Intellectual property rights are shaping up to be the key battleground as the trade war between the United States and China escalates. And Australia’s position favours the US, writes Clinton Fernandes, even though it is patently against Australia’s interests because of the huge costs intellectual property rights impose on the community.

China regards intellectual property as just another factor of production and wants to lower its price to a minimum. By contrast, high-tech American firms often derive their profits by obtaining higher and higher prices for intellectual property.

US diplomatic cables leaked to Wikileaks in 2010 reveal the high priority American diplomats give to the surveillance and defence of intellectual property regimes around the world. Thousands of cables and millions of words are devoted to this subject.

Australia, as a net importer of intellectual property, has good reasons to side with the developing world, which has been calling for a “development agenda” that facilitates technology transfer as a key enabler of development. Instead, Australia sides with the “patent agenda” of the US, the EU and Japan even though it comes with a high price.

Cables released by Wikileaks show Australia’s support for US objectives. For example, in 2009 the Labor government rejected a proposal by generic pharmaceutical companies to produce generic drugs in Australia for export. The US Embassy reported confidentially that the Minister for Innovation, Industry, Science and Research, Kim Carr, said the decision occurred “in light of Australia’s international commitments on intellectual property and trade.”

Official statistics released in 2019 show that Australia earnt just $1.4 billion in royalties for IP exports but paid $6.3 billion in import royalties in 2017-2018.

In 2018-2019, imports of pharmaceutical products were expected to total A$12.5 billion, almost three times the amount of exports (A$4.3 billion). And much of this $4.3 billion in exports are based on Australian complementary healthcare manufacturers selling vitamins and dietary supplements to nearby Asian markets, not IP-rich conventional drugs.

The most recent Australian Intellectual Property Report said that Australia’s IP rights “are relatively strong and well regarded, providing a potential source of economic advantage”. Once past the opening’s positive spin, the report goes on to admit that “growth in trade mark applications was entirely attributable to non-residents”. And that, “consistent with recent years, non-residents accounted for 91 per cent of standard patent applications in 2018.”

Intellectual property rights are critical to US corporations because they operate in a world of global value chains. A corporation’s headquarters and engineering and design departments are established in one country, its manufacturing facilities in another, and its finance and sales departments in yet another country.

The aim is to declare profits in the lowest tax jurisdiction while locating production in the country with the most favourable combination of labour costs, workforce skills, infrastructure, and logistics. An estimated 80% of all international trade is simply the movement of intermediate goods and services between different arms of the same company across international borders.

Information revealed in the State Department cables in 2011 by Wikileaks showed that Apple Corporation had subcontracted a Taiwanese firm, Hon Hai Precision Industry, to assemble Apple devices. Hon Hai employed up to one million Chinese workers through a subsidiary, Foxconn, in Chinese factories.

While Hon Hai’s shareholders made a profit of US$2.6 billion, Apple made US$33 billion – almost 13 times more – just by owning the intellectual property in the proprietary design, branding, customer service, marketing, and research and development. Apple then assigned part of its profits to its affiliate in Ireland, where it pays a much lower rate of tax.

China’s position is that US firms are allowed access to 35 restricted sectors including auto production, oil exploration, nuclear power, telecommunications, banks and medical institutions, but they must enter into joint ventures with Chinese companies and transfer know-how to them.

One of the Trump administration’s biggest complaints – in addition to cyber-espionage – is that China’s foreign-investment requirements are a form of theft.

China, by contrast, retains the assumptions of the post-World War II international trade and financial system, namely that “technological spillovers” should occur from developed countries to developing ones. Indeed, the World Trade Organisation’s intellectual property agreements “specifically require developed country members to provide incentives for their companies to promote the transfer of technology to least-developed countries”.

The leaked cables also showed that US corporations have launched lawsuits against Australian companies under discreet cover of an Australian identity.

In November 2008, for example, the Australian Federation Against Copyright Theft (AFACT) took legal action against Australia’s third largest internet service provider, iiNet. It alleged iiNet had not taken reasonable steps to prevent its customers from infringing copyright.

But the leaked cables show that AFACT was nothing more than the Motion Picture Association of America (MPAA) in disguise. The US Embassy said: “Despite the lead role of AFACT and the inclusion of Australian companies Village Roadshow and the Seven Network, this is an MPAA/American studios production.” MPAA was “acting on behalf of the six American studios involved” but “prefers that its leading role not be made public.”

AFACT and MPAA “worked hard to get Village Roadshow and the Seven Network to agree to be the public Australian faces on the case to make it clear there are Australian equities at stake, and this isn’t just Hollywood ‘bullying some poor little Australian ISP’.”

The leaked State Department cables from 2003 to 2010 provide a view of a world in transition. Many key contemporary events are illuminated by discussions contained within them. They shed light on the pivotal importance of intellectual property in a world of global value chains.

They show that President Trump’s economic nationalist philosophy, which impels him to reverse decades of offshoring by American corporations, relate to deeper forces in existence long before he took over the presidency.

Disturbingly, the cables also demonstrated the Australian government’s deep and willing integration into the United States’ global ambitions, which is again being highlighted in the key battleground of intellectual property.