Chapter 2 - The Web of Trade Agreements and Alliances, and Impacts on Regulatory Autonomy

Susy Frankel, Meredith Kolsky Lewis, Chris Nixon and John Yeabsley

Globalisation has changed the nature of trade policy and an important part of that change is the way in which international trade policy interacts with domestic policies to shape domestic regulation. The international community’s regulatory objectives are becoming more and more pervasive on New Zealand’s domestic regulatory objectives. This paper looks at the challenges that face New Zealand’s regulatory regime as a result of the increasing number of trade agreements that our country enters into.

Starting from the premise that it is in New Zealand’s interest to be involved in international trade agreements, this research looks at the alternatives for the New Zealand approach to trade agreements. The degree to which New Zealand can enjoy the privileges of being an “insider” on world markets will depend on the strategies it uses to identify agreements that will increase economic growth and that will be durable. The nature of the trade agreement can inform the strategy New Zealand employs. There are two major types of processes concerning the implementation of international trade agreements at a domestic level. Top-down agreements broadly indicate what types of domestic regulation are not permitted, and sometimes these agreements will also prescribe the types of regulation required. Bottom-up agreements involve countries developing domestic regulation through cooperation. Many trade agreements feature aspects of both top-down and bottom –up arrangements. In order to illustrate the way in which top-down negotiations often dictate terms, resulting in less flexibility, and bottom-up agreements can more readily incorporate more detailed New Zealand needs, the paper discusses patent term extension for pharmaceutical patents as a trade negotiated matter. To do so, the paper conducts a detailed analysis of the issues about patent term extension. This leads to an analysis of whether increased regulatory autonomy for New Zealand is more probable in one framework than another.

At present New Zealand does not allow patent term extension because to do so increases the price of pharmaceuticals in New Zealand and have negative economic impacts at a domestic level.

The issue of the patent term extension is relevant to the Trans Pacific Partnership (TPP) negotiations, in which New Zealand is involved. This is an example of a top-down framework that is also likely to impose greater behind the border regulation (that resembles bottom-up integration but through a top-down method). The United States wishes to increase patent protection, particularly in the pharmaceutical field, through measures such as patent term extensions. Other parties in the TPP negotiations, particularly Singapore and Australia, have already implemented patent term extension in their respective bi-lateral agreements with the United States. New Zealand, being a small player, will not have the power to challenge this course. New Zealand’s strategy would be to evaluate whether the costs of allowing patent term extensions can be offset by other parts of the agreement to make being part of the TPP worthwhile.

An example of bottom-up framework is the move towards a broader ASEAN + 6 arrangement (now RCEP), which would include New Zealand. A moderate patent policy is likely to be a key interest in such an arrangement because most parties would not be interested in patent term extension stemming from this agreement. As far as patents are concerned New Zealand’s strategy would be ensure that imports of pharmaceuticals (most likely generic) from these jurisdictions are safe for New Zealand consumers. Also, New Zealand (and others) may seek agreement to strengthen patent offices to o protect New Zealand patented products that are sold in the markets of these other countries. The paper measures durability of these arrangements through GDP of member countries against the strength of their domestic institutions to identify how well placed each country is to meet New Zealand’s interests.

The paper concludes that New Zealand’s strategy in trade negotiations will depend on many factors, but that frequently bottom-up negotiations are a better way to preserve the New Zealand interest.