Does the TPP Need China, and Vice Versa?

The Trans-Pacific Partnership (TPP) may yet be the agreement that most transforms national regulatory systems. It could be even more transformative than the Uruguay Round (1986–1994) that delivered the WTO and the 1994 Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). However, much depends on if, and when, China joins the TPP.

The Trans-Pacific Partnership (TPP) may yet be the agreement that most transforms national regulatory systems. It could be even more transformative than the Uruguay Round (1986–1994) that delivered the WTO and the 1994 Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). However, much depends on if, and when, China joins the TPP.

So far 12 parties have signed a text of the TPP — Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, Peru, New Zealand, Singapore, the United States and Vietnam. However, each party has to now shepherd this text through their respective domestic treaty-making processes. The TPP does not need the approval of all its signatories to come into force. Six or more signatories making up at least 85 percent of the combined GDP of the original signatories would be enough to give the TPP legal force. However, the United States, with its US$18 trillion GDP, does have to be part of the six.

In the United States, politicians like presidential hopeful Donald Trump will oppose the agreement, claiming that this will save American jobs. There will be drama and brinkmanship, just as there was with the WTO and the TRIPS Agreement. However, because the TPP represents such a huge opportunity to influence the direction of national regulatory policy in the Asia Pacific enough business lobbies will support it to prod Congress into voting in its favour.

However, even if it passes US Congress, would China be interested in joining the TPP? After all, China is one of the leaders in the Regional Comprehensive Economic Partnership (RCEP) negotiations, which is often depicted as the alternative to the TPP.

It is most likely that both the TPP and RCEP will emerge and these two agreements will lead to a Free Trade Area of the Asia Pacific. Such a free trade area has been proposed and discussed in the Asia-Pacific Economic Cooperation forum since at least the 1990s. Nevertheless, it is worth considering a scenario in which China does the unexpected and joins the TPP.

There are many reasons for China not to join: China is unlikely to accept the TPP’s labour and environmental standards, its higher intellectual property standards or the entailed reforms of its state-owned enterprises. These objections all have weight, but perhaps not as much as might be first thought.

China is no longer the lowest-cost location for labour and so comparatively modest provisions on labour standards are less of a problem for China. In addition, with water and air pollution posing major health concerns, tackling environmental problems has become a high priority.

What’s more, tilting the metaphorical ‘balance’ in intellectual property protection even further in favour of owners is no longer a major concern for China. China’s warm embrace of intellectual property systems continues to be revealed by the cold statistics: its patent office is the largest in the world in terms of applications and since 2010, it has accounted for more than half the annual increases in trademark filing activity worldwide.

China will also have to reform its state-owned enterprises even if it does not join the TPP. Such reforms are part of creating a dynamic internal market that will continue to attract investors despite fluctuations and crises in global growth.

Obviously, China would have to negotiate with the United States to join the TPP. This would likely be a long and difficult process. However, China has already been through a WTO accession. It knows what to expect.

There is perhaps one more reason for China to think about the TPP. The 17th National Congress of the Communist Party of China in 2007 committed China to the concept of an ‘ecological civilization’. China will need to acquire much greater regulatory capacity if it is to implement the goals implicit in this idea. Scandals linked to poor regulation — such as the contamination of milk powder by the toxic compound melamine, which affected an estimated 300,000 infants — have drastically reduced consumer confidence.

Within China, there will likely be a technocratic constituency that will see the TPP as a source of external pressure for improving domestic regulatory standards in areas such as food and environmental regulation. Groups within China may welcome the TPP if it helps China to adopt international best practice, since this will generally be an improvement on current regulatory standards. In addition, this could provide the best defence against investor–state actions.

The principal difference between a scenario in which China joins the TPP and one where the TPP and the RCEP converge into a free trade area of the Asia Pacific is the speed at which the current regulatory ratchet for intellectual property will operate. If China were to join the TPP, it would mean that the three largest economies in the world — the United States, China and Japan — would have agreed on key intellectual property standards that exceeded those agreed to by developed and developing countries in the WTO. The remaining countries that have concerns about the intellectual property rights system included in the TPP would lose significant staying power through China’s departure.

China might even see some longer-term advantages in embracing some intellectual property standards, including patent standards, given China’s dominance in the manufacture of active pharmaceutical ingredients. While, the compliance of Chinese manufacturers with regulatory standards is variable, it is foreseeable that a Chinese industry with ambitions in pharmaceutical innovation could emerge.

The TPP agreement is this century’s most important step for intellectual property owners to date. This is not just because of its present standards, but because the TPP opens the door to a free trade area of the Asia Pacific. Predictably, the trade departments of the smaller countries involved is putting on a brave face, assuring their respective publics that their interests have been safeguarded. Time and text will tell.

Will the TPP transform intellectual property regulation in Asia? is republished with permission from East Asia Forum