Technology transfers have long been an integral part of China's economic development. According to the Ministry of Foreign Trade and Economic Cooperation (Moftec), high-technology exports amount to 17 per cent of total exports, worth about US$45bn a year.
However, the regulatory framework governing such transfers has in the past been burdensome, requiring that all technology transfer contracts be approved or 'registered' in order to be effective. China's Technology Import and Export Administrative Regulations, which were made effective from the start of this year, bring substantive changes to the technology licensing regime. The new regulations prevail over previous regulations on technology import and export administration, and supersede the 1985 Regulations on Administration of Technology Import Contracts and their 1988 implementing rules.
The new regulations divide technology imports and exports into three categories: free, restricted and prohibited. Moftec, together with the State Economic and Trade Commission and the Ministry of Science and Technology, is publishing catalogues of restricted and prohibited technologies.
Registration of import contracts
The key change is the elimination of registration requirements for the importation of goods in the free category. A contract to import technology is effective when legally entered into; formerly, all technology import contracts were effective only when approved or registered by Moftec or its branches. Registration is done both online (with China International Electronic Commerce Network, http://info.ec.com.cn) and with Moftec (or its branches) by applying with a copy of the contract and documents providing evidence of the legal status of the parties. A registration certification will then be issued within three working days.
The Technology Import and Export Contract Registration Management Rules issued by Moftec and effective January 1, 2002, provide further detail on the registration process. According to the rules, Moftec handles registration of technology import contracts for 'major projects' involving state financing, foreign loans or those that require State Council approval. For other contracts, registration is done at the provincial level or lower, if provincial-level Moftec has delegated its authority. The rules also list the main items to be included in a technology import or export contract.
Licence to import restricted goods
The importation of 'restricted' goods requires a licence that must be applied for from Moftec or its local branches. Application for the licence is made to Moftec along with required supporting documents (and approvals, for certain technology import projects). Moftec then considers the application together with other relevant departments and responds within 30 days. If it grants approval, it issues a technology import/export licence letter of intent. The contract may then be signed.
After signing, a copy of the contract and other relevant documents are submitted to Moftec, which decides within 10 days (15 days for export) whether to issue a licence. Alternatively, these two steps can be combined by submitting a signed contract with the application for a licence. Moftec will then have 40 days to decide whether to approve and issue a licence. Two additional regulations, both effective from the start of this year, elaborate on this licensing procedure for exports and imports. These measures clarify the use of the registration certificate or licence, which is necessary to carry out foreign exchange, banking, tax, customs and other procedures for the contract. The same registration or licence procedures apply when a contract is changed or terminated.
There are provisions on confidentiality, status of parties, warranties and ownership of improvements, and clauses not to be included in import technology contracts. These restrictions are more permissive than their equivalents in the 1985 regulations, which had provided that a contract could not prevent the recipient's use of the imported technology after the contract expired, and the term of a contract was limited to 10 years unless there was special approval. On the other hand, the new restrictions cannot be waived by 'special approval'.
It is not yet clear whether Moftec would actively enforce this position with respect to foreign-law-governed contracts that are 'free' – and so need only post facto registration, intended to be automatic with no substantive review of the contract. It could be argued that these restrictions should not apply to contracts governed by foreign law – a choice of law that China's Contract Law clearly permits. However, there is a risk, should enforcement be sought in China, that a choice of foreign law that avoids prohibitive provisions of Chinese law might be found ineffective.
This article was written by James Dunlap, senior associate of the international law firm Freshfields Bruckhaus Deringer. For further information on this topic, please contact him by email (email@example.com) or telephone (+852 2846 3400).
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