New TT Procedure to China

The New Technology Transfer Regime in China - the procedure for

approval or registration

! Legal framework

! Definition of Technology

! Different categories

! Restricted technology import and export

! Permitted technology import and export

! Required and restricted terms

Transactions between Chinese and foreign parties commonly involve some form of

technology transfer either by way of licensing or as part of a joint venture. Most

contracts will be for the acquisition of foreign technology. Such contracts have to

fulfill specific legal requirements and may require the approval of the Ministry of

Foreign Trade and Economic Co-operation (“MOFTEC”) also known as the State

Council Foreign Trade Department.

Legal framework

! The Administration of Technology Import and Export Regulations promulgated

on 10 December 2001 and effective as of 1 January 2002 (the “Regulations”).

! The Administrative Rules on the Prohibition and Restriction of Import

Technology.

! The Administrative Rules on the Prohibition and Restriction of Export

Technology.

! The Administrative Rules on the Registration of Technology Import Contracts

promulgated 30 December 2001.

Technology contracts must also comply with the relevant provisions of the Contract

Law of 1999. There may also be special local rules governing the transfer of foreign

technology contracts in certain regions.

Definition of Technology

The term “Technology Transfer” includes the transfer of patents, patent applications

or patent implementation licences, know how and technical services. The

technology to be imported must be advanced and appropriate. Technology to be

exported should be mature and industrialised. Both must benefit China’s scientific

and technological progress and the development of foreign economic and

technological co-operation as well as the maintenance of China’s economic and

technological rights and interests.

Different categories

Technology is now divided into three categories: prohibited, restricted and

permitted. Prohibited technology may not be imported or exported. There are a

different regimes for restricted and permitted categories. MOFTEC has issued a

very long list of prohibited and restricted technology for the purpose of export. The

first list of prohibited and restricted technology for the purposes of import has also

been released but this is not comprehensive and further items are expected to be

included in this list.

Restricted technology import and export

An approval system has been adopted and no import or export of restricted

technology may be carried out without a licence. An application must be filed with

MOFTEC together with relevant documents. (If the technology import project is

subject to approval by other relevant departments, approval documents from these

departments should also be submitted.)

! MOFTEC shall examine the application and grant approval or disapprove

within 30 working days. For export applications, MOFTEC shall examine the

application in conjunction with the State Council Administrative Department of

Science and Technology. If approved, MOFTEC will issue a “letter of intent

on technology import or export licensing”.

! Once the technology import or export is contract signed, a duplicate copy of the

contract and the letter of intent should be submitted to MOFTEC in order to

apply for the “technology import or export permit”. For technology export

contracts, applicants will also need to submit a list of the technology to be

exported and evidence of the legal status of the contracting parties. A

technology import contract will be examined and approved or disapproved

within 10 days. A technology export contract will be approved on disapproved

within 15 days.

! If approved, a “technology import or export licence” shall be issued and the

contract shall take effect from the date of issuance of the licence.

It is possible to file the application and signed technology import contract together,

in which case approval should be granted within 40 days of receipt of the

documents.

However, parties cannot enter into substantive negotiations or sign a technology

export contract until the letter of intent has been granted.

Permitted technology import and export

A registration system has been adopted. The following documents need to be

submitted to MOFTEC:

! application for registration of the technology import or export contract;

! duplicate copy of contract;

! documents evidencing the legal status of the contracting parties.

MOFTEC should register the contract and issue the registration certificate within 3

working days of receipt of the documents. The effectiveness of the contract is not

conditional upon registration but will take effect when the contract is formed in law.

Required and restricted terms

The new regime still provides that certain clauses must be included in a technology

transfer contract and certain restrictive clauses are not permitted in a technology

transfer contract. Although the new regime is more permissive in terms of the scope

and content of restrictive clauses, unlike before, there is no provision for waiver of

the restrictive clauses with the special approval of MOFTEC.

Intellectual Property and

Technology Bulletin

Issue 2

May 2002