the process of pharmaceutical innovation Table 2 in a systematic way. 18 Indian

Patent Act, 1970 (as amended), Section 3(d).


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Table 1 Regulations governing clinical trials in India • Schedule Y and Part X-A of the Drugs & Cosmetics Act and Rules, 1945 • Specifically, • 122-A Application for permission to import new drug • 122-B Application for approval to manufacture new drug • 122-D Permission to import or manufacture FDC • 122-DA Permission to conduct clinical trials for New Drug/Investigational New Drug—122DAA defines ‘clinical trial’ • 122E—defines ‘new drug’ under the Indian Law • Indian Council for Medical Research’s Ethical Guidelines • See also, draft “New Drugs and Clinical trials Rules, 2018” (The Central Drugs Standard Control Organization) Table 2 The business process of drug development • Phase Ia: pre-discovery (choosing a biological target) • Phase Ib: drug discovery (rational drug design for the ‘drug candidate’ molecule) • Phase IIa: pre-clinical testing phase (the safe starting dose) • Phase IIb: clinical trials on humans (i) Human testing on healthy volunteers to establish safety (ii) Testing on small group of patients to demonstrate efficiency (iii) Testing on large group of patients to establish safety and efficacy • Phase III: application requesting approval to market the drug • Phase IV: post-market monitoring and trials to evaluate long term safety

The Doha Declaration, 2001 and the 2003 General Council of TRIPS decision allowed for TRIPS flexibility that legally accommodates the compulsory licensing regime—wherein the patent granting State can impose a legal obligation to share IP in exchange for monetary compensation—on an originator company that does not license it voluntarily, in order to promote competition in the market. This paved way for a mandatory requirement of “working of patents” within three years from the date of grant of patent under Section 83 of the Act. Failure on the part of Bayer Corporation, to make Sorafenib Tosylate (brand-name Nexavar) a drug for treating liver and kidney cancer available to no more than 2% of the patient population at reasonable affordable price and inability to manufacture the product in India, led to the grant of the first compulsory license u/Section 84 of the Act in favour of Natco Pharma (a generic manufacturer based in India) for manufacture and sale of the generic version Sorafenat until the expiry of Bayer’s patent term in 2021. Consequently, the price of the drug reduced from |2.84 lakhs (approximately USD $4500) for 120 tablets/per month of treatment, to |8800 (~USD

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$125)/per month.19 Bayer Corporation was sanctioned for abusing their patent right by adopting exorbitant pricing tactics with an order for appropriate royalty payable at 6% of the generic price in its favour. The ongoing litigation of20 is a recent development in Indian patent practice, where the Delhi High Court on September 2015 issued notice on a ‘patent working’ public interest litigation. This action seeks compliance on the part of pharmaceutical companies to mandatorily submit their local working data in Form 27 as required by Section 83 under the Patent Act, 1970. The petitioner after examining Form 27 filings of over 150 patents including those related to life-saving drugs has submitted details demonstrating information gaps and lack of evidence of local working of the patents in India and sought the Court to direct Union of India and the Controller General of Patents to enforce the statutory obligation and penalise the non-performing entities. On December 12, 2017 the Delhi High Court passed orders seeking a status report on the extent of non-compliance and action taken by the Government since the filing of the petition. As is legally prescribed, failure to work a pharmaceutical patent can be a ground for issuance of compulsory license in public interest. Having issued a compulsory license in 2012 and rejected the ever greening tactics of originator pharmaceutical companies in 2013, India has been rebuked for favoring generics through its patent regime.21 The Special 301 Report of the Office of the US Trade Representative even places India on its watchlist with allegations of weak IP enforcement.22 Humanitarian groups view India to be unfairly targeted, and support the Indian position: [G]lobal trade policies give countries the right to act in the face of of public health needs – they should be encouraged, not punished, for using these safeguards as they are meant to be used… [I]ndia which has been on [the USTR Special 301] watch list for years, accounts for one fourth of the global burden of multi-drug resistant TB (MDR-TB). While patient groups have repeatedly urged the Indian government to fight to increase access to newer, safer and more tolerable medicines for MDR-TB programs across the world – as India has done for HIV and older TB drugs – The US government and the companies that make the drugs are pushing India to doing what’s best for them rather than the people desperately in need of treatment.23

Enhanced exclusivity norms override these exceptions to patentability. Infact, patent linkage can even act as a barrier to a compulsory license. This compounds 19 Natco

Pharmaceutical v. Bayer Corporation [(2012) 50 PTC 244]. Basheer v. Union of India, W.P.(C) 5590/2015 [pending for disposal]. 21 USTR Releases 2018 Special 301 Report on Intellectual Property Rights (April 2018) Accessed on 1 August 2018; See also, Jamie Feldman (2009) Compulsory licenses: The dangers behind the current practice, J. Int’l Bus & Law, 8(1): 137–167. 22 Ibid. 23 Leonardo Palumbo, (27 April 2018) Doctors Without Borders’ Access Campaign, “MSF: USTR Special 301 Report Calls Out Countries For Protecting Public Health” https://www. Accessed on 1 August 2018. 20 Shamnad


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the unresolved problem of ‘access to health’ versus ‘incentive for health innovation.’ With this overview, the following sections deliberate on the legal boundaries of the patent linkage phenomenon, and its consequences for health innovation in India.

2.2 Legal Background and Theoretical Justifications 1. Comprehending the public good doctrine vis-à-vis exclusivity Intellectual works are public goods—non-rivalrous—nonexclusive in nature. Their supply needs to be incentivised in ways that maximise wealth for the creator. “[T]he creation of valuable intellectual works requires that intellectual laborers be granted property rights in those works [to ensure their continuous production].”24 Thus the incentive theory insists on ‘wealth maximisation effects’ as a justification for IPR. Classic utilitarianism considers the grant of a limited monopoly right as a fair exchange for investing time and resources to develop socially optimal products that contribute to human progress.25 Differentiating between ‘capacity for pleasure’ and ‘production for others’ as different ethical systems, Posner theorises thus26 : Utilitarianism […] holds that the moral worth of an action is to be adjudged by its effect in promoting happiness – surplus of pleasure over pain – aggregated across all of the inhabitants of ‘society.’27

Thus creators of intellectual works that contribute to enhancing happiness of the greatest number are accorded legal exclusivity for defined periods of time. This in turn restores the excludability of the public good, enabling private appropriation of the benefits of its exploitation. Similarly, test data can be seen as a public good which is created during the intermediate stages of developing an exclusive end product, i.e., the pharmaceutical patent. When this public good (test data  intermediate/input) is bundled with the exclusive good (pharmaceutical  end product) the problem of undersupply is resolved. It is thus debatable whether test data exclusivity serves utilitarian objectives. Article 28.1(a) of the TRIPS Agreement, envisages the ‘public good doctrine’ discussed above. While providing the rights of a patentee in case of product patents it includes—the right to prevent third parties not having patent holder’s consent from making, using, offering for sale, selling or importing the product. This patent right under Article 28 when read to include ‘Test data use’ or the “submission of

24 Hettinger

Edwin C. (1989) Justifying Intellectual Property. Phil & Pub Aff. 18(1): 31. generally, Spinello Richard A. (2009) A Defense of Intellectual Property Rights, 167. Also see, Machlup Fritz (1958) An Economic Review of the Patent System Study No. 15, Study of the Subcommittee on Patents, Trademarks and Copyrights of the Committee on the Judiciary, United States Senate, 85th Congress, 2nd Session 20. 26 Posner Richard A, (1979) Utilitarianism, Economics and Legal Theory. J. Legal Stud. 8:103. 27 Ibid. 25 See

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undisclosed test or other data” as part of the approval process for marketing pharmaceuticals under Article 39.3 is explained as ‘Patent linkage’. In practice, the patent registration and drug marketing approval are clubbed together, in order to prevent a drug manufacturer from obtaining drug marketing approval while the original version of the drug is still under patent, unless by consent of the patent owner. 1.1 Emphasising the public interest exception under Article 39(3) of TRIPS Article 39 of the TRIPS Agreement introduced the first international standard conferring exclusivity to pharmaceutical test data.28 More specifically, Article 39 (3) envisages protection of pharmaceutical test data or clinical trial information against disclosure and unfair commercial use, provided it involves considerable effort. Article 39(3) states, Members, when requiring, as a condition of approving the marketing of pharmaceutical […] products which utilize new chemical entities, the submission of undisclosed test or other data, the origination of which involves a considerable effort, shall protect such data against unfair commercial use. In addition, Members shall protect such data against disclosure, except where necessary to protect the public, or unless steps are taken to ensure that the data are protected against unfair commercial use. [emphasis added] Except where, Members may disclose the test data submitted to them as a condition of marketing approval—where it is necessary to protect the public or, where protection against unfair commercial use has been granted. [emphasis added]

It is a broad provision with several inbuilt flexibilities that serve to balance the interests of the innovator and the patient populace. For one, clinical trial data is valuable information that is extremely sensitive to misappropriation and commercial abuse; it should be protected. As per the provision, Members have the obligation of protecting the economic interest of Originator biopharmaceutical companies that invest resources to conduct clinical trials and generate undisclosed information as to safety, efficacy and potency of the drug candidate so that it is safe to be marketed as a part of a drug. (See, Table 2 for phases of drug development). This data protection measure is in addition to the limited monopoly sought by the patentee before the Patent office. Members have the obligation of protecting the economic interest of Originator biopharmaceutical companies that invest resources to conduct clinical trials and generate undisclosed information from unfair commercial use. The provision does not explain (i) what amounts to unfairness towards the originator and (ii) whether commercial use relates to acts contrary to honest commercial practices following a misappropriation approach under Article 10 bis (2) of the Paris Convention,29 or 28 Correa Carlos M. (2007) Trade Related Aspects of Intellectual Property Rights: A Commentary on

the TRIPS Agreement 374; Gervais Daniel, The TRIPS Agreement: Drafting History and Analysis 424 (3rd ed. 2008); UNCTAD-ICTSD (2005) Resource Book on TRIPS and Development 522. 29 See, Paris Convention for the Protection of Industrial Property, Mar. 20, 1883, as last revised July 14, 1967, 21 U.S.T. 1583, 828 U.N.T.S. 305 at art. 10 [hereinafter “Paris Conven-


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whether it creates a separate exclusivity provision for test data protection where prior authorisation of the originator is mandated for all commercially viable uses. There is no mention of any minimum duration of data protection, or other IPR-like specificities. In effect, members have the flexibility to define what constitutes ‘unfair commercial use’ of test data as per their national health requirements.30 Some contentious examples include, use by • Independent experts to examine test data as to whether it correctly reflects the safety and efficacy of the product in question. (Examiner’s use) • Third parties, that acquire test data already submitted by the submitter to the approval authority by dishonest means to support their own applications. (commercial use by this third party) • Indirect use of, reference to or reliance on the test data to approve a bioequivalent pharma product. (Third party indirect use) All of the above have commercial implications for the submitter of the test data. The use of test data by Approving Authority to carry out a comparison with the originator product for the purposes of certifying bioequivalence of the ‘generic’ or second entrant’s product, when interpreted literally is no doubt prejudicial to the commercial interests of the originator biopharmaceutical company. It enhances price competition and removes barriers to entry of the bioequivalent generic products. However, when purposive interpretation is adopted, unfair commercial use cannot be mistaken for indirect use of test data.31 Only when a generic directly uses the test data submitted by the originator biopharmaceutical company will it constitute unfair commercial use by third party. Similarly use by an independent expert or examinee may require prior authorisation in certain countries.32 The policy goal of indirect use of, reference to or reliance on the test data to approve a bioequivalent pharma product is to avoid, unnecessary duplication of test data and unnecessary exposure of humans and animals to the risks associated with clinical trials.33 The indirect benefit is to make the pharma product available at reduced prices.

tion”].Misappropriation is a basic norm in the field of Unfair competition. Article 10 bis (2) of the Paris Convention. However, the focus of discussion in this section of the paper is the presence or absence of test data exclusivity mandate. For a historical reference, see Carlos. M. Correa, Unfair Competition under the TRIPS Agreement: Protection of Data Submitted for the Registration of Pharmaceuticals, 3 Chi J. Intl L 69. 30 EU revised its laws and now grants absolute data exclusivity for 8 years. China, Canada and Singapore have drug regulation laws with data exclusivity standards similar to that in the US. 31 See judicial reasoning in Bayer v Canada [1999] 1 FC 553-582, affirmed 87 CPR (3d) 293. 32 Countries with strong R&D pharmaceutical industry (US-EU-Swiss) require regulatory authorities or third parties to insist on Originator Company’s consent for subsequent test data use during specified period of exclusivity. See, International Federation of Pharmaceutical Manufacturers Associations, Encouragement of New Clinical Drug Development: The Role of Data Exclusivity, 1 (2000) pdf. Accessed on 1 August 2018. 33 See generally, Ragavan Srividhya and Joshi Moushami, (27 December 2016) Backdoor Patents Could Hurt Patents. BUSINESS LINE.

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The Article necessitates protection of ‘new chemical entities’ (NCEs). However the term is undefined. Members may interpret it as per their national health requirements. Thus if a biopharmaceutical company seeks marketing approval and patent exclusivity for a product with a NCE, and fails to avail a patent; it is for Members to determine whether the NCE consequentially loses its new-ness as well. Data exclusivity without a valid patent creates an opportunity for the biopharmaceutical company to abuse the privilege and keep the test data out of a generic’s reach for over four years. Moreover, ‘new dosage forms and combinations,’ have also been protected as NCEs to favour pharmaceutical companies in some countries.34 A second data protection for variants of “previously approved” or ‘known’ chemical entity for a different treatment leads to examining the same NCE multiple times and increases costs due to regulatory delays. Moreso, biologics—naturally occurring products—do not qualify as NCEs; however evolving data exclusivity regimes protect them nonetheless.35 There is no basis to treat NCEs as a regulatory concept separate from novelty in patents, other than to enjoy an indirect market monopoly and limit generic competition. Expending resources to conduct clinical trials is not a viable option for generics. However, applicants of a new drug are legally mandated to conduct clinical trials and seek approvals, rather than rely on test data information from other countries. In India, a new drug refers to a product that has not (a) been recognised or licensed in India, or (b) recently licensed and approved for marketing or, (c) a combination drug individually approved earlier but will be marketed as a combination, or (d) vaccines and Recombinant DNA (r-DNA) derived drugs. Section 122 E of the Drug and Cosmetics Act, 1940 (as amended in 1995) provides for test data exclusivity for a new drug for a total period of four years from the date of approval irrespective of the patent status.36 The requirement to conduct clinical trials for new drugs can be waived only to protect public interest, or when the new drug has been approved and marketed for several years in other countries. Article 39(3) cannot be interpreted to mean that it would hinder entry of affordable health products.37 When test data exclusivity is linked with the patent status, subsequent applicants cannot use a patented pharma product or compound to prepare its application for marketing approval during the term of patent. Drug innovation suffers as experimental use is discouraged due to heavy cost burdens. Furthermore, quality of pharmaceutical patents would also suffer as it limits use for purposes of regulatory review as well. Therefore, considering test data exclusivity as the sole interpretation of ‘protection against unfair commercial use’ and indirect use of test data for approval of subsequent generic pharmaceutical applications as ‘unfair com34 Nemlekar Aparna, Stakleff Nicole and Miller Raymond, (9 July 2016) FDA is Evolving on Qualifications of New Chemical Entities Accessed on 1 August 2018. 35 Association of Molecular Pathology v Myriad Genetics, 569 U.S. _, 133 S. Ct. 2107, 2116, 106 USPQ2d 1972 (2013). 36 Section 122E of the Drug and Cosmetics Act, 1940 (as amended in 1995). 37 Basheer Shamnad (2006) Protection of Regulatory Data Under Article 39.3 of TRIPS: The Indian Context. Intellectual Property Institute.


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mercial use’ and NCE based indirect monopoly despite invalid patents does not have a basis in Article 39 (3) of TRIPS. The terms, “where it is necessary to protect the public” in the Article clearly include a public interest exception so that members may be able to ensure affordable healthcare and limit abuse of IP rights. For example, members that prioritise access to healthcare, may formulate exceptions to test data exclusivity in the event that compulsory license is issued for the pharmaceutical drug.38 Regulatory reviews similar to the compliance requirement in patents may be adopted.39 Rules of procedure such as opposition against test data exclusivity, early filing and early launch of pharmaceutical products may be prescribed; and reliance on foreign approval may also be permitted under national law. 2. Conclusion Test data exclusivity mandate in strictu sensu application, requires all WTO members to impose a negative obligation on third parties, especially drug approval authorities, to refrain from using, relying or referring to such data. Such application impedes access to medicines and will apply even where no test data has been submitted and the bioequivalence comparison is made with the product approved in another jurisdiction. Such that an independent expert will be unable to assess drug efficacy or when invalid patents enjoy NCE based market exclusivity. An absolute right—which cannot be infringed as there is no possibility of launching a competing product in the market without a marketing approval—it cannot be subject of any validity challenges. Thus test data exclusivity does not particularly foster drug innovation. However, it can prove to be advantageous in strengthening the dominant position of biopharmaceutical companies whose patents have expired or have failed to meet the patentability standard. These originator companies, towards the end of the exclusivity period of the main product, may test the patented molecule for different dosages, routes of administration, or entirely new population and utilise the test data exclusivity to develop secondary patents or seek protection for biologics. Members have the flexibility to adopt a stringent or reasonable test data exclusivity regime (or unfair competition rules) as per their national priorities. as per their socioeconomic requirements. A purposive interpretation of Article 39(3),40 clarifies that 38 Correa Carlos M. (2006) Protecting Test Data for Pharmaceutical and Agrochemical Products under Free Trade Agreements. In: Roffe Pedro et al. (eds) Negotiating Health: Intellectual Property and Access to Medicines, 81: 91-3; Dinca Razvan (2005) The “Bermuda Triangle” of Pharmaceutical Law: Is Data Protection a Lost Ship? J. of World Intell. Prop 517, 542; Clift Charles (2007) Data Protection and Data Exclusivity in Pharmaceuticals and Agrochemicals. In: Krattiger Anatole et al. (eds) Intellectual Property Management in Health and Agricultural Innovation: A Handbook of Best Practices 431, 433. 39 See generally, Baker Brook K (2008) Ending Drug Registration Apartheid: Taming Data Exclusivity and Patent/Registration Linkage Am. J. L. & Med. 34:303; Roffe Pedro and Spennemann Christoph (2010) Canada—patent protection of pharmaceutical products. In: Research Handbook on the Interpretation and Enforcement of Intellectual Property Under WTO Rules: Intellectual Property in the WTO—Vol II, 237, 274-5. 40 As per the rules of treaty interpretation prescribed under Article 32 of the Vienna Convention on the Law of Treaties (VCLT), it is confirmed that test data exclusivity is not the minimum obligation

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neither is adopting a regime comprising of test data exclusivity compulsory nor does the TRIPS agreement require drug regulatory authorities of member states to consider patent status before approving a [generic] substitute for marketability.

3 Judicial Approaches to Patent Linkage in India 3.1 Revisiting Opinions of Courts and the Competition Commission of India 1. Recent Case law 1.1 Bristol-Myers Squibb Co. (BMS) v Hetero Drugs Ltd 41 ‘Sprycel’ the BMS pharmaceutical patent used for treating chronic blood cancer was being sold in India since 2006. When Hetero Drugs sought regulatory approvals for marketing its generic cancer medicine, Dasatinib, BMS secured an exparte injunction in 2009 preventing the drug regulatory authority—The Drug Controller General of India from using the test data for determining bioequivalence. The Delhi High Court dealt with the validity of patent linkage in India for the first time in this case and held that: It is expected that the DCGI while performing statutory functions will not allow any party to infringe any laws and if the drug for which approval has been sought by Hetero drugs is in breach of the patent of BMS, the approval ought not to be granted to Hetero.

1.2 Bayer Corpn v. Cipla, Union of India (UoI)42 Bayer filed a writ petition seeking directions to restrain a marketing license for Cipla’s generic drug ‘Soranib’. It was alleged that Cipla’s generic was an infringing copy of its unexpired pharmaceutical patent and be deemed spurious within the meaning of Section 17 (b) of the Drugs and Cosmetics Act (DCA). Bayer argued that a joint reading of Section 2 of the DCA and Section 48 of the Patent Act (on patent infringement) featured an inbuilt provision of patent linkage. Cipla countered and submitted that merely granting a marketing license in favour of a generic does not amount to infringement and even if an infringement action were to be initiated, only a Court of law would be the competent authority for it, the regulatory authority in respect of ‘protection against unfair commercial use’ in Article 39(3) of TRIPS. Analysis of Article 31 of VCLT further confirms that in order to meet this obligation, protection against action of Approval authority has to be expressly provided as unfair commercial use, which is not the case. The historical reference to Article 39(3) highlights that the common intention of the negotiating parties at the time of drafting the provision was that protection against indirect use is not an obligation. In fact, such protection was negotiated out of the final TRIPS Agreement. 41 CS (OS) No. 2680/2008, Dec. 19, 2008. 42 2009 (41) PTC 634 (Del).


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cannot assume the powers of High Courts at Bayer’s behest. Furthermore, Cipla contended that patent linkage is a TRIPS-plus policy unsupported by Indian law, while the experimental use of test data or the Bolar exemption is a TRIPS mandate for encouraging research has been provided for under Section 107A(a) of the Patent Act. The Single Judge of the Supreme Court held that ‘patent linkage’ cannot be read into the existing provisions. As per Indian law, drug regulatory authorities cannot refuse marketing licenses based on the patent status. They do not have institutional competence to examine patent infringement. Finally, the Court characterised the writ as a speculative foray by Bayer in an attempt to “tweak” public policies through court mandated regimes and dismissed the writ petition with costs of INR 675,000 (approximately USD$14,000) payable in equal shares to Cipla and the UoI. 1.3 Bayer Corpn v. Union of India (UoI)43 (sub judice matter) The patent was granted u/Sec 53 (mailbox) on March 03, 2008 for a 20 year term (beginning January 12, 2000). Bayer had a license under rule 122A of the DCA Rules, 1945 for importing ‘sofraneib tosylate’ used for treating renal cancer. On July 31, 2008 Bayer approached the drug regulator with a request to deny marketing approval for Cipla’s generic “Soranib” as it had the exclusive right to market the drug. Following which a writ petition on the same grounds was filed. The Single Judge passed an interim exparte order restraining the passing of final market approvals in Cipla’s favour. The order was vacated by the Division Bench later. In that, the Division Bench held that: patent linkage is not permitted in India. An appeal has been preferred in the matter. The Supreme Court has admitted it however the interim stay remains vacated. The submissions made in the matter are noteworthy. Bayer argued that Section 2 DCA44 and Section 48 of the Patents Act45 when read together provided for patent linkage. The column in Form 44 (to be filled under Rule 122B DCR with the application) requires the applicant to indicate the ‘patent status’. Thus the legislative policy for patent linkage exists. Furthermore, Section 156 of the Patents Act46 read with Section 48 obliges the DCGI, whose office is part of the central government, to protect the patentee interest47 and refrain from abetting patent infringement by granting market approvals to generics and second entrants. Cipla countered that Bayer’s arguments for patent linkage are misleading, as it has an underlying presumption of patent validity. While Section 13(4) of the Act mandates that grant of patent does not lead to a presumption of its validity and the patent can only be validated by the Appellate Board, the High Court or the Supreme Court. The Cancer Patient Aid Association 43 WP(C)

No 7833/2008 Bayer Corporation v Union of India (Supreme Court of India). 2 DCA. 45 Section 48 of the Patent Act. 46 Section 156 of the Patent Act. 47 Bayer relied on Hoechst Pharmaceuticals v. CVS Mani (ILR 1983 Delhi 548) wherein Section 2 DCA and the DCR were interpreted as requiring the DCGI to adhere to the requirements of the Trade and Merchandise Marks Act 1958. 44 Section

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also filed their amici informing that the legislative intention for the Bolar Exception under Section 107A and Article 30 of TRIPS (which deals with exceptions to patent rights) is to encourage price competition. Patent linkage overrides these exceptions and will have an adverse impact on access of a large number of cancer patients to safe, effective and affordable medicines. The DCGI submitted that, administration of the DCA and the DCR is under the control of the Ministry of Health and Family Welfare whereas that of the Patents Act is under the Department of Industry Promotion, under the Ministry of Industry and Commerce and the scheme, aims and objectives of both the Acts are completely different. The court reasoned that a form (Form 44) in an appendix to a rule cannot be interpreted in a manner which is contrary to the overall scheme of the Act. Patent exclusivity is for 20 years, subject to invalidation or revocation. Presumption of patent validity will require the drug regulatory authority to perforce reject or put on hold marketing approval applications till the patent expiry. Such would be contrary to the DCA and Patent Law. Thus patent linkage cannot be read into the existing law of India. The drug regulators are not authorised or equipped to decide on matters of patent validity or infringement. The Patent law prescribes three year time for working the patent, failing which a compulsory license can be granted in public interest. Thus a patent exclusivity is not absolute, and restricting the marketing approval process is not envisaged by Indian law. 2. Conclusion: Revisiting the CCI Order in biosimilar litigation Recent developments in the emerging global biosimilar market have led to predictions that record sales of over 25 billion US Dollars is to be expected by 2020.48 Indian companies have also been actively participating in the biosimilar drug competition. An important case in point for the study is the litigation spawning around Swiss drug manufacturer Roche in relation to the HER2-positive breast and metastatic gastric cancer biologic drug Trastuzumab sold at exorbitant prices in the Indian market. Roche had sued the Indian Regulatory Authority in 2014 challenging the drug approvals for marketing the biosimilar (CANMAb and Hertraz) which was an identical copy of Roche’s biologic drug branded as Biceltis in India.49 These were developed by its competitors the Indian company Biocon and its partner company Mylan. Roche opposed by claiming data exclusivity and copyright on clinical studies published in the package insert accompanying the pharmaceutical product. The Division Bench of the Delhi High Court in March 2017 upheld the Indian drug regulator’s approval given to Biocon and Mylan to market the biosimilars during the pendency of the civil suit for all indications.50 Noticeably the cancer drug Trastuzumab has now come to be priced between Rs 29,500 and 33,000/ per 440 mg vial. 48 See,

BioWorld, “Biosimilars: A Global Perspective of a New Market” Opportunities, Threats and Critical Strategies 2014, [Thomson Reuters] biosimilars-report-2014. Accessed on 1 August 2018. 49 CS (OS) 355/2014. 50 Interim order in FAO(OS)132/2016&CM15464/2016 &15466/2016 dhcqrydisp_o.asp?pn=50677&yr=2017. Accessed on 1 August 2018.


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Pending the Delhi High Court ruling, in July 2016 Mylan and Biocon, the Indian biosimilar manufacturing companies filed a complaint against Roche before the Competition Commission of India seeking investigation of alleged abusive conduct resulting in blocking the competitors from selling their cancer drug. The complainants had sought relief for denial of market access in contravention of Section 4(2)(c) of the Competition Act 2002 as well as violation of Section 4(2)(a)(ii) imposition of unfair prices, Section 4(2)(a)(i) for imposition of unfair conditions, Section 4(2)(e) for leveraging and Section 4(2)(b)(i) for limiting or restricting the relevant market. The Commission passed a prima facie order against Roche seeking detailed investigation in the matter.51 Per Devendra Sikri, Chairman of the Competition Commission of India, in para 74 of the order, [t]he practices adopted by the Roche group to create an impression about the propriety of the approvals granted, the safety and efficacy of biosimilar, the risk associated and the outcome of the on-going court proceedings in the medical fraternity, including doctors, hospitals, tender authorities, institutes etcetra, when seen collectively, prima facie appear to be aimed at adversely affecting the penetration of biosimilars in the market.

Thus increased data exclusivity can result in market monopoly that allows for severe manipulation of market forces and regulatory frameworks to the detriment of the consumer welfare in the longer run.

3.2 Government Position on Patent Linkage 1. The vision of “Creative India; Innovative India” Earlier this year, while reporting on the Indian vision to enhance creativity, innovation, competitiveness and economic growth, the Cell for IPR Promotion and Management (CIPAM) of the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry Government of India clarified the Indian position on patent linkage as well.52 It clarified that Article 39(3) of TRIPS relates to the ‘data protection’ when data pertinent for seeking approval of the authority is shared with the marketing regulator. The text of this Article does not specifically state that member countries would need to comply with the requirement of ‘data exclusivity’. It only states that the regulator will need to protect it from unfair commercial use. Therefore, no additional obligations such as ‘data exclusivity’ which are not present in text can be interpreted.

51 CCI

Order in Case No. 68 of 2016. of India (24 January 2018) The National IPR Policy 2016 scheme of IPR awareness -“Creative India; Innovative India”. 52 Govt

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The obligation on the authorities is to keep the test data secret and not allow it to be accessed by third parties through unfair means. Data exclusivity includes both non-disclosure of data by the market regulator and non-reliance of the regulator on this data submitted for according marketing approvals to another applicant, which would be a TRIPS plus provision. A larger proportion of the Indian Pharmaceutical industry produces generic drugs. Extending data exclusivity at this stage would have a considerable impact on the Indian industry especially in the short run. More importantly data exclusivity provisions will impact access to medicines which is a major social/human cost for a country which still has a large population living below the poverty line. Patent linkage is a TRIPS-Plus measure and is undesirable for the impact it will have by delaying introduction of generics. There is no express provision under the TRIPS Agreement providing an obligation on the member countries to provide for protection akin to patent linkage. In the case of Article 39.3 of TRIPS, the obligation is restricted to protection of the confidential information provided to the regulatory authority and does not extend to determining the conditions under which the regulatory authority may grant approval. A review of the Doha Declaration on the TRIPS Agreement and Public Health adopted on November 14, 2001 clarifies any further doubts in this regard. Paragraph 4 of Doha Declaration has expressly noted that the TRIPS Agreement does not and should not prevent members from taking measures to protect public health. Accordingly, the Agreement should be interpreted and implemented in a manner supportive of WTO members’ right to protect public health and, in particular, to promote access to medicines for all. 2. Conclusion Indian Patents Act (as amended) does not contain any provision to link the patent rights to marketing approvals for a product. Moreover, the DCA does not require the DCGI to see whether a patent exists on a drug on which an application for marketing approval has been received nor is s/he empowered to do so. The office of DGCI is not technically qualified to take a view on the existence and scope of a patent before granting market approvals. Any such attempt by the DGCI would be substantively ultra vires of the delegated powers to her/him. Patent rights are private rights and enforcement of these by interested parties is available through the civil courts. A private right cannot be enforced suo-moto by a public authority.

4 Measures Relating to Pharmaceutical Products Under CPTPP The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is the new age free trade agreement with extensive IP provisions that are


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binding for the ten negotiating parties.53 The FTA goes beyond trade and tariff negotiations and makes explicit reference to IPRs as a form of investment.54

4.1 Chapter 9 Defines ‘Investment’ Protection Rights Article 9.1 states, for the purposes of this Chapter: Investment means every asset that an investor owns or controls, directly or indirectly, that has the characteristics of an investment, including such characteristics as the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk. Forms that an investment may take include…(f) intellectual property rights…

The interests of big investors, such as originator biopharmaceutical companies are secured through excessive opportunities for patent enforcement and further strengthened through the dispute settlement mechanism under Chapter 26 that empowers them to initiate Investor-State-Dispute Settlement (ISDS) proceedings against sovereign governments’ regulations and adjudicatory decisions. This could even result in private arbitration proceedings to overturn national laws and policies that are important for enabling accessible and affordable healthcare.55 International trade law prescribes that if patent rights subsisting in a pharmaceutical product are exhausted by the importing country’s exhaustion regime, then parallel importation of such product is legally permissible. However with the strong enforcement regime under the FTA, if the copyright over the product information and labels still subsists within the packaging material, it gives the originator company a ground to sue for copyright infringement and prevent parallel importation and consequently delay market entry of competing generics. Application for market approvals requires generics to submit the product information and labels as that of the originator company. Now, originator companies can claim infringement and prevent parallel importation of drugs even. Similarly, several common names and features such as colour, taste and shape are typical to the pharmaceutical sector and need not be deceptively similar. However confusion over their use can lead to trademark 53 The CPTPP includes 30 chapters ranging from issues of national treatment and market access, technical barriers to trade, sanitary and phytosanitary measures, rules of origin, customs administration and trade facilitation, investment, and it further includes government procurement, competition policy, intellectual property, labour and environment issues. The negotiating parties include: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. The USA withdrew its participation from the erstwhile Trans-Pacific Partnership Agreement in 2017. See, The Office of the US Trade Representative (USTR) letter of withdrawal to the Trans-Pacific Partnership Depository (January 30, 2017) Accessed on 1 August 2018. 54 CPTPP, Ch 9 on INVESTMENT, Text/9.-Investment-Chapter.pdf. Accessed on 1 August 2018. 55 Tripathy Sunita (2017) The right to health: Reviewing the trans-pacific partnership agreement from the lens of intellectual property rights. In: Adinolfi. G, Baetens. F, Caiado. J, Lupone. A and Micara. A (eds.) International Economic Laws—Contemporary Issues. Springer.

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infringement actions resulting in seizure and detention of generics.56 Thus increased privatisation can lead to decreased flexibilities in the long run.

4.2 Chapter 18, Section F on Patents and Undisclosed Test or Other Data Chapter 18 of the legally verified text of the CPTPP that was released on February 21, 2018 discusses provisions related to intellectual property separately, with Section F on Patents and Undisclosed Test or Other Data and subsection C specifically providing Articles dedicated for measures relating to pharmaceutical products.57 Similar to the erstwhile TPPA, these include test data exclusivity (Article 18.50) and patent linkage (Article 18.53) norms as well.58 1. Analysing Subsection C Articles on measures relating to pharmaceuticals 1.1 Patent term adjustment Delays caused due to the tedious marketing approval process are considered as an ‘unreasonable curtailment’ of the term of patent. Article 18.48 mandates countries to allow patent term adjustment in favour of pharmaceutical patentees, so as to accommodate for such delays in regulatory approval. Furthermore footnote 46 to paragraph 3 of the Article provides that [F]or greater certainty, a Party may alternatively make available a period of additional sui generis protection to compensate for unreasonable curtailment of the effective patent term as a result of the marketing approval process. The sui generis protection shall confer the rights conferred by the patent, subject to any conditions and limitations pursuant to paragraph 3.

In effect, when the drug regulatory authority of a nation extends a certain period (specified in the provision above), the term of such patent is to be extended. With additional period of market exclusivity, the entry of low cost substitutes and alternate

56 See for example, episodes of seisure and detention of generic versions of the antibiotic Amoxicillin by the German custom officials due to the confusion over the use of INN in the year 2009. See for reference, Dounis Catherine (2011) Enforcing Intellectual Property Rights via EU Border Regulations: Inhibiting Access to Medicine or Preventing Counterfeit Medicine? Brook. J.Int’l L. 36:717. 57 CPTPP Ch 18 on INTELLECTUAL PROPERTY, Section F, Subsection C, Articles 18.48 to 18.54—Measures relating to Pharmaceutical Products,” Patents and Undisclosed Test or Other Data at 18–25, 18.-Intellectual-Property-Chapter.pdf. Accessed on 1 August 2018; See also, CPTPP, Ch. 26 on Transparency and Anti-corruption that allows pharmaceutical companies the mandate to intercede procedures related to reimbursement listings for pharmaceutical products and medical devices, Accessed on 1 August 2018. 58 For patent linkage within TPP, see Tripathy, supra note 55 .


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medicines into the market will be delayed. Consequentially Government health programs will suffer. Procedurally, the pre-grant opposition safeguard has been instrumental in rejection of and at times withdrawal of bad pharma patent applications.59 Measures to avoid potential procedural delays may entail restricting the opposition proceedings, thereby compromising on the values of the patent system. 1.2 The regulatory review exception Article 18.49 states that Without prejudice to the scope of, and consistent with, Article 18.40 (Exceptions), each Party shall adopt or maintain a regulatory review exception for pharmaceutical products.

And exceptions under Article 18.40 provide that A Party may provide limited exceptions to the exclusive rights conferred by a patent, provided that such exceptions do not unreasonably conflict with a normal exploitation of the patent and do not unreasonably prejudice the legitimate interests of the patent owner, taking account of the legitimate interests of third parties.

These Articles are to be read in consonance with Chapter 8 on Technical Barriers to Trade (TBT). The Chapter on TBT imposes data restriction barriers upon national regulators. The restriction entails disclosure of certain information as part of the regulatory review process for pharmaceutical products and medical devices. Annex 8-C 11bis of the Chapter requires members to make its determination on whether to grant marketing authorisation for a specific pharmaceutical product on the basis of factors such as pre-clinical and clinical data on safety and efficacy, manufacturing quality and labelling information. The Annex further provides that: [N]o Party shall require sale data or related financial data concerning the marketing of the product as part of the determination. Further, each Party shall endeavour to not require pricing data as part of the determination. Annex 8-E 12bis for the approval of marketing of medical devices is similar and provides that: [T]o this end, no Party shall require sale data, pricing or related financial data concerning the marketing of the medical device. The aim of the provisions is to influence regulatory transparency as regards grant of marketing rights. However, stringent regulatory standards may discourage the use of Bolar provision for marketing approval in other countries which means that a generic company would have to manufacture the medicine locally in every country where it wishes to seek early marketing approval. It is not economically feasible for generic manufacturers to establish quality-assured manufacturing sites in all developing countries, therefore, entry of generic medicines into export markets will suffer delays.

59 Gopakumar

KM (2010) Landscape of Pharmaceutical Patent Applications in India: Implications for access to medicines. In: Chaudhari et al., Five years into the product patent regime: India’s response. New York: UNDP. pdf. Accessed on 1 August 2018.

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1.3 Protection of test data exclusivity and biologics A Party may limit the period of protection under Article 18.51 to at least eight years of biologic specific data protection or at least five years test data exclusivity under Article 18.50 (1) from the date of marketing approval of the new pharmaceutical product in the territory of the Party alongwith other measures to facilitate comparable outcome in the market. Thus market incentives that support biologic competition and innovation is reduced as also formulation of alternatives in the nature of biosimilar versions.60 Furthermore, Article 18.50 (2) confers exclusivity of at least three years with respect to new clinical information submitted as required in support of a marketing approval of a previously approved pharmaceutical product covering a new indication, new formulation or new method of administration; or, alternatively confers exclusivity of at least five years to new pharmaceutical products that contain a chemical entity that has not been previously approved in that Party. Thus establishing a data monopoly period, forcing generic manufacturers to conduct their own clinical trials of which the outcome is already known. This provision will lead to delayed entry of generic medicines into the market and increase their cost when they finally enter into market; making them inaccessible for the poor patients who largely depend on affordable generic versions of drugs. 1.4 Patent linkage Article 18.53 requires drug regulating authorities of CPTPP countries to conduct assessments of whether a generic drug could potentially infringe existing patents before approving its registration. The traditional patent system allows the patent owner to identify and pursue potential patent infringements through the Court of law. That practice ensures that the validity of a patent can be publicly questioned and held up to scrutiny before it is enforced. However, patent linkage requires drug regulatory authorities of CPTPP countries to perform a role akin to a ‘patent’ police, and evaluate patent validity in addition to their original task of judging the safety and effectiveness of a drug. The drug regulatory authorities are not qualified, trained or well-versed to undertake such evaluations; which will cause processual delays and consequent delay in the entry of affordable generics into CPTPP markets. 2. Conclusion From a legal premise, Article 39(3) of the TRIPS Agreement discusses flexibilities as regards data exclusivity for clinical research in member states, including a public interest exception to avoid abusive tendencies on the part of right holders. Thus WTO member states have the flexibility to define what constitutes ‘unfair commercial use’ of test data as per their national health requirements. The definition as adopted by the regulatory authorities of India has been discussed above. In that light, it is worrisome that FTA clauses such as those in CPTPP will be a predictor of the state of things to come, for nation states such as India particular. The thorniest consequences of 60 See, WHO SEARO (2009) International Trade and Health: A Reference Guide, Delhi: World Health Organisation, Regional Office for South-East Asia, intellectual_property/ITH.pdf.Accessed on 1 August 2018


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the agreement relates to the stringent standards of IPRs (interfacing aspects of competition policy) that weaken TRIPS flexibilities. A requirement to further enhance the scope of protection with patent linkage implications and stronger enforcement mechanism—for incentivising investor interest—needs a utilitarian justification. In conclusion, a balanced approach is the need of hour.

5 Conclusion and Suggested Way Forward The emerging instances of stronger IPRs indicate a new understanding of exclusivity especially for the Pharmaceutical sector. Patents have been used to abuse rather than encourage access to public goods under the WTO regime. Several strategies of exclusion, refusal and restriction reiterate that modern day IPRs favour and protect interest of pharma R&D investors. Patent term extensions, enhanced test data exclusivity and patent linkage are a result of ingenuity in reiterating their interests through FTAs. Public interest still features as an exception and not the rule of pharmaceutical drug distribution. Access to affordable healthcare still remains an illusory concept despite the advances of science and technology. Market exclusivity that is to ensue from the rights granted by the regulatory authority upon drug approval; are conferred on the actual product, inclusive of quality, indications and dosage. Limiting access to test data compromises on the timely entry of affordable substitutes. Granting long periods of market exclusivity can disrupt health innovation. That is why, exclusivity horizons also differ for original biopharmaceuticals; reformulated drugs (for a different indication), NCEs, orphan drugs and special provisions governing pediatric exclusivity are provided by law. Having a system that follows good patent prosecution processes contribute to good quality patents. Supporting the patent system with regulatory mandates that allow for price competition will create a healthy system of healthcare governance. Patent linkage shifts the responsibility of developing risk-free new drugs from originator companies onto enforcement agencies that must verify infringement claims. Thus instead of resolving it through patent litigation, the patentee will be aided by the government to enjoy indirect monopolies, sometimes despite patent expiry. A suggested way forward, is to balance the patent linkage regime and test data exclusivity regime with an equally strong compulsory licensing regime. Such that linkage cannot override public interest exceptions. A pooling of expenses for conducting clinical trials can create parallel opportunities for research and developing high quality drug candidates, However, this will require clear guidelines so as to not dissuade generic productions. The Indian Patent system has been effectively preventing market inefficiencies by—rejecting patents of bad quality; discouraging ever greening tendencies and secondary patents; insisting on local working requirements and patent commercialisation. Some definitional clarity of the terms applicable under Article 39(3) will explain the scope of the provisions conferring marketing exclusivity. The good news

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for the Indian data exclusivity regime is, the Courts, Competition Authority as well as the Government are thus far on the same page as regards the application of patent linkage. With less regulatory confusion on the issue, things can only improve for pharmaceutical trade in India. Acknowledgements Tripathy is thankful for the discussions with Prof. Srividhya Ragavan of Texas A&M School of Law, USA and Prof. Mark Perry of School of Law, University of New England, Australia on the subject matter.