Negotiation of the Trans-Pacific Partnership continues 

The Trans-Pacific Partnership (TPP) is a free trade agreement being negotiated by 12 Pacific Rim nations, including Australia, Japan, Malaysia, New Zealand, Singapore and the United States. China and South Korea have both indicated their interest in joining the TPP. The 12 TPP nations represent around 40% of global GDP and one third of world trade.  The TPP is intended to be a comprehensive trade agreement which covers all aspects of commercial relations including intellectual property (IP), investment and competition.  

Most of the negotiations and draft provisions are confidential but some chapters of the draft TPP have been released on Wikileaks, including the IP Chapter which we reported on in our Year in Review 2014.  

Leaked Investment Chapter

On 25 March 2015, Wikileaks released the draft Investment Chapter.  The terms of the draft Investment Chapter are very similar to the 2012 US Model Bilateral Investment Treaty (US Model BIT).  The draft Investment Chapter consists of Section A and Section B.    

Section A sets out various definitions, including the definition of "investor" and "investment", the scope and coverage of the chapter and the investment protections granted.  "Investor" and "investment" are broadly defined.  The chapter applies to covered investments made by investors of another Party.  Each State Party's obligations apply to measures by central, regional or local governments and authorities and any person that exercised government authority such as a state enterprise. 

The investment protections included in Section A are:

  • minimum standard of treatment including fair and equitable treatment and full protection and security;
  • national treatment;
  • most favoured nation treatment (though it does not apply to the dispute resolution procedures in the Chapter); and
  • no expropriation without compensation.  

Section B sets out the investor-state dispute settlement provisions (ISDS). These provisions give an investor of one of the TPP States the right to bring a claim in international arbitration against another TPP State in which it has made an investment. The claim is for any actions attributable to the TPP State that are in breach of the investment protections in Section A of the TPP. For a further explanation of ISDS under the TPP see here.   

Australia does not appear to have objected to Section A of the Investment Chapter.  However, a footnote to Section B states that Section B (which includes the ISDS provisions) does not apply to Australia or an investor of Australia.  As there is no similar exclusion for any of the other negotiating States, it appears that Australia is the only State that hads not yet agreed to the ISDS provisions.  The footnote also states that the "deletion of footnote is subject to certain conditions", which may indicate that Australia may be prepared to agree to ISDS as part of an overall negotiation of the TPP.   

Leaked Transparency Annex

On 10 June 2015, Wikileaks released a revised version of the draft Transparency Annex relating to Pharmaceutical Products and Medical Devices.  The draft is very similar to Annex 2-C of the Australia-US Free Trade Agreement.   

The draft Transparency Annex sets out agreed principles to facilitate high-quality healthcare and continued improvements in public health, including:

  • the importance of protecting and promoting public health and the important role played by pharmaceutical products and medical devices;
  • the importance of research and development;
  • the need to promote timely and affordable access to pharmaceutical products and medical devices through transparent, expeditious and accountable procedures; and
  • the need to recognize the value of pharmaceutical products and medical devices through the operation of competitive markets or through procedures that appropriately value the objectively demonstrated therapeutic significance of a pharmaceutical produce or medical device. 

Each Party must ensure procedural fairness with respect to the listing of new pharmaceutical products or medical devices for reimbursement purposes under national health care programs operated by national health care authorities.  This means that Australia must:

  • ensure applications for products to be added to the Pharmaceuticals Benefits Scheme (PBS) are considered by the Pharmaceutical Benefits Advisory Committee (PBAC) within a specified timeframe;
  • publish the procedural rules and guiding principles that govern the PBAC's consideration of those applications;
  • provide an applicant with an opportunity to provide comments to the PBAC during the process;
  • provide an applicant with a detailed explanation of the PBAC's consideration of the application; and
  • provide a review process where the PBAC recommends that a pharmaceutical product has not been added to the PBS.

The Transparency Annex also provides for the type of information manufacturers can disseminate about their medicines to health care professionals and consumers through their internet site.  The Annex also provides for consultations between the TPP Parties.  Notably, the dispute settlement procedures between States do not apply to this Annex.    

Patents under the TPP  

The treatment of patents under the TPP is also being watched carefully by the healthcare sector. There have been strongly differing viewpoints on the protection of exclusive patent rights, duration of patent terms and the extent to which the TPP will contain exceptions to exclusive rights and compulsory licence provisions. Arguments for ensuring improved access to healthcare technology (eg, by developing nations) are competing against arguments for the need to appropriately incentivise inventors to further invest in healthcare technology.   

China Australia Free Trade Agreement signed

On 17 June 2015, the Australian and Chinese governments signed the China Australia Free Trade Agreement (ChAFTA). ChAFTA aims to stimulate even greater growth in trade and investment between China and Australia. 

Once ChAFTA has entered into force, more than 85 per cent of Australian goods exports will be tariff free.  By full implementation, 95 per cent of goods exports will be tariff free. The elimination of tariffs includes many pharmaceutical products.

Key benefits for healthcare

Key terms that will benefit the healthcare sector in Australia include:

Elimination of tariffs

  • China is Australia's largest market for pharmaceuticals with exports worth A$559m in 2013.
  • ChAFTA provides for the elimination of tariffs of up to 10% on pharmaceutical products, including vitamins and health care productions, either on entry into force or within four years.

Collaboration in regulation and research

  • ChAFTA provides for the recognition of education institutions and qualifications.
  • Australian higher education providers will benefit from improved recognition by prospective Chinese students and employers enabling them greater access to China's higher education market.
  • Within one year of entry into force, China will list on a Ministry of Education website 77 Australian private higher education institutions registered on the Commonwealth Register of Institutions and Courses for Overseas Students (CRICOS), adding to the existing 105 Australian institutions on the website.
  • Education Ministers have signed MOUs to ensure improved higher education qualifications recognition in both countries, as well as enhanced mobility of students, researchers and academics at school tertiary and research levels.

Hospitals, aged care institutions and other service suppliers

  • ChAFTA permits Australian owned hospitals in certain provinces and profit-making aged care institutions to be established throughout China.
  • Australian service suppliers may also establish joint venture hospitals or clinics with Chinese partners (where the Australian party has majority ownership) provided the majority of doctors and medical personnel are of Chinese nationality.
  • Doctors with Australian professional certificates may provide short term medical services in China after obtaining licences from the National Health and Family Planning Commission for a period of 6 months and may extend to one year.

Traditional Chinese Medicine (TCM)

  • ChAFTA provides that the two States will cooperate on matters relating to trade in TCM services, which includes:
    • exchanging information and discussing policies, regulations and actions for TCM services; and
    • encourage future collaboration between regulators, registration authorities and relevant professional bodies to facilitate trade in TCM and complementary medicines.

Intellectual Property (IP)

  • ChAFTA includes additional commitments as well as a reaffirmation of existing international IP obligations in relation to, for example, the TRIPs Agreement and the Declaration on the TRIPS Agreement and Public Health.

Investor-State Dispute Settlement

The ChAFTA provides for investor-state dispute settlement (ISDS).  ISDS enables Australian investors investing in China and Chinese investors investing in Australia, to directly enforce investment protections in the ChAFTA through international arbitration.  

The ISDS provisions safeguard the ability of both States to pursue legitimate public welfare objectives such as public health, safety and the environment.

However, the investment protections provided in ChAFTA are limited to national treatment and most-favoured nation treatment.  The ISDS provisions appear to be limited to claims for breach of national treatment only.  This means that an investor cannot bring a claim for breach of fair and equitable treatment or expropriation, these being the most commonly invoked protections for investment claims. A claim for national treatment may be included but is not often the primary basis for the claim.  Australia and China have agreed to review the scope and extent of investment protections within three years.

Implementation of ChAFTA

ChAFTA has been tabled in the Australian Parliament and will now be reviewed by the Joint Standing Committee on Treaties.  Legislation will then be drawn up and passed in accordance with the usual processes for implementing treaties into domestic legislation.   

China will follow its own procedures for making legislation.  The two States will then exchange diplomatic notes to certify that the ChAFTA is ready to enter into force.  This entry into force will take place 30 days after this exchange or on a date to be otherwise agreed. It is expected that ChAFTA will not enter into force until late in 2015 or early 2016.