China’s Technology Import and Export Control Regime
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China has two sets of technology import and export control regimes. One is the import and export of civilian technologies; the other is a separate export control regime for sensitive items and related technologies, such as nuclear dual- use items, missiles, biological supplies and export of specific chemicals. It is important to understand the differences and distinctions between them.
The second regime regulates sensitive items and technology together, and is only directed at export control. In particular, the system manages the sensitive items separately. For example, export of nuclear dual-use items and related technologies is governed by “Regulations on Export Control of Nuclear Dual-Use Items and Related Technologies”, export of missiles and related items and technologies is governed by “Regulations on Export Control of Missiles and Related Items and Technologies”.
The "Draft Export Control Law" that is currently under review incorporates above separate regulations over different types of sensitive goods & technologies under the second control regime into one single system, covering dual-use items, military products, nuclear products and other goods, technologies, services and items relating to China’s national security and international commitment.
1. What is technology import and export?
Very briefly, technology import and export refers to the cross-border transfer of ownership or right to use of technologies between domestic and foreign parties. In particular, technology export deals with technology flow from China to abroad, while technology import deals with technology flow from abroad to China. From the technology import & export operators’ (normally the Chinese party in the transaction) perspective, activities that are subject to technology import and export control include assignment or licensing of technologies, including patents/applications, exclusive rights for IC layout designs, computer software copyright, new plant varieties rights, and technical secrets and so on.
2. Category management of import and export technology
The Regulations takes catalogue management approach on technologies, that is, they are categorized into prohibited technology, restricted technology, and free technology based on sensitivity of concerned technologies, and a list for each category is formulated by Chinese government accordingly. Technologies in the prohibited list are forbidden from import and export. Technologies in the restricted list may be imported or exported provided that a corresponding license from the Chinese government is acquired beforehand. Technologies not included in either the prohibited or the restricted list are free to import and export, despite the technology import/export contract is advised to be recorded with the Chinese government.
China's list of prohibited and restricted technology has been quite stable, whether for import or export. In particular, the import list was formulated in 2001, revised once in 2007, and the export list was formulated in 2001, revised in 2008, and further revised in August 2020.
The latest export list comes at a time when Chinese affiliated companies in US are fighting with the Trump administration's executive ban, therefore attracts a lot of public attention. Especially, there is an addition of item 18 under Class 15 in the restricted list regarding computer services: artificial intelligence interactive interface technology (including voice recognition technology, microphone array technology, voice wake-up technology, interactive understanding technology etc.) as well as customized push service technology based on personalized data analysis. Both technologies are considered to be core algorithms of ByteDance, the Chinese parent company of TikTok which is, among others, facing sanctions from Trump Administration in US.
Currently, TikTok is seeking cooperation with Oracle and Wal-Mart in order to circumvent the US government’s ban, and a new American company TikTok Global is planned out. If the transaction involves transferring or licensing out of ByteDance technology abroad, for example, if the personalized information push technology is transferred or licensed to TikTok Global, the deal will trigger China's technology export control regime, regardless of who controls TikTok Global. ByteDance must seek a technology export license from the Chinese government. From the fact that ByteDance has recently submitted with Beijing Municipal Bureau of Commerce a request for technology export license regarding TikTok’s deal in US, the deal may well involve export of technologies mentioned above.
Aforementioned change is only a minor portion of the whole amendment of the list. The amendment is quite extensive, involving almost every class and sub-class. From this perspective, it is not correct to read the amendment this time as merely directing at the transaction of TikTok in the United States.
3. The approval process over import and export of restricted technology
Import and export of restricted technologies need to be licensed by the commerce department at the provincial level (the department of commerce or the commerce bureau of the province, autonomous region, municipality and city specifically designated in the state plan).
(1) Standard review process for the import and export of restricted technologies
- Standard import review process of Restricted technology
To get a license to import restricted technologies, import operators first need to submit an application for license of the import with the provincial commerce department, which will review the application together with another department which is normally the government agency that directly administers the business of the concerned technology (relevant department). Upon approval, the commerce department will issue a letter of intent for license to the operators. No substantive negotiation is permitted with foreign parties regarding the technology import until issue of the letter of intent for license. Once the technology import contract is signed between both parties, the technology import operator shall apply with the commerce department again for the technology import license.
- Standard Export review process of restricted technologies
Regarding export control of restricted technologies, technology export operators first need to submit an application for license with a commerce department, which will then review the application jointly with the local science and technology administration department. Upon approval, the commerce department will issue to the export operator a letter of intent for license. No substantive negotiation is permitted with foreign parties until issue of the letter of intent for license. Once a technology export contract is signed by both the Chinese and foreign parities, the technology export operator shall proceed to apply for a technology export license with the commerce department.
(2) Special approval process for restricted technology import
For import of restricted technologies, as an alternative to the standard approval process as illustrated above, technology import operators may also directly apply for the license of technology import after a technology import contract has been signed with the foreign party, thereby bypassing the process of application for a letter of intent for license. On the contrary, technology export operators must always apply for a letter of intent for license in the first place before initiating any substantive technology export negotiations with a foreign party.
(3) Measures for the Transferring abroad Intellectual Property Rights (Trial)
In 2018 , the General Office of the State Council promulgated the "Working Measures on the Outbound Transfer of Intellectual Property Rights (for Trial Implementation)", which further clarified rules and regulations concerning outbound transfer of intellectual property rights in the export of restricted technologies. The intellectual property rights involved include patent and IC layout designs, computer software copyrights, new plant variety rights, etc.
The types of behaviors that are subject to the regulation of the Working Measures include right holder change, exclusive license, and change of actual controller of intellectual property rights. Amongst others, change of the actual controller of intellectual property rights, from the writers’ perspective, may be directed at a situation where the power of actual control over any aforesaid intellectual property right changes as a result of mergers and acquisitions or other transactions with foreign party despite the ownership of the intellectual property remains with the Chinese party. From this sense, the definition of technology export under the Regulations has been enlarged by the working measures.
Besides, the Working Measures changed the departments that are joined by local commerce department in the export review process. In particular, the reviewing department of patent right and IC layout design export is shifted to the local intellectual property office; reviewing department of new plant varieties export is shifted to local agriculture or forestry departments; the reviewing department of computer software copyrights remains with the local science and technology department.
The Working Measures further divide responsibilities between the local intellectual property office and the local business department in the reviewing process of patent rights and exclusive rights of integrated circuit design. The Regulations prescribe that the competent commerce department shall work with the local science and technology department in the reviewing process, but are silent on how two departments work together in practice. According to the Working Measures, wherever patent or IC layout design is involved in the outbound technology transfer, the local competent commerce department shall, after receiving the technology export application, forward the materials to the local intellectual property office which shall review and send back a written opinion to the commerce department. And the decision of whether or not to permit the transfer shall be made in accordance with the written opinion of the intellectual property office.
The following chart takes patent and IC layout design as an example to illustrate the review process for outbound transfer of intellectual property rights.
4. Standard of examination over import and export of restricted technologies
According to the “Administrative Measures for the Prohibition and Restriction of Imported Technologies ” formulated by the Ministry of Commerce, review of import of restricted technologies includes examining whether the import endanger national security, social public interests or public morals; whether they endanger human health or safety, life or security of plants/animals; whether the import damage environment; whether the import accords with China’s international commitments.
According to the "Administrative Measures for the Prohibition and Restriction of Export Technologies " formulated by the Ministry of Commerce, export of restricted technologies shall be reviewed from two aspects: trade review and technology review.
Trade review shall include examining whether the proposed technology export complies with China's foreign trade policy and helps promote China’s export; whether it complies with China's industrial export policy and helps promote development of China’s national economy; as well as whether it complies with China’s foreign commitment.
Technology review shall include examining whether the proposed technology export endangers national security, complies with China's science and technology development policy and helps achieve scientific and technological progress; whether the export complies with China’s industrial technology policy and can drive production and economic cooperation with respect to large and complete sets of equipment and high-tech products.
5. Recordal of free technology import and export contracts
Technologies not included in the prohibited or restricted technology list are free to import and export without censorship from the government. Having said that, the contract, whether it is technology import or export, still need to be recorded with competent commerce department in order to complete the transaction in actual practice. Other than those included in the "Government Approved Investment Project Category" and government investment projects approved or approved by the State Council whose import and export shall be recorded with the Ministry of Commerce, import and export of other free technologies are recorded with the local commerce department, which can further delegate the authority to lower level commerce departments.
The contract recordal process of free import and export technology:
6. Necessity of acquiring a license of technology import & export and recordal of the technology import & export contract
For the export of restricted technologies, export operators must first apply for a letter of intent for license before substantially negotiating with foreign parties, and a technology export contract can only take effect after the technology export license is issued. For import of restricted technologies, although application for the letter of intent can be omitted, the technology import license need to be firstly issued as well so that the technology import contract can take effect.
Contract of free technology, whether for import or export, takes effect immediately when the contract is concluded, rather than being conditional upon recordal of the contract. Having said that, a recordal certificate of the contract is still required when the operator handles foreign exchange, banking, taxation, and customs and other related procedures. Additionally, if ownership need to be changed, such as change of patentee or applicant, then a license or contract recordal certificate shall be relied on to effectuate the change at the Chinese patent office.
Therefore, for technology import and export operators, regardless of whether it is restricted or free technology, China's technology import and export control process must be completed. Otherwise, not only the transaction cannot be completed, operators may also be required to bear administrative and even criminal liabilities pursuant to the Regulations.