Following more than a decade of negotiations, the final text of the China-Australia Free Trade Agreement (the “ChAFTA”) has now been tabled in the Australian Federal Parliament and is thought to have a clear majority backing.  Assuming the usual timeframe for the passage of such legislation, expectations are that the ChAFTA should commence, formally, on or around 1 January 2016.

Central to the operation of any free trade agreement (“FTA”) is, of course, intellectual property.  In this article, we examine the IP-related provisions of the ChAFTA and conclude that they stand to significantly enhance the already excellent opportunities for Australians doing business in China and vice versa.

Introduction

The ChAFTA was finalised on 17 June 2015, when Australia’s then Prime Minister Tony Abbott and China’s Commerce Minister Gao Hucheng signed off on more than a decade of negotiations.  The ChAFTA is a bilateral FTA that will begin removing tariffs for Australian and Chinese companies engaging in bilateral trade.  Upon full implementation, 95 percent of Australian exports to China will be tariff-free.

The signing of the ChAFTA means that in a little over a year, Australia has now established FTAs with its three major trading partners, Japan, South Korea and China.  However, as Australia’s largest trade market (with AU$107 billion of exports and AU$52 billion of imports, amounting to more than a quarter of Australia’s overall trade), the Chinese agreement is highly significant.  The industries expected to derive greatest benefit from the ChAFTA include beef, sheep, dairy, wine, seafood, resources and energy products, manufactured goods and horticulture.  Indeed, many of these industries are cornerstones of the Australian economy.

Intellectual property and FTAs: an awkward liaison

Readers will doubtless be familiar with the protracted negotiations leading toward the recently-agreed Trans-Pacific Partnership Agreement (the “TPP”); we have written about it here.  Throughout these negotiations, IP had gained significant notoriety as one of the principal reasons why the negotiating parties took so long to reach agreement.  Of course, reconciling the political interests of the twelve parties negotiating the TPP was never going to be straightforward.  This is in contrast to the ChAFTA, which is a bilateral agreement between two counties that have expressed a clear desire to work together.

The English text of the ChAFTA is a 161-page document, of which IP forms the eleventh of seventeen chapters.  Readers familiar with the IP provisions of the various TPP drafts will be relieved to learn that the IP chapter of the ChAFTA is largely unremarkable.  It appears to contain little other than to reaffirm the parties’ existing international obligations, and includes provisions on issues such as national treatment, enforcement, border measures, geographical indications and cooperation.

Of these provisions, Article 11.5, outlining national treatment is especially noteworthy.  This is not so much by way of its wording, because it actually does little more than reaffirm the parties’ existing obligations under the TRIPs Agreement.  Rather, the significance is by way of its effect.  In imposing a national treatment provision, each government is effectively guaranteeing that nationals of the other country will receive treatment no less favourable than that afforded to its own citizens.  This, of itself, addresses one of the principal stigmas associated with present-day Australia-China business collaborations.

Finally, the IP chapter also includes a commitment for China and Australia to continue working together to enhance IP examination and registration systems, to provide border measures in relation to counterfeit trademark or pirated copyright goods, and on the protection of undisclosed information.  Topically, there are also provisions that limit the liability of internet service providers (“ISPs”) in relation to infringing activities conducted by their customers.  It is expected that ISPs proactive in restricting access to infringing websites stand to benefit most from such provisions.

Is should also be noted that, depending upon the metric that is used, Australian entities were until recently much more active in seeking IP protection in China than Chinese entities seeking IP protection in Australia. Over the last decade this has quickly changed as more and more Chinese companies look outwardly to develop export markets in Australia, New Zealand and elsewhere. This change in the balance of IP use, and the continuing rise of IP usage by Chinese companies at home and abroad, can also explain the emphasis in the ChAFTA to IP issues.

What is in the ChAFTA aside from IP?

As with any FTA, the ChAFTA extends far beyond just intellectual property.  Investment, tariffs, services, minerals, food and labour all feature prominently, and we note that industry criticism relating to any of these provisions appears rather muted.  From this it is tempting to infer that, as with IP, the ChAFTA appears to be apportioning Australian interests on a par with those of the Chinese.  This represents excellent business on the part of the Australian Government.

The ChAFTA, of course, also contains provisions that if not squarely within the gambit of IP, are related fairly closely.  Of these, the ChAFTA includes a chapter on electronic commerce which provides a framework for the growth of e-commerce between Australia and China.  Other chapters prescribe our bilateral commitments on competition policy and government procurement.

What does the ChAFTA mean, in practice?

The ChAFTA unquestionably provides legislative avenues for Australians wishing to conduct business in China, and vice versa.  However, as we all know, free trade is necessarily subject to some restrictions and caveats.  Indeed, many of these are imposed by IP.

Helpfully, at a high level the patent systems of our two countries are more similar than one might otherwise think.  Patent applicants in China have access to three distinct regimes of protection.  As outlined below, each is fundamentally different in its scope of protection.  Moreover, each has a remarkably similar Australian counterpart regime.

In particular, both countries have a 20-year standard patents regime suited to inventions representing more than an obvious advance on what existed previously.

Further, both counties promote a second-tier (innovation patent/utility model) system aimed at supporting incremental and/or short-lived products.  We have previously written not only about Chinese utility models, but also about the proliferation in lawsuits stemming from them.  Similarly, the strategic use of an Australian innovation patent as a litigation tool is well documented.

Finally, design patents (referred to as “registered designs” in Australia) protect the aesthetic features of a product.  In large measure these prevent direct copying and are taken to have a similar, albeit narrower, scope and function to other forms of patents in both Australia and China.

As such, despite our inevitable differences in respect of distance and culture, an Australian doing business in China (and indeed a Chinese national wishing to launch a business in Australia) need not necessarily feel overwhelmed, at least, in an IP-sense.  To a significant extent, the rules, facilities and remedies governing one’s conduct in China will be similar to those imposed under Australian law.

The gradual harmonisation of legal practices between the jurisdictions will be a welcome sign of convergence for business leaders. However, it should not be taken as a panacea for the vast differences in the business cultures and practices that operate in the different countries.

The impact of the ChAFTA on regional trade

As mentioned above, the ChAFTA represents the next step in liberating trade between Australia and her major trading partners.  FTAs allowing Australian entities free trade with Japan (“JAFTA”), South Korea (“KAFTA”) and the Pacific Rim (“TPP”) have all now been agreed within a matter of months.  In combination, pre-emptive IP rights notwithstanding, these four FTAs should enhance the cross boarder flow of goods and services between Australia and those countries.

Another interesting point of note is that New Zealand, Australia’s fourth-largest trading partner, already has an FTA with China.  The closeness of Australia’s relationship with New Zealand is well known.  As such, one could now envisage an Asia-Pacific trade triangle in which goods and services move freely between Australia, New Zealand and China.  Indeed, to some extent, this has already been happening for nearly a decade and the more recent agreement is an attempt to better formalise the relationships to facilitate these movements.  When the New Zealand-China FTA was signed in 2008 one of its apparent loopholes was that Australia and China could effectively partake in free trade via New Zealand.

Conclusion

 The ChAFTA formalises opportunities for bilateral trade between Australia and China.  Indeed, many such prospects relate to intellectual property, and in particular, patents.  On the one hand, Australians looking to expand their business operations into China will need to be aware not only of the opportunities, but also the threats.  Similarly, as Chinese businesses continue to move into Australia, they too will be beset by the challenges and opportunities afforded by Australia’s patent system.

The Australia-China intellectual property market is equal part potential and challenge.  It is critical to obtain the right advice from the outset.  Shelston IP has a specialist China Team that brings together cultural, commercial and IP expertise that when combined, can help enhance your competitive edge.