China surprised many in the trade policy world last September by formally applying for membership in the 11 country “Comprehensive and Progressive Trans-Pacific Partnership” (CPTPP), the trade agreement that rose like a phoenix from the ashes of the 12 country Trans-Pacific Partnership (TPP). There is no guarantee that the current members will agree to negotiate accession with China, or that China is prepared to meet the high standards of the Agreement. But if China did join on the basis that it was prepared to make the necessary trade liberalization concessions, this would be a major boost for trade in the region and would bring greater discipline to the Chinese market. However, would it have much impact on copyright industries, particularly the US film industry that is becoming increasingly dependent on Chinese movie-goers to grow revenue? This blog posting examines that very question.
First, we need to go back to the TPP, the precursor to the present CPTPP agreement. The TPP process had been led by the United States, beginning in 2008, and was seen as the US’s way of establishing high quality open trade disciplines in the Asia Pacific region. Despite having pushed for the TPP initially and having driven the negotiations largely on its terms and having signed the Agreement in February 2016 (along with Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam), the United States then walked away when Donald Trump “triumphantly” announced US withdrawal from the TPP on his first day in office.
Despite the immediate assumption that the deal was dead without US participation, under Japan’s leadership the remaining TPP partners continued to meet and finally reached a new agreement, based largely on the TPP text. Any references to the US, such as tariff commitments, were removed and some articles were suspended to remove items that were seen to primarily benefit the United States. These were mostly in the area of intellectual property and investment. However, the CPTPP clones well over 90 percent of the original agreement. It went into effect in December 2018 when six of the eleven CPTPP completed ratification and is now in effect for eight countries (Australia, Canada, Japan, Mexico, New Zealand, Peru, Singapore, and Vietnam). It has been so successful that so far three others have applied to join, the United Kingdom (even though it is not in the region), China and Taiwan. In the case of Taiwan it will be applying as a “customs territory”, the same basis on which it has membership in the World Trade Organization (WTO).
It is somewhat ironic, to say the least, that China has now applied to join a high standard trade agreement that was once championed by its arch trade rival, the United States, the more so since the US has turned its back on its own creation. There is plenty of speculation as to China’s motives, as I wrote about back in October last year. (China’s CPTPP Application: Serious Economic Move or Strategic Political Gambit?) China’s motives are probably a combination of the two.
There is no question that its move highlights the absence of the US from regional trade initiatives, and for Beijing brings with it the added bonus of complicating Taiwan’s application. It was an open secret that Taiwan was actively considering an application, but Beijing moved first. Taiwan swiftly submitted its own application just a few days after Beijing’s announcement, but now the existing members will have to more actively take into account the “China factor” in assessing how to deal with Taiwan. It may have been a coincidence, but Beijing’s announcement that it had submitted a letter of application to the CPTPP depository nation, New Zealand, came the day after the surprise announcement of the AUKUS (Australia-United Kingdom-United States) nuclear submarine deal. Reaction from most current CPTPP members has been cautious, with both Australia and Japan noting that any country applying must be prepared to meet the high standards of the CPTPP in terms of trade and investment liberalization and transparency. With regard to China, they haven’t said no, but they also haven’t said yes.
Despite some skepticism as to the depth of China’s commitment to trade reform, there are credible observers who note that China is facing a number of economic challenges, and a good dose of market reform would help. This is based on the supposition that there are economic reformers in Beijing who are not fully invested in the regime’s current preoccupation with self-sufficiency and state capitalism. How realistic this assessment is can be debated. There is no question that China would have to make some significant commitments in the areas of investment, labour rights, digital trade, services access and state owned enterprises (SOEs) if it is to meet CPTPP standards. But what about content and copyright industries? Would CPTPP commitments in this area pose an insurmountable obstacle for China? Surprisingly, no, and while its accession would potentially bring some improvement with respect to enforcement of copyright laws, it would not directly deal with the big-ticket market access issue, China’s film market.
Back in 2016 when the US was still touting the benefits of the TPP under the Obama Administration, it sought to enlist support from Hollywood by promoting the Agreement’s role in strengthening copyright protection and providing other benefits to the audio-visual industries. For example, when put into force, the TPP would set the term of copyright protection for TPP member states at life of the author plus seventy years (“life + 70”) as opposed to the “life + 50” term in place in a number of those countries. This would be of benefit to the US film industry. There was a notice and takedown provision similar to safe harbour provisions in the DMCA, an article requiring the outlawing of unauthorized camcording in theatres, and commitments to ensure that criminal or civil penalties would apply in cases of copyright infringement. Persons found to be circumventing technological protection measures (TPMs) and removing rights management information (RMI) on digital products would be subject to civil and criminal penalties.
The TPP would bring other benefits as well, such as prohibiting governments from requiring companies to turn over encryption keys, eliminating tariffs on DVDs and other film storage products, and removing local partnership requirements, i.e. the Agreement would prevent governments from requiring that a company or person, as a condition for importing movies or television shows, establish a contractual relationship with a local distributor. In addition, it would prohibit the imposition of customs duties on electronic transmissions (such as transmissions containing audio-visual content) and ensure the protection of encrypted program-carrying satellite and cable signals. Signatories would have to be members of the Berne Convention, the WIPO[i] Copyright Treaty (WCT) and the WIPO Performances and Phonograms Treaty (WPPT).
Those were among the key benefits identified at the time by the US Trade Representative’s Office that would benefit US copyright industries. There was a lot on offer. But then the US withdrew from the agreement, meaning that any concessions or commitments made by the other parties would not be extended to US companies or persons. That’s a pretty significant but not insurmountable problem. The benefits of the agreement could still potentially be accessed by some Hollywood entities through their corporate presence in CPTPP countries. Sony could invoke its Japanese ownership, for example, and content produced under the Village Roadshow banner could access benefits as an Australian entity. However, there is another development that limits many of the gains “advertised” by USTR back in 2016, even if US companies could access the benefits of the Agreement through a roundabout means.
When the remaining eleven countries came together to finalize the CPTPP, they adopted most of the already-negotiated text but suspended some key provisions. They could have eliminated them altogether, but they chose suspension in order to dangle a carrot to entice the US back into the Agreement. Many of the suspended provisions related to the “wins” identified earlier by USTR. For example, the articles relating to the extension of the term of copyright protection, notice and takedown/safe harbours, protection of satellite and cable signals, and prohibitions on circumvention of TPMs and removal of RMI were all suspended. This means that if China (or any other country) were to accede to the CPTPP at the present time, it would not be required to abide by any of these provisions. This will make it easier for China to meet the copyright requirements of the CPTPP.
There are other provisions in the CPTPP’s intellectual property chapter, as well as in its investment and e-commerce chapters that were not suspended and would apply to China. However, these provisions should not present a major difficulty for China since it has already agreed to most of the commitments elsewhere, either by joining the Berne Convention, which it did in 1992, or by acceding to the WCT and WPPT, which it did over a decade ago. More particularly, another regional trade agreement, the Regional Comprehensive Economic Partnership (RCEP) Agreement, which entered into force on January 1, 2022, contains many commitments that are very similar to those in the CPTPP. China, along with all ten ASEAN countries, Japan, South Korea, Australia and New Zealand, is an RCEP signatory state.
As I wrote last year, the RCEP has a fairly robust intellectual property chapter. It includes some provisions not currently in the CPTPP, such a prohibiting the circumvention of TPMs, the removal of rights management information from digital files and a commitment to protect encrypted program carrying satellite and cable signals. It contains similar language to the CPTPP with regard to expeditious remedies to prevent copyright infringement and includes a range of specified civil and criminal measures. Since China has already agreed to all these commitments, it would presumably have no difficulty in signing on to similar commitments in the CPTPP. (Whether it is effectively meeting its commitments is another matter, but non compliance is subject to dispute settlement procedures under both the RCEP and CPTPP.)
If all of the above seems to suggest that the copyright provisions of the CPTPP would not present much of an obstacle for China in terms of accession, that is indeed my conclusion. Nor would China’s accession change much in this sphere for the copyright industries, given that China has already undertaken to comply elsewhere with many of the measures designed to protect copyrighted content. The real issue facing Hollywood and other film producing countries is China’s restrictive regime regarding import and distribution of films. China has always maintained a tight control over its theatrical market by limiting the ability of foreign producers to distribute directly to Chinese audiences.
Back in the “early days” (i.e. 1980s through mid 2000s) this tight distribution was not too much of a problem as the Chinese audience and Chinese venues were relatively limited. Then the explosion of demand occurred and the Chinese theatrical market is now one of the world’s largest and certainly its fastest growing. Hollywood relies heavily on Chinese distribution to generate international revenues and to be able to do so is required to work through China Film (a state owned entity) which retains a virtual monopoly on distribution. Through controlling distribution channels, the Chinese authorities can maintain a tight grip on what content is made available to Chinese audiences (ensuring the “right” political and social messages reach audiences), while also ensuring that Chinese films take a substantial share of box office earnings. As reported by Axios, China blocked all four of the Marvel movies from being released in its theaters last year, a “grim sign” for U.S. film makers.
China not only wants to exercise a tight rein over content, it also wants to propel the Chinese film industry to compete with the US majors. In this regard, it is using its huge domestic market as leverage, just as it has done in other areas, such as automobile manufacturing. Foreign technology and content is welcomed for a while, until such time as Chinese firms can compete, and then the screws begin to tighten. That is what I see happening in China right now. There will always be a market for a few key foreign blockbusters, but they will be distributed on Chinese terms and in accordance with Chinese priorities in the Chinese market, and this will be done in such a way as not to jeopardize the growth of China’s own film industry.
Would China’s entry into the CPTPP change this? It almost certainly would not. While China will have to negotiate its accession, it is clearly going to seek exemptions for certain sectors and industries. One of these sectors will certainly be distribution of AV content. The CPTPP calls for “national treatment” for investment (for example, foreign film distributors and theatre operators should, in principle, be treated on an equal basis with their Chinese equivalents). However, each and every one of the CPTPP member states has made certain exceptions to this rule when it comes to investment, and all of them, without exception, have included reservations with regard to “cultural industries” and content distribution in one form or another. The United States was no exception when it signed the original TPP, identifying a reservation to national treatment for cable television distribution. So, while China will need to get the other CPTPP members to agree to its list of exceptions, it will be difficult for them to argue that China should open its film market when they have all, without exception, claimed the right to discriminate against foreign nationals in various ways when it comes to content distribution.
Will China be able to negotiate accession with the current members? That is the $64 billion dollar question (to update an old expression). First, the UK accession negotiations will have to be completed, giving us an insight into the kind of commitments a new member can be expected to make. China’s accession will be more complicated, not only over questions as to whether it is truly prepared to abide by the standards of the CPTPP, but also by associated political factors, such as its ongoing trade “war” with the United States, even though the US is not a CPTPP member. In theory, the US should be in favour of any process that will induce China to open its market and level the playing field with its trade partners. However, the reality is that at the current time Washington seems disinclined to take any steps that could be construed as doing China any favours, and the US may try to pressure its USMCA partners, Canada and Mexico, to take a hard line on Chinese accession.
Even if China does eventually manage to accede to the CPTPP, the copyright industries, especially the copyright industries in the US, won’t see much direct benefit, although a more open Chinese economy generally would reduce US-China tensions and could potentially help reverse the threatened decoupling between China and western economies. Maybe one day the US would even be prepared to reconsider its position and join the CPTPP instead of continuing to impose managed trade outcomes on China through unilateral application of punitive tariffs. A US-China trade rapprochement along with the adoption of greater trade opening and transparency measures by China would be good for everybody in the long run, copyright industries included.
© Hugh Stephens, 2022. All Rights Reserved.
[i] World Intellectual Property Organization