To understand the FTA contribution to the region, we should first consider the nature of FTA making activity generally. FTAs form just one part of the international relations and political economy of trade. Yet they are the form which, currently at least, is expanding its sphere of influence, albeit with its own twists and turns. The simplest explanation maintains that FTAs are trade deals: they are made for their immediate gains. FTAs are made because the parties share a high volume of trade and investment. This explanation discounts geographical, political and cultural affinities, though not entirely because these connections can lead to trade in some sectors.

Why do countries continue to pursue trade liberalization? Liberalization is pursued domestically in many countries, many of whom have been experiencing pressures both from inside and outside (for example, from the IMF and World Bank) to adopt neo-liberal economic policies. The progress of multilateral trade regulation has stalled with the failure of the Doha Round of World Trade Organization (WTO) negotiations.¹ So, FTAs are another way of obtaining liberalization. Many countries are pursuing FTAs and few countries want to be ‘left out of the game’.² This involvement results from the international momentum behind FTAs; more broadly, it is a shift in the policies of many countries, away from defensive protection and towards regulated trade.³ Consequently, many governments are making approaches to or receiving approaches from other governments. The FTAs give rise to ‘competitive liberalization’.⁴

At the same time, every country contains constituencies that are sensitive about domestic liberalization and granting foreigners greater market access. Some countries are still in transition to market economies and the region provides evidence of the varieties of capitalism that operate around the world.⁵ They may be wary, for a variety of economic, political or even cultural reasons, of the model the foreign firm will import. One explanation for the attraction of FTAs over multi-lateral compacts is that they offer the partners the freedom to ‘pick and choose’. FTAs are preferential and discriminatory. They are often selective and partial in their liberalization.

Furthermore, the choice of partners for FTAs does not seem to be based solely on trade. Agreements with major trading partners could be among the hardest to settle. For instance, these partners are already trading—locking in access rights and protections legally looks like the ‘step too far’. Where agreements are made, this partiality is apparent on a sector-by-sector basis; and also in the style of their institutional arrangements and indeed their use of ‘law’. In their substance, FTAs may exclude sectors or only address them briefly. They create a consultative relationship but avoid dispute settlement adjudication. Their relationships with other bilateral, regional and multilateral agreements also vary. Rather than simply supplement multilateral agreements, they may undermine these collective compacts. They can divert trade and create the need for rules of origin. They can form coalitions that will advance a multilateral solution, but break up others, depending on the agenda.

When accounting for the substance of FTAs, we can observe that they are amenable to a realist characterization: we should see who wields economic power and who gains materially from them. This supposition is certainly worth entertaining when large state economic powers are involved, such as the United States or China. Yet their terms lend some support to the constructivists who stress the power of discourse around competing ideas and the prospects for change in the balance of power and even the frame of reference.⁶ This is evident in the range of countries that are now making FTAs and in the varying contents of those FTAs.

It is difficult to explain FTAs simply in terms of trade; it is useful to see at least some aspects of the FTAs in terms of international law making. This perspective is especially suited to intellectual property, where FTAs largely regulate ‘behind the border’ law. Of their features, it can be said that they are inter-governmental. They form horizontal rather than vertical relations. They are bilateral or maybe plurilateral rather than multilateral. They set standards to be implemented in law but also create ongoing relationships of regulatory cooperation. They can also let in non-state actors, in some respects even formally, such as through the provision for direct state-investor arbitration.

Furthermore, while each FTA should primarily be regarded as an agreement between the parties, nonetheless, they also form part of a regulatory criss-cross. They are to be situated then within a multi-layered, multi-polar and multi-modal field, a field that itself can be difficult to demarcate—should it be a field of trade exclusively or an overlap with other public goods, such as access to knowledge or medicines? If the main interest lies in the impact each agreement has on the partner countries, it is to be understood that FTAs contribute to the pattern of international law making more generally across the field.

That effect is not always easy to decipher. The most evident impact is one of fragmentation. FTAs have attracted strong criticism for undermining multilateralism and convergence. Yet they may contribute to the build-up of a particular kind of international trade and investment law. Coming from regulatory and new governance studies, one theory that helps grasp this fluid and variable pattern is called ‘networked nodal governance’.⁷ It tells us several things: relations are likely to go in different directions; a host of public and private actors are involved in this regulating; and regulation assumes a range of normative forms.⁸

However, within such a pattern, we can look for nodes or junctures of regulation. It is possible to regard each FTA as a node; that is why this chapter can eventually focus on one FTA in particular, the FTA between the United States and Australia. Nonetheless, the theory suggests we go further—it suggests there are links between the nodes. Deliberately so, a rather loose and accommodating concept of structure is employed, that of governance rather than government or regime. Then the image of a network is superimposed, in order to give some pattern to the field of governance.

Clearly, FTAs do not create convergent multilateral conventions. Indeed, some commentators have argued that the strategy of those who promote them is not to fill a gap or start a movement towards convergence, but to divide and conquer—to undermine the coalitions that might otherwise build up to form a moderating multilateral agreement or create a dispute settlement jurisprudence.⁹ Yet, at the same time, FTAs may help generate common legal content. Legal policy models are diligently pursued through FTAs.¹⁰ The United States is the most active prosecutor of this strategy within intellectual property and investment law. That can be done through a series of bilateral agreements or, at particular junctures, through attempts to form plurilateral and regional associations.¹¹ NAFTA is an instance of an established regional association. The Free Trade Area of the Americas (FTAA) Agreement and now the Trans-Pacific Partnership (TPP) Agreement are examples of those in the making.

To employ the network imagery, the FTAs create circuits of current, transmitting legal and economic benefits from one node to another. FTAs also more directly link the partners into the broader field of international law making; they are not exclusive in their operation. For instance, some oblige the partners to extend multilaterally the benefits they have given each other’s traders and investors or they trigger such an obligation in another treaty to which the partners are bound. They link the partners into a body of international jurisprudence, such as the often significant investor-state arbitration decisions.¹²

What of law’s role? In such complex, fluid fields, FTA law can be influential—within its immediate sphere of authority it is often directive and coercive. Yet at the same time FTA law is pluralist. We begin to see that law provides alternative models. Moreover, it has a meta-regulatory role. It mediates the interactions between nodes of the networks, interactions that are international to national, national to national, international to international, and more. Law’s role is not just to constrain and coerce governments; thus the FTAs might even assist in coordinating state regulation of business.¹³

Which of these multiple FTA trajectories has the most weight behind it? Around the turn of this new century, the trajectory was convergence. In particular, the United States was the only super-power and it knew what it wanted, which included legal guarantees for owners, traders and investors. Then, the US strategy lost momentum.¹⁴ Other countries became less willing to sign up to its total package. The FTAA negotiations subsided. Within the US Government, concerns were raised that these guarantees could be turned against the interests of its citizens. Approval for the US–Republic of Korea FTA was held up in Congress a considerable time. Japan and the European Union follow a modified WTO-plus approach through their agreements in the region. With the turn of world events, regional powers and other varieties of capitalism seem increasingly confident to chart their own courses.¹⁵ China’s approach to bilateral agreements, now that it is an overseas investor as well as a trader, is especially interesting. Agreements are formed along ‘South–South’ as well as ‘North–North’ and ‘North–South’ lines. Bhagwati’s ‘spaghetti bowl’ is a fitting image; the agreement criss-cross but they do not necessarily connect.¹⁶

Australia has concluded FTAs with seven countries, Thailand, Singapore, the United States, Chile, Malaysia and South Korea; it has an earlier agreement with New Zealand which has been revised.¹⁷ Australia and New Zealand have made an agreement with the ASEAN regional organization. Recently, it has concluded an Economic Partnership Agreement with Japan. Australia has been in negotiations with China and the Gulf Cooperation Council. Australia was also negotiating Comprehensive Economic Cooperation Agreements with India and Indonesia. Australia is actively participating in the negotiations for the TPP with Brunei Darussalem, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam.

When characterizing Australia’s participation in FTAs, we can start by saying that Australia is part of FTA law making activity. Yet it would seem Australia is a bit player. It has fewer partners than many others in the region. In negotiations with some regional partners, it has to moderate its expectations for liberalization, while at the same time meeting the high demands of the United States. The new Coalition government has stepped up efforts but it still faces challenges in concluding an agreement with China. The really big issue is whether it is going to take on board all that the TPP demands, just to obtain a little more access for agriculture. The negotiating position requires finesse. Australia wants more intellectual property protection in Asian countries, yet it is a net importer and can easily concede too much protection itself.

What explains this position? In the region, it is possible Australia is not always regarded as complementary in terms either of economic sectors or institutional arrangements. For Australia, Japan and China are major trading partners. Yet the differences in flows inwards and outwards create sensitivities economically and institutionally. For instance, there has been concern about the impact of increased access for Japanese and Chinese goods on Australia’ remaining manufacturing industries; a newer concern is the loss of sovereignty with these countries’ direct investment in its food and energy industries. In turn, Australia is seeking to export certain kinds of services. Japan resisted some access on cultural as well as economic grounds, while China also has political sensitivities in certain sectors behind the border. Access for audio-visual, financial and professional services is implicated, as is the movement of people across borders to provide services, and as we shall see intellectual property rights.¹⁸

Trade relations might be formalized for other reasons. It would seem the FTA with the United States was as much political as it was commercial and now Australia has identified itself with the US agenda. Even here Australia had limited success gaining access for its agricultural exports. The United States makes agreements in the region with similar countries. It is a small country, New Zealand, which has secured an agreement with the PRC.¹⁹ Again, possibly this agreement serves a politically symbolic function, for New Zealand was ready to recognize China as a market economy for trade agreement purposes, such as anti-dumping measures.²⁰ There has also been a suggestion that New Zealand is a conduit for export to other countries.

If it wants more FTAs, Australia might need to modify its approach. The question is whether the Australian Government has the flexibility to vary its demands and to imagine new solutions. Yet flexibility is not just being agreeable. In principle, Australia could play a role constructing alternatives to the conventional trade flow hierarchies. With its expertise, both in science and social policy, it could, for example, play a constructive bilateral role building efforts to deal with the diseases ravaging the region. Such efforts could include the development of local pharmaceutical industries and health programs in the region.²¹

Perhaps, as we shall see below, the real solutions lie in support for multilateral organizations, such as the WTO, WIPO and WHO and the networks that form around them?²² Better that the ambitions of the FTAs are tempered.

Concerning provision for intellectual property, the FTAs certainly do vary and that is true of Australia’s few FTAs. In keeping with the overall analysis, the appropriate focus might be on the characteristics of the particular relationship. From this perspective, the main factor will be the gains in intellectual property protection that the economic interests within the FTA demandeur country wish to obtain, for instance for those who are exporting or investing intellectual property in the partner country. These demands are run up against the sensitivities in the partner country; they are also traded off for the gains the demandeur may wish to make in other sectors. Given how specific and elaborate the provisions have become, as we shall see below, command of technical expertise and negotiating skills at the time the agreements are struck must affect the outcomes too.²³

Specificities do go a long way to explaining intellectual property provisions. But consistent with the theory of networked nodal governance, FTAs are also to be placed in a wider intellectual property law making field. The US and EU agenda shapes the field profoundly. On this reading of law making, they make for a converging script.²⁴ Their agreements ‘ratchet up’ protection of intellectual property. New categories are encompassed, criteria for eligibility relaxed, exceptions eliminated, rights strengthened, higher levels of protection required and stronger action on enforcement obtained.²⁵

In terms of their relationship with multilateral agreements, these FTA requirements might be regarded as ‘TRIPS-plus’; TRIPS allows countries to extend protection beyond the ‘floor’ of TRIPS as long as the provisions remain consistent with those of TRIPS. However, I am not sure that every widening of protection can be regarded as consistent with TRIPS.²⁶ Frankel (2008) puts the same question—and concludes that not all the TRIPS provisions can be characterized as setting minimum levels of protection and it is not always self-evident which national measure would qualify just as giving more extensive protection.²⁷

Furthermore, such FTAs might be having a cumulative effect upon the field. The proponents refine the script for negotiation with their next partners. The progression of the US intellectual property agenda can be traced through its TRIPS-plus agreements with Jordan, Singapore, Chile, Australia, Morocco and Central America [under the Central American Free Trade Agreement (CAFTA)], some moderation with Columbia and Peru, and the resumption of the maximalist agenda with the Republic of Korea. Ng-Loy (2007) nicely illustrates this intensification in relation to parallel importation.²⁸ The United States has been negotiating in the region with other countries such as Malaysia and Thailand. Now it is aiming for a big bloc with the TPP.²⁹ Japan and the European Union are also active in the region, negotiating for instance with India.

The FTAs have a knock-on effect. Either through a provision in the FTA itself, or in an interaction with the TRIPS Agreement, the partner is obliged to extend these extra protections, on which it agrees bilaterally, to the nationals of other countries too (to ‘multilaterize’). It thus has an incentive to seek the same protections from its subsequent partners. These partners then have a disincentive to pursue alternatives, either on a bilateral or multilateral basis. An example would be a transmission of the TPP provisions to India via one of the parties to the TPP, such as Australia.

Yet the trajectory is not straightforward. Some FTAs avoid intellectual property topics, such as patents, and others are largely content to affirm the established multilateral agreements (for example, the ASEAN FTAs). Some countries are not so interested in intellectual property trade and others have domestic sensitivities to controls being placed on local flexibilities, such as India’s interest in remaining a major supplier of generics.³⁰ Where intellectual property imports outweigh exports, the sensitivities are primarily economic. They can extend to political and cultural sensitivities that are touched, for example, by the requirement to institute legal arrangements for protection and enforcement of intellectual property rights (for example, judicial procedures and remedies).³¹ Instead of rules, these partners prefer to establish an ongoing cooperative relationship for regulation. In the region, this variation on the high protection model is increasingly a matter of degree. Nonetheless, the model is relevant to what Australia can expect from its partners and indeed what it should allow for itself.

The focus of the analysis here is pharmaceuticals. In this field of trade, Australia has signed a TRIPS-plus intellectual property chapter with the United States.³² The United States was the demandeur and Australia could be said to have ‘swallowed’ the US intellectual property chapter ‘whole’.³³ The explanation might lie in domestic law factors: Australia had been a high protection jurisdiction already despite being a net importer of intellectual property. Yet the chapter went further than the existing levels of protection. The Government saw no drawbacks, either in adding to the TRIPS floor or, as we shall see from the analysis of pharmaceutical patents, in relinquishing TRIPS flexibilities. Yet Australia’s position in the global medicines field suggests its policy should be more carefully calibrated between investment incentives and conditions of immediate access to medicines.

On the one hand, patents will play a role in protecting local inventions when the public sector institutes and small start-up companies seek partners to commercialize them.³⁴ Yet, while local innovation is a worthy aspiration, all but the big developed countries should be realistic about the prospects of making break-throughs with new molecules for pharmaceuticals.³⁵ It is possible patent protection may encourage the European and US pharmaceutical companies to locate some of their production work locally, but only as long as the complementary conditions—such as labour skills and labour costs, government assistance to industry and public infrastructure provision—are regarded as positive. Australia has manufacturing capacity because it is a location for packaging finished products for the domestic market and for some exports. With a strong research base, it does also originate some medicines. Still, most pharmaceuticals are imported into Australia. For other countries in the region, the experience also is mixed despite the introduction of pro-patent policies.³⁶

All countries must consider the balance between investment incentives and the impact on access to medicines. Like other countries in the region, Australia has an interest in the conditions under which generics as well as innovative drugs become available to its population. Australia appears mainly in this field as a consumer of pharmaceuticals, a role in which it has developed expertise as a provider of health services, a purchaser of pharmaceuticals [through the public Pharmaceutical Benefits Scheme (PBS)] and as a regulator of safety and efficacy (through the Therapeutic Goods Administration). Australia’s expertise in science and social policy could serve some of its partners in the region well.³⁷ In the region, some countries have pressing needs to supply their indigent populations with medicines to treat catastrophic illnesses such as HIV/AIDS, tropical diseases and cancers.

In contrast, the United States is a major home base for the research, production and export of brand-name pharmaceuticals. That role defined its Government’s approach to the Australia–United States FTA (AUSFTA). Some of that production it now outsources, such as the manufacture of active ingredients to China or the packaging of finished products to Singapore. Yet the United States also experiences conflicting pressures. It plays a major role as a consumer too. The US federal and state government funded (but state operated) Medicaid scheme and the large employer provided health insurance plans are increasingly concerned about the impacts of rising pharmaceutical costs.³⁸ In addition, as well as PEPFAR (the President’s Emergency Plan for AIDS Relief), the United States is the home base for a number of philanthropic foundations that fund research into neglected diseases and the delivery of pharmaceuticals to the poor of the world (with recent examples of such foundations including the Gates, and Clinton foundations).³⁹ In 2007, the new Trade Deal between the Congress and the Bush Administration supported some development-oriented patent flexibilities and this moderated the provisions of the FTAs with Colombia and Peru.⁴⁰ But it seems the Obama Administration has reverted, with the TPP negotiations, to the maximalist agenda.⁴¹

National public schemes and global foundations depend on cheaper generic versions of the patented pharmaceuticals becoming available. Certain countries in the region have built generic industries in the absence of patent protection for pharmaceutical products, India most notably, but Malaysia, Singapore, South Korea and Taiwan for instance have capacity.⁴² As the grace period for implementation of TRIPS protection ends [2005 for developing countries; 2016 and now 2021 for Least Developed Countries (LCDs)], they are trying to develop a new industrial strategy. The strategy is likely to be a mix between patent protection and generic drug production.⁴³

Depending on where and how clearly the dividing line is drawn between patented and generic products, these countries might be able to support an industry on the strength of those drugs which are free of patents altogether, those for which the patent has expired, those which they are authorised by the patent holders to produce, and perhaps those for which a compulsory licence is granted. As the ‘pharmacy to the poor’, India has been a major source of supply of generics to other countries, both developing and developed nations. While its supply is vital to the poorer developing countries, its biggest market is the United States.⁴⁴ This situation could be compared to that which exists in Australia, a country that predominantly imports generics, though it does have a small locally based (though foreign owned) production sector and it does export some kinds of pharmaceutical to the region.⁴⁵