Co-written by Agnes Wong, Consultant, Johnson Stokes & Master
Originally published in March 2002
In the past, all technology transfer contracts had to be registered before they were legally enforceable in the PRC. However, according to the new regulations on technology import and export which came into effect on 1 January, 2002, a new category of technology, the import or export of which does not require the approval of the Ministry of Foreign Trade and Economic Co-operation ("MOFTEC"), was created.
The PRC Administration of Technology Import and Export Regulations ("Regulations") and the Technology Import and Export Contract Registration Management Rules ("Rules") were promulgated last December and became effective on the 1 January, 2002. Technology is categorized into prohibited, restricted and freely transferable. The Catalogue of Prohibited and Restricted Export Technologies and the Catalogue of Prohibited and Restricted Import Technologies ("Catalogues") published by MOFTEC on 30 December, 2001 listed out those technologies which are regarded as prohibited or restricted.
Technology which is prohibited cannot be imported/exported. The Catalogues specify in detail the technologies which are prohibited and restricted. All other technology is freely transferable unless prohibited by other regulation e.g. military related technology.
For import or export of restricted technology, a licence is required. Under the Rules an application for such licence should be filed with MOFTEC which should consider the application together with other relevant departments and respond within 30 days. If MOFTEC approves the application, it shall issue a letter of intent and the import/export party may then sign the technology import/export contract with the foreign party. After the contract is signed, it should be filed with MOFTEC together with other relevant documents for the purpose of applying for the technology import/export licence. Within 40 days from the date of submission of all relevant documents, MOFTEC shall decide whether to approve the application and issue a licence. The contract shall become effective from the date on which the licence was issued.
For import/export of freely transferable technology, though registration is still required, the contract is effective once it is signed. Under the Rules, applications for registration of such contracts should be filed with MOFTEC which shall issue a technology import/export contract registration certificate within 3 working days from the receipt of all relevant documents.
The same licensing or registration procedures shall apply when the contract is changed or terminated.
Once the importer/exporter of technology obtains the licence/registration certificate, it should record the major terms of the contract online by entering the China International Electronic Commerce Network at www.info.ec.com.cn. Equipped with the licence/registration certificate, the importer/exporter shall then be able to make arrangements with banks and government departments in relation to foreign exchange, taxation, customs, etc..
Other major changes implemented by these new regulations include the removal of a ten-year restriction on the term of the technology import licence and allowing the licensee to keep using the licensed technology after the term of such contract. In fact, the new regulations provide that the licensee has a right to negotiate terms for continued use with the licensor and negotiation shall be conducted on a fair and reasonable basis. In addition, the licensor of a technology import contract is required to warrant in the contract that it is the lawful owner of the technology and that the technology is complete, free of error, valid and capable of achieving the agreed technological target. A technology import contract may not contain, amongst other things:
- provisions which restrict the licensee from making improvements to the technology provided by the licensor;
- provisions restricting the licensee from using the improved technology; or
- provisions restricting the licensee from acquiring from other sources, technology similar to or competitive with the technology provided by the licensor.
These restrictions will continue to impede the importing of technology into China.
Criminal liability will arise if these rules and regulations are breached and depending on the seriousness of the breaches, various penalties shall be imposed.
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