Asia Society

The Phase 1 Agreement and the Prospects for Piloting A New IP Dialogue

At the recently concluded Berkeley-Tsinghua conference on Transnational IP Litigation,  Tsinghua Professor Yang Guohua addressed the question of whether the Phase 1 Trade Agreement is alive or dead.   Prof. Yang formerly served in the Law and Treaties Department of MofCOM and later as MofCOM’s IP Attaché at the Chinese Embassy in Washington, DC.  I have known Dr. Yang for over 20 years.  There are few people who have had as much experience in China handling IP negotiations with Americans. In Prof. Yang’s view, the non-IP aspects of the Phase 1 Agreement are not likely to survive in the current trade environment. The IP aspects may, however, continue.   

There are good reasons to believe that Phase 1 is dead.  China is behind on  its purchase  commitments.  Those commitments also raised serious WTO concerns over Most Favored Nation obligations.    China has also obtained a WTO ruling that the sanctions imposed by the United States  were not WTO compliant. While the US drifted into unilateralism during the Trump era, China has recommitted to multilateralism.  It extended its global trade reach through both the CAI and RCEP and has also expressed an intent to join the CPTPP in the future. The Biden administration may also have concerns about Trumpian unilateralism and has said that it would like to see more multilateral engagement with China.   President Trump also noted in July 202O that he was pessimistic about prospects for a Phase 2 Trade Agreement.   I have not heard of any negotiations regarding a Phase 2 Agreement in IP, although the Phase 1 Agreement by itself was hardly a comprehensive agreement.  Finally, the new Biden administration may also want to demonstrate its own strategic priorities with new approaches.   

As Yang Guohua noted, the prospects for continued IP engagement are relatively strong.  His optimism has merits.  IP commitments extended by China to the United States typically get extended to all trading partners, thereby avoiding the violation of  MFN obligations.  As many speakers noted during the program, the Phase 1 Agreement also acted as a stimulus for additional reforms in China and was generally consistent with China’s own goals.  I expect that if the Biden administration were to pick up the Phase 1 Agreement again, IP could be a good focus.  However, the Biden administration might also be inclined to show some discontinuity with the past, such as changing the name to something other than a Phase 2 Agreement, or not using names of prior dialogues. National security and human rights issues may also dominate the discussions of how bilateral dialogues should be structured. Every administration for the past 20 years has had its own view on dialogues with China, and the Biden administration should be no different.   

Several polls during the four-day Berkeley/Tsinghua program revealed that the 200 plus attendees from both countries believed that a resumption of bilateral discussions on IP and technology issues would be a positive step forward.  President Biden’s nominees to date, however,  have offered little insight on whether they would like to restart trade dialogues. Many of the Biden nominees and appointees are veterans of Obama-era dialogues, including Secretary of State Blinken, Secretary of Treasury Yellen and Agricultural Secretary nominee Vilsack.  None of these nominees have had experience leading interagency discussions concerning technology or IP.  The general sentiment appears to be that they would not want to be “bogged down” by dialogues.  However, important officials, such as Dr. Kurt Campbell, who will serve as the President’s senior official on Asia in the National Security Council, have noted that there should be room for a dialogue that is “somewhere between the secretive kind of a high-level engagement between the White House and China and this incredibly large strategic and economic dialogue ― a new mechanism that helps support advancing the bilateral interests of the two countries.” A great recent discussion with Dr. Kurt Campbell at the Asia Society of Northern California can be found here (the Asia Society’s full program on relations with China, including interviews with Henry Kissinger and George Schultz, is worth listening to as well!).

The most compelling reason for China and the United States to reinitiate engagement with respect to IP is that it is in both countries’ mutual interests.  China has made dramatic changes to its IP regime in the past two years.  Many of these changes have gone beyond the limited scope of the Phase 1 Agreement.  Some of the changes, such as recent revisions to China’s patent examination guidelines on pharmaceuticals, are welcome improvements that also help in implementing Phase 1 commitments.  Americans and Chinese companies also continue to file for IP rights in each other’s countries, and continue to use the courts and administrative agencies, both as plaintiffs and defendants.  Judges in both countries would also benefit from a better understanding of each other’s legal systems.  Judge Jeremy Fogel (ret.), who previously served as the Director of the Federal Judicial Center (FJC), noted that the FJC greatly benefitted from having Chinese interns during his tenure there.  He also praised the contributions of China’s judges to an on-going project of WIPO regarding patent case management procedures.  Many of the judges speaking at the Berkeley-Tsinghua conference expressed concern about the consequences of a declining level of understanding of each other’s legal systems.  Several judges stated that increased dialogue between judges would also lead to less friction between our legal systems, such as in anti-suit injunctions. Prof. Yang also noted that concrete cases were often points of discussion in prior dialogues. 

As Prof. Dan Prud’homme notes in a recent article, there are many “myths” that each country has about the adequacy or inadequacy of China’s IP system.  An IPR-related dialogue would need to avoid being based on “myths,” which often results in meaningless political posturing, as well as getting “bogged down” and accomplishing little.  During times of trade tension in the past, the United States and China often found common ground in exchanging views on IP-related matters. A useful approach might be to identify shared tangible interests of both countries in areas such as patent and trademark prosecution, complex multinational litigation, patent linkage, plant variety protection, standardization, educating each other’s rightsholders, promoting fair, transparent and predictable litigation, IP issues in emerging technologies, etc.  These discussions should not be “talk-fests”, but should have real outcomes.  If the discussions can have tangible results, they might also serve as a pilot for other, more contentious dialogues. If so, it would not be the first time that IP-related dialogues served as a pilot, such as a past effort in the Obama era on judicial exchanges.

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