May 2008

On 7 April 2008, New Zealand became the first developed country in the world to enter into a free trade agreement (FTA) with China, heralding the beginning of a new age for trade relations between the two nations. The removal of barriers to trade under the FTA will enable New Zealand investors and exporters to capitalise on opportunities with China, New Zealand's third largest individual trading partner and the world's fastest growing economy.

Unsurprisingly, the NZ-China FTA - which is expected to enter into force on 1 October this year - has therefore been welcomed with open arms by the New Zealand business community.  However, how does this ambitious plan deal with intellectual property rights, and will there be any significant consequences for rights holders in New Zealand and China?

Intellectual Property is covered in Chapter 12 of the NZ-China FTA.  This chapter states that each party:

• recognises the importance of intellectual property rights in promoting economic and social development
• shall establish and maintain transparent intellectual property regimes and systems that provide certainty, minimise compliance costs and facilitate international trade
• reaffirms its commitment to the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and any other multilateral agreement relating to intellectual property to which both nations are a party (and TRIPS is specifically incorporated into the FTA for the purposes of Chapter 12)
• is to notify the other of new intellectual property laws and exchange information on intellectual property policy and system developments, including any initiatives on rights enforcement 
• agrees to cooperate to encourage the development of intellectual property policy and eliminate trade in infringing goods
• may request consultation with the other party with a view to seeking a timely and mutually satisfactory resolution of any intellectual property issue within the scope of the Chapter

In essence, the intellectual property provisions in the FTA are confirmatory rather than revolutionary in nature.  While providing a step in a positive direction, the provisions do not add anything that is likely to radically alter intellectual property protections afforded by either nation, and consequently the flow on effect to intellectual property rights holders is likely to be minimal. 

Despite constant international pressure and progress in this area, the enforcement of intellectual property laws in China remains erratic.  Bearing this in mind, and taking into account the fact that China is the largest single source of counterfeit products in the world, the provisions of the NZ-China FTA therefore provide little or no new levels of comfort for those with lingering doubts over China's ability to effectively manage and enforce its current intellectual property laws.

Sweeping developments can be made to intellectual property regimes as a result of free trade negotiations.  Take the Australia-United States Free Trade Agreement 2004 (AUSFTA) for example.  Under the terms of the AUSFTA, Australia was required to amend its intellectual property laws so that stronger protection would be afforded to American intellectual property.  These requirements were not insignificant.  Amongst other things, Australia was required to:

• extend the minimum term of copyright from 50 years to 70 years after an author's death
• provide a special copyright term extension for photographs 
• provide performers with economic and moral rights in their sound recordings and moral rights in their live and recorded performances 
• broaden its criminal offences to target copyright infringements undertaken for commercial advantage or financial gain
• provide new provisions in relation to the unauthorised receipt and use or distribution of encoded broadcasts 
• extend the protection of electronic rights management information 
• provide safe harbour provisions for Internet Service Providers

In comparison, the intellectual property terms of the NZ-China FTA appear rather tame.  So, should New Zealand have followed the US example and pushed harder for more aggressive development in this area?  Probably not - the situation must be viewed realistically.  The TRIPS obligations are real and substantial.  Also, as noted, China is already under significant international pressure to improve its enforcement of intellectual property rights and is very conscious of the scrutiny and potential sanctions.  Progress will continue to be made, but substantial improvements to China's intellectual property regime are more likely to occur in future multilateral negotiations where countries with more bargaining power than New Zealand can exert significant pressure over China. 

Furthermore, major change is not always welcomed.  There has been vigorous debate amongst economists and others interested in intellectual property issues regarding the desirability of the intellectual property measures implemented under the AUSFTA.

Irrespective of the outcome for the development of intellectual property rights under the NZ-China FTA, the agreement will bring about major developments in other areas of trade and investment.  For instance:

• over time, tariff reductions will result in 96% of New Zealand exports being tariff free while all tariffs on Chinese exports will eventually be eliminated
• service suppliers from each nation will be treated no less favourably than domestic suppliers in similar circumstances
• various restrictions on market access will be eliminated
• visa processing for business visitors in both countries will be streamlined
• temporary entry rights will be granted to a limited number of Chinese skilled workers in the New Zealand labour market
• in-country protections for investors will be enhanced 
• if another nation receives better terms in a subsequent trade deal with China, New Zealand will also get the benefit of those terms

The deal is expected to be worth up to $350 million per annum to the New Zealand economy through tariff reductions and market openings with China.  The general consensus (excluding a small minority of vocal detractors) seems to be that the NZ-China FTA is a high quality and comprehensive agreement.  Importantly, it should enable New Zealand to capture more uplift off the back of China's spectacular economic growth. 

Key Contacts

Earl Gray +64 9 977 5002  earl.gray@simpsongrierson.com
Emma Shearing +64 9 977 5417  emma.shearing@simpsongrierson.com

Note: The information provided in this article is intended to provide general information only.  This information is not intended to constitute expert or professional advice and should not be relied upon as such.  Specialist legal advice should always be sought for your particular circumstances.