By Max Lin and Yan Zhao, Foley & Lardner LLP
This article is part of our Summer 2010 edition of Legal News: China Quarterly Newsletter, Eye on China.
The Foreign Trade Law of the People’s Republic of China (PRC) includes the principle of restricting or forbidding the export/import of certain technologies that may involve national security, public interest, or public morality. Details of the administrative rules are set forth in the Regulations of the People’s Republic of China on Administration of Import and Export of Technologies (Regulations) formulated by the PRC State Council in 2001. Under the Regulations, technology export and import are defined as the transfer of technologies across the border by way of foreign trade, investment, or economic or technological cooperation, and such transfer may include assignment or licensing of patents and/or technical knowledge.
The Regulations categorize the technologies into three groups, namely, free-to-transfer technologies, restrictive technologies, and forbidden-to-transfer technologies. Technology exporters and importers must refer to the Regulations, which are issued and updated periodically by the State Council, for self-evaluation. For restrictive technologies, governmental approval is required before the technologies can be exported or imported. Failure to comply with this approval requirement may result in confiscation of the profits, fines of up to five times the profits, revocation of the relevant party’s foreign trade license, and under certain circumstances even criminal charges.
The approval procedures for the export of restrictive technologies are similar to those for import. For simplicity, only the approval procedure for export is addressed in this article. Essentially, such an approval involves two steps.
First, before the exporter engages in any substantive negotiation with a foreign recipient of the subject technology, it must apply for a Proposal for Technology Export License from the commerce administrative department of the province, autonomous region, or municipality under direct control of the central government where the exporter is located (hereafter, the local commerce department).
Specifically, the exporter must submit the following documents when applying for a Proposal for Technology Export License:
- Application form, available from the Technology Import and Export Management System administrated by Ministry of Commerce (http://fwmys.mofcom.gov.cn/)
- Description of the technology to be exported
- Certification indicating the exporter’s legal status, such as its business license
- Certification indicating the exporter’s qualification for trading with foreign entities
The local commerce department will, within 30 working days from the date of receipt of the application materials and in conjunction with the local science and technology department, conduct a trade review and a technical review, and decide whether to approve such an export of technology. The exporter can amend its application or submit supplemental information if the local commerce department considers the application materials to be insufficient or unclear. In such an event, the application of the Proposal for Technology Export License will not be considered to have been filed until the local commerce department’s requests for supplemental information or clarifications have been satisfied. In other words, the aforementioned 30-day time frame is not triggered until the application is considered to be in order.
If the subject technology involves national security, the application may be rejected and the local commerce department will inform the applicant in writing. No details with respect to the approval criteria are provided. Noticeably, the application also could be rejected if the subject technology may be found to infringe others’ intellectual property rights in China. Once approved, the local commerce department will issue to the applicant the Proposal for Technology Export License.
The term of the Proposal for Technology Export License is three years. That is, the exporter must conclude a technology export contract within the valid period of the Proposal for Technology Export License. Otherwise, it must re-apply for a new Proposal for Technology Export License.
With the issued Proposal for Technology Export License, the exporter can then negotiate with the foreign party or parties and, after the execution of a technology exportation contract, must apply to the local commerce department for a Technology Export License.
In this second step of the approval procedure, the applicant must first log onto the Technology Import and Export Contract Information Management System (mofcom.gov.cn), enter the contents of the contract, and then submit the application online. After filing the online application, the applicant must submit the following documents to the local commerce department:
- Proposal for Technology Export License
- Duplicate of the technology export contract
- Checklist of technical references (documents, data, drawings, and so forth)
- Documents certifying the legal status of both parties to the contract
The local commerce department will examine the authenticity of the technology export contract, make a decision on whether to approve the technology export within 15 working days from the date of receipt of the aforementioned documents, and issue a Technology Export License if exportation of the subject technology is approved. The technology exportation contract comes into force as of the date when the Technology Export License is issued.
Conclusion
Companies must pay particular attention to China’s governmental approval requirement when dealing with cross-border technology transfers. They are encouraged to start the application procedure early in view of the rather tedious approval procedures for the export and import of restrictive technologies.