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LLM Theses and Essays Student Works and Organizations
1-1-1992
Policy and Legal Aspects of Technology Transferfrom the United States to ChinaYongman ZhangUniversity of Georgia School of Law
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Repository CitationZhang, Yongman, "Policy and Legal Aspects of Technology Transfer from the United States to China" (1992). LLM Theses and Essays.145.https://digitalcommons.law.uga.edu/stu_llm/145
POLICY AND LEGAL ASPECTS OF TECHNOLOGY TRANSFER
FROM THE UNITED STATES TO CHINA
by
YONGMAN ZHANG
A Thesis Submitted to the Graduate Faculty
of The University of Georgia in Partial Fulfillment
of the
Requirement for the Degree
MASTER OF LAW
ATHENS, GEORGIA
1992
LAW LIBRARYUNiVERSiTY Of GEORGIA
POLICY AND LEGAL ASPECTS OF TECHNOLOGY TRANSFERFROM THE UNITED STATES TO CHINA
by
YONGMAN ZHANG
Approved:
~tJ. L.......- L... ~t\,\M.Graduate Dean
Date 1l..lM..t. cr, 1'1' ~ 1.
Date ~/lp/9L-
Date~ A}.V \t(; , Iq tb-~
TABLE OF CONTENTS
INTRODUCTIONChapter I • THE IMPORTATION OF TECHNOLOGY BY
CHINAIntroduction
A. Background and Objective1. Before the Opium War of 1840.2. A Century of Humiliation, 1840-1949.3. Policy Changes After 1949.
(a) 1960-60(b) 1960-66(c) 1966-78(d) 1978-88(e) Tienanmen Massacre and After
B. China's CUrrent Needs for Technology,Policy and Problems
1. Needs for Technology2. Current Technology Import Policy
and ProblemsC. China's Technology Import - Legal
Framework1. The "Technology Regulations", the
"Technology Contract Procedures"and the "Implementing Details".
2. Foreign Economic Contract Law3. Patent Law and Trademark Law
iii
Page
1
4
4
4
5
9
11
13
14
15
17
19
22
22
26
38
38
41
43
4. Other Related Law and Regulations
(a) Civil Procedure Law
(b) US - China Trade Agreement
(c) Joint Venture Law
5. protection of Intellectual property
CHAPTER SUHHARY
ENDNOTES FOR CHAPTER I
Chapter II. US TECHNOLOGY EXPORT TO CHINAAND ITS CONTROL
A. Export Control is General
B. united States Technology PolicyToward China
1. Embargo of Trade with China, 1949-1972
2. Current US Technology Policy TowardChina and Its Development
3. After Tienanmen Square Massacre
C. US Control of Technology Transferto China - Legal Framework
1. Control of Commodities and Controlof Technical Data
2. The Export Administration Act of 1979
(a) Jurisdiction of Exports
(b) What Constitutes "Export","Reexport" or "Temporary Export"
(c) Export Licensing
(d) Interagency Review
(e) Processing Time
(f) Foreign Availability
lV
48
48
49
50
52
57
60
80
81
85
85
87
99
103
105
105
105
106
107
111
113
114
3. Major Changes Made by EAAA 1985 115(a) Changes Regarding Foreign 115
Availability(b) Changes Regarding the Efficiency 118
of Licensing Process4. The Export Administration Regulation 119
(ERA) and Its provisions Relating toChina
5. CoCom 127CHAPTER SUMHARY 133ENDNOTES FOR CHAPTER II 136
Chapter III. TECHNOLOGY TRANSFER CONTRACT 158Introduction 158
A. Chinese Contractual Policy and Practice 1591. The Importance of Contract 1592. Form Contract 1603. China's Foreign Trade Organizations 162
and Other Organizations Involved inTechnology Import
4. China's Foreign Trade Policy 1645. Negotiation Process and Style 165
(a) Pre-Negotiation: Contract and 165Exchange of Information
(b) the Chinese Negotiation Styles 167B. Negotiation of Contract provisions 1691. Parties 1692. Language 1713. Price and PaYment 1714. Delivery 173
v
5. Inspectionand Acceptance 1746. Guarantyof Claims by Seller 1757. Protectionof Licensor'sIntellectual 177
Property8. prohibitionof RestrictiveClauses 1809. Choice of Law and Contract 181
Interpretation10. Arbitrationand Dispute Settlement 18211. Tax 187
CHAPTER SUMMARY 188ENDNOTES 191
CONCLUSION 200BIBILOGRAPHY 203
Vl
INTRODUCTION
Today, technology is seen as one of the primary sources
of national power, and prosperity. Some would just say
technology is power.
Just how powerful is technology?
Although an exact measure is not possible (and not
necessary), a comparative look at how high a stake is placed
on technology by a country that needs it, and by a country
that possesses it would certainly reveal the picture.
China and the united States would be the two
illustrative countries in such a picture. This thesis will
explore the transfer of technology from the united States to
China by examining the policy and legal frameworks in each
country. Such exploration will serve dual purposes: to
acquaint Chinese purchasers and American sellers* with each
other's policy and legal issues pertaining to technology
transfer.
The first chapter will examine the policy and legal
framework of China governing its import of technology.
China's technology background, its current technology needs,
the problems involved in its import and absorption of
foreign technology will also be discussed.
Major laws and regulations governing the Chinese import
of technology are also analyzed. The protection of
1
2intellectual property will be dealt with at the end of thechapter.
Chapter two has a similar structure to chapter one. TheUnited states technology policy framework will be examinedfirst. Under this framework, the control on exports toCommunist countries will be discussed generally, and then ustechnology policy towards China will be discussedspecifically, from early embargo on trade with China to thecurrent us technology policy towards China.
The us legal framework governing export control isexamined next. This will describe the operation mechanism ofexport control, with emphasis on regulations and provisionsrelating to technology export to China. Two major laws-theExport Administration Act of 1979, as amended in 1985, andthe Export Administration Regulations will be analyzed indetail. The multilateral control mechanism-the CoordinatingCommittee (CoCom) will also be discussed at the end ofchapter because of its significant role in multilateralcontrol of exports to the Communist countries, which includeChina.
The third and last chapter will focus on the technologytransfer contract, which is the legal instrument to actuallyeffectuate a transfer. Again, it is examined from bothpolicy and legal perspectives. The successful negotiation ofa technology contract between the Chinese and the American~depends a lot not only on the understanding of each other'slaw and policy, but also on the understanding of each
3
other's negotiation styles and contractual practice.However, since most such contracts are negotiated and signedin China, only the Chinese negotiation styles andcontractual practice are presented for the understanding ofAmerican sellers. A clause-by-clause analysis is furthercontained in this chapter to show the details in thenegotiation.
* Note: In this thesis, "seller(s)", "exporter(s)", "licen-sores)", are used interchangeably, so are "buyer(s)","purchaser(s)", and "importer(s)".
CHAPTER I
THE IMPORTATION OF TECHNOLOGY BY CHINA
INTRODUCTIONThis chapter will first trace the history of the
development of technology in China and the importation oftechnology by China, followed by a description of China'scurrent objectives for importing foreign technology. Itwill then specifically identify China's needs fortechnology, its policies and problems in buying andabsorbing such foreign technology. The Chinese legalframework for facilitating its technology import will bediscussed next, and finally, the issue of protectingintellectual property will be explored. The effects of theTienanman Square Massacre on China's on-going technologyimport will also be discussed.
A. BACKGROUND AND OBJECTIVE
In his "Report on the Work of the Government" presentedto the National People's Congress (NPC) in Beijing, formerChinese Premier Zhou Enlai announced what was to become theforemost national goal of the People's Republic of China -
4
5
achieving the modernization of China's agriculture,industry, science and technology, and the national defenseindustry by the end of this century. 1 The time wasJanuary, 1975 - less than two years before the officialending of the Cultural Revolution.2 Although there havebeen many changes in various policies since then (thecurrent goal set for the end of this century is to bequadruple the 1980 industrial and agricultural output by2000), the national goal in the long term has remained theachievement of the Four Modernizations. The drive to importforeign technology is only one part of the many mechanismscentered around this goal.
However, to understand the current Chinese technologyimport policy, we must look back into history.
1. Before the opium War of 1840Recent Chinese history has been characterized by its
ambivalence toward the outside world, especially whenforeigners here sought to participate in its trade.3 Ithas moved from extreme autarky to tentativeinternationalism. 4
Because of her vast area and diversity of abundantresources, feudal China was able to be self-sufficient. The"Great Four Inventions,,5 and many other artifacts andtechniques, 6 once made China a prosperous and powerfulempire that did not see much value in trading with alien
6
"barbarians".7 To the Emperor Qian Long of the Qing
DynastyB proudly replied George III when he requested totrade with the British empire,
"we possess all things. I set no value on objects strange oringenious •.. ,,9
However, the stubborn closing-door tradition had been
occasionally flirted by adventurers from the West. Among
them, Marco Polo, son of a Venice merchant, was perhaps
among the earliest and the best known Western adventurers to
China. He came by the famous Silk Road10 and was so liked
by the Mongolian Emperor Genghis Khan11 that he was
appointed governor of a famous Southern Chinese city - Yang
Zhou. Marco Polo wrote and introduced Chinese technologies
and her richness to his countrymen, who were so amazed that
they would not believe him. However, as time passed,
Western countries gradually began to see the value of
trading with China. First came the Jesuits who brought
Western technology such as Western clocks and the spinet.12
Instead of introducing Chinese technology to his own country
as Marco Polo had done, in 1632 Johann Adam Schall Von Bell
used astronomical and mathematical calculations to help theChinese update their artillery. 13
However, von Bell as well as other Jesuits followed him
failed to approach China through demonstration of technical
expertise. Von Bell was later convicted of treason.14
Later missionaries were also expelled. China still remained
virtually closed and refused to trade with foreigners.
7At the same time, beyond the door of China, Europe was
going through the Industrial Revolution. Technology andproductivity boomed. Even at its early developmental stagecapitalism had sought to expand outward. After major Westernpowers had gradually colonized virtually all of the worldmarket, the large Chinese market was still unaffected andcontinuing to operate in a self-sufficient and slowConfucian manner.
Almost inevitably, Western powers turned to China.First came the British, who were not satisfied with thesmall-scale, sporadic trade with China. When the trading ofgoods could not reduce their trade deficit with ImperialChina, the British brought with them opium and cannon. TheBritish opium not only switched the trade deficit from theBritish side to the side of China, it also poisonedgenerations of Chinese.15 When the Chinese began to rejectthe opium, the British brought cannon with them and forcedthe Qing Dynasty to open the door. As a result, although thedoor was still not completely open, five ports16 wereopened as windows for commerce with foreign merchants. Thebreakout of the Opium war in 1840 therefore led China into acentury of humiliation.
The defeat of the Chinese empire by the industrializedGreat Britain and France reflected, from the perspective oftechnology, the cultural and historical contrasts betweenChina and Europe. In China, the development of technologywas not associated with fundamental changes in social order.
8
It only provided a secure foundation for the governing eliteand the civilization they created. "Merchants remainedpolitically and culturally subordinate,,17 to the Mandarinelite and this prevented the rise of new classes(capitalists) that could threaten the existing social order."New ways of doing things did not alter customary social andpolitical arrangements ... the Confucian culture was deemedmore valuable than the products of a new technology". 18Such a culture could only help to retard technologicalprogress.
However, the literary and theoritical nature of theelite culture "centered on learning the correct principlesof human relationships, and using these principles for the
,maintenance of harmony, both between man and man, and manand nature. ,,19 In contrast, the practically minded spiritpervaded in Europe after the Renaissance. Such a spirit notonly provoked the desire of man to conquer nature, but thisdesire further spurred the Industrial Revolution andnumerous new technologies that iprovided satisfaction tosuch a desire.
A culture that is not favorable for trial, experimentand change is the best warmbed for bureaucracy andcorruption, since bureaucracy is always perfectly satisfiedwith the traditional ways of doing things. When a cultureis not favorable to experiment and development, the elitesand bureaucrats would not seek to change the social order,but would naturally go the corrupt ways. Perhaps the best
9
illustration of such bureaucracy and corruption was theEmpress Dowager' s "marble navy, ,,20 when the EmpressDowager embezzled the money for building a navy to deterforeign invasion and used it for constructing the famousSummer Palace for her, which was later burned down by theBritish and French army, leaving an unbuilt Chinese navy.
In summary, to say today's backwardness of China wasdue to its less developed technology is perhaps notaccurate. It is more accurate to say that such backwardnesswas caused by a feudal culture that was not conducive to thedevelopment of technology beyond a degree that satisfies theimmediate needs of the governing elite. This is perhaps whyChina once brought to the world the "Great Four Inventions"when it ,was progressing toward a powerful feudal empire,because there was room for these technology. However, oncethe needs of the feudal elites were satisfied, there were nomore stimulant for development. Therefore, after theIndustrial Revolution in Europe, technological progress andproductivity flourished in Europe and North America, Chinawas left far behind.
2. A Century of Humiliation, 1840-1949During this period, China was open to the west.
However, that opening "was not in the least voluntary. ,,21
It was in this period that foreign technology added a newmeaning in the eyes of the Chinese - that it was seen bytraditionalists as "means for subjugation, militarily and
10economically. ,,22 It was also in this period that"modernizers,,23 realized that China must have advancedtechnology to become independent and strong.
After the Opium War, a series of unequal treaties weresigned between China and the Western powers which putWestern power in dominant position in China. Chinese mines,railways and harbors were developed by foreign engineers andcontrolled by foreign countries. Chinese customs were alsoin foreign hands. A foreign jUdiciary and constabularyenforced foreign laws in China's major port cities; massivetaxation were imposed to satisfy foreign lenders.24
Such situation continued for a period of time evenafter the fall of the Qing Dynasty and the establishment ofthe Republ~c of China. Disappointing to the earlyrepublicans (the revolutionists), foreign influences stilldominated China. A China after the fall of the emperor soonfell into "chaos and confusion". 25 The dream of the 1911Revolution fell prey to warlords from inside, and Japaneseand other foreign powers from outside.
The foreign invaders also brought with them certaintechnologies. Technically, the entry of foreign technologyinto China during this period exposed China to newtechnologies and this should spur the Chinese technologydevelopment. However, technologies so entered were majorlycontrolled by foreigners and used for the benefits offoreign merchants. They were used as tools to exploitnatural resources from China, which shaped China's economy
11
into a colonial economy. As a result, China's economy became
more dependent and vulnerable.
3. Policy Changes After 1949
Mao Zedong declared the birth of the People's Republic
of China (PRC) on October 1, 1949. The new China "sought to
achieve liberation from the ravages of feudalism and war
without succumbing to the evils of capitalism and
imperialism" .26 High priority was set on building an
economically strong China.27 To achieve this, Chinese
leaders realized that they could not totally rely on their
own hands, even though self-reliance and independence were
stressed at the very beginning. China had to use foreign
technologies, as Chairman Mao said, China should "make
foreign things serve China."
At the beginning, however, Chinese leaders maintained
that technology is part of the "universal human heritage
which should be shared by all countries" .28 Also, because
of the bad colonial experiences in the past, Chinese leaders
were too concerned about sovereignty and independence
while importing foreign technologies, especially Western
technologies. 29
As a result, foreign technology (except technology from
the Soviet) played only a minor role in China's early
reconstruction. However, Chinese leaders today finally
recognized the following benefits of using foreign
technology:
12
1) by importing foreign technology and raising the
technology level of China, foreign technology can contribute
to greater national technology self-reliance;
2) foreign technology can also help accelerate
technical transformation of old Chinese enterprises which
were equipped by Western powers before 1949 or soviet
experts in the 50's;
3) it can assist in the expansion of exports by raising
the quantity and quality of products;
4) importing foreign advanced technology may also
shorten the time, cost, and risk of domestic research
programs, which can also be the reason to import technology
by even the most advanced country like the united states;
5) it ~ay provide opportunities for gaining project
management experience, another weak area in today's Chinese
economy; and
6) it may serve as a context for training technical
workers, which are in severe shortage in China.3o
Although the need to import foreign technology is
recognized at all times since 1949, there has never been a
uniform technology import policy. In fact, there has never
been an overall plan covering technology import all through
the time.31 Even in one period of time, there may be more
than one policies. As one author noted, "at anytime,
technology policy is really a cluster of separate policies
which reflect the differential impact of general policies on
specific sectors of the economy". 32 Nevertheless, the
13
evolvement of Chinese technology import policies can be
separated into several periods, each having a dominant
policy theme.
(a) 1950-60
This period saw a large scale of technology transfer
from the Soviet Union. These transferred technologies were
to support 156 major Chinese industrial projects which
include such basic industries as metallurgy, machine
building, trucks, coal mining, electric power and petroleum.
Some 400 items of technology were introduced with an
approximate value of $2.66 billion.33 The massive
technology ~ssistance to China from the Soviet in this
period is regarded as "undoubtedly the most comprehensive
transfer in modern industrial history". 34 One salient
feature of the Soviet technology transfer to China was that
a wealth of know-how, experts and advisory services were
also provided to China along with technical equipments.35
However, the Soviet Union abruptly withdrew all its
aids to China in 1960,36 which left many Chinese projects
unfinished, and put China in an almost helpless situation
since all the Western world countries were embargoing trade
with China at that time.37
Chinese authorities learned a bitter lesson from this.
They began to realize the problem of overly relying on one
single country's technology. Before the Soviet withdrawal,
China carried the policy of "self-reliance" while "leaning
14on one side" (meaning relying only on one country).38However, the Great Leap Forward (1958-59)39 shortly beforethe Soviet-China split advocated "walking on two legs"instead of "leaning on one side". 40 Although the Soviettechnical assistance had greatly increased China'sindustrial output, the Stalinist strategy of economicdevelopment was in fact ill-suited to China's developmentalneeds.41 China has a large rural population42 andagriculture demands large investment. However, under theSoviet sponsorship, less than 8% of State budget wereinvested in agriculture during the First Five-Year Plan(1953-57 Fyp)43 while 20-25% of the country's total outputwent into heavy industry investment.44 As a result,China's economy remained mainly an agricultural one.However, without the follow-up of the agriculture, China'sindustrialization would seem far away, if possible at all.
(b) 1960-66
In this era, although self-reliance continued to bemaintained, in foreign trade area, China began to "lean toall sides" ("walking on two legs") after the painful lessonfrom the Soviet withdrawal. "Self-reliance" and "leaning toall sides" are, in fact, two sides of the same coin. "Self-reliance" is to avoid dependence on one or more country;"leaning to all sides" is to help achieve the purpose ofself-reliance. This is why China at that same time wasproclaiming the slogan of "maintaining independence, keeping
15the initiative in our own hands, and relying onoursel ves" •45
In this period, China apparently began to turn towardJapan and Western Europe for technology. Slight improvementin relations with the West and Japan had made it possiblefor China to buy products, although hardly technology,46from Japan and the West. Some 84 major contracts worth $280million were signed in this period, ranging from metallurgy,chemicals to synthetic textiles. 47 "For the first timeChina could reasonably hope to tap the resources of both theindustrial democracies and the Soviet bloc, and in contrastto the 1950's, policies were formulated to ensure that Chinawould not become heavily dependent on a single nation". 48
(c) 1966-78The ten-year Great Proletarian Cultural Revolution
(1966-76) did almost every possible damage to Chinesescience and technology as well as its economy as a whole.According to one statistic, "national income produced per100 yuan49 of fixed assets averaged 34 yuan during the1976-79 period, compared with 52 yuan during the First Five-Year Plan. Over one-third of all state owned enterpriseswere running at a loss in 1976. ,,50
Fortunately enough, despite domestic turmoil and thepervalence of xenophobia and extreme self-reliance pervadedin this period, foreign technology continue to be importedwhen necessary (albeit on smaller scale). This was
16motivated, or more exactly, forced by the government's need
to provide job for people and to feed the huge population
(thus to maintain its control) .51
In the early 70's, the concept of self-reliance was
reinterpreted, as Deng Xiao-ping declared in his famous
speech to the United Nations General Assembly in 1974:
"self-reliance in no way means 'self-seclusion' and
rejection of foreign aid" .52 This signaled the ending of
~elf-seclusion under the slogan of "self-reliance".
Also, the normalization of relationship between China
and other Western countries in the early 70's brought more
technology contracts between China and these countries.
However, in most of the 70's, more products were imported
than technoloqv.53 Relatively few technology wastransferred to China. 54
Another feature of the Chinese technology import in
this period is the import of complete plants and the only
means for transfer was purchasing.55 The disadvantages of
such practices are obvious. Not only were great expenses
incurred, the "whole-plant-transfer" is also not likely to
help raise the levels of domestic research and production,
since usually sellers of technology alone have access to
basic designs and vital aspects of production technology
(know-how), while buyers have no access to such know-how.56
Besides, Chinese users also lacked the management skill for
the purchased plant.
17Cd) 1978-88
Fundamental changes came after the Fall of the "Gang ofFour,,57in 1976, which marked the end of the CulturalRevolution. Although the Four Modernizations program wasannounced in 1975, due to domestic political campaign andunrest, it was not seriously pursued by the whole nationuntil it was reannounced in 1978. Such a reannouncementhorned the beginning of the New Long March58 by the Chinesetoward a strong socialist China. The Third Plenum of theEleventh Chinese Communist Party Congress in 1978 furtheradopted a theme of "Adjustment, Reform, Consolidation andImprovement", which was aimed to rebuild the economy afterthe ten-year turmoil.
For the first time in Chinese history, Chinavoluntarily opened its door to the outside world.International trade was viewed as a key factor intransforming the country into a modern industrial state, aswell as a means to meet the goals of the FourModernization. 59 A series of major policy decisions weremade in this period. On July, 1979, the Joint Venture Lawwas enacted to attract foreign investment by offeringvarious incentives to foreign investors;60 in 1980, fourareas in Guang Dong Province and Fujian Province weredesignated as special economic zones61 wherein foreigninvestors may receive special benefits; later, 14 morecoastal cities were approved to be open cities which areopen to foreign investments with special benefits to
18investors;62 in 1982, the policy of allowing foreign
investments in China was officially penned down in the
Constitution;~ on April 1, 1985, China's first patent law
was enacted to facilitate import of foreign technology.~
All these are major steps of the overall Chinese
economic reform, the significance of which could be regarded
as no less than a second "revolution" in the history of PRC.
As the door is opening wider, more and more foreigntechnology will likely come in.
Specificly, the policy of technology import has seen
important changes during the 80's. First, instead of
importing complete plant, priorities for import were
established to import technology for key sectors of Chinese
economy; second, the scope of technology imports was
limited to basic components and materials, complete designs
of factory equipment and key production techniques; third,
means of technology transfer was also expanded to include
licensing, joint venture, or even "bidding".65
However, perhaps because the need for foreign
technology was so desperate, the pace of development had
once stepped too far and too fast, the import of technology
went almost beyond control at the end of 70's. In February,
1978, Premier Hua Guofeng set out an over-ambitious 10-year
economic development plan in his report on the Fifth
National People's Congress (5th NPC).~ This plan
envisioned enormous increases in agricultural output;
increases in the value of industrial output of 10% per year
19to 1985; the development of transportation,telecommunication and other 120 large-scale industrialprojects. 67 This plan was exceedingly ambitious and so outof tune with the reality that the objectives had to bescaled down in early 1979. As a result of this cooling down,many projects already contracted with foreign parties wereeither postponed, deferred indefinitely or cancelled. Thepostponement of the $2 billion Baoshan steel Complexagreement with Japan was a famous case at that time.~Such overheating was repeated in 1985, but was cooled downfairly soon. Later in this period, the slogan of achievingthe Four Modernizations by the year 2000 was also changed toa goal of quadrupling of the 1980 industrial andagricultural output by the year 2000. To achieve this not inthe least moderate goal, the Seventh Five-Year Plan (1986-1990)69 has set the acquisition of technology as a highpriority, since one of the Four Modernizations is to raisethe level of the Chinese science and technology, and theChinese realized that the modernization of the other three(industry, agriculture and defense) all depend on themodernization of Chinese technology.70
(e) Tienanmen Massacre and AfterChina in the past decade has seen unprecedented
openness to the West and tremendous economic growth.According to Chinese statistics, the total volume of importand export trade has risen from US $20.64 billion in 1978 to
20
US $111.6 billion in 1989 (an annual import growth rate of
17.6% from 1978-88). GNP of 1989 is 1567.7 billion yuan,
comparing to 358.8 billion yuan in 1978.71 However,
economic growth is accompanied by many problems. High
inflation rate (18.5% in 1988, 17.8% in 1989), increased
rate of unemploYment, pervasive official corruption,
inflated prices and a shortage of materials. All these had
been the major causes for the eruption of the pro-democracy
and anti-corruption demonstration in the spring of 1989.
This is the largest pro-democracy demonstration in the PRC's
history and it attracted world media attention for weeks,
because virtually every class of the population, even
soldiers, police and government officials participated.
Unfortunately, the demonstration was bloodily crushed when
Chinese soldiers gunned down hundreds of students at the
Tienanmen Square. This brought great damages to China, both
politically and economically. Foreign investors now either
pulled-out or began to reconsider their investment policy in
China. The West universally deplored the repressive actions
of the Chinese government. Domestically, Chinese government
conducted mass arrests and political purge of reformers
despite the abhorrence of outside world.
The Tienanmen massacre occurred as the world is
stepping into the 90's and coincidentally as China is
transitting from its 7th FYP to 8th FYP. After the Tienanmen
massacre, the political struggle within Chinese government
will intensify. Before the senior leaders enter their
21graves, the government will be in a period of transition.n
In the interim, the central government will be weak due to
political struggle. And it is too early to predict what will
happen after senior leader Deng Xiao-Ping's death.
Two year have passed after the Tienanmen Square
Massacre. Looking retrospectively, although China had become
politically repressive and still remains the same, its open
door policy and desire to attract foreign investment seem to
be unchanged. Even the General Secretary Jiang Zemin, who
succeeded Deng (at least nominally) became of his tough
stand against pro-democracy demonstration, has said recently
that China will adhere to its opening policy no matter what
changes take place in the international situation and no
matter what difficulties it may encounter; that one task of
the Party and the government is to maintain political
stability at home and another is to keep the country's
economy developing in a steady and balanced way.~ In
announcing the Chinese economic plan for 1990, Zou Jia hua,
Chinese Minister in charge of the State Planning Commission,
also emphasized that opening China to the outside world and
expanding its trade and economic and technological exchanges
with foreign countries are both "long-term, consistent
strategic policies for advancing China's modernization drive
and important measures for overcoming the current economicdifficulties."n
In summary, China's official policy toward the outside
world after Tienanmen Square Massacre has remained
22unchanged. However, the Massacre has brought great damage to
Chinese economy; therefore 1989-91 will be a period of
"readjustment plan." China is not likely to increase its
imports since China wants to reduce inflation, budget
deficit and to repay the increasing foreign debt.~
Nevertheless, the official "open-door" policy has at least
continued, not abandoned. The resuming of foreign business
operations in the past year also suggests that before long,
all business between China and foreign countries will resumeto normal. 76
B. CHINA'S CURRENT NEEDS FOR TECHNOLOGY, POLICY AND PROBLEMS
Before discussing China's current needs for technology,
it is necessary to note that China's needs for technology
may be subject to change, depending on the change of Chinese
political and economic climate, An example is the changeafter
Tienanmen Square Massacre. Of course, during and after the
course of the change, new problems will definitely emerge.
1. Needs for Technology
China's economy is mainly an agricultural one. Its
rural population accounts for 80% of its total 1 billion
people. This means China has to feed 22% of the world
population with only 7% of the world's arable land.IT This
is a tremendous job that can go beyond human imagination,
23especially given the fact that virtually no industry
(perhaps except mine, textile, railways) existed in China
before 1949. The economy at that time was just like a "blank
sheet of paper".~ Besides, the current Chinese industry
was largely set up in the 50's with the help of the Soviet
and after decades of continuing operation, they have been so
obsolete that according to one report:
"•.. only 20 per cent of the industry inChina can measure up to the standards ofdeveloped countries in the past decades.Sixty percent are so obsolete that theyneed to be replaced or upgraded. Thisexplains the wide gap between China anddeveloped countries in econom~efficiency and productivity."
However, although basically China's overall industry
remains backward, some industries such as defense industries
have developed "pockets of excellence" that can compete in
world markets.80 China has launched its own experimental
communication satellites and has offered to launch foreign
satellites.81 This is so because Chinese defense
industries have always been privileged in investment of
capital and expertise. Today, China is even exporting
technology, 82 and has a fast-growing military arms
exports. Nevertheless, virtually all areas of Chinese
economy needs foreign technology. The needs of a few areas
are so urgent that they demand special discussions.
Chinese economy is severely constrained by its backward
infrastructure industries such as energy, transportation,
communication and telecommunications, and raw materials.
24According to chief of the Technology Import/Export
Department of the Ministry of Foreign Economic Relations and
Trade (MOFERT), these areas will be the "focal points" of
economic development in the 7th FYpD. Therefore they are
also the most attractive areas for foreign technology.
This has proved to be true as China approaches the end
of its 7th FYP. According to a 1990 Chinese statistic, 43.2
percent of the total amount of imported technology were
invested into energy, transportation, telecommunications andraw materials industry.~
Although China possesses tremendous natural resources,
much of the resources has not been exploited because of the
shortage of technology, capital or expertise. On his
testimony in Congress, Dr. Vaclav Smil pointed out that the
Chinese "may have the oil but they don't have the energy to
bring it where it is needed the most. ,,85 In fact, China
has a gigantic hydroelectric potential, a potential equal to
the total installed electrical capacity of the united
states. However, less than two percent of this potential is
being exploited.u The transportation system is far from
enough to move the one billion people dispersed over an area
of 3.6 million square miles. People and goods are
principally, transported by railways87. Howeverthe present
railway system must be expanded or improved. Roads must be
builtM or widened. Indeed, China's transportation system
is in such poor shape that it is not a question of
25"improving", but a question of developing a completetransportation infrastructure.~
Communication is also largely underdeveloped or
obsolete, largely because of the vastness of the country and
partly because of the poor transportation system. Before
China launched its first communication satellite, the
northwest X'ing Jiang Urghur Autonomous Region could not
even receive the official TV news the same day when the news
was broadcasted in Beijing. Even today, residence telephone
is undoubtedly a luxury. Only 2.93 million houses are usingtelephone by the end of 1987.90
Major raw materials are also in severe shortage. Major
construction material such as steel, cement are in extreme
shortage and their supply is controlled by the state.
Although oil is the most promising resources and the major
export product of China,91 and although Chinese coal
output ranked third after the soviet Union and the United
States,92 the Chinese technology to extract oil and coal
lagged at least 15-20 years behind the West93 and the
outputs are not enough to meet domestic industrialproduction.
Besides the need for foreign technology in
infrastructure industries, Chinese agriculture also demands
much foreign technology infusion. China has to import large
amount of food to feed its one billion people each year. The
core issue of agriculture is to raise farm output. This
means new technology must be invested in producing good
26
seed, farm machinery, fertilizer and other chemicalproducts.94
The importance of the development of these areas to the
Chinese economy is fully recognized by today's Chinese
leadership. According to official statistics, 132.4 billion
yuan95 were invested as basic production investment in
1987, among them investment in energy, transportation, raw
material industry accounted for 38%.% During the 6th FYP,
9 billion, or 15 percent of the investment funds in the plan
period, went for foreign technology,97 the majority of
which were spent on technology or equipments in the above
most needed fields.~ Heavy investment in foreign
technology continues to be the trend in China's 7th and 8thFYP.
2. Current Technology Import Policy and Problems
The current Chinese technology import policy reflected
its present emphasis on key infrastructure industry
technologies, on "pure" technology or know-how instead of
wholeplants. Since the current policy evolved from the
policy after 1978, it has a number of important changes away
from the technology import experiences before 1978. Before
1978, China majorly imported whole-plants and insisted on
the "most advanced technology". Because of its limited
capacity to absorb the most advanced technology, a lot of
highly sophisticated equipments had to lie idle after
purchase because of the lack of expertise to use them.
27
Besides, the lack of an overall plan in the 70's resulted induplication of purchases. The insistence on the "mostadvanced technology" also brought in incompatible equipmentsand process which made China almost a "technologyjunkyard. 1199
Now China only wants to "buy hen that lay eggs. 11100
Accordingly, a more pragmatic technology import policy wasadopted. In 1979, after a reassessment of prior technologyimportation, China announced nine major guidelines to befollowed in acquiring foreign technology in the future:
"1) we must ourselves produce what wecan even if quality and function of ourproducts are slightly poorer. Of course,we must strive to carry out technicalinnovation and modification to improveour products' quality, quantity andfunction;"2) after technology is imported, if wecan manufacture the equipment, we mustnot buy it abroad;"3) after key parts of a complete set ofequipment have been imported, if we canround off the complete set, thencomplete sets must not be imported;"4) after a complete set of equipmenthas been imported, if we discover thatwe can produce part of the equipmentwhich measures up to the standard, wecan buy parts of the equipment;"5) we must work out unified plans for aproducts' series and models andgradually form a series of Chineseproducts. We must not import the samethings from many countries, resulting inan 'international brand';"6) we can hire foreign specialists tohelp us design and build complicated andcomparatively large-scale equipment.They can also help us for some timeafter it is built, until we have thetechnical personnel to run it;"7) we must use all types of foreignadvisory organizations and ask them to
28
provide us with technical informationand suggestions from which we can make aselection;"8) importing technological patents andequipment must be reported todepartments concerned in our country.Some must be used in a unified way or incommon. They cannot be monopolized byanyone, to prevent other units fromreimporting them; and"9) while importing technology, we mustorganize the necessary science andtechnological forces to carry outresearch to insure that we can makecopies and our own creations. ,,101
These nine guidelines were later boiled down to ageneral policy. According to Ren Jian Xin,102 China shouldimport only technology that would "serving the purpose ofproducing benefits to the sector of national economy whichenjoys priority in investment". 103 In summary, Chinashould (1) adopt what is best in foreign countries; (2)import advanced technology, but technology that would (3)
develop foreign trade; (4) utilize foreign investment; and(5) expand foreign economic cooperation and technologicalexchange. 104
One of the most important changes in current technologyimport has been the great increase in the number oftechnologies imported to upgrade or renovate the existingenterprises, as opposed to the past emphasis on importingnew enterprises or importing technology to support newenterprises. 105
Administratively, as part of a decentralizationstrategy, local governments, enterprises and new trading
29corporations have more authority in the technology importdecision-making. Central ministries and a single foreigntrade corporation are no longer the principal entities todecide what technology to import.106 This gives localentities more freedom and flexibility, but suchdecentralization has not been achieved without problems.107
Internationally, after learning a lesson from thewithdrawal of soviet technicians and in an effort to "walkon two legs", China intentionally diversified itsinternational technology relations. 108 Although China hasa preference for us technology, 109 China also purchasestechnology from Western Europe and Japan when us export isprohibited by its export control law. In recent years,China expanded its technology relations with the USSR andthe Eastern Europe, despite the harsh memories of the past.An agreement on economic and technological cooperation wasreached between China and the USSR on December 28, 1984.110
Such a diversification policy has the effects of reapingpolitical benefits; avoiding dependence on a singlesupplier; and taking advantage of greed and competition inthe international market placelll It will put China in amore secure position in terms of technology supply.
The intent of avoiding dependence on one singlesupplier is also consistent with the principle of self-reliance and sovereignty, which is always highly regarded bythe Chinese. As one author noted, although "the Chinese
30
leadership has developed a strong infatuation with theconcept of 'New Technology Revolution' ..• At the same time,China has not waned [sic] in its commitment to the principleof increased technology self-reliance. ,,112
Methodologically, the ways to acquire technology havealso been expanded from mere purchase of plants, reverseengineering113 and trade fairs114 to includingtransferring through licensing, joint venture, training ofstudents and technicians, joining and hosting internationalscientific and technological organizations and conventions.In terms of technological orientation, the scope oftechnology imported had been broadened to include:industrial property rights and other proprietary technology;machinery and equipment; technical services; documentation;know-how; as well as management and marketing expertise.
Legally, to better regulate technology importactivities, a number of new laws, regulations have also beenenacted since the "Open Door" pOlicy. This is part of thedrive to achieve what is termed "the fifth modernization -the strengthening of the socialist legal system and thebuilding of legal institutions".115 Between 1979 and1988, China has promulgated over 420 laws, regulations andother acts, of which over 330 are economic laws andregulations. 116 Two regulations are specifically relatedto the importation of technology: Regulations onAdministration of Technology Import Contracts of thePeople's Republic of China; and Regulations on
31Administration of Technology Import Contracts. (These tworegulations will be discussed later).
Domestically, there is a growing linkage betweencivilian and military sectors. 117 Defense industries havelong enjoyed privileged budget, personnel and resources, andhad formed "pockets of excellence". Presently, attentionhas been given to transferring military technology tocivilian enterprises. 118 The "012 Enterprise Group", anindustrial complex of the aviation industry located inShanxi Province, has begun to produce not only aircraft, butalso light industrial goods (such as copy machine)., homeappliances and farm machinery. 119 Defense related Ministryof Electronics has also greatly increased its role inmachinery and electronical products exports as a move tolink the military and civilian industries. 120
Transferring defense technology to civilian enterprisescan be seen as a supplemental policy to importing foreigntechnology, so are three other similar policies going on inChina. One is the horizontal connection between the easterncoastal provinces and western inner cities and provinces.Capital and technology from the East are transferred to theWest, in exchange for the rich natural resources from theWest. 121 By the end of 1987, about 6780 industrialenterprises above the county level joined such horizontaleconomic connections, forming a total of 106 economicnetworks; 12.57 billion yuan had been invested; in 1987alone, 60,000 technology transfer and other economic
32cooperation contracts had been signed. The connection is
associated not only with capital, technology and resources,
but also with management, foreign trade, R & D and
transportation, etc. 122 The second connection is between
research units and production. 123 R & D institutions have
been the major suppliers of technology to domestic
enterprises. In the first half of 1987, the value of
technology transferred by R & D institutions accounts for
38% of all the technology transferred between domestic
units. 124 At the end of 80's, China's S&T policYmakers
began to encourage more co-operation between R&D Institutes
and enterprises. state funds for research institutes are
reduced so that they are forced to increase contract
research to raise revenues. As a result, many high-tech
companies were formed to increase the applications of their
research. For China Academy of Science alone, the amount of
all research results utilized for industrial applications
has reportedly risen to some 50-70 percent at the end of
80's, comparing to only 20 to 40 percent in the early80 ' s. 125
The third connection is between cities and rural areas.
The present "Sparkle Plan" is intended mainly to introduce
technology in the city to small rural enterprises and farm
production. Thousands of experts were sent to assist rural
development each year. In fact, "Sparkle Plan" is recognized
as one of the six major scientific tasks on a recent
33
national scientific convention, which drew up a middle tolong term national science plan. 126
The Open Door policy after 1979 and China's determineddrive for modernization have brought remarkable results.During 1981-1984, China had experienced an 11% annual growthrate. 127 Its exports represented only 0.75 % of worldtrade in 1978 but had grown to 1.25% in 1984, moved its rankin the world export from 32nd to 16th in value ofexports. 128
As to the acquisition of foreign technology, during thepast decades, China has spent approximately $27 billion toimport full sets of equipments and other advancedtechnology. 129 Though Tienanmen Square Massacre and thefollowing readjustment period will temporarily reduce theamount of technology import, the emphasis on the key role offoreign technology has not changed. 130
Despite all the thoughtful policies and rapid growth inthe past, China's technology importation was not withoutproblems. The most severe problem is the limitation ofChina's ability to absorb foreign technology. As one authorhad pointed out:
"The real issue is whether China will prove able toabsorb the foreign ideas and techniques essential to itsmodernization without relapsing into xenophobia. ,,131
However, to say absorbing limitation is the problem isperhaps too general, because this problem is the result of acombination of many other problems. Some of them are
34
fundamental and have hindered Chinese economy, some of themare peculiar to importation of technology. Among them are,first, inadequate infrastructure for absorbing anddisseminating technology rapidly. 132 As pointed outearlier, China's infrastructure industries like energy,transportation and communication are astonishinglyunderdeveloped. This constitutes the biggest obstacle forabsorbing and disseminating newly acquired technology.Secondly, a number of other factors which constitute the"soft environment of investment,,133 have also hinderedforeign investment of capital and technology. For example,the Chinese way of thinking and doing business is sodifferent from the outside world as to constitute anunfavorable element in the eyes of foreign businessmen. TheChinese have a tradition of insisting internationaltransactions be conducted according to their own terms.134
They will not make much efforts to accommodate the needs andtraditions of the foreign party, but would rather make theforeign party to get used to the Chinese traditions, even ifit is the Chinese themselves who are trying to attractforeign investment and technology. 135 The complicatedinterpersonal relations and personal interests can be moreimportant than business and corruptions can sometimes takepriori ty over the business negotiation. 136 Thirdly, thereexist an inadequacy of qualified scientific, engineering andtechnical personnel. Although in absolute terms China has apool of 22.18 million of scientists and technicians, this is
35
far from adequate. 137 The lack of manpower is exacerbatedby the other problems. There is an unbalanced distributionof talent by region and sector.1~ Too much talent iscrowded in centralized institutions and wasted, whileenterprises and other production facilities (especiallyrural areas) where experts are most needed suffer a severeshortage of engineers and technicians.
Moreover, the mobility of technical personnel islimited. Institutes tends to regard technical personnel astheir own property139 and are reluctant to allow themovement of engineers to the place where they are mostneeded and also most qualify; (c) the education systemproduces graduates who either lack hands-on experience orare narrowly trained;14o (d) outflow of intellectuals intoWestern countries. This is most evident after the Tien'anmenSquare Massacre.
Fourthly, there exist inadequate management skills,poor training, discipline and problem-solving skills.Managers are frequently concerned about their individualinterests and this makes "risk avoidance a rationalindividual strategy". 141 The centrally planned economy142provide minimum incentive to managers to do more thanmeeting the immediate production targets. Lack of incentivecoupled with lack of expertise, bureaucracy, all leads topoor management skills (including problem solving Skill).The poor training and discipline of workers is also onefrequently mentioned disincentive to foreign enterprises
36
operating in China, according to the US Department ofCommerce. 143
Fifthly, there is inadequate legal protection, and alack of uniform enforcement of laws. Although China hasenacted a number of laws and regulations since 1979,144most of the laws are quite general. 145 Some people thinkthat China still lack a "basic legal structure that servesas the foundation for commercial enterprises andtransactions".146 Even the law is in the books, it mightnot be enforced uniformly, even under similar circumstances.This created inconsistent administration by "bureaucrats whohave not prized legality highly in the past"; 147
Sixthly, there is a shortage of foreign exchange. 148China has not been able to earn enough hard currency to payfor its import. Because of the shortage, foreign currencyis tightly controlled by the State. China has also begun toborrow from foreign countries and internationalinstitutions. In 1989, it is predicted, China's foreign debttotalled 33.443 billion yuan. 149 As a result of theshortage, foreign currency becomes an important factor inimport decision-making. This means foreign currency usuallywill first be allocated to those industries that promise toearn foreign exchange quickly; 150 and
Seventhly, the bureaucracy is a fundamental problemthat exists in almost every area of Chinese economy. Onemajor content of the economic reform now going on is todecentralize decision-making authority and reducing the role
37
of the Party committee in economic management. 151 However,enterprises after such reform have not always been able to"escape the heavy hands of party cadres, who want tomaintain of old ways of doing things".152 The TienanmenMassacre provides a best example. In fact, the studentdemonstration is a demand to reform the rigid, bureaucracticpolitical system which no longer accommodates the fasteconomic growth brought by Western technology. However, thedemand was unsuccessful, the existing political system does,and will seriously hinder China's technology import, atleast for a while.
The limitation of China's ability to absorb importedtechnology can also attributed to a lot of other reasonswhich may include historical reasons such as its poorindustrial base, withdrawal of soviet technical assistancein the 50's, severe economic failure brought by the GreatLeap Forward, West trade embargo, economic dislocationbrought by the Cultural Revolution,153 as well as culturalreasons 154 and pol itical reasons. 155
The success of China's drive to modernize its scienceand technology by acquiring and adopting foreign technologydepends to a large degree on the correct resolution ormitigation of these major problems. However, from a legalstandpoint only, foreign technology sellers are moreconcerned about the degree of protection Chinese law couldprovide to their intellectual property.
38
C. CHINA'S TECHNOLOGY IMPORT - LEGAL FRAMEWORK
1. The "Technology Regulations", the "Technology ContractProcedures" and the "Implementing Details"
On May 24, 1985, the State Council of China promulgated
China's first national regulation governing technology
transfer to Chinese enterprises outside of the SEZs: 156
Regulations on Administration of Technology Import Contractsof the People's Republic of China (Technology
Regulations).157 Later the Procedures for the Examination
and Approval of Technology Import Contracts (hereinafter the
"Technology Contract Procedures") also became effective on
September 18, 1985. 158 However, the latter has been
supplanted by a new regulation on January 20, 1988: the
Implementing Details of the Regulations on Administration of
Technology Import Contracts of the People's Republic of
China (hereinafter the "Implementing Details"). 159
The Technology Regulations and the Implementing Details
are two legal documents directly governing the technology
transfer activities between China and a foreign party. 160
The Regulations contains only 13 articles. Article 3 of
the Regulations requires the imported technology to be
"advanced and appropriate,,161 in addition to meeting at
least one of the other eight requirements. Briefly, these
eight requirements demand that the technology promote
production (in terms of quantity and quality), exports,
domestic science and technology level, that it be conducive
39
to safety, environmental protection, full use of localresources, and improvement of business management. 162Article 6 appears to be unique in that it requires thelicensor to guarantee that the licensor be the lawful ownerof the technology to be provided; that the concernedtechnology must be "complete, without error, effective andable to reach the objectives as provided for in theContract. ,,163In return for such guarantee, the Chineselicensee agrees to keep the confidentiality of thetechnology as required by the contract.1M
Another important article of the Regulations is Article9, which prohibits the inclusion of any of the listed ninerestrictive clauses into the contract. These restrictiveclauses would, for example, restrict the quantity, varietyor sales price of the products the recipient produces usingthe imported technology; restrict the recipient's exportmarkets or sales channels.1M
provisions similar to that set out in the TechnologyRegulation can also be found in some other third worldlegislation. However, the Chinese Regulations1~ are lessrestrictive than equivalent laws in many developing countri-es,167 although it left many important questionsunanswered. 168
The Implementing Details are more complete than the oldTechnology Contract Procedures. 169 The maj or change thenew Implementing Details made is that more strict screeningand examining procedures are imposed.1ro Besides the
40
original five kinds of technology contracts that are subject
to approval, a catch-all provision is added. 171 Moreovers,
new provisions are added to make some patent and trademark
related contracts or contracts that contain tax clauses
subject to patent law, trademark law or tax law
respectively,1n although the approving authority is still
MOFERT and its authorized agents.1~ Article 14 allows two
exceptions to Article 9 in the "Technology Regulations",
i.e., restrictive clause would be allowed in a contract
where the licensor had already made exclusive concession
contract or exclusive agency contract in a foreign country.-
1~ However, Article 18 further invalidates nine types of
contracts, which are not identical to the nine situations
prohibited in Article 9 of the "Technology Regulations".
For example, contracts that violate Chinese law and
sovereignty or public interests are not valid, nor are
contracts that do not guarantee the technical level of the
technology to be imported and the economic effect (including
quality and quantity of the product).1~ During the
contract period,1~ the property right to any improvement
made on the imported technology belongs to the licensee.1n
As to the price of the raw materials, and equipments
necessary for the imported technology, the Implementing
Details explicitly requires that it should not exceed the
international market price.1~ In a way similar to the
"Technology Regulations", the Implementing Details required
the licensor to guarantee that it is the lawful owner of the
41technology and the licensor is responsible for any
ownership disputes and liable for recipient's economic loss
incurred because of such disputes.1N Again, in return
for the licensor's such liability, the recipient should bear
the duty to keep the confidentiality of the technology, but
only within the contract period. Further, the recipient is
not liable for disclosure of the secrecy by reason notattributable to the recipient.1~
Although the Implementing Details are more complete
than the former Technology Contract Procedures, they still
contain some vague spots. For example, what kinds of
provisions should be contained in order for a contract to be
complete?181 To what extent should licensor make a
"guarantee,,?182 For the time being, it can only be hoped
that future practice will shed more lights on the inter-
pretation of these vague points. until clear answers are
given, parties must rely more on their own contract
provisions.
2. Foreign Economic Contract Law
Before China's legal system is fully developed, the
contract proper had been and will be the major legal
document between the parties.1~ However, on March 21,
1985, the Foreign Economic Contract Law of the People's
Republic of China was passed as one of the first Chinese
contract laws. (hereinafter as FECL)1M This 43-article
law specifically governs nearly all economic contracts
42
between Chinese and foreign parties. 185 It contains thefollowing seven chapters: General Provisions; Formation ofContract; Performance of Contract and Liabilities forBreach; Assignment; MOdification, Recession and Termination:Dispute Resolution; and "Supplementary Provisions".
As to contract formation, Article 7 requires thatforeign economic contracts must be in writing andsigned.1U It should not violate the law or publicinterest of China. 187 Contracts concluded by means offraud or under duress are invalid1~ and the defaultingparty should pay the innocent party any loss incurred due tosuch invalid contract.1~ Articles 12-15 specificallylist provisions the foreign economic contract shouldcontain, even thoughmost of these would be included as a matter of course in awell-drafted business contract in the West. 190
One party may suspend performance if there is"concrete" or "definite" evidence that the other partycannot perform. 191 In case of nonperformance and breach,the victim may ask for remedy or claim for damages. 192Damages may be liquidated (which amount may be changed if it"substantially" varies from the resultant loss). 193However, breach causing damage is excused in case of "forcemaj eure". 194
Article 29 permits unilateral cancellation of thecontract under four situations. 195 The contract may alsobe terminated1% or modified. But a contract which had
43
been subject to approval by administrative authority can notbe significantly modified without new approval by thatoriginal authority. 197 However, in case of cancellation ortermination, the right to damages,1~ provisions forsettlement of disputes 199 and accounts200 in theoriginal contract remain effective even after the contracthas been cancelled or terminated. As to dispute settlement,the Chinese still prefer consultations or mediation by athird party as the first steps to settle disputes. If thesefail, the Chinese would prefer arbitration tolitigation. 201
Like many other Chinese laws, FECL is only a skeletonwhich will require practice and other implementing rules toprovide the flesh.
3. Patent Law and Trademark LawThe Patent Law of the People's Republic of China
(hereinafter Patent Law) 202 "landmark legislation". 203Prior to the passage of this patent law in 1984, a number ofregulations existed to encourage invention and technicalimprovement. 204 However, because of the Marxism-Leninismideology that knowledge and technological invention shouldbe owned by all, no patent system really existed in Chinaprior to the enactment of the 1984 patent law.
The Patent Law was enacted to protect patent rights forinventions-creations, to promote the development of scienceand technology. 205 Another implied strong purpose or its
44raison d'etre is to facilitate the importation of foreigntechnology, because practices had suggested that manyforeign businessmen were reluctant to sell their technologyto China without assurance of patent protection from China.
The 69 articles of the law are covered under eightchapters: General Provisions; Patent Criteria; Application,Examination and Approval; Duration, Cessation andInvalidation; Compulsory License; Infringement andProtection; and "Supplementary Provisions". TheImplementing Regulations of the Patent Law was alsopromulgated in January, 1985.2~
According to the Patent Law, a Chinese patent isgranted to "inventions-creations", which includesinventions, utility models and designs,207 except whenthey violate the law, social morality or publicinterest. 208 However, the law distinguishes "serviceinvention-creation" ,209 in which case the right to applyfor patent belongs to the entity where the inventor works,from "non-service invention/creation", where the inventor orcreator himself has the right to apply for patent. Article9 established the "first-file" criterion in patentapplication. 210 This means that in case of applicationfor patent for the identical invention/creation, the firstapplicant (not the first inventor) will be granted thepatent.
An invention or utility model must possess novelty,inventiveness and practical applicability in order to be
45
patentable. 211 However, a design only needs to possessnovelty. 212 The requirements for patent application areregulated in Articles 26-33. After all these requirementsare satisfied, the Patent Office will first conduct apreliminary examination213 and then a substantiveexamination to decide whether an invention meets thecriteria for patent.214 If the decision of the PatentOffice is positive and there is no opposition by a thirdparty, a patent will be granted, 215 which will last for 15
years.216 The patent right may be ceased217 orinvalidated218 under several situations. The Patent Lawalso grants compulsory license where the original patenteefailed to exploit the patent in three years withoutjustified reason219 or where there is a need to useearlier or later invention or utility model.22o
No one may exploit a Chinese patent without the consentof the owner, 221 except when the inventions are of greatsignificance to the state or public interest and thegovernment comes in to designate their use. 222 Anyexploitation of the patent, without the authorization of thepatentee, constitutes an infringing act,223 except undersituations which are expressly regarded as non-infringementby the law. 224 In case of an infringement dispute,administrative authority for patent affairs may order aninjunction against infringing party. Any dissatisfied partymay also institute litigation in the People I s Court. 225Infringement with serious effects such as divulging secret
46
of the state may subject the infringers to criminalprosecution. 226
The Chinese Patent Law treats foreign patentapplication in substantially the same way as required by theParis Convention for the Protection of Industrial Property("Paris Convention"), since China acceded to that conventionon November 14, 1986. The Paris Convention rule prevailswhen it conflicts with the Chinese Patent Law provisions.The Patent Law also recognizes priority rights of foreignapplicants if there is multilateral or bilateral patenttreaties or reciprocal treatment of patent arrangementsbetween China and the concerned foreign country. 227Therefore, Chinese Patent Law is seen by some as "a blend ofWestern property protection and socialist ideology", 228 oreven as a "basically Western" law.229
Unlike their attitudes toward patent right, the Chinesewere more readily to recognize trademark rights and thebenefits of a trademark system to the country as a whole.The uniform use of trademark should help ensure that Chineseconsumers can get goods of consistent quality. Also, atrademark system is "less offensive than other forms ofintellectual property to Chinese socialist ideologues, sincea trademark right most often belongs to an enterprise orcollective body and not to an individual".23o
In less than one year after the Communist take-over,the PRC enacted the Provisional Regulations Governing theRegistration of Trademarks (1950) which was replaced by the
471963 Regulations Governing the Control of Trademarks. OnAugust 23, 1982, China formally enacted the Trademark Law ofthe People's Republic of China (hereinafter "TrademarkLaw") ,231 which replaced both of the old regulations. TheRules for Implementation of the Trademark Law of thePeople's Republic of China was also promulgated on March 10,1983 (hereinafter "Trademark RUles,,).232
The new Trademark Law is to protect the exclusive rightto use a trademark and to guarantee the quality of the goodsbearing that trademark.233 The emphasis on protecting thequality of goods is further seen in Article 6 and Article31, which provide that deceiving practices shall be stoppedand inferior quality of goods may lead to revocation of thetrademark. Another salient feature of the Trademark Law isthat trademark rights in China arise only as a result ofregistration in China. A trademark applicant generally doesnot have to show prior use. 234 The law also sets otherconditions and requirements for trademark application. Forexample, certain words or designs cannot be used astrademarks. 235 The application should not be identical orsimilar to a trademark registered by a third party. 236When identical or similar trademarks for the same or similargoods are being applied, the first filed trademark will beregistered ("first file rule") .237 Also, trademark can beassigned or licensed.238 It may be revoked as well undercertain circumstances such as ceasing use for threeconsecuti ve years. 239
48
The infringement of trademark not only includes the un-authorized or unlicensed use of a trademark which isidentical or similar to the registered trademark of a thirdperson on the same or similar goods, but also includes theunauthorized manufacturing or marketing of another person'strademark symbol, or "otherwise injuring the right ofanother person to exclusive use of a registeredtrademark. ,,240The injured party may request the Industryand Commerce Administration to initiate an action, which maybe an injunction or imposition of fine against theinfringer; or the injured party may go directly to thePeople's Court. 241 Under the Trademark Law, it is alsopossible to subjugate the "directly responsible" infringerto criminal liability.242
Although the concept of trademark protection is stillnew to the Chinese, the new Trademark Law clearly "evincesChina's increasing commitment to creating a favorable legalenvironment for doing business" in China. 243 Thetremendous increase in the number of trademark applicationssince 1982 suggests that the law will certainly havepositive effects on facilitating the flow of foreigntechnology into China.
4. Other Related Law and Regulations(a) civil Procedure Law
When a foreign party brings a suit in a Chinese court,the civil Procedure Law of the People's Republic of China
(b) US-China Trade AgreementOn July 7, 1979, the Agreement on Trade Relations
Between the United States of America and the People'sRepublic of China was signed. (hereinafter "TradeAgreement") 252 This is an important document for US-Chinatrade since it grants Most-favored-nation (MFN) treatment toeach other; 253 and provides reciprocal intellectualproperty protection. 254 It also has important provisionsabout free currency convertibility, 255 disputesettlement,256 etc. It should be noted that prior to the
"Special Regulations of Civil Procedure InvolvingForeigners" .246 This section stipulates expressly that aforeigner or stateless person who brings an action orresponds to an action in a People's Court shall have thesame procedural rights and obligations as a citizen of thePRC; in the case of foreign enterprise or entity, thatforeign enterprise or entity shall enjoy the rights and bearthe obligations according to this law. 247 The principle ofreciprocity was also recognized. 248 In case the CPLconflicts with international treaties to which China is aparty, the latter shall prevail.249 However, as apractical note, all hearings should be conducted inChinese250 by entrusted Chinese lawyers. 251
{hereinafter CPL)2«litigation conductedobserve this law". 245
becomes relevant, since "all civilin the territory of the PRC mustThe CPL has a section entitled
49
50enactments of Chinese Patent Law and Trademark Law, Article
VI of this Trade Agreement provided the major legal basis
for protecting American licensor's intellectual property
rights. This is still true today with regard to copyright
protection.
(c) Joint Venture Law
The Chinese Joint Venture Law of 1979257 provides
another important legal framework for the importation of
foreign technology. The particular provision in point is
Article 5, which provides that each party to the joint
venture may contribute not only cash or capital, but also
industrial property rights as its investment in the venture.
"A joint venture that possesses advanced technology by world
standards may apply for a reduction of or exemption from
income tax for the first two or three profit making
years. ,,258 Other tax reduction or exemption provisions may
also be found in the separate "Interim provisions of the
Ministry of Finance Concerning the Reduction of or Exemption
from Income Tax on Royalties for Proprietary
Technology" .259 These tax privileges are available to
foreign royalty recipients who provide certain technologies
such as technology used to develop China's farming,forestry, fishery, etc. 260
In order to improve the investment environment and
facilitate the importation of foreign technology, China
further promulgated the provisions of the state Council of
51the People's Republic of China for the Encouragement ofForeign Investment (hereinafter "22 Provisions") 261 onOctober 11, 1986. This "22 provisions" is aimed at grantingspecial preferences specifically to two kinds of enterpriseswith foreign investments: "export enterprises" and"technologically advanced enterprises". 262 These enterpr-ises enjoy preferential treatments with regard to paYment ofsubsidies, site use fees, use of water, electricity andother infrastructure, receivment of loans, remittance ofprofit abroad, export license, more independentmanagement2~ and a number of other tax and administrativepreferences.
In April, 1988, nine years after China first enactedits law on equity joint ventures (EJVs), China adopted a lawon cooperative ventures (cooperative joint ventures orCVs).2M This CVs law allows foreign investors morebenefits not available under the 1979 EJVs. For example,under CVs law, foreigner may serve as chairman of the boardof directors of the CVi there is no specified time limit forthe term of a CV, comparing a 50-year limit on an EJVi italso allows the contracting parties to determine thedistribution of earnings or products of the venture as theychoose, rather than in proportion to specified ownershipshares as required under EJV law.
On April 4, 1990, an amendment to the 1979 JV Law waspassed, in an effort to create a more attracting environmentfor foreign investment.265 The major changes to the 1979
52JV law include: it explicitly stipulates China shall not
nationalize JVs unless the public interest requires; the
board of election or the parties after consultation may
elect their chairman, with no requirement that the chairman
be a Chinese; there is no limit on the term of the JV;
different lines of business will be handled differently in
this regard; the parties themselves may stipulate the term
of JV and they can apply for extension six months beforetheir agreed expiration date;
The joint venture does not have to open an account with
the Bank of China or its approved bank. Instead, it may open
a foreign exchange account with a bank or any other
financial institution which is permitted by the state agency
for foreign exchange control to handle foreign exchangetransactions.
In addition to the above law and regulations, there is
also a US-China Agreement on Cooperation in Science and
Technology and a number of other science and technology
protocols and memoranda signed under this umbrella
agreement.2~ These documents cover various specific
science and technology areas and they constitute important
legal instruments in technology transfer of those respectiveareas.
5 ..Protection of Intellectual Property
The strength of the legal framework for China's
technology import can be tested on one legal issue: the
53
protection of intellectual property. Due to the dominance
of Marxism ideology in the past, the concept of intellectual
property is relatively new to the Chinese. Not surprisingly,
there have been unauthorized use of foreign technology.
Among the notorious examples are the copy of German Leica
camera and Swedish Hasselblad camera, their Chinese versions
are named East Wing and Red Flag respectively. 267 The
Boeing 707 engine was also cloned in China by using spare
engines.2~ However, unsuccessful copy can also be found
when the Chinese tried to copy a urea fertilizer plant being
built in China by an American firm.2~ Such a failure to
copy may well give evidence to the conclusion that copying
today's standardized and mass-produced products is neither
very easy nor always effective, due to the lack of a modern
technology base in China (in terms of material and skilled
manpower). Based on this conclusion, theoretically, there
should be little need to concern about the protection of in-
dustrial property rights by foreign licensors. 270 However,
in reality, the concern is always there, even though it
could be mitigated partly by negotiating contractualprotection. 271
with regard to copyright protection, the picture is
even less encouraging. According to a Swedish study on
Chinese publishing in electronics and metallurgy, 20% of the
books on semi-conductor technology and computer technology
are translations of foreign books. In metallurgy, some 30-
5440% of the books on ovens, converters, non-ferrousmetallurgy are translations.2n
As China became exceedingly painful in need for foreign
technology, while foreign sellers were either reluctant to
sell or pressing for exorbitant price before they were
assured of legal protection of their intellectual property,
the Chinese authority gradually recognized the long-term
benefit of having patent and trademark systems for the
following reasons: first, copying of foreign technology
could only serve the immediate interest, if the copy is
successful at all. Yet, China will risk of losing long-term
benefit of foreign technology by such short-sighted copying
and reverse engineering; second, external pressure also
made Chinese government to realize that a patent system is
necessary if China wants to introduce foreign technology to
China and trade with foreign countries;2~ third, the
lack of a patent system may also hurt Chinese themselves
since it had caused the loss of some Chinese technology to
foreign businessmen2~ and hindered the domestic
technology invention; fourth, the success of Japanese by
adopting foreign technology in the 50's might have
encouraged the Chinese government to establish a legal
system that protects foreign intellectual property.
Besides enacting trademark law, patent law and a number
of.other domestic regulations, China also acceded to the
Paris Convention and joined the World Intellectual Property
Organization (WIPO) and became active internationally.
55
since the passage of the Patent Law, China receivedlarge number of patent application each year. In 1987,26,077 patent applications were filed, 6811 were grantedpatents.2~ The number of foreign applicants can be seenfrom the 1986 statistics, which was 11,000 out of a total24,000 applications, i.e., about 45%.2~
All these indicate that a technology-seeking China iscommitting itself to establishing a legal framework thatprotects foreign intellectual property (albeit there isstill much to be improved) in order to get foreigntechnology it wants for its modernization drive. However,the us has showed dissatisfaction with China's inadequateintellectual property protection. In May 1989, the us TradeRepresentative (USTR) and Chinese Ministry of ForeignEconomic Relations and Trade (MOFERT) reached an Memorandumof Understanding expanding protection of intellectualproperty rights in China.
Under this Memorandum of Understanding, China has tomake commitments to strengthen legal protection of foreignintellectual property rights in China, in order to exchangeUSTR's promise not to impose sanctions under section 301 ofthe 1988 Omnibus Trade and Competitiveness Act against China"at this time.,,2n In copyright area, the Mimorandum ofUnderstanding stipulates that China will submit the draftcopyright law to the national People's Congress (NPC) by theend of 1989, but no deadline for enactment by NPC is fixed.Specially, it says that China's copyright law will include
56computer programs as a specific category to consider. The
MOU also stipulates that an amendment to China's patent law
be submitted to the state Council for examination by the end
of 1989 in order to expand the scope of patent protection.
However, perhaps due to the interruption of Tienanmen Square
Massacre and the resulting tension between US and China,
neither of the above deadlines seem to have been met.
Besides the Memorandum of Understanding, in January
1989, the 1979 bilateral Science and Technology agreement
was also let lapsed without new extension. As a further show
of dissatisfaction, USTR has put China on a "priority watch
list", next to being identified as a priority country forsanction under Section 301.
The Memorandum of Understanding showed that the U.S.
Government was reluctant to take any radical move against
China. This general reluctance is again demonstrated by the
actions taken by the Bush administration after the Tiananmen
Massacre. One year after the massacre, Bush advocated
extending MFN trade status to China, despite the criticism
that his tolerance is such that he was actually "kowtowing"to Chinese government.
As if to show its commitment to provide protection to
foreign investors, in September 1990, China enacted its
first copyright law (effective June 1, 1991). This law
basically satisfies the requirement of the MOU, because it
specifically protects computer software. However, it is too
early to tell the effect of this new law.
57In any event, China's current legal framework for
intellectual property protection will continue to be tested,
changed and improved in the future by foreign demands for
more protection, and by China's needs for foreigntechnology.
CHAPTER SUMMARY
Even today, China is still a mystery to many foreign
businessmen. It remained virtually closed to the outside
world in most of its history. Yet it once developed into a
prosperous and strong feudal power. However, Industrial
Revolution led the Western countries far ahead of China
technologically. As a result of competition for the world
market, a technologically backward China fell prey to
Western powers easily after the 1840 Opium War. Since then
China's door was forced open and the Chinese had experienced
a "century of humiliation", which caused their xenophobia
and their ambivalence toward Western technology. The
People's Republic of China under the Communists has
constantly struggled for independence and adherence to the
principle of national sovereignty. However, because People
Republic of China had virtually no industrial base at the
time of its establishment, it could only rely on the Soviet
assistance in the 1950's. But the Soviet struck a heavy
blow to the Chinese who were trying to build a strong
socialist China by suddenly withdrawing all its technical
58
assistance to China. As a result, China reverted to theextreme policy of self-reliance. Such extreme self-reliancehad been detrimental to China partially during the GreatLeap Forward and later during the Cultural Revolution.Although China started to seek Western technology since theearly 1970's in order to realize its Four MOdernization, theeffect of imported Western technologies in the 70's remainedminimum since only whole-plants, instead of pure technologyand know-how, were imported.
Things have changed dramatically since the Open Doorpolicy. The Chinese gradually adopted a more pragmatictechnology import policy after numerous experiments andmistakes. Such a policy seeks to import technology thatChina needs most (such as technologies for China'sinfrastructure industries) and that will fit in China.Internationally, China continues to diversify the source oftechnology supply; domestically, China has made every effortto attract foreign technology by such means as jointventure. At the same time, China is trying to set up a legalframework that will better protect intellectual property andthus facilitate the import of Western technology. After overa decade of open door policy and economic reform, there hasalready been evidence of the general success of the currentChinese policy (albeit problems remain). The TienanmenSquare Massacre brought some setback. However, the setbackwill only be temporary. Even though political struggleinside China is yet to be settled, the economic trend toward
openness will not, or is impossible to be changed;therefore, the envision of modernizing China's economy byimporting foreign advanced technology remains veryoptimistic.
59
Endnotes:
1. Chou, Zhen Fu Gonq Zuo Bao Gao (Report on the Work ofthe Government) (Peking: Shang Wu Yin Shu Guan, 1975), at16.
2. The full name of the "Cultural Revolution" is "The GreatProletarian Cultural Revolution." It stretches from 1966-1976; therefore, it is often termed by the Chinese as "theTen-Year Chaos" (Shi Nien Hao Jie). Today's Chinese seem toregard it as a disaster to the country and its people.
3. Theroux, Technoloqy Sales to China: New Laws and OldProblems, 14 J. INT'L & ECON. 185, 189, n.15 (1980).4. Id., at 189.
5. The inventions of compass, gunpowder, paper and printinghave been regarded as four fundamental contributions to thedevelopment of technology and human culture by the Chinese.
6. Congress of the United States, Office of TechnologyAssessment, Technoloqy and East West Trade, (Washington, DC:Government Printing Office, 1979), at 245 (hereinafter "EastWest Trade").
7. Imperial China viewed Westerners as barbarians.
8. Qing Dynasty is the last feudal dynasty in China. It wa~overthrown by the revolution in 1911 led by Dr. Sun Yat-sen.
9. E.Theroux, LEGAL ASPECTS OF DOING BUSINESS WITH CHINA, 15(1986). (hereinafter "Legal Aspect").
10. The ancient route cross the Northwest China throughwhich China was connected and traded with West Asia and theEurope.
11. The famous Mongolian emperor who once conquered much ofthe Europe and ruled China through the Yuan Dynasty foundedby him.
12. Theroux, supra note 9, at 15.
13. Id.
60
6114. Id.
15. Before the Opium War, although China remained virtuallyclosed to the outside, small scale, sporadic, non-officialtrade with other countries existed all the time. Before theOpium War, China ran a surplus in trade with the GreatBritain. The major Chinese trade items were tea and silk.16. These five port cities are today's: Lin Bo, Quan Zhou,Fu Zhou, Xia Men, and Guang Zhou, all on the Southeast Chinacoast.
17. "East West Trade", supra note 6, at 245.18. Id.
19. Id. at 246.20. Theroux, supra note 9, at 16.21. Statement of Professor Dwight H. Perkins, in TechnologyTransfer to China, Hearings before the Subcommittee onScience, Research and Technology and the Subcommittee onInvestigations and Oversight of the Committee on Science andTechnology, US House of Representatives, 96th Cong., 1stSess. Nov. 13 and Nov. 15, 1979, at 2.22. Theroux, supra note 9, at 16.23. Id.24. Theroux, supra note 3, at 188.25. Id. , at 189.26. Id.
27. Unfortunately, this emphasis was replaced by continuouscampaigns and political struggles due to various reasons. Itwas not reemphasized until after the end of the CulturalRevolution.28. Perkins, supra note 21, at 30.29. Id., at 31-36. This is understandable for a newly borngovernment after a century of turmoil. It should be notedthat sovereignty is emphasized in every sphere in dealingwith foreign countries.
30. US Congress, Joint Economic Committee, China's EconomicLooks Toward the Year 2000, Vol.2, Economic Openness inModernizinq China, (Washington, DC: Government PrintingOffice, 1987), at 277-78.
62
31. Id., at 280.
32. "East West Trade", suora note 6, at 248.
33. Congress of the united states, Office of TechnologyAssessment, Technoloqv Transfer to China, OTA-ISC-340,(Washington, DC: US Government Printing Office, July, 1987),at 40.
34. Perkins, suora note 21, at 128.
35. Id.
36. One author thought that China and Soviet broke theirrelations because of "mutual paranoia over the duplicity andadversary designs of each party towards the other." See M.Landwehr, INVESTORS ABORAD, "PROBLEMS AND SOLUTIONS ININTERNATIONAL BUSINESS IN 1983" 264 (1983). Another authorpointed out that the split was due to China's persistence inan economy model which put agriculture first instead ofheavy industry. ~ infra note 38.
37. For discussion of Western trade embargo against China,see Chapter II, infra notes 20-37 and accompanying text.
38. Seabolt, United States Technoloqv Exoorts to thePeoole's Reoublic of China: Current Develooments in Law andPolicy, 19 TEX. INT'L L.J. 577, 582 (1984).
39. This was a campaign in 1958-59 of trying to catch upwith the Western countries economically, especially in steelindustry. This was characterized by the Maoist model of massmobilization and mass participation of the vast human andmaterial resources of the rural areas. See id., at 582.
For a description of the investment of rural labor inhydraulic projects and steel production in this period, seesuora note 6, at 250-52.
40. Seabolt, suora note 38, at 582.
41. "East West Trade", suora note 6, at 249.
42. For a long period of time and even today, an estimated80% of China's population reside in the rural area. TheChinese economy remains an agricultural one.
43. China is now at the beginning of its Eighth FYP.
44". "East West Trade", supra note 6, at 249.
45. Seabolt, suora note 38, at 582-83. It should be notedthat these are actually the three principles which guideChina in all international trade and investment affairs. See
63
further discussion in Chapter III, infra notes 22-29 andaccompanying text.
46. Perkins, suora note 21, at 43.
47. Supra note 33, at 41.
48. Perkins, suora note 21, at 43.
49. "Yuan" is the unit of Chinese currency. Its ratio to USdollar is 5.7 : 1.
50. Suora note 33, at 22.
51. Technoloqv Transfer to China, report by Subcommittee onScience, Research and Technology and Subcommittee onInvestigations and Oversight of the Committee on Science andTechnology, US House of Representatives, 96th Congo 2ndsess., (Washington, DC: US Government Printing Office, July,1980) at 29. see also suora note 33, at 21.
52. At Soecial Session of UN General Assemblv: Chairman ofChinese Deleqation Tenq Hsiao-Ping's Soeech, 17 BEIJING REV.6, 11 (April 19, 1974).
53. For a discussion of the difference between product andtechnology, see suora note 51, at 10. see also suora note21, at 19-20.
54. Statement of Dr. Thomas Fingar, in Technoloqv Transferto China, suora note 21, at 20.
55. suora note 33, at 41.
56. "East West Trade", suora note 6, at 37.
57. The "Gang of Four" refers to: Jiang Qin (Mao's wife),Zhang Chun-Qiao, Wang Hong-Wen and Yao Wen-Yuan. They wereall standing members of the Central Politburo.
58. The "old" Long March was in 1931-34 when ChineseCommunist Red army was chased up to the North by the thenNationalist army led by Chiang Kai-shek.
59. Seabolt, su~ra note 38, at 584.
60. Renmin Ribao, The Law of the Peoole's Reoublic of Chinaon Chinese-Foreiqn Joint Ventures. PEOPLE'S DAILY, July, 9,1979, reprinted in 1 China's Foreign Economic Legislation 1(1982) •
61. These four areas are Shenzhen, Zuhai and Shantou inGuangdong Province and Xiamen (Amoy) in FuJian Province.
6462. These fourteen open cities are almost all coastal citiesand ports. They are: Dalian, Shanghai, Qindao, Qinghuandao,Tianjin, Yantai, Lianyungang, Nantong, Ninbo, Wenzhou,Fuzhou, Guangzhou, Zhanjiang and Beihai.
63. Constitution of the People's Republic of China (Xian fa)Art. 18, Renmin Ribao (People's Daily), Dec. 5, 1982, at 1.reprinted in BEIJING REV. No. 52, at 10.
64. The Patent Law of the People's Republic of China,reprinted in THEROUX, Legal Aspects, SUDra note 9, at 637-49.
65. Seabolt, SUDra note 38, at 587-88.
66. "East West Trade", SUDra note 6, at 254.67. Id.68. For the settlement of this contract dispute, ~ Note,Foreian Investment in the Peo~le's ReDublic of China:ComDensation Trade. Joint Ventures. Industrial ProDertyProtection and DisDute Settlement, 10 GA. J. Int'l & Compo L233, 263 (1980).
69. Proposed by the Central Committee of the Communist Partyin September, 1985, approved by the National People'sCongress in April, 1986.
70. Congress of the United States, Office of TechnologyAssessment, Technoloay Transfer To China (Summarv),(Washington, DC: US Government Printing Office, July, 1987at 7-8. see also SUDra note 21, at 4-5.
71. see SUDra note 51.
72. SUllivan, A Government in Transition, THE CHINA BUS.REV. July-August 1989, at 8-11.
73. China: No Shuttry the aDen Door, BEIJING REV. Jan. 1-7,1990, at 11.
74. Economic Plan for 1990 Outlined, BEIJING REV. Apr. 2-8,1990.
75. China's foreign debt was 33.443 billion yuan anddomestic deficit is projected to be 8.892 billion yuan. seeFinance: ImDroved. But still Grim, BEIJING REV. April 2-8,1990.
76. Even during the turmoil, not every foreign businessoperation evacuated China. Some even see the generalhesitancy to resume business in China, coupled with China's
65campaign to lure back foreign business, as a window ofopportunity, because they see it as the best time to morequickly go through the bureautic cycles. See SoecialReoort: Business Reacts. THE CHINA BUS. REV. July-August1989, at 16.
In January, 1990, The Wall Street reported that theWorld Bank has proposed to make its first loan to Chinasince last year's Massacre. In February, a $30 million loanwas made to China. Meanwhile, the US Export - Import Bankalso approved a $23.1 million financing to China. In earlyJune, 1990, President Bush further extended China's MFNstatus for another year. All these signal that foreignbusiness with China will gradually resume its pre-Tienanmenstatus.
77. suora note 51.
78. Mao Zedong described poor China as a "blank sheet ofpaper", only giving hope to draw a best blueprint for amodern China. 5 Selected Works of Mao Zedong 284, (Beijing:People's Publishing House, 1977)
79. China Daily, Oct. 22,1985The gap between China and the West was estimated to be
15-20 years in 1978 by vice premier Fang Yi and 10 years in1985. Assuming this is true, it may take far more than 10 or20 years for China to catch up with the West. see suoranote 51, at 32.
80. See suora note 33, at 4. One author noticed threeadvantages the defense industry and its R&D structure haveover the civilian industry: 1) better qualified personnel;2) more advanced equipments; and 3) larger budget. Seesuora note 30, at 282.
81. By February, 1988, China has signed contracts to launcheight satellites for foreign countries and entered servicecontract for the launching of two foreign satellites.People's Daily, Feb. 20, 1988, at 3, col. 1.
82. The value of exported technology by China in 1987 is$106.1 million dollars. Id.
83. Yan, China's Technoloqy Imoorts and Sino-US IndustrialTechnoloqy Transfer, 14 CHINA LAW REP. 161, 162 (1987).
84. China Profits from Imoorted Exoertise, BEIJING REV.March 5-11, 1990, at 13.
85. Perkins, suora note 21, at 181.
6686. Note, Leqal and Economic considerations on DoinqBusiness in the PeoDle's Republic of China, 12 CAL. W. INT'LL.J. 352, 380 (1982). A 1990 statistic shows that China'sinstalled power generating capacity is now 10 millionkilowatts. BEIJING REV. March 5-11, 1990, at 13.
87. According to the official statistics, in 1987, thetransported goods by railway is 974.1 billion ton/km, by airis 0.66 billion ton/km. Transported passengers by railway is284.3 billion/km, and 18.6 billion/km by air.
88. China now has only one freeway being built which willconnect the Northwest and Southeast China. This freeway iscalled "3.12 National Freeway".
89. Moga, Makinq Foreiqn Thinqs Serve China: A WesternLicensor's Guide to the Chinese Market, 28 ST. LOUIS U.L.J.771, 781 (1984).
90. Official statistic from People's Daily, Feb. 25, 1988,at 2. Only a limited number of major cities are hooked upwith international phone lines.
91. China's oil output ranked eighth in the world. Itproduced 137 million tons of crude oil in 1989. Id.
92. Perkins, SUDra note 21, at 183. China's raw coal outputin 1989 is 1.04 billion tons. People's Daily, Feb. 25, 1988,at 2.
93. Perkins, SUDra note 21, at 183.
94. Moga, supra note 89, at 780-81.
95. The ratio of Chinese yuan to US dollar in 1991 isapproximately 5.7:1.
96. People's Daily, Feb. 25, 1988.
97. SUDra note 33, at 41.
98. For an estimated budget China spent for each category ofequipment or technology, see su~ra note 6, at 257.
99. Perkins, SUDra note 21, at 23.
100. SUDra note 3, at 195.
101. Seabolt, SUDra note 38, at 585. see also Liang, TheNine Principles of Importinq Technoloqy and EquiDment intothe PRC, Hong Kong Chi Shi Nien Tai (Communist Press), no.109, Feb., 1979, at 20 (in Chinese). see alao Jia, China'sForeiqn Trade ProsDects in CHINA HANDBOOK (Ta Kung Pao Pub,
67Hong Kong 1982), at 537.
102. Mr. Ren Jian Xing was former director of the LegalAffairs Department of the China Council for the Promotion ofInternational Trade (CCPIT) - an unofficial organizationsimilar to the Western Chamber of Commerce. He was laterappointed vice-president of the Supreme People's Court.
103. Ren, Some Leqal Aspects of the Import of Technoloqv andthe Utilization of Foreiqn Investment in the People'sRepublic of China, 12 INT'L REV. INDUS. PROP. CORP. L. 21,22 (1981).
104. A similar policy was summarized in Von Kalinowski,Antitrust Consideration in the Transfer of Technoloqv toChina, in PRIVATE INVESTORS ABROAD - PROBLEMS AND SOLUTIONSIN INTERNATIONAL BUSINESS IN 1983, Martha L. Landwehred.,(New York: Matthew Bender, 1983) at 267.
105. Chen, To Open Wider. Or To Close Aqain: China's ForeignInvestment Policies and Laws, 6 N.Y. L. SCH. J. INT'L &COMPo L. 1, 5 (1984).
106. supra note 33, at 41. see also supra note 30, at 259.
107. "The pace of decentralization had created significantproblems in terms of : resource management; interregionaltrade coordination and competition; bureaucratic infightingand intentional local sabotage of the enforcement of newlaws and regulations." Chwang & Thurston, Technoloqv TakesCommand: The Policy of the People's Republic of China withRespect to Technoloqv Transfer and Protection of IntellectulProperty, (hereinafter Technology Takes Command), 21 INT'LLAW 129, 135-136 (1987).
108. Congress, supra note 30, at 255.
109. For example, a Japanese firm contracted to supplycomputers for the Chinese meteorological center, but onlyafter an American computer firm withdrew from thenegotiations for export control reasons. Supra note 6, at277. This is majorly because the US has the best technologyin those areas where China needs most.
110. see China - Union of Soviet socialist Republics:Aqreement on Economic and Technical Cooperation, 24 I.L.M.1100 (1985). The volume of Sino-Russia trade has risen froma nere US $0.22 billion to $3.2 billion. See China. USSRStrenqthen Economic Cooperation, BEIJING REV. April 23-29,1990, at 13.
111. Perkins, supra note 21, at 21-22, 45-48.
68
112. supra note 30, at 254. The 'New Technology Revolution'is the theme of Alvin Toffler's book The Third Wave. In hisbook, Toffler predicted that we are in an era of hightechnology and in the near future the following technologywill play the dominant roles in a country's economy:computers and microelectronics, information technology,material science, and biotechnology. This book was oncetranslated into Chinese and became very popular. It had hadmuch influence in China's technology strategy decision. seealso supra note 30, at 257.113. This is the process of purchasing a product first andthen searching out of the technology or know-how embodied inthe product by tearing the product up. The successfulexample of reverse engineering is the cloning of the Boeing707 engine. See supra note 89, at 792.114. The biannual Chinese Export Commodities Fair - theCanton Trade Fair is the major event during which contractsfor purchase or sale of goods (including technology) arenegotiated. See Tobert, The American Lawyer's Role in TradeWith China, 63 ABA J. 1117, 1117-18 (1977).115. Chwang & Thurston, supra note 107, at 130.116. Gu, Recent Developments in Chinese EconomicLeqislation, 21 U.S.F. L. REV. 217, 219 (1987).117. Supra note 30, at 260.118. According to the People's Daily, "transferring defenseindustry technology to civilian enterprises is a shortcut toenhancing technological progress, which should beaccelerated." Such transfer also avoids two limitationsthat importing technology from abroad has, i.e., it isexpensive to import technology from abroad; the mostadvanced technology is usually unable to be introduced intoChina. Commentator, A Shortcut to Enhancing TechnologicalProqress - On the Necessity of More QuicklY TransferrinqMore Defense Industry Technoloqy to Civilian Enterprises,People's Daily, Aug. 27, 1985.119. Congress, supra note 33, at 42-44.120. Machinery and electrical products accounted for only4.7% of China's exports in 1985. As a result of theparticipation by the defense related Ministry of ElectronicsIndustry (MEI) , machinery exports will reach US $1 billionby 1990, a 240% increase over 1985. Supra note 33, at 45.121. Due to historical and geographical reasons, the easternpart of China has been developed earlier and tends to havemore capital and advanced technology, although the West now
69has rich natural resources waiting to be exploited. TheEastern coast provinces have also been the major areas forforeign investment today.122. People's Daily, Feb. 22, 1988, at 1.123. supra note 30, at 261.124. People's Daily, Feb. 23, 1988, at 1. In 1987, 130,000technology contracts were signed, exceeding the value of 3billion yuan.125. Suttmeier, Layinq Corporate Foundations for China'sHiqh-Tech Future, THE CHINA BUS. REV. July-August 1988, at22.
126. These six tasks will be performed under a middle andlong term scientific development plan. They are:
1) use technology to develop economy of the coastalareas. All R & D institutions, universities and majorenterprises should go to that area to establish corporationsand enterprises, to produce products that can be exportedand can compete on the international market;
2) renovate old enterprises to raise productivity andtechnology level of these major industries and fieldsincluding agriculture, energy, raw material, transportation,communication, machinery, electronics, light industry, so asto increase exports; move the level of major industrytechnology close to the Western level in the end 70's andearly 80's;
3) increase the development of high technology andtrain a new generation of high qualified experts;
4) further promote the "Sparkle Plan", graduallyincrease the scope and level of technology and equipment tobe transferred to the rural areas, put emphasis on ruralenterprises that produce goods for exports;
5) strengthen the research of basic science andtechnology, focus on technology areas fitted to China sothat we can be among the leading countries to develop suchtechnologies; and
6) strengthen scientific legislation and policy study.People's Daily, March 11, 1988, at 4.
127. Supra note 33, at 30. The projected growth rate in the7th FYP is 7% in order to reach the goal of quadrupling the1980 industrial and agricultural output.128. Id., at 32.129. See China Profits from Imported Expertise, BEIJING REV.March 5-11, 1990, at 13.
70
130. See Prosoeritv Hinqes on Science. Technoloqv, BEIJINGREV. January 1-7, 1990, at 11.
131. Suora note 3, at 195.
132. Chwang & Thurston, supra note 107, at 139.
133. See It Is Urqent to Imorove the Soft Environment ofInvestment, People's Daily, Feb. 15, 1988. That articlelisted these elements of the "soft ••environment: ways ofthinking and doing business, quality of management,interpersonal relations, all of which the Chinese are eitherpoor or lacking. For discussion of the second element seeinfra note 141-142 and accompanying text.
134. Id., see also suora note 114, at 1120.
135. People's Daily, Feb. 15, 1988.
136. Id.
137. The 7th FYP projected the manpower development whichcalls for the graduation of 2.6 million young people fromregular institutions of higher education (not includingradio, TV, high schools graduates, which will increasesignificantly, too) and some 180,000 from graduate programs.These figures represent approximate increase of 70% and 400%respectively over the 6th FYP. Id., at 29. For statisticsin 1989, see Bureau of Statistics of the People's Republicof China, Statistic Reoort on National Economv and SocialDevelooment, BEIJING REV. Apr. 4-15, 1990, at center fold.
138. Suora note 33, at 59.
139. Id., at 6.
140. Id., Another deficiency of the Chinese education systemis listed by the author: failure to produce economists whoare familiar with the economics of industries.141. Id.
142. Three defining characteristics of the centrally plannedeconomy were summarized as follows:
•••••that most of the means of production (especially inindustry) are owned either by the state or by collectives;that the allocation of resources is accomplished mainly bythe decision of central planners; and that prices thereforehave a secondary role in resource allocation." Id., at 24.
71143. Id., at 32. see also US Department of Commerce,"Peoole's Reoublic of China". Foreiqn Economic Trends andTheir Imolications for the United states. FET 86-85,(Washington, DC: US Government Printing Office, September,1985).
The following disincentives are listed:" foreign currency restriction making the repatriation
of profits uncertain, the overevaluation of the Chinesecontribution to SinO-foreign enterprises, inflated laborcosts, poor labor discipline, high manufacturing costs,unpredictable customs treatment, undependable supplies oflocal materials, inadequate energy, transportation, andcommunications, a cumbersome bureaucracy, still unfavorabletax and accounting pOlicies, an irrational pricingstructure, uncertain access to a poorly defined domesticmarket, a marginal return on investment, and difficultexpatriate living conditions."
144. Gu, suora note 116, and accompanying text.
145. For example, the Chinese joint venture law of 1979 onlycontain the very basic provisions to facilitate investment.This represented a more patient and cautious approach and isunderstandable because China just began to attract foreigninvestment. This is also why many details are still left toindividual contract provisions. see Wilson, The LeqalStructures Governinq Technologv Transfers and Joint Ventureswith The Peoole's Reoublic of China, 3 INT'L TAX & BUS.LAWYER 1, 2 (1985).
146. Id., at 1.
147. Suora note 33, at 32. Some foreign investors havecomplained that in practice some bureaucrats did not consultlaw in the decisionmaking and this hardly makes uniformenforcement of the law.
148. China's need for foreign currency is so desperate thatChina gives foreign tourists the opportunity to play machinegun in order to earn foreign exchange. Wall Street J., Oct.14, 1987, at 31, col. 1. China also increased its arms salefor the purpose of earning hard currency, as the case ofselling missiles to Iran. Wall st. J., Oct. 22, 1987, at 35,col.l.
149. Finance Imoroved. but still Grim, BEIJING REV. April 2-8, 1990, at 9. This is so despite China is cautious and willonly borrow within its ability to pay the debts. See suoranqte 3, at 191.
150. suora note 33, at 49, 54.
72151. For a list of reform measures aimed at the incentivestructures at work and at altering the loci of decision-making, see id., at 26.152. Id., at 57.153. Chwang & Thurston, suora note 107, at 139.154. See suora notes 17-26 and accompanying text.155. China is a Communist country and many modern and mostneeded technologies are controlled by the West countries andunavailable to China. In domestic China, conservativistshold on to the ideology of Communism and are reluctant toaccept changes brought by modern technologies, because thechanges would be inconsistent with the socialisminfrastructure. As pointed out by one author, "it provedimpossible for China to enjoy the benefits of foreigncommerce without suffering serious difficulties." See suoranote 3, at 194.156. Prior to this, on February 8, 1984, GuangdongProvincial Government enacted the Provisional Regulations ofShenzhen Special Economic Zone Governing the Importation ofTechnology (the Shenzhen Rules). This served as a testapplication of the law of such a kind and provided feed-backfor the later draft of the national regulations.157. Theroux, suora note 9, at 691. also reorinted in 24I.L.M. 801 (1985) (unofficial tranSlation).158. Id., at 697.159. Approved by the State Council on December 30, 1987.Promulgated by the Ministry of Foreign Economic Regulationsand Trade (MOFERT) on January 20, 1988. People's Daily, Jan.21, 1988.160. Suora note 158, at Art. 2.161. Id. , at Art. 3.162. Id.163. Id. , at Art.6.164. Id. , at Art. 7.165. Id., at Art. 9. The other seven restrictive clauses arelisted as follows:
-requiring the licensee to accept unrelated andunnecessary techniques, raw materials and equipments, etc
-restricting the licensee from purchasing raw materials,
73
spare parts, component parts or equipment frely fromdifferent sources;
-restricting the licensee from developing and improvingthe technology to be imported;
-restricting the licensee from acquiring from othersources similar technology or technology of the same kindwhich is in competition with the technology acquired;
-imposing unequal conditions for the exchange ofinformation by the parties relating to improvements of thetechnology;
-prohibiting the licensee from continuing to use thetechnology to be imported after the contract expires; and
-requiring the licensees to pay remuneration or assumeobligations with regard to patents which are not in use orhave become invalid.
166. Other provisions of the Technology Regulation includethat the technology transfer contract must be written, andsubject to approval by MOFERT (Art. 4), the term must notexceed 10 pages (Art. 8).
167. deLisle, Recent Development, Foreiqn Investment:Foreiqn Economic Contract Law - the Foreiqn EconomicContract Law of Peoole's Republic of China. and theRequlations of the Peoole's Reoublic of China GoverningContracts for Imoort of Technoloqy, 27 HARV. INT'L L.J. 275,281 (1986). The Technology Regulation was enacted at a timewhen the Chinese leaders realized the duplication ofimportation and inadequate management of the technologyimports due to the decentralization, therefore it wasintended to implement stricter central management oftechnology imports. Id., at 283.
168. Id., at 281-282. For example, how will the Regulationreconcile the requirements of being both "advanced" and"practical"? How "appropriate" is appropriate?
169. Provisions expanded from 12 articles to the current 26articles.
170. For the reason of such change, see suora note 167.171. Suora note 150, at art. 2(6).
172. Id., at art. 8. (The contracts for the transfer ofpatent right or trademark right should be filed at thePatent Office and Trademark Office respectively), art. 16(licensor should pay tax according to China's tax laws).
173. Id., at art. 25. MOFERT also has a new right ofamending and revising this regulation.
174. Id., at art. 14.
74175. Id., at art. 18. These nine kinds of contract are notidentical to those in Article 9 of the "TechnologyRegulations". Art. 18 stipulates that a contract whichcontains any of the following nine clauses should be amendedor otherwise it will be invalidated:
1) violate China's current law and public interest;2) violate national sovereignty;3) the contents of the contract is inconsistent with
the former approved feasibility study report;4) the major provisions of the contract are not
complete;5) contract that does not contain means for disputesettlement;6) the contract does not guarantee the technical level
of the technology to be imported and the economic effect(including the quality and quantity of products) to bereached;
7) price and ways of paYment are unreasonable;8) the rights, duties and responsibilities of each
party is not clear, mutual and reasonable; and9) contract that contains tax privileges unauthorized
by Chinese tax authority.176. Normally 10 years but may be extended subject toapproval. Id. , at art. 19.177. Id. , at art. 12. This is a new provision.178. Id. , at art. 10.179. Id. , at art. II.180. Id. , at art. 13.181. See art. 18 (4) , supra note 175.182. Id. , at art. 18 (6).183. This was true especially for the protection ofintellectual property before the Patent Law was promulgatedin 1985. see supra note 3, at 230.184. This took effect on July 1, 1985. reprinted in Theroux,Leqal Aspects, supra note 9, at 675.
Although no clear regulation as such , FECL presumablypreempts the Economic Contracts Law of the People's Republicof China (hereinafter ECL), which was adopted on December13, 1981, with respect to the regulation of contractsinvolving foreigners. ECL is reprinted in 22 I.L.M. 330(1983).
It should be noted that there is also a ShenzhenForeign Economic Contracts Law (hereinafter as ShenzhenFECL) which was promulgated by the People's Government of
75
192. Id., at art. 18.
193. Id., at art. 20.
for
the contract cannot be performed in itsto the occurrence of force majeure; andthe conditions stipulated in a contracthave occurred.
186. Id. , at art. 7.187. Id. , at art. 9.188. Id. , at art. 10.189. Id. , at art. 1l.190. Id. , at art. 12-15. see also suora note 158, at 276.
Guangdong Province effective February 2, 1984, reprinted inCHINA BUS. REV. Sept.-oct., 1984, at 17.
For a comparison of FECL and ECL, see Zheng, AComoarative Analvsis of the Foreian Economic Contract Law ofthe Peoole's Reoublic Of China, 4 UCLA PACIFIC BASIN L.J. 30(1985).
194. Id., at art. 24. FECL defines "force majeure" as "a'-event which the parties cannot foresee at the time of theconclusion of the contract and whose occurrence orconsequences the parties neither avoid nor overcome. Therange of force majeure may be specified in the contract bythe parties."
191. FECL, suora note 185, at art. 17. Compare this withthe Uniform Commercial Code (UCC) 2-609 (Right to AdequateAssurance of Performance), reprinted in SELECTED COMMSERCIALSTATUTE, st. Paul: West Publishing Co. (1987), at 162-163.
185. FECL, art. 2. However, this law does not governinternational transportation contracts nor contractsapproved or formed before FECL took effect.
195. Id., at art. 29. These four situations are:1) when the expected economic interests are seriously
infringed upon for breach of contract by the other party;2) when the other party , who fails to perform the
contract within the stipulated time limit, again fails to doso within a reasonable period of time allowed to make up forthe delay;
3) whenentirety due
4) whencancellation
196. Id., at art. 31. A contract may be terminated when:- the contract has been performed;- the arbitration tribunal or the court decides to
terminate the contract; and
76- both parties agree to terminate.
197. Id. , at art. 33.198. Id. , at art.34.199. Id. , at art. 35.200. Id. , at art. 36.201. Id. , at art. 37 and art. 38.
202. Adopted by the 4th session of the Standing Committee ofthe 6th NPC on March 12, 1984. Effective April 1, 1985.reorinted in Theroux, Leqal Asoects, suora note 9, at 637(English translation by the Patent Office of the PRC).
203. Statement of Eugene A. Lawson, Deputy AssistantSecretary of Commerce for East Asia and the Pacific, Chinaexpert, in Exoorts to China: A Review on the 200thAnniversarv of US-China Trade, hearing before the SpecialSubcommittee on US Trade with China, Committee on Energy andCommerce, US House of Rep., Washington, DC: GovernmentPrinting Office (Feb. 1984) at 12.
204. For an excellent discussion of the evolvement of theChinese patent system, see Zheng, The Patent System of thePeoole's Reoublic of China, 21 U.S.F. L. REV. 345 (1987).205. Suora note 202, at art. 1.
206. reorinted in Theroux, Leqal Asoects, suora note 9, at651.
207. suora note 202, at art. 2.
208. Id., at art. 5.
209. Id., at art. 6. A "service invention-creation" is aninvention/creation made by a person in execution of thetasks of the entity to which he belongs, or aninvention/creation made substantially through the use of thematerial means of that entity.
210. Id., at art. 9. This is different from the US "firstinvented" criterion.
211. Id., at art.22.
212. Id., at art. 23.
77213. Id., at art.34. The Patent Law and its ImplementingRegulations did not specify the scope or contents of apreliminary examination. For a look at what the preliminaryexamination does, see supra note 204, at 370.
214. See Patent Law, supra note 204, at art. 35.215. Id., at art. 44
216. Id., at art. 45. However, the patent right for utilitymodel or designs last only five years.
217. Id., at art. 47.
218. Id., at art. 48.
219. Id., at art. 52. It should be noted that compulsorylicense only applies to invention or utility model, notto design.
220. Id. , at art. 53.221. Id. , at art. 11-12.222. Id. , at art. 14.223. Id. , at art. 60.224. Id. , at art. 62.225. Id. , at art.60.
226. Id. , at art. 64.227. Id. , at art. 29.228. Wilson, supra note 145, at 29.
229. Lin, The Patent Law of the People's Republic of China,13 AIPLA Quarterly J. 107, 109 (1985).
230. Chwang & Thurston, supra note 107, at 154.
231. reprinted in Private Investors Abroad - Problems andSolutions in International Business in 1983, Martha L.Landwehr ed. New York: Matthew Bender (1983) (hereinafter"Problems and Solutions) at 226.
232. Id., at 237 for text.
233. Trademark Law, supra note 231, at art. 1.
234. Id., at art. 12, 13, and 14.
78235. Id. , at art. 8.236. Id. , at art. 17.237. Id. , at art. 18.238. Id. , at art. 25, 26.239. Id. , at art. 30.240. M., at art. 38.241. Id. , at art. 39.242. Id. , at art. 40.
243. Cohen & Horsley, The Trademark Law of the People'sRe~ublic of China, in PROBLEMS AND SOLUTIONS, supra note231, at 225. In 1987, total domestic and foreign trademarkapplications filed with the Trademark Office of the StateAdministration of Industry and Commerce (SAIC) topped187,000 up from only 18,500 in 1982. Kay, Trademark Update,THE CHINA BUS. REV. JUly-Aug. 1988, at 49.
244. This law was enacted on March 9, 1982 for trialimplementation on a provisional basis. printed in People'sDaily, March 14, 1982.
245. Id. , at art. 3(1).246. Id. , at art. 185-205.247. Id. , at art. 186.248. Id. , at art. 187.249. Id. , at art. 189.250. Id. , at art. 190.251. Id. , at art. 191.252. reprinted in 14 CHINESE LAW AND GOVERNMENT no.1, at 129(Spring 1981).
253. M., at art. 3.254. Id. , at art. 6.255. Id. , at art. 5.256. Id. , at art. 7 and 8.
79257. The Law of the People's Reoublic of China on Chinese-Foreian Joint Ventures (hereinafter Joint Venture Law) waspromulgated on July 8, 1979. People's Daily, July 9, 1979.reorinted in Theroux, Leaal Asoects, supra note 9, at 507.The Implementation for the Joint Venture Law and a number ofother investment laws and regulations are also collected inthe same book. The Implementation of Joint Venture Law ofSeptember 20, 1983 contains a chapter specifically dealingwith the acquisitions of technology by joint ventureenterprises.
258. Id., at art. 7.
259. reorinted in Theroux, Leaal Aspects, suora note 9, at607. This was effective since January 1, 1983.
260. Id., at art. 1.
261. reorinted in BEIJING REV., Oct. 27, 1986.
262. Id., at art. 2. "Export Enterprises" are "productionenterprises whose products are mainly for export, which havea foreign exchange surplus after deduction from their totalannual foreign exchange revenues the annual foreign exchangeneeded for the remittance abroad of the profits earned byforeign investors."
"Technology advanced enterprises" are "productionenterprises possessing advanced technology supplied byforeign investors, which are engaged in developing newproducts in order to increase foreign exchange generated byexports or for import substitution."
263. Id., at art. 3, 4, 5, 6, 7, 12 and 15 respectively.
264. Cohen, The Lona-Awaited Coooerative Venture Law, THECHINA BUS. REV. JUly-August 1988, at 14.
265. A Maior Steo to Imorove Investment Climate, BEIJINGREV. May 7-13, 1990, at 14. According to this source,between 1979 and 1989, there were 21,739 foreign-fundedprojects in China, involving a total contractual investmentof $33.801 billion, with $14.886 billion used.
266. For a list of these protocols and memoranda, see suoranote 33, at 109. For the text of some of them, see suoranote 252, at 3. However, the 1979 Science and TechnologyAgreement which offered China important opportunities foracquiring new technologies, was allowed to lapse in January,1989, in part as a result of US dissatisfaction with thepace of improvement in China's intellectual propertyprotection system. Potter, Prosoects for Imoroved Protectionof Intellectual Prooertv Riahts, THE CHINA BUS. REV. July-August, 1988, at 53.
80267. SUDra note 21, at 223.268. SUDra note 82, at 792.269. SUDra note 68, at 258.270. Id. see also SUDra note 21, at 224.271. Before the passage of Chinese Patent Law, foreignseller relied mainly on contractual provision to protecttheir intellectual property. Such contractual protection is"as good as any patent law". See SUDra note 68, at 223.272. SUDra note 21, at 222.
273. There have been challenges in domestic US against theUS-China Trade Agrement to the effect that the Agreementviolated US Copyright Law of 1976 and the granting of MFNstatus to China violated the US law because China does nothave copyright protection. see SUDra note 107, at 163.
274. Zheng listed two such examples: in 1980, a distinctiveChinese invention foldable scissors, was unable to obtainpatent in Japan because it was already patented by a foreignbusinessman. A process for producing a special kind ofcross-bred rice was also denied patent in US because it wasfound that there had been many articles published in Chinadetailing the application of this technology. SUDra note204, at 352.
275. People's Daily, Feb. 25, 1988.
276. Zheng, SUDra note 204, at 389.
277. Potter, ProsDects for ImDroved Protection ofIntellectual ProDertv Riqhts, THE CHINA BUS. REV. July-August, 1989, at 27.
CHAPTER II
US TECHNOLOGY EXPORT TO CHINA AND ITS CONTROL
INTRODUCTION
This chapter will first discuss United States exportscontrol generally. It will then discuss uinted States
technology policy toward China, tracing from the embargo on
trade with China in the 50's, to the gradual relaxation and
liberalization of the control, untill the current US
technology policy before the Tienanmen Square Massacre,
which places China in Country Group V as a friendly, non-
allied country, together with Western Europe and other
friendly countries. The effect of Tienanmen Square Massacre
on US technology export to China will be examined briefly.
Next, this chapter will look at the US legal frameworkgoverning export control, focusing on the Export
Administration Act (EAA) and the Export Administration
Regulations (EAR) and its provisions related to China.
Before analyzing the changes made by the Export
Administration Amendment Act of 1985, the control of
commodities as opposed to the control of technical data will
be briefly discussed. The EAA 1979 will also be discussed
in order to provide a preview of the operations of the U.S.
export control. This includes the introduction of the
80
81concepts of export, the export license and foreignavailability.
While discussing EAR provisions related to China,
comparisons are made between China and other Group V
countries in order to show that differences still exist
between China and other Group V countries.
CoCom, an organization born after the World War II,
acted as a coordinator in the West's export control against
the Soviet Bloc. Today, despite the collapse of the Soviet
Union, the Warsaw Pact, CoCom still remains. While its fate
is unknown at present time, the role it played in the past
certainly deserves a part of this chapter.
A. EXPORT CONTROLS IN GENERAL
The use of export controls as a weapon against the
Socialist countries began immediately after the Second World
War.' By regulating exports to the Soviet bloc in the Cold
War era following the World War II, trade became an official
means to be used for political purposes. The major purpose
of such export control was to deny potential adversaries
access to Western strategic goods, particularly and mainly
strategic technology.2 It was also to keep the U.S.
military posture emerged at the end of the World War II and
to protect U.S. national security. However, export control
was perhaps first seen more as an instrument of economic
warfare against the Communist countries than as one to
82
protect US national security, because the whole export
control was based on the economic theory that trade frees
Communist resources to be spent on military goods, thus
increasing their overall military strength.3
Generally, the united states export controls have three
objectives, i.e., they are imposed for the reasons of
national security, foreign policy and short supply. The
national security purpose is quite obvious: to prevent us
goods and technologies with military applications from
falling into the hands of unfriendly powers and thus
adversely affecting us national security.4 Export controls
have also been used frequently to implement certain u.s.
foreign policy objectives and to fulfill its international
obligations. 5 However, the third purpose, the prevention
of the exportation of goods whose export would lead to
shortages or increased inflation in the US,6 is rarely
used to curtail export of goods that are in domesticscarcity. 7
It should be noted that sometimes export controls are
imposed for more than one of the above reasons. Besides,
export control is always a balance of two conflicting
interests.8 On the one side, there is the need for greater
business opportunities and open exchanges of ideas among
scientists. People on one side are mainly u.s. businessmen
and scientists. Businessmen argue that legitimate trade was
stifled by unreasonable delays in obtaining export licenses;
that in case of failure to obtain such a license after a
83
contract had been signed, us companies often would have tocancel the contract and this gained them a reputation forbeing unreliable suppliers; that since us is usually not thesole supplier for technology, the unilateral control onexports by US would only boost the sales of foreigncompetitors and cause loss to American companies.9
Scientists on this side argue that the technologysuperiority of this nation depends on the open exchangeamong scientists. 10 Besides, "the US technological lead isno longer so great that we can afford to isolate ourselvesfrom mutually advantageous, cooperative exchanges withforeign competitors. ,,11 On the other side of the conflictare those who are worried about the leakage of scientificdata and sophisticated technology into the hands ofunfriendly countries that would endanger the US nationalsecurity. 12 This group is represented by the Department ofDefense (000) as opposed to the Department of Commerce whichrepresents the industrialists and which is also the majoragency charged with the administration of the Export ControlAct.
Because of the different goals and interest groupsthese two departments represent, there have long beenfriction and differences between them. "while the 000 raisesconcerns about risks of having US technology freelyavailable on the world market, the Commerce Departmentpoints out the adverse economic consequences of denying toUS technology free access to the world market". 13 However,
84
Act of 1949 (hereinafter ECA 1949) was the first law
agencies agree that there should be some control on US
Not until June
the conflicts are not fatal and unresolvable, since both
technology. They only differ as to what extent and scope the
other agencies under the interagency review mechanism set upby the Export Administration Act. 14
The Export Administration Amendment Act of 1985
technology should be controlled. In fact, theoretically,they are supposed to cooperate with each other and with
act had gone through several generations. The Export Control
(hereinafter "EAAA 1985") is the current act governingexport control. Before EAAA 1985, the export administration
governing US export control for all purposes (nationalsecurity, foreign policy and short supply). 15 This was
it posed to national security at the same time, conflicttechnology export to the US economy and the greater danger
replaced by the Export Administration Act of 1969(hereinafter EAA 1969).16 Ten years later, EAA 1969 was
September 30, 1983. Because the increasing importance of
between the need to promote trade and the need to protectnational security became even more acute, which led to one
further replaced by the Export Administration Act of 1979(hereinafter EAA 1979) .17 However, the EAA 1979 expired on
of the major legislative battles in the 99th Congressregarding the amendment of the EAA 1979.18
27, 1985 was the expired EAA 1979 reauthorized in amendedform by the 99th Congress as the current EAAA 1985.19
85
B. UNITED STATES TECHNOLOGY POLICY TOWARD CHINA
1. Embargo of Trade with China, 1949-1972
The ECA 1949 was passed even before the establishment
of the PRC.20 Selective trade controls were imposed by
the Commerce Department to prevent the export of strategic
goods to parts of China then controlled by the
Communists.21 A list of goods requiring a validated
license22 for export to China was developed soon after the
Communist took over the mainland China.23 By March 1950,
the level of US controls of exports to China were already
equivalent to the control level US imposed on Soviet and the
Eastern Europe,24 which means virtually all Americanexports to China were embargoed.25
The outbreak of the Korean War in 1950 further
tightened the control.26 America's immediate reaction to
the War were the effective seizure of Chinese assets in the
United States and a total embargo of American exports to
PRC27 by stopping issuing and revoking all outstanding
validated licenses for exports to PRC. The Department of
Transportation also promulgated Transportation Orders T-1
and T-2 to prohibit the transport or loading of any cargo
destined for the PRC by a United States flag air or sea
carrier.28 The PRC retaliated by seizing all United States
property in China by a decree of December 29, 1950.29 In
response, the united States denied Most Favored Nation (MFN)
86treatment to PRC imports and also banned the united states
Export-Import Bank financing of us trade with China.3D
Thus, by the end of 1950, there was greater level of
control on trade with China as compared to trade with other
Communist nations.31 Although with the end of the Korean
War and death of stalin, America, especially its allies,
relaxed their trade restrictions to the Soviet and Eastern
Europe, total embargo on trade with China continued. This
gap between the level of us control on trade with China and
the level of Control on trade with the Soviet bloc was whatbecame known as the "China Differential ,,32 In the late
50's, this differential was gradually abandoned (though
restrictions were still maintained) by America's allies in
the Coordinating Committee for Multilateral Export Controls
(CoCom).33 After the official abolishment in 1959 of the
CHINCOM list - a controlled item list of the CoCom's China
Committee (CHINCOM) which imposed more extensive
restrictions on trade with China than on trade with other
Communist countries - the European members of CoCom as well
as Japan formally eliminated the "China Differential" by
applying the same restrictions to both China and the Soviet
Union. Those countries believe that it would be to their
own interests to adopt a more even-handed approach to trade
with China vis-a-vis other Communist countries,34 because
Western Europe and Japan had been historically more
dependent on foreign trade for their economic growth than
87the United states, which has a huge domestic market and wasable to be relatively self-dependent.35
Despite the relaxation by its CoCom partners at that
time, the United states stubbornly maintained a total
embargo on trade with China, in addition to highly
restricting exports to the Soviet bloc. Thus, by 1968, the
United states had become the only country still actively
engaged in economic warfare against the Communist nations.
It unilaterally restricted exports of 1,100 items which were
freely available to the Communist countries from other CoComnations and other sources. 36 Thus, the "China
Differential" was still in place within the us when
President Nixon came to office37 and served as a ground
for us export control policy toward China.
2. Current US Technology Policy Toward China and ItsEvolvement
The unilateral trade embargo against the Communist
nations had placed burden on the United states business in
their attempt to capture a significant part of the Communist
markets. 38 The American businesses were unable to compete
with European or Japanese companies within Communist markets
since they encountered more export control obstacles. On
the other hand, the Japanese and European economies had
fully recovered economically from World War II. As they
became less dependent on the US, they saw a greater need to
export to the Communist world.39 These countries also
88demand US to relax multilateral control within CoCom. In
response to internal and external pressures to liberalize
East-West trade, the EAA 1969 was passed by Congress to
substitute the ECA 1949. The EAA 1969 explicitly declared
that "it is the policy of the United states ..• to encourage
trade with all countries with which we have diplomatic ortrading relations."~
At the same time, the Nixon administration began to
relax tense relations with China in general and embargo in
particular. First, tourists were allowed to go to China and
they could bring home up to $100 worth of Chinese goods so
long as the goods were not intended for sale or commercial
use.41 On December 22, 1969, an order became effective
which include such important steps as: general license can
be issued to importation of non-commercial goods of Chinese
origin; American carriers may transport goods of Chinese
origin merchandise from one foreign country to another and
such shipments can be insured by American insurance com-
panies; most importantly, American controlled companies and
banks abroad may engage in trade and financial transactions
with PRC.42 Although a number of restrictions still
remained,43 detente was the mainstream, which finally led
to Nixon's surprising visit to China in 1972 and the
following declaration of the Shanghai Communique. Both sides
of the Communique "viewed bilateral trade as another area
from which mutual benefits could be derived, and agreed that
89economic relations based on equality and mutual benefit werein the interest of the peoples of the two countries. ,,44
Another major change in US-China relation came when thetwo countries normalized their diplomatic relation onJanuary 1, 1979.45 In trade area, the Agreement on TradeRelations Between the united States of America and thePeople's Republic of China (hereinafter "Trade agreement")was signed on January 7, 1979.46 In this document, theUnited States formally extended MFN to China.47 TheAgreement also set down provisions that would facilitate us-China trade such as establishment of trade offices,48bilateral protection of intellectual property,49 etc.
After the establishment of diplomatic, political andcultural ties between the two countries, the United statescontrol on exports to China had seen more dramaticrelaxation, as was evidenced by changing China intodifferent country groups. The Country Group is a system ofdividing the nations of the world into different groups forthe purpose of export control. Different country groups aresubject to different levels of control levels.50
Initially, China was placed in Group Z (the most restrictiveGroup), together with Cuba, North Korea and NorthVietnam. 51 At the end of the embargo in 1971, China wasmoved to Country Group Y, together with the Warsaw Pactcountries. As the control of exports to China was furtherrelaxed after the normalization of relation, on April 25,
1980, China was escalated to an independent category, Group
90
P, which included only China.52 However, such a change is
"little more than a status symbol", since the licensing
procedures for exports remain the same as when China was in
Group y.53 However, in January 1980, shortly after the
soviet invasion of Afghanistan and on the eve of Defense
Secretary Harold Brown's trip to Beijing, President Carter
made an important decision to sell China military useful
equipment - though not weapons. By this decision, the sale
of dual-use (can be used for both military and civilian
purposes) technology and equipment to China would be
considered on a case-by-case basis.~
The Reagan Administration continued the policy of
liberalizing export control with China. In June 1981,
President Reagan issued a directive governing technology
transfer to China which stated that the United states
"supports a secure, friendly and modernized China" and
allowed for approval of equipment and technology at
technical levels twice that approved for the USSR (the
Soviet level prior to their invasion of Afghanistan).55
This "two times" policy had not only caused difficulty in
its implementation, but the comparison of China with USSR
had also offended the Chinese government.56 Nonetheless,
it constituted a new "China Differential" - this time
tilting favorably toward China, allowing China greater
access to high technology items than any other Communist
countries. 57 However, compared to what the US allows
to be licensed to the free world, the "two times" policy was
91"demonstrably more restrictive." The intent of thePresident to increase technology transfer to China was notbeing fully implemented.58 Therefore, in May 1983,
President Regan decided to place China in Group V - in thesame category as certain other friendly countries (such asWestern Europe and non-Communist countries in Asia).59This final decision clearly reflected the US officialtechnology export policy toward China after 1981, which wasstated by the Department of state:
"Our export controls for China should reflect its roleas a friendly, non-adversary state, clearly differentiatingChina from the Soviet bloc and minimizing the regulatoryburden on us companies. We want to help us companies employtheir technology edge fully and gain greater opportunitiesin the China market. Participating in China's economicdevelopment benefits business and strengthens bilateralties. We want to have China look to us as a trustedsupplier. ,,60
Pursuant to this decision, on November 23,1983, theOffice of Export Administration (OEA) of the DOC publishedan amendment to the Export Administration Regulations(EAR)61 New technical guidelines have been and willcontinue to be developed in order to streamline thelicensing procedure.62 Unfortunately, however, most ofthe changes made in the 1983 amendment to EAR "are cosmeticto reflect the PRC' s change to Country Group V status". 63
The Chinese had been dissatisfactory about the us technology
92
control with China. The US technology policy was denounced
by several Chinese officials, including Deng Xiao-Ping, as
"capricious", and that the US technology transfer system wasseen as "inconsistent and incomprehensible".64
As the Chinese were demanding more, and the two
countries were improving their relations, the US technology
control with China was further relaxed to a degree that the
two countries had even begun military cooperation (albeit
limited), including rapidly expanding sales of dual-use
technology and increasingly frequent military visits and
infrequent military sales.65
Although the major trend is toward loosening the
control, it has not proceeded smoothly all the time. A
recent incident involved the Chinese sale of Silkworm
missiles to Iran that could be capable of sinking oil
tankers. In order to stop China from further sales, the
united States increased pressure on China by suspending a
proposed expansion of technology sales to China,M and by
halting an interdepartment review of computers, electronic
equipment and other high-technology items that were to be
released for export to China.67 After the Chinese missile
sales to Iran was no longer reported, the Reagan
administration officials said that an "internal study will
be resumed with an eye toward expanding the list of itemstnat can be exported.,,68
Despite the continuous loosening of the technology
control, the new "China Differential" may not continue to be
93
widened. Conversely, it might even be reduced or eliminated
due to the detente developed between the united states and
the soviet recently and the tensions between the us and
China after the Tienanman Square Massacre. Series of recent
events~ suggest that there may be more economic and
technological cooperation between the united states and the
USSR in the future. Such a prediction is further warranted
considering that evenhandedness and strategic balance remain
the long term united States policy toward all Communist
countries. As one author correctly pointed out:
"•.• as long as the atmosphere of detente between the
United States and the Soviet prevailed, even-handedness
toward Communist nations continued to be the official US
trade position."ro
Secretary Baldrige also assured the congressmen at a
Congress hearing that despite the new US technology transfer
policies toward China, such transfer· "will not alter the US-
PRC strategic balance, though the transfer of technology
will prevent a widening of military gap between the PRC andthe USSR. ,,71
The differential between China and Soviet has its
limits. As a matter of fact, the reason for creating
"differential" is for the purpose of achieving the strategic
balance. Again, quoting Secretary Baldrige's testimony:
"We will not allow our commitment to assist the Chinese
modernization effort to override US national security
94interests or the enforcement of the Export AdministrationAct. ,,72
China is viewed by the official us policy as a
"friendly but not an allied country" - an important onebecause it could be a counterpart to the Soviet.~
Therefore, the US technology transfer to China, while
beneficial to China, undoubtedly comes after America's own
interests - not only strategic interest but also commercialand political interests.
To the United states, "an America deepening its
relations with China does so not only out of genuine
sentiment, and not only out of natural curiosity, it does so
out of the same combination of principle and self-interest
that is the engine of mature relations among all modern
states."~ The technology transfer and exports to the
China market may not only help the American balance of trade
deficit, it may also act as a spur to innovation and
productivity in American industry as new customers are
developed.~ The efforts to help China's modernization by
exporting technology to China is also consistent with the
American global foreign policy because it may help make
China an integral part of the international market ~ and
make China an important stable element that will contribute
to world peace. Therefore, "strengthening China, making it
a more competent international actor is clearly in the
interests of the United states and ..• facilitating transfers
95of technology bringing that about are to be highlyrecommended. "n
Despite the enormous and apparent benefits which the
technology export to China will bring to the United states
(as well as to China and the world as a whole), there are
some disputes about whether the United States should relax
its restrictions on export, especially the export of weapon
and dual-use technology, to China.
Those in favor of restricting sales of weapons anddual-use technology to China argue that
1) military technology exported to China could be used
by China to adversely affect the United states' interests in
the far east area, such as potential conflict areas ofTaiwan, Korea, etc;n
2) on the other hand, military or dual-use technology
sale to China may arouse the apprehensions of China's
smaller neighbors and even cause anxiety in Japan. Of
course, the greatest fear of the opponents of liberalizing
export control to China is the concern that dual-use
technology exported today could be used against the united
states tomorrow. The history of liberal technology sales to
the Soviet in the detente period of 70's also serves as a
remainder that caution should always be exercised in selling
technology to potentially hostile country, because many may
feel that Western exports to the Soviet in the 70's merely
supported a military buildup to the detriment of the Unitedstates and its allies;~
96
3) selling technology to China may not reduce the
military gap between China and the Soviet as perceived. To
the contrary, "increases in sales of high technology to the
Chinese may only result in a more vigorous Soviet drive to
counterbalance the perceived danger by increasing its own
defenses or by making relations between the superpowers even
more tense", because the Soviet does fear the emergence of
a militarily strong China and a more active anti-soviet
coalition. This would very well weaken rather than
strengthen the security of China and other East Asiancountries;OO
4) there is also concern in the United States that"
selling technology to China will help create a new economic
rival just like Japan, as well as a military superpower. 81
However, people in favor of liberalizing technology control
with China see not only the great benefits the
liberalization will bring to both sides,82 they also view
US-China relation as a different one from the US-Soviet
relation. Since China is relatively weak economically,
technologically and militarily, and because China's limited
ability to absorb foreign technology,83 there is less
danger that China will divert imported technology to
military use that could threaten the United States
interests. Besides, applying identical restriction to China
and the Soviet would impose a de fact discrimination against
China considering China's military and economic weakness.M
97
Secondly, if the united states does not sell technologyto China, the Japanese, French and other European countries
will do,85 since the united states is no longer a single
suppliers of technology (with very few exceptions).
Thirdly, China's economic growth is much more dependent
on internal Chinese factors than on U.S. actions, thus U.s.
ability to influence China is limited; therefore, as oneexpert noted:
"The choice facing American, however, is not whether we
prefer a powerful China to a weak China unable to threaten
its neighbors, China, if it continues on its present
course,~ is going to be a world superpower whether U.s.contributes to the process or not •...••~
From these opposing views the united states
Administration has rationally come out with an overall
technology policy toward China which rests on broad
consensus: the United states supports the transfer of
technology to China, but within certain limits set by
national security considerations. The simple reason or
fundamental rationale behind this policy again is that
assisting China in its modernization will serve U.S.
interests. M The parameters around this policy, such as
the nature of the technology, its intended use, the Chinese
as recipient, the potential danger to U.s. national
security, the political climate and economic situation in
both countries (majorly in China), etc. will certainly
influence the emphasis89 and scope of this pOlicy.
98However, it is predictable that as long as China remains
committed to its economic modernization and remains
relatively stable politically, the United states will also
keep its commitment to helping China's drive for
modernization. On the other hand, U.S. economic and
technological help may promote China's current policy byplaying a stabilizing and encouraging role.9o
During the past decade, technology transfer has
remained "one of the strongest threads in U.S.-China
bilateral relations, and it is the one that holds the key to
achieving the full potential of this extremely dynamicrelationship. ,,91 The current U.S. export policy had
significant and will have even more significant contribution
to the interests of both countries. As Ambassador Chris
Phillips put it, the new U.S. export policy "has had a more
positive impact on our relations than anything that has
happened since normalization (of the relations) in 1979. ,,92
The US technology export to China has also seen tremendous
growth. From 1982 through 1986, about 3.5 billion in high
technology equipment was sold to China.~ However, this is
just a tiny portion of the full potential of US - China
technology trade. There is more room for growth than what
has already been achieved, because in 1985, US counted only
10% of China's import and 12% of China's export.~
The U.S. government could also do more to assist US
firms exporting technology and equipments to China. In the
past few years, the government had provided only limited
99loans and other trade financing services to China,95 even
though such financing is critical to the US firms' ability
to win a contract in China. Although there are a number ofgovernmental programs that help promote technology to
China,% so far the US provides no official development
assistance (ODA) to China, while Japanese provide 52% of allODA received by China. 97
The United states technology policy toward China properis not without problems. In fact, the Chinese have been
dissatisfied with the American control of technology flow to
China. First, because many of the new changes are
cosmetic~ and sYmbolic, the old restrictions have
remained in essence; secondly, in areas where technology is
most needed by China, the us regulations are most
restrictive and also most difficult to change;W thirdly,
the export license and multilateral control through CoCom
had caused serious delay or cancellation in transferring
technology to China; During his visit to the White House,
former Chinese Foreign Minister Wu Xue-Qian complained ofinadequate development of trade, scientific and
technological relations between the United states and China.
He hoped that the us business and industry will "take a longview. ,,100
3. After Tienanmen Square Massacre
The blood crush of Chinese student demonstrators at
Tienanmen Square in 1989 by the Chinese government shocked
100the united states. The US-China relation became intense asthe Chinese blamed involvement by the US government,accusing the attempt by US to help overturn the ChineseCommunist. This tragic event brought a sudden freeze to thefriendly course of the US-China relationship. The damagescaused to the Sino-US relations, according to formerPresident Nixon, was "very great", "the most serious" since1972, when Nixon himself stated the US-Chinarelationship. 101
The Bush Administration's immediate reaction was tosuspend government and commercial arms sales to China, tohalt contacting with the Chinese military, but diplomaticand commercial ties were left open. 102 Meanwhile, high-level government exchanges were stopped, new loans to Chinawere postponed. The European community also called for afreeze on arms sales and on new export credits and WorldBank Loans to China. 103
Specifically, the suspension of military sales to Chinabanned all items controlled by the State Department andcited on State's Munitions Control List (MCL). As a resultof the ban, about $600 million in foreign Military Sales(FMS), i.e., government-to-government contracts - and about$425 million worth of MCL commercial sales were suspended.The State Department's Office of Munitions Control suspended"all licenses and approvals", including manufacturinglicenses and technical assistance agreements. This affects
101all licenses already granted since June 1987 and thosepending review at the time of suspension.1~
The US reactions were based on political grounds, i.e.,the ideal of protecting political democracy and humanrights. However, Henry Kissinger, cautioned the BushAdministration on his eve to visit China in November 1989,that u.s. relations with China should be determined bystrategic interests rather than us politicalconvictions. 105 The "strategic interests" he talks aboutis the long-adhered us official policy in dealing withRussia and China; i.e., to use China as a counterbalanceforce against the Soviet.
Regardless whether Bush was reminded of by Kissinger orwas dictated by the us business interests in China, Bush'spolicy has been one of tolerance, and to impose as fewsanctions as possible against China. His rationale is thatmore sanctions will hurt "the Chinese people." Even the banof military sales was not absolute. For example, the loandid not include dual-purpose high technology controlled byDOC and contained on the Commodity Control List (CCL).Waivers may also be granted to the ban in order to minimizethe suspension's impact on commercial sales. By mid-Augustof 1989, Boeing had already received a waiver so that it candeliver four 757s to China.1~
Several years has passed. More sanctions have beenlifted. Frozen loans have been granted. President Bush hasconsistently tried to amend the u.s. relations with China
102lest it further deteriorates. In December 1989, Bushapproved sale of three satellites to China, waived Export-Import Bank financing restrictions.107 The followingFebruary, the US Export-Import Bank approved a $23.1 millionin financing to China.10B In June 1990, Bush furtherextended MFN trade status to China before its expiration.Given China's continuing needs for American technology,given the continuing US strategic interests both militaryand commercial in China, based on various events in the pastyear, it is very safe to predict that the tension betweenChina and US will ease gradually and all the sanctions willbe lifted step by step, absent further political chaosinside China. Even China reverses to a political cage asdark as the Cultural Revolution, in the long run, China willbe forced to trade with the West, just as history hadalready proved 18 years ago. Therefore, the Tienanmen SquareMassacre, though greatly damaged the Sino-US relationsrelentlessly nourished by the people on both sides in thepast decade or more, will affect only temporarily the US-China trade, if looking from a long-term view. China willcontinue to need American technology, the US will not giveup its interest in China; both need each other.
In summary, the United States technology policy towardsChina has evolved from total embargo of trade with China toa more relaxed pOlicy which supports technology transfer toChina. As the two countries are improving their relations,both sides have been able to see the mutual benefits that
103trade and technology transfer can bringing in, althoughwithin the US debates still persist as to what extenttechnology sales to China should be controlled due tonational security considerations. The current US policy is aflexible and compromising one, which supports technologysale to China limited by the national securityconsiderations. This policy has enormously increased the UStechnology sale to China. However, such sale is stilllagging far below its full potential, mainly due to thedelay caused by the lengthy export license review and thefact that many old restrictions remain in spite of theescalation of China to Country Group V. The US tradesanctions as a result of Tienanmen Square will only remaintemporarily, because in the long-run China will continue toneed American technology, and the US will not give up itsinterests in China.
C. US Control of Technology Transfer to China - LegalFramework
1. Control of Commodities and Control of Technical DateThe term of "export control" includes control not only
over US-origin commodities, but over US-origin technicaldata as well.109 In other words, commodities aretechnology in its hidden or embedded form, or the "hardwarebundled" technology, while technical data is technology inits pure form, or "pure technology" 110 of any kind that
104can be used, or adapted for use, in the design, production,
manufacture, utilization, or reconstruction of articles or
materials. The data may take a tangible form, such as a
mode, prototype; blueprint or an operating manual (the
tangible form may be stored on any recording media) or they
may take an intangible form such as technical service. ,,111
Exports of technical data are controlled by severalU.S. Government agencies acting under various statutory
authorities112 as well as CoCom. However, the main thrust
of export control is to control critical technology, whether
it is embedded in commodities or in the form of technical
data. It has been said that it is the law and policy of the
United States to place its principal emphasis113 on the
control of exports of critical technical data. It had also
been recommended that the emphasis on national security
export controls be changed from the control of commodities
to the identification and control of technology critical to
US military superiority. 114 However, in practice, export
controls on technical data do not take precedence,
administratively or in the minds of exporters, over similarcontrols on commodities. 115
Whatever the case may be, it hardly makes any
difference when critical technology is involved. If there is
any difference, the difference exists only in emphasis and
administration. The major statute and regulation currently
governing export control (both exports of commodities and
technical data) are the Export Administration Act of 1979,
105as amended and reauthorized by the Export Administration
Amendment Act of 1985 and the DOC Export AdministrationRegulation.
2. The Export Administration Act of 1979
Before discussing the changes to EAA 1979 made by the
EAAA 1985, it is necessary to examine and to understand the
original EAA 1979. Since it was reauthorized into law by theEAAA 1985, 116 EAA 1979 still remains a fundamental legaldocument in export control.
(a). Jurisdiction of Exports
The administration of exports is divided between DOC
and State Department. The export of commodities and
technical data that are uniquely designed for military
application falls exclusively under the jurisdiction of
state Department's Office of Munitions Control (OMC). The
exports of nearly everything else are administered by DOC's
Office of Export Administration (OEA). 117 Such
jurisdiction covers items for pure commercial use as well as
"dual-use" items. Although OMC and OEA's jurisdictions are
mutually exclusive, the lines are not always easy to follow
by exporters. This is exacerbated by the fact that other
non-administering agencies are also involved. 118 For
example, OMC's munitions control is frequently based on
case-by-case recommendations from 000.119 The Customs
Service of the Treasury Department will also cut in at US
ports of exit. Thus in practice, four cabinet departments
106
need to be satisfied in dealing the actual administration ofexports. (DOC. state Department, DOD. Treasury)(b). What Constitutes "Export", "Reexport" or "Temporary
Export"
The scope of "export" is much broader than the regularexport of mere commodities when technical data is involved.The technical data is exported by: (a) physically sendingtechnical data out of the US, (b) permitting the release oftechnical data in the us when it is known or expected thatthis will result in their transfer to a foreign country, or(c) releasing US-origin technical data in foreigncountry. 120 Since technical data can be intangible it canbe exported or reexported very easily because the termreleasing also includes:
(i) visual inspection by foreign nationals of US-originequipment and facilities;
(ii) oral exchanges of information in US or abroad; and(iii) the application to situations abroad of personal
knowledge or technical expertise acquired in US. 121
An "export" is possible even in transactions takingplace entirely within the US borders, such as releasingtechnical data to embassies or affiliates of controlledcountries. 122
Even when a US-origin technology has entered the domainof foreign countries, the United States still proclaimscontrol over its reexport. 123 A "reexport" is defined by
107EAR as "reexport, transshipment or diversion" of hightechnology from "one foreign destination to another. ,,124
However, the United states sometimes permits temporaryexport of goods for purposes of demonstrations, exhibits,repairs. 125
(c). Export LicensingThe major mechanism set up by OEA in its Export
Administration Regulations (EAR) to regulate the export ofcommercial and dual-use commodities and technology is thelicensing system.
There are two kinds of export license: general licenseand validated license. Most items may be exported under ageneral license, which requires no formal application to orprior approval from the OEA, so long as applicable shippingrequirements are met, 126 or unless it is subj ect to theexport control of an agency other than DOC. In other words,it simply means that no export license is needed for suchexports. 127
All items subject to OEA jurisdiction that do notqualify for a general license require a validated licensefor export. The exporter must apply from the OEA for avalidated license. In the official OEA application form, theexporter must, among other things, describe the goods to beexported, the identity of the consignee, value of thetransaction, and must also provide an "end-user statement"which certifies that the products shipped will not be re-exported without prior authorization. 128
108The Commodity Control List (CCL) is the touchstone of
the OEA's regulations for determining whether or not avalidated license is required for export. 129 CCL is ahighly technical list with over 100,000 entries which areclassified under over 200 categories. It includes a broadrange of goods and technology ranging from computer,aircraft and their components to electronic devices.
Furthermore, if a good or technology is subject to theCCL, its spare parts and prototype models are oftenseparately made subject to the CCL, which makes the CCL evenmore difficult for exporters to decipher. 130 Each CCLentry is accompanied by a description of the item and anExport Commodity Control Number (ECCN), which consists offour digits and a letter. The letter (from"A" to "G")implies the level of restrictions. For example, letter "A"is the strictest designation, items under which generallyrequire a validated license to all country destinations,while those under letter "G" usually can be exported under ageneral license, i.e., no modification to and approval fromOEA is required. The letter in ECCN, coupled with thecountry of ultimate destination (as decided by country groupdesignation), will basically determine what type of licenseis required for the export of a commodity to a particulardestination. 131
Technical data may also be exported under generallicense or validated license. However, OEA has specificallyestablished two types of general license for exporting
109technical data: one is the "General License-Technical DataPublically Available" (GTDA), 132 the other is the "GeneralLicense-Technical Data-Restricted" (GTDR). 133 GTDA coverspublically available technical data and is usable for alldestinations. Such publically available data includestechnical data that (1) have been made "generally available"to the public in any form; (2) scientific or educationaldata disseminated by instruction in academic institutionsand academic laboratories; 134 (3) patent appl icationswhere the contained technical data are wholly of foreignorigin and the application is exported for execution andreturn by the foreign inventor. 135
A GTDR may be used to export technical data other thanthose exportable under GTDA but which do not require aValidated License. Two types of technical data are coveredby GTDR: "Operation Technical Data" and "Sales TechnicalData. "136 Another difference between GTDA and GTDR is thatthere are detailed and complex written assurancerequirements for GTDR. The written assurance from theimporter should provide that neither the technical data(except sales technical data) nor the direct product oftechnical data will be shipped, directly or indirectly, tocertain Country Groups including China. 137
If neither of these general licenses for exportingtechnical data applies, a validated license must be appliedby exporter subject to formal approval by DOC prior toexport. The validated license for exporting technical data
110also seems to be more complicated. For the export ofspecific technical data during a designated period to aspecified consignee which requires a validated license, anIndividual Validated License (IVL) is enough. 138 However,there are times that multiple exportations of the same orsimilar technical data are made, and it is impossibleadministratively to obtain or issue a large number of IVL;therefore under these circumstances, for the convenience ofadministration, some multiple or bulk validated licenses areissued to cover certain types of export, service ormarketing programs. 139 These multiple validated licensesare Comprehensive Operating Licenses (COL) and ProjectLicenses (PL). 140
Determination of the type of export license requiredfor any specific export is made on the basis of (a) the typeof technical data to be exported, (b) the consignee or end-use of the technical data, and (c) the country to which thetechnical data is to be exported. 141
In summary, technical data may be exported under thefollowing licenses: GTDA, GTDR, IVL, COL and PL.
It should also be pointed out that under the originalEAA 1979, there was also a Qualified General License whichpermitted multiple shipments to a particular consignee andfor a specified end-use. 142 However, this was repealed bythe EAAA 1985 and replaced by three other types of licenses(project license, distribution license and service supplyprocedure) •143
111
(d). Interagency Review
Obtaining an export license (i.e., a validated license)may be difficult and time-consuming, since some applicationscan not be decided by DOC alone. They may be referred toother agencies by DOC and subject to review by thoseagencies. Such interagency review is designed to minimizethe risk of national security and to assure the optional useof foreign policy control. Whether or not an applicationwill be subj ect to review by agencies other than DOC144 isdepended on the product (including end-use), destination,and total export value. 145
Interagency review may take place through the AdvisoryCommittee for Export Policy (ACEP), 146 or through lessformal consultation with particular agencies, asappropriate. 147
DOD has a statutory right to review any license forexport "to any country to which exports are controlled fornational security purposes. ,,148 It may recommend to thePresident to disapprove the license application whenever itdetermines that "the export of such goods or technology willmake a significant contribution, which would provedetrimental to the national security of the United states,to the military potential of any such country. ,,149
Whenever receiving export requests of such kind, DOC shallnotify DOD and DOD shall make its decision not later than 30days after notification the request. The decisions of DODmay be to recommend either disapproval, approval subject to
LAW LIBRARYUNiVERSiTY OF GEORGIA
112specific conditions or approval.1~ In case ofdisagreement between DOC and DOD, the President has thefinal authority to approve or disapprove. 151
The role of Department of state in Interagency reviewis to review any license for the export of goods controlledfor foreign policy purposes. 152 In addition to DOD andDOS, other agencies may also be involved. For example, DOEwill review any export application of a good on the CCLNuclear Referral List and any export to a nuclear end-use orend-user, regardless of the commodity. 153 As toapplications to export commodities or Technical Data toembargoed countries, they will be reviewed by Office ofForeign Assets Control (OFAC) of the Department of Treasury(DOT) .154
After interagency review, even though tentativeapproval is given by DOC, if further review by CoCom isrequired, the application will be submitted to CoCom for amultilateral review. 155 Sixty days after tentativeapproval is given, if multilateral review has not resultedin a determination with respect to the application, thetentative approval of DOC shall be final unless DOC decidesissuing the license would be detrimental to the US. 156
CoCom review may be informal and formal, depending onthe items to be exported. 157 An informal review getsap~roval automatically unless CoCom raises an objectionduring the 30-day period, while a formal approval needs theunanimous consent of all CoCom members. 158
113(e). Processing Time
The most critical factors to an exporter of technologyare the speed and certainty with which the export licensesmay be obtained. The longer the time, the more uncertaintyit will cause. Obtaining an export license can be time-consuming. According to one statistic, an export license fora controversial item td be exported to China may take at thevery minimum some 80 days and a maximum of 524 days. 159
Under the 1979 Act, if an interagency review isrequired, OEA is allowed 90 days in which to act upon alicense, including 30 days of initial review by DOC, and 60days for review by other concerned agencies. 160 When DOCgets back the application from other agencies, it hasanother 90 days from this point within which to take finalaction. 161
If CoCom review i~ required, still at least two moremonths will be added. 162
However, it should be noted that this whole process,including interagency review, runs from the time theapplication is actually filed. It does not count the time anexporter has to spend on other required documents before alicense application can be filed. This includes, forexample, the time an exporter has to spend to get thesignature of the consignee or consignee's government on the"end-user statement. n16:J'
The inefficiency of licensing process has been widelycriticized and complained of. The process has even been
114accused of being an "oligopoly •••• wherein the governmentbureaus make bargains among themselves for their own benefitat the expense of the pUblic". 164
In fact, because of the problem of delay, to increaselicensing efficiency was a principal goal in enacting theEAAA 1985.'65
(f). Foreign AvailabilityWhen a commodity or technical data controlled by US is
readily available to controlled destinations from sourcesoutside US, it will be futile for the United States tocontrol it unilaterally; if the US insists in controllingunilaterally, it will only cause losses to US business.'u
The notion of "foreign availability" was not recognizeduntil 1969 when the EAA 1969 explicitly provided "thatforeign availability be given considerable weight inevaluating licensing decision. ,,167 However, the criteriafor determining foreign availability was not defined untilthe EAA 1979, which identified as foreign available "anygoods or technologies that are available in fact to suchdestinations from such sources in sufficient quantity and ofsufficient quality so that the requirement of a validatedlicense •.•. would be ineffective in achieving the purpose ofthe statute. ,,168
This is the "foreign availability" exception to U.S.high-tech export controls. The claim of foreign availabilitymay only be submitted by export license applicants withinninety days after the initial denial. 169 However, current
115regulations regarding foreign availability apply only tonational security control and not to foreign policy control. 170Besides, despite a finding of foreign availability, DOC in
consultation with DOD or the President may determinegranting of a license will be detrimental to nationalsecurity. In such a case the President will then negotiatewith other exporting countries and attempt to eliminate theforeign availability. 171
The area of foreign availability has also seensignificant changes made by the EAAA 1985.172
3. Major Changes Made by EAAA 1985
According to a report by the Office of TechnologyAssessment (OTA) of the Congress, the new changes were allmade in order to best accommodate the following four goals:(1) trade promotion (2) efficiency (3) foreign policy; and(4) national security.1~
Because numerous changes1~ have been made by EAAA1985, only changes which reflect the first two goals, inparticular those regarding foreign availability andlicensing efficiency, will be discussed here.(a). Changes Regarding Foreign Availability
The changes in the concept of foreign availability isone of the few changes made in order to promote trade.1~Many observers believed the changes in foreign availabilityheld the most promise for accommodating the competing goalsof promoting u.s. exports and protecting national
116security.1~ In particular, the following changes weremade:
(1) standards of foreign availability determinationwere modified. The language "sufficient" quality in theoriginal standard was striken out and replaced by"comparable" quality. That means an item will bedecontrolled even if it is not identical to the US item buthas the same capability.1n However, the language"sufficient" quantity remains the same.178 Some newelements, such as cost, reliability were added forconsideration in making determination of foreignavailability. 179
(2) Burden of proof clearly rested on government.According to EAAA 1985, to preclude foreign availabilityclaim, DOC, not the exporter, has to prove to the exporterthat the claimed item is not available in foreign markets.Although the exporter still needs to provide all detailsrequired, DOC should accept exporter's representations aboutforeign availability unless DOC can find contradictoryevidence. 180
(3) Establishment of Office of Foreign Availability.Because the modifications of foreign availability
standards would be meaningless without improving theadministration of the foreign availability process, 181.Office of Foreign Availability (OFA) was established underDOC in an attempt to increase DOC's role in foreignavailability determinations. 182 The OFA is responsible for
117
gathering and analyzing all information necessary for makingdeterminations of foreign availability.1~ However, theAct also reflected the balance of power between DOC and 000by involving DOD in the same process. DOD may object toDOC's positive decision about foreign availability on thegrounds that decontrol would be detrimental to nationalsecurity. 184
(4) President must negotiate to eliminate foreignavailability.
In case the President determines that decontrol of anitem is detrimental to US national security in spite of itsforeign availability, the Act requires the President toenter into negotiations with other countries to eliminatesuch foreign availability. 185 If foreign availability isnot eliminated within six months (although this isextendable by the President), that item can be exportedwithout a validated license.1~
However, the new regulations about foreign availabilityare not immune from criticisms. The major criticism pointsto 000, which construes foreign availability in such a wayas to preclude decontrol in virtually all cases. Thecriticism also points to the failure of the Act to fix atime limit for DOC and 000 negotiation and a time limit forOFA's processing of Foreign Availability Submission (FAS)
.filed by exporter. 187
118(b). Changes Regarding the Efficiency of Licensing Process
The goal of efficiency ought to be sought by both tradepromoters and those who are worried about national security,because both sides agree that controls should beadministered in a timely and predictable manner.1~ Thus,the following changes designed to increase efficiency weremade:
(1) Control to CoCom countries (i.e .. countries subjectto CoCom review) has been relaxed. Validated licenserequirement for low-technology export to CoCom destinationsis eliminated. These low technology items are listed in theAdministration Exception Notes of the Control List. 189Their exports require only notification to non-CoComcountries which have agreements with the U.S. to maintain"export restrictions comparable in practice to thosemaintained" by the CoCom.190 Also, for exports of high-tech to CoCom countries, congress has mandated OEA to giveindividual license applicants191 certainty in no more than15 working days, or if necessary, 30 days. 192
(2) Licensing time for exports to non-CoCom countrieshas been reduced by one-third. Thus, the whole process,including interagency review, can now take not longer thanfour months, from the time the application is filed, to thetime the license is approved or denied.1~
(3) The time for OEA to reply applicant's writteninquiries about the classification of a commodity or aboutthe application of export license requirements to a proposed
119transaction or series of transactions has also been
shortened to 10 working days and 30 days respectively. 194
(4) In order to ensure efficiency, the new Act
established congressional oversight on DOC's licensing
activity. As a result, DOC has to report to Congressperiodically. 195
4. The Export Administration Regulations (EAR) and Itsprovisions Related to China
The Ecport Administration Regulations is a set of
regulations developed by DOC under the authority of EAA toimplement the EAA.
On November 23, DOC published amendments to the EAR
(the 1983 Amended Regulations), which is to implement the
more liberal export control policy towards China. The major
change of the Amendment is to move China from Group P to
Group V, which reflects President Reagan's decision in May,
1983 to place China in Group V with certain other friendly
countries.1% After China was placed into Group V,
President Reagan also established an interagency steering
group on technology transfer to China, chaired by National
Security Council (NSC), which further assigned DOC the
responsibility of developing new technical guidelines to be
used by the US government in its licensing decisions forproducts and technology to China. 197
The new China policy is said to accomplish thefollowing goals:
120"The establishment of clear and predictable guidelines
for technology transfer, the streamlining of the licensingprocess enabling the Government to make much prompterdecisions as to whether a product can or cannot be licensedto the PRC, and the establishment of substantially increasedtechnological levels for products and technologiesconsistent with the national security concerns.,,1~
When China was in Group P, the general US licensingpolicy was "to approve export licenses for goods atsignificantly higher technical levels than for countryGroups Q, W, and Y (generally twice those previouslyapproved for the PRC).,,199 However, the general policytoward China in Group V is to approve all applicationsunless there is a "reasonable basis to believe" that theitems will be diverted to another end-user or to anotherdestination contrary to the U.S. national interest. 200However, for exports or reexports of those goods restrictedfor national security and nuclear nonproliferation purposesas well as exports or reexports of some goods with specifictechnology of particular strategic significance, a validatedlicense is required for Group V by EAR. 201 Some Group Vnations are also subject to validated license for foreignpolicy purposes but this does not include China. 202
As to exportation of technical data, the restriction onexports to China were broader than the EAR controls onexport of commodities. 203 While China was in Group P, theuse of GTDR to export technical data to China was prohibited
121
except when the technical data to be exported is operationor service data accompanying a licensed commodity exportedor used in an actual bid to sell commodities.2~ However,under the new pOlicy, GTDR license may be used to exportmost proprietary data relating to industrial processes toChina. 205
China under Group V also has more opportunities toreceive reexports of technical data from previouslyauthorized countries. 206 However, the use of GTDR forexports to PRC is still prohibited when the technical datais related to any goods controlled for national security,nuclear-nonproliferation, or crime-control reasons. 207
Under the new export control regulations toward China,new technical guidelines had also been developed by theinteragency committee chaired by DOC in order to streamlinelicensing to China. The new technical guidelines haveestablished three zones to guide licensing decisions: GreenZone, Intermediate Zone (Yellow Zone) and Red Zone.According to Secretary Baldrige's description:
License applications within Green Zone "will receive,for the most part, routine approval." DOD will delegatereview authority to commerce and no interagency review willbe necessary. These applications will represent minimumnational security risk, yet they account 75 per cent of allPRC appl ications. 208
Applications within intermediate zone will be for "veryhigh technology and will require case-by-case review" by DOD
122or other agencies. "We may approve licenses within thiszone unless the commodity or technology poses a clear threatto the US security interests.,,209
The red zone includes the most advanced technologieswhich the US usually would not share even with its closestallies. License application within this zone will have a"strong presumption for denial. ,,210
The technical guidelines already developed govern thefollowing seven technology areas considered most importantto China's modernization program: computers, computerizedinstruments, .microcircuits, electronic instrument, recordingequipment, semi-conductor production equipment andoscilloscopes.211 However, guidelines for areas other thanthe above seven are continuing to be developed. 212
A move was upcoming to further liberalize the exportcontrol system for China through the development of a "corelist" that would identify items barred to China, allowingexport of all other. However, Tienanmen Square Massacrebrought this to a halt.213 This "core list" would havereplaced the three-zone distinction.
The liberalization of control of US export to China wasalso accompanied by efforts to liberalize multilateralcontrol of export to China by CoCom and to speed up itslicensing. These efforts were made in response to thedramatic increase in the number of China submission due toUS liberalization and with the intention of CoCom members toestablish a differential within CoCom on China that would
123allow for a more liberalized pOlicy.214 In July 1984,
CoCom member reached an agreement on a uniform control
program for the export of certain commodities to the Soviet,
Eastern Europe and China. The results of this agreement are
the decontrol of certain products, and that the exports of
some sophisticated commodities which used to require
decision by CoCom, now became a matter of discretion for
member nations. 215 In February 1985, US further initiated
negotiation with CoCom countries, with the objective of
raising the technical levels of proposed exports requiring
CoCom review for exports to China only. This resulted in
the October 1985 CoCom agreement.216 The effect of this
agreement was to dramatically differentiate China from
Soviet and Eastern Europe as regards to review requirements
for proposed exports of similar commodities. For a number
of controlled commodities, US may license exports to China
without referral to CoCom (i.e., eligible for Green Zone
license), which is not the case for Soviet and Eastern
Europe. 217 Initially, these commodities include twenty-
seven items.218 In August 1986, three more items were
added. 219 However, CoCom will probably act more cautiously
after Tienanmen Square Massacre in liberalizing its China
policy.
Although China has been classified under Country Group
V, there are still special restrictions imposed on exports
to China which are not imposed on other Group V countries.
The different treatments between China and other Group V
124
countries can be seen from the following aspects:
1) the use of general license GLV. General License GLV
(General License for Shipment of Limited Value) is one among
a series of general export licenses established by EAR. 220
General license GLV permits the export of controlled
commodities in limited value (generally $1000 or less) to
destinations in Country Group T and V without the necessity
of a specific validated export license. The use of General
License GLV for export to China under Country Group P was
limited to the value of $0. This limitation remained the
same even after China was moved to Group V. 221 The
restriction is consistent with OEA's policy of continuing to
examine each proposed export of controlled commodities andtechnology to China on a case-by-case basis ;222
2) use of Distribution License. In order to facilitate
multiple export transactions involving commodities for which
a validated license is required, Distribution License (DL)
is established as one of several multiple export licenses to
permit the exporter to make repeated exports over a period
of two years (subject to renewal for an additional two
years) of controlled commodities to approved consignees in
specified destinations. 223 Although DL is available to
Group T and V countries only, China is expressly denied the
availability of DL.224 However, in 1984, an informal
procedure was established by DOC and DOD to grant
"individual" validated export licenses authorizing multiple
shipments of relatively low-level computers and related
125
peripherals for distribution in China;225 A plan to grantDL to China was set to be implemented by the summer of 1989.But the Tienanmen Square Massacre resulted in an indefinitesuspension of this plan. 226
3) special documentation requirements for computerexports and certain machine tool and numerical controlsexports. An exporter who intends to export computers (ECCN1565A) to Country Group Q,W,Y,and P must submit a number ofspecial documentation together with the application for avalidated export license. 227 These required documentationinclude, for example, the computers' parameters on Form ITA-6031P; detailed information about the software to besupplied for use with the computers; etc.228 China underGroup V are exempted from these requirements. However,China is singled out from Group V and remains subject tocertain documentation requirements for the export of certainmachine tool and numerical controls equipments ;229
Export of technical data to China under Group V can nowbe made under general license GTDR. However, as notedearlier, such general license GTDR is not available for theexport to China of any technical data related to anycommodity that is controlled for national security, nuclearnon-proliferation or crime control reasons. 230 This isalso at variance with treatment other Group V countries get.An example is the export of computer software which isincluded in the definition of technical data.231 Althoughmost computer software has been exportable under General
12ELicense GTDR to Group T and V countries, China remains tobe ineligible for GTDR after the 1983 EAR Amendment and issubject to validated license requirement.~2
Despite these specific restrictions, the new Chinapolicy has achieved remarkable effects in terms of licensevalue and the number of closed out exports to China. Thedollar value grew by 15 times, from $374.3 million in 1980
to $5,493 million in 1985, though it declined to $3,366
million in 1986.233
The number of applications more than doubled between1983 and 1985, rising from 4300 to 10,200. In 1986, a totaof 8,130 cases (including temporary licenses) were closedout for export to China. 234 In terms of efficiency,however, although DOC had taken several steps to speed upthe review, 235 and improvements have been achieved inaverage processing time for China cases, significantproblems remain. 236 Average processing time for referralcases took more than 200 days in December ,1986, and remainsignificantly longer than the time taken for reviewingexports to other countries. The last quarter of 1986 sawabout 30% of the closed out, referred China cases exceedin~the statutory limit.237 The average processing time forCoCom review declined from 77 to 56 days between January arJune of 1986 but rose to 81 days in the first quarter of1987.238
After the Tienanmen Square Massacre, the processingtime again saw an increase at DOC due to the increased
127scrutiny of export application for high-tech, dual-use
commercial products. The processing time at DOC alone has
increased by at least one week. Additional review time willcertainly be added at 000 and other agencies. 239
5. CoCom
The Coordinating Committee for Multilateral Export
Controls (CoCom) plays such an important role in Western
controls of exports to Communist countries that it deservesseparate discussion.
The genesis of CoCom dated back to World War II when
the US entered into discussion with its key European allies
concerning a coordinated embargo policy toward the Soviet
bloc. 240 It was born after secret and informal
negotiations in late 1949 among seven nations: US, Britain,
France, Belgium, Italy, the Netherlands, and Luxembourg. 241
It began operation on January 1, 1950 and was later joined
by eight other nations. 242 However, an effective embargo
against Communist countries requires not only the
participation of the above nations, but also the
cooperation, if not participation of all the rest non-
Communist nations. Throughout the years, US has quite
successfully gained the cooperations of all the non-
Communist countries in the embargo policy. Thus, the real
embargo ally is far larger than that suggested by the CoCommembership. 243
128The main functions of CoCom involve four interrelated
aspects: agreement on strategic criteria for controls;
formulation of a detailed list of embargoed items;
evaluation of individual cases for possible exception from
the embargo; and coordination of efforts to assureenforcement of the embargo. 244
The main objective of CoCom initially was to control
strategic goods and technology and prevent their flow into
Communist countries. However, as time passed by, the policy
emphasis has gradually shifted to the control of selective
advanced technology with potential military application. 245
Under its control pOlicy, CoCom had developed an
embargo list (the CoCom List) 246 which is not public and
subject to review in about every three years. Additions or
deletions were made to the list taking into account of the
technological advances and the availability to controlled
destinations of controlled goods and technology from non-CoCom sources. 247
Although items on the CoCom List are generally not
exportable to Communist countries, export of an item on the
list could be made by utilizing the CoCom exception
procedure. The basic purpose of the exception procedure is
to permit a specific export of an item to a controlled
destination if security risk of the transaction is
acceptable. 248 Such determination requires the unanimous
agreement of the member countries represented at the CoCom
meeting to decide the exception request. It also takes into
129
account of the end-use, political harm of the transfer and alot of other military, economic and political factors.249
A 1978 report cited that 1000 exception cases were submittedannually and half of them were from us. Two to four percentof them would be denied and three to five percent would bewithdrawn. 250
Since CoCom was created by an informal agreement, itexists as a voluntary arrangement which does not obligatethe participants internationally. Consequently, each memberimplements CoCom policy through its domestic legislation,although they have no legal obligation to do so. Besides,the decisions of CoCom are not binding and they "literallymean(s) nothing in international terms", if member nationdoes not choose to implement the decision. 251Notwithstanding such fragile legal and organizationalstructure,252 amazingly, CoCom has continued as animportant and effective trade control mechanism for over 40
years. All member nations have also shown substantialcooperations, which have been based on the common interestof denying strategic technology and goods to the Communists.
However, CoCom's effectiveness is still limited by anumber of factors. Although there are cooperations, therehave also been outright transfer of technology in violationof CoCom regulations by member countries. Differences innational export control policies between individual membernations and a lot of other problems inherent in the CoComsystem also severely reduced the effectiveness of CoCom. 253
130
Throughout CoCom's history, CoCom member nations have had
different views on technology transfer. While European
members plus Japan view technology transfer as a trade issue
and are more concerned as such, the US views it mainly as a
security issue, therefore, there had been disagreements over
the range of technologies that should be controlled; over
the interpretations of CoCom rules and lists; and over the
enforcement of multilateral controls.254 CoCom itself also
has inherent organizational problems. For example:
inefficiency in administration of the multilateral export
control system, lack of enforcing mechanism and a
multilateral mechanism to harmonize different national
export control policies, failure to adjust CoCom to
technology advancement timely, etc. 255 These problems
exacerbated the ineffectiveness of CoCom.
CoCom is also facing other challenges. There have been
charges that CoCom is "an obsolete organization" and should
be disbanded. 256 There had even been challenges to the
very legality of CoCom because "the freedom of export is one
of the fundamental human rights which guarantees an aspect
of the freedom 0 f bus iness •.." .257 within CoCom, European
countries and Japan question whether US uses CoCom to its
own advantage.258 Each country also appears to be somewhat
suspicious of the others, especially about the
interpretations of technical stipulations on exports and
tactics used in CoCom.259 Such conflicts tend to increase
as the US economic dominance declined. The economic
131leverage US enjoyed in the early years following the WWII
was the glue that initially held CoCom together.2~
However, despite all the challenges and conflicts
facing CoCom, it is very unlikely that CoCom will fall apart
or cease to exist, because, first, there is always consensus
within CoCom against transferring strategic goods and
technology to Communist countries especially the soviet
bloc, which transfer will endanger the Western security or
increase the Western military expenditure; secondly, the
very informal nature of CoCom could also have been the very
factor that had held CoCom together, because "problems
between governments have traditionally been worked out
quietly at very high policy levels". 261 In fact, it is the
introduction of coercive legislation into CoCom that should
be avoided because such statutory mandating (instead of the
present informal gentlemen's agreement) is sure to be
resented and also likely to be of dubious efficacy;262
thirdly, the differences among CoCom members are non-
fundamental. All countries agree that things will be
different if there is no CoCom.2~ Although French
corporation are generally not as concerned about security
aspects of technology exports as U.S.2M and France had
even threatened to withdraw from cocom,265 it agrees that
CoCom is a "useful organization because it acts as a brakeon technology transfer". 266
CoCom's control of exports to China has been relaxed
almost concurrently with the liberalization of us control on
132
export to China. 267 However, CoCom control had beensomewhat less restrictive than the US export control policybecause Western Europe and Japan had traditionally been lessrestrictive in technology transfer to China 2~ and US hastraditionally maintained a larger control list than theCoCom list. 269
As discussed earlier, in October 1985 CoCom reached anagreement to preclude certain items exported to China fromreview by CoCom.2ro This favorable treatment was notgranted to any other Communist country besides China. withthe liberalization of Controls on exports to China by US andother CoCom countries, CoCom's China policies should bereviewed more frequently and treatment of China should beconsidered in light of development in its overall relationswith the West. 271 Concurrently, there is controversy as towhether China should be removed totally from CoCom review ifthe West's relations with China continue to improve andChina's economy continues to grow. Totally removing Chinafrom CoCom review would "send a positive signal indicatingfull acceptance of China as a trading partner by the West",this would have the advantage of resulting in "expandedtrade in high-technology sectors that now exceed green-zoneguidelines".272 The finding that transfers of dual-usetechnologies are likely to have only limited effects onChina's military capability in the near term also supportsthe prediction that totally removing China from CoCom is notlikely to cause hazardous effects to Western security, at
133
least not in the near term.2n However, the opposing party
argues that nobody can guarantee that China will not shift
dramatically to the Soviet's side; that CoCom has played an
important role in deterring military exports to China and
enhancing the East Asian security; that at present there is
simply no overwhelming evidence to support total removal of
China from CoCom review and not all CoCom countries will
support such a move, either.2~ It is the author's belief
that in the foreseeable future, the latter arguments will
probably prevail and China will remain subject to CoCom
review for yet a substantial period of time in the future.
This should be true even without the Tienanmen
Massacre. The massacre lends strong support to the arguments
of those who support CoCom review of China exports.
Following tragedy, US and the European Community imposed
various sanctions against China, including a freeze on arms
sales to China. Although CoCom has not, as of October 1989,
changed its policy of controlling exports to China only for
strategic purposes, by now those who proposed for total
removed of China from CoCom review would have changed theirmind.
Chapter Summary
The United States technology policy toward China has
evolved from total embargo of trade with China, to gradual
relaxation in the late 60's and early 70's. After the
normalization of relationship between the two countries in
134
1979, the united states began to liberalize control on
exports of technology and commodities to China. In 1981,
China was promoted from Country Group Y to its own group-
Group P. As the two nations' relations further improved, us
began to regard China as a friendly, non-allied country,
therefore in 1983, China was placed in Country Group V,
together with other friendly countries including Western
Europe and non-Communist Asia.
The legal framework governing us export controls
consists principally of the Export Administration Act (EAA).
The EAA has gone through several generations and the current
one is the Export Administration Amendment Act of 1985 (EAAA
1985) which, besides reauthorizing EAA 1979, made a number
of changes to accommodate the new circumstances. The main
mechanism of controlling exports under this legal framework
is the export licensing system. Different types of license
are issued for exports to different destinations depending
on the technological level, destination, end-use, foreign
availability and other military, economic and political
considerations. An application for validated license may be
subject to interagency review. DOC, 000, DOS are major
agencies involved in such review process. If an export is
subject to CoCom review under the multilateral export
control agreement, the application must be further submitted
to CoCom for a decision. The licensing review process had
caused serious delay in granting an export license for
export to China. Although steps have been taken both in us
135and within CoCom to alleviate delay, problems still existand a proposed export to China may particularly be time-consuming.
CoCom has played an important role in multilateralcontrol of technology exports from West to China. Althoughthere are conflicts within CoCom, it will not fall apart ordisband, at least not in the near future. CoCom's Chinapolicy has been liberalized sUbstantially, however, it isunlikely that CoCom will cease to review China casescompletely.
The recent Tienanmen Square Massacre affected both USand CoCom's technology export policy toward China. But froma long-term view, the effects will only be temporary.Nevertheless, this historical event has lent great force tothose who advocate more control on exporting technology toChina, both inside the US and inside CoCom.
Endnotes:
1. Adler-Karlsson, International Economic Power: The USStrateqic Embarqo, 6 J. INT'L TRADE 501, 502 (1971). Seealso infra, note 7, at 21-22.
2. Webster, CoCom: Limitations on the Effectiveness ofMultilateral Ex~ort Controls, 1983 WIS. INT'L L.J. 106.
3. Gosain, Export Licensing of Advanced Technoloqv toCommunist Countries: Problems and Prospects, 1 HASTINGSINT'L & COMPo L. REV. 305, 306 (1978). Argument ofeconomist Thomas Schelling was cited here:
"Wheat shipments may have the same effect on militaryprograms as jet engine sales. Wheat shipments may permitthe Soviets to keep chemical industries oriented towardmunitions rather than fertilizers; jet engine sales maypermit the Soviets to allocate engineering resources toconsumer goods rather than jet engines."
4. 50 U.S.C.A. app. sec. 2404 (West Supp. 1986)
5. 50 U.S.C.A. app. sec. 2405 (West Supp. 1986)
6. 50 U.S.C.A. sec. 2406 (West Supp., 1986).
7. Meese, Export Controls to China: An Emerqing Trend forDual-Use Exports, INT'L TRADE L.J. 20, 32 (1985). Threereasons why sort-supply rationale is rarely used are givenby the author:
1) short supply controls have been unable to reduceprices and inflationary demand; 2) they have had an adverseeffect on foreign buyers and nations; and 3) they have ledto the appearance of inappropriate political pressure byusers to obtain materials at below world market prices.
However, short supply controls were indeed used in theSummer of 1973 to control and monitor the export ofsoybeans, grains, and related agricultural products. Id., at33.
8. Id., at 24.
136
1379. According to a study by the National Academy of Sciences,the domestic costs of the controls include annual loss of188,000 jobs and $ 9 billion. See Note, StatutoryImorovements to the Foreian Availabilitv Process for HiahTechnologv National Security Exoort Controls, 27 VA J. INT'LL. 575, 576 (1987) (hereinafter Foreian Availability)
10. Gonzalez, How to Increase Technoloav Exoorts WithoutRiskina National Security - An In-Deoth Look at the ExoortAdministration Amendments Act of 1985, (hereinafter How toIncrease Technoloqy Exoort) 8 LOY. L.A. INT'L & COMPo L.J.399, 405 (1986).
11. Statements of Olin L. Wethington in introduction to"svmoosium on International Law and Technoloav", 10 RUTGERSCOMPUTER & TECHNOLOGY L.J. 185 (1983-84).
12. Note, suora note 9, at 404.
13. Id., at 406. Exporters sometimes complain that. 000 andDOC interpret the regulations differently as in the case ofexporting the 16-bit microcomputer to China. see Congress ofthe Unites States, Office of Technology Assessment,Technoloav Transfer to China, OTA-ISC-340, (Washington, DC:US Government Printing Office, July, 1987) at 212(hereinafter Technoloav Transfer to China).
14. See "Exoort Administration Amendment Act of 1985", Pub.L. No. 99-64, 1985. Reprinted in 1985 US Code Congo & Ad.News (99 Stat.) 120.
15. Export Control Act of 1949, 50 U.S.C. app. sec. 2021-2032 (1951) (expired Dec. 31, 1969). Before this Act, therewas the Second Decontrol Act of 1947 which was onlygoverning national security export control to the USSR andEastern Europe. See su~ra note 7, at 22.
16. Export Administration Act of 1969, 50 U.S.C. app. sec.2401-2413 (1976) (expired Sept. 30, 1979).
17. Export Administration Act of 1979, 50 U.S.C. app. sec.2401- (expires Sept. 30, 1983). For an excellentdescription of the events that led to the EAA 1979, seesuora note 10, at 407-411. See also 416-423 for adescription of its operation.
18. Id., at 404.
19. For a legislative history of EAAA 1985 and its changesaway from the old EAA 1979, see Gonzalez, How to increaseTechnoloav Exoorts, suora note 10. For further discussionof EAAA 1985, see later discussions in this chapter.
13820. The ECA 1949 was passed on February 26, 1949.
21. Lee & McCobb, United states Trade Embargo on China.1949-1970: Leqal status and Future Prosoects, (hereinafter"Trade Embargo on China") 4 INT'L L & POLITICS 1, 3 (1971).
22. For further discussions of validated license, see infranotes 128-143 and accompanying text.
23. Lee & McCobb, suora note 21, at 4.
24. Id.
25. Meese, suora note 7, at 22.
26. The embargo might not have gone further had the KoreanWar not broken. See suora note 21, at 4.
27. Seabolt, United States Technoloqy Exoorts to thePeoole's Reoublic of China: Current Develooments in Law andPOlicy, 19 TEXAS INT'L L.J. 577, 600 (1984).
28. The T-1 order was aimed at prohibiting unauthorizedtransportation to the Soviet, Eastern Europe, China andNorth Korea. However, the T-2 order was aimed specificallyat China. See suora note 21, at 5.
29. Seabolt, suora note 27, at 600.30. Id.
31. Lee & McCobb, suora note 21, at 5.
32. Meese, suora note 7, at 23.
33. For a discussion of the role of CoCom in multilateralexport controls, see Hunt, Multilateral Coooeration inExoort Controls-The Role of CoCom, 14 TOLEDO L. REV. 1285(1983).
34. Meese, suora note 7, at 23.35. Gosain, suora note 3, at 308.36. Id.
37. Meese, suora note 7, at 23.38. Gosain, suora note 3, at 308.39. Gonzalez, suora note 10, at 408.40. Gosain, suora note 3, at 308.
13941. Lee & McCobb, supra note 21, at 10. This was regulatedin an amendment to the Foreign Assets Control Regulations onJuly 23, 1969.42. Other contents of this order include: 1) Americanstravelling to China may engage in transactions ordinarilyincident to such travel, including expenses and acquisitionsof goods for professional and personal purposes: 2) whilerestrictions on commercial importation into us of"presumptive merchandise" continue to apply, therestrictions on other dealings by Americans in suchmerchandise were removed. See supra note 21, at 10-11. Seealso 34 Fed. Reg. 20189 (1969)43. In response to the EAA 1969, the Department of Commercepublished a statement in the Export Control Bulletin toremind "firms anticipating business between their foreignsubsidiaries and mainland China" that "no changes have beenmade in export control regulations administered by theDepartment of Commerce": that prior authorization is stillneeded for certain transactions. See supra note 21, at 14.Other provisions are discussed at 10-13.44. Seabolt, supra note 27, at 600.45. Joint Communique on the Establishment of DiplomaticRelations Between the united States of America and thePeople's Republic of China (hereinafter Joint Communique)Jan. 1, 1979, 18 I.L.M. 274 (1979).46. Reprinted in Int'l Trade Admin., US Sep't of Commerce,US-China Commercial Relations: A Compilation of BasicDocuments 1-3 (1982). See also notes 254-258 andaccompanying text in Chapter I, supra.47. Id. at art. II.48. Id. at art. IV.49. Id. at art. VI.50. The countries are divided into Country Group T, V, 0, S,W, Y and Z. For a list of countries in each country group,see McKenzie, US Export Controls on Hiqh Technology Exportsto the People's Republic of China: Recent Developments, andTheroux, Leqal Aspects of Doinq Business with China 1986,New York: Practicing Law Institute (1986) at 345.51. This is the most restrictive level of the three generallevels of restiveness ( W,Y,Z). Y is less restrictive than Zbut more than W. See Nimmo, united States Policy ReqardinqTechnoloqy Transfer to the People's Republic of China, 6N.W. J. INT'L L. & BUS. 249, 260 (1984).
14052. Id., at 261. The announcement of this new Group P forPRC appears in 45 Fed. Reg. 27922 (1980).53. Meese, supra note 7, at 31.
54. Id., at 20-21.55. House of Rep., Special Subcommittee on US Trade withChina, Committee on Energy and Commerce. US TechnoloqyTransfer to China, sept. 27, 1983 (statement of MalcolmBaldrige, Secretary of Commerce) at 4, (hereinafter asStatement of Secretary Baldrige).56. Id.
57. Meese, supra note 7, at 20.58. Statement of Secretary Baldrige, supra note 56, at 4.59. Id.60. Moga, Makinq Foreiqn Thinqs Serve China: A WesternLicensor's Guide to the Chinese Market, 28 ST. LOUIS U. L.J.771, 799 (1984).61. 48 Fed.Reg. 53064-71 (November 23, 1983), see also 15CFR Sec. 368-399 (1983).62. Supar note 27, at 609. Under the new technology exportcontrol regulations for PRC, technical guidelines have beendeveloped governing exports to China in seven areasconsidered to be the most important to China's modernizationprogram. These seven areas are: computers, computerizedinstruments, microcircuits, electronic instruments,recording equipment, semi-conductor production equipment,and oscilloscopes.63. Id. at 619.64. Id., at 606.65. See "Technoloqy Transfer to China", supra note 13, at173. The sale of the avionics package for Chinese F-8fighter is an illustration of such military sale.66. "US Informs China Hiqh-Tech Exports Could Be Broadened",N.Y. Times, Mar. 10,1988. at 1, col.l. Currently there are32 categories of high-technology goods which may be sold toChina without "clearance" (review) by 000.
67. Id.
14168. Id. Such expansion will add the following to the list:more powerful computers, telecommunications equipmentincluding fiber optics and mobil radio systems and moresophisticated equipment for manufacturing semiconductors.69. Such events include the domestic economic reform inSoviet, the signing of INF treaty between the twosuperpowers, the retraction of Soviet army from Afghanistanthe collapse of communism in Eastern Europe, and mostrecently, Gobechev's summit with Bush in May 1990.70. Meese, suora note 7, at 20.71. Statement of Secretary Baldrige, suora note 55, at 5.72. House of Representatives, Special Subcommittee on USTrade with China, Committee on Energy and Commerce, Exoortsto China: A Review on the 200th Anniversary of US-ChinaTrade, Feb. 22, 1984. (Statement of Malcolm Baldrige,Secretary of Commerce) (hereinafter as "200th Anniversary:Statement of Secretary Baldriae) at 3.73. Technoloay Transfer to China, supra note 13, at 197."The United States benefits insofar as China is a strategicasset, if not an ally, in the global competition with theSoviet Union". Id., at 3.74. Remarks of Vice President Mondale in his visit toBeijing in August, 1978. See Committee on Science, Researchand Technology, Technoloay Transfer to China: Reoort, 96thCong., 2nd sess. (July, 1980) at 7.75. Id., at 6. American trade deficit in 1985 is $140billion.76. Id., see also Technoloay Transfer to China, su~ra note13, at 197.77. Statement of Dr. Fingar, Director of the united States-China Relations program at Stanford University. See suoranote 74, at 8.78. Nimmo, suora note 51, at 255.79. Id., at 256.80. Id., at 256.81. Hearings before the Committee on Science and Technology,US House of Rep., 96th Cong., 1st sess. Technology TransferTo China, Nov. 13 & 15,1979, at 7. This is the so-called"boomerang" effect. However, there is another view whichsees that "modern Japan, to the extent that the US had some
142responsibility for its present position, is one of theoutstanding successes of American foreign policy." Id., at3.
82. See notes 74-77 and accompanying text, SUDra.83. See notes 132-156 of Chapter I and accompanying text.84. Nimmo, SUDra note 51, at 258.85. Technoloqv Transfer to China, SUDra, note 13 at 3.86. China had maintained a average growth of 6% over thelast 30 years. Id., at 21. During 1981-84, there had been an11% annual growth. Id., at 30. The projected growth rate inthe 7th FYP is 7:%, ide
87. The author continues to say: "What American caninfluence is whether a powerful China sees itself as havinga major stake in strong international contacts in a peacefulenvironment or whether China feels it has little to lose bybreaking contacts and pushing instability around the word.American science and technology will not be the primaryforce determining the outcome of that choice, but they canplaya supporting role." See SUDra note 81, at 7-8.88. Technoloqv Transfer to China, SUDra note 13, at 13.89. Different emphasis on these parameters may lead todifferent themes under the overall policy. One theme is toemphasize a more activist strategy of technologicalcooperation; explicitly using technology transfer to improverelations and trade (the promotional approach); a second onewould be to make better use of technology transfer as abargaining chip in U.S.- China relations (the technologyleverage approach); a third would be to emphasize themultilateral aspects of export control and trade with China(Multilateral approach). For a detail discussion of thesethree approaches, see id, at 199-203.90. "Any behavior on our (U.S.) part that blocks fulfillmentof expectations raised in the last few years will be viewedas betrayal on the part of U.S." See SUDra note 81, at 24.
Also, "failure to be supportive toward the policies ofthe current leaders can only reinforce those who werereluctant to turn outward in the first place and wouldaccelerate the demise of those leaders and those policiesthat best serve our own interests." Id., at 7.91. SUDra note 72, at 8.
14392. Id., at 4. Chris Phillips is the first US Ambassador toPRC after the two countries normalized their relations.
93. US Inform China High-Tech Exports Could be Widened. N.Y.Times, March 10, 1988. See sUDra, note 66.
94. Technoloqy Transfer to China, SUDra note 13, at 69.Seeing from the US side, the figure is even smaller: Chinaprovides only 10% of American imports. Only 1.2% of totalAmerican overseas investment goes to China. See SUDra note66.
95. Between 1979 and the fall of 1986, US ExIm Bank hadissued only three direct loans for China exports. The totalvalue of these loans was $120 million. See SUDra note 13, at230.
96. Currently there are a number of channels through whichthe FUS uses to promote technology transfer to China:government at S&T agreements, the Joint commission onCommerce and Trade. (JCCT) The Foreign Commercial Service(FCS). The US also established the Dalian Management Centerin China to train Chinese managers. Another channel is theTrade Development Program (TDP) whose purpose is to assistdeveloping countries. TDP is now providing technicalassistance (feasibility studies and technical sYmposia) toChina. The World Bank and United Nationas in which US is amajor member also provide technical assistance to China invarious forms. Students and scholarly exchanges also provideanother channel for the technology flow to China. At presentapproximately 40,000 Chinese students and scholars are beingtrained allover the US. There is also semi-governmentalindustrial and technical cooperation. An example of this isthe China-Tech, Inc. set up by the agreement between GeorgiaTech and the Chinese Association for Science and Technology.
A number of options have been suggested to the USgovernment to further promote technology transfer to China.For detail discussion, see id., at 232-249.
97. Id., at 136. World Bank provides the second largest ODA(14.6%) while West Germany is the third (13.2%).98. See note 64 and accompanying text, SUDra.99. SUDra note 74, at 8.100. SUDra note 93.
101. Wall Street Journal, Nov. 1, 1989, at A1, col.3.102. Wall street Journal, June 6, 1989. at A.3, col.3.103. Wall Street Journal, June 28, 1989, at A3, col. 1.
144104. Gillespie and Shea, The Militarv Sales Ban, THE CHINABUS. REV. September-october, 1989, at 32-33.105. Wall Street Journal, November 7, 1989, at A26, col.6.106. Gillespie and Shea, SUDra note 104, at 34. See also theWall Street Journal, July 10, 1989, at A12, col.3.107. Wall Street Journal, Dec. 20, 1989, at A16, col.4.108. Wall Street Journal, Feb. 13, 1990, at C12, col.6.109. Letterman, US Controls on EXDortina Technical Data: AnAnalysis and Selective Practioner's Guide, 9 HOUSTON J.INT'L L. 59, 60 (1986).110. Department of Commerce Export AdministrationRegulations, 15 C.F.P. section 368-399 (1986).111. EAR section 379.1(a). The Department of StateInternational Traffic in Arms Regulation 22 CFR section 120-130 (1986). [ITAR] also has a definition of "technicaldata".
(a) Classified information relating to defense articlesand defense services; (b) Information covered by aninvention secrecy order; (c) Information which is directlyrelated to design, engineering, development, production,processing, manufacture, use, operation, overhaul, repair,maintenance, modification or reconstruction of defensearticles.112. Such statutes include:
1. EAAA 1985 Pub L. No.9764f, 99 Stat. 120 (codified inScattered Sections of 15 USCA. 42 USCA, and 50 USCA).
2. Arms Export Control Act of 1976, 22 USCA section2751 (1986).
3. Atomic Energy Act of 1954, 42 USCA section 2011(West 1988).
4. Nuclear Non Proliferation Act of 1978, Pub. L.No.95-242, 92 Stat. 120 (codified as amended on ScatteredSections of 22 USCA and 42 USCA) (West, 19 ).
5. Trading with the Enemy Act of 1917, 50 USCA section5 (West 1986).
6. International Emergency Economic Powers Act of 1976,50; USCA section 1701 (West 1986).
7. Invention Secrecy Act of 1951, 35 USCA section 181(West 1986). Supra note 102, at 60-61.
Other statutes and regulations which also constituteparts of the legal framework of export control include:
8. International Traffic in Arms Regulation (ITAR) 22C.F.R. section 120-30 (West, 1986).
(Administrative Regulations of OMC of the DOS).
1459. Export Administrations Regulation (EAR). 15 C.F.R.
section 368-99 (West, 1987) (Administrative regulations ofOEA of DOC).10. Other Regulations of DOE {10 C.F.R section 810,
(1986)}. Nuclear Regulatory Commission (NRC) {10 C.F.R.section 110 (1986)}.
11. High Technology Trade Act of 1982. The MutualDefense Assistance Act of 195;1 (the "Battle Act") wassuperseded by EAA 1979 ..113. Id., at 62.
114. This appeared in a document known as "the Bucy Report"of 1976. Id., at 61. See also supra note 10, at 430.115. Letterman, suora note 109, at 62.
116. It will expire again in the fall of 1989. EAA 1979, 50USC. app. section 2419 (Supp. III, 1985).117. There are also a few other agencies which the exportsof several items that obviously and naturally belong totheir juriSdictions. For example: (1). narcotics anddangerous drugs are controlled by the Drug EnforcementAdministration of the Justice Department; (2). commoditiessubject to the Atomic Energy Act are controlled by the USNuclear Regulatory Commission of the US Department ofEnergy(DOE); (3). natural gas and electricity is alsocontrolled by DOE; (4). tobacco by Department ofAgriculture; etc. For a detail list, see 15 C.F.R. section370.10 (1985). See also supra note 109.118.Gonzalez, suora note 10, at 416-17.119. Id., at 416. The OMC gets its juriSdiction from theArms Export Control Act of 1976 {22 USC section 2751(1986)}. Its regulations are called the InternationalTraffic in Arms Regulations (ITAR) {22 C.F.R. section 120-30(1986)}. There were two objectives in passing the ArmsExport Control Act (1) the encouragement of regional armscontrol and disarmament agreements so as to discourage armsraces (2) the reduction of international trade in arms inthe would community. See suora note 10, at 417-18.120. 15 C.F.R. section 379.1 (b) (1) (1985). See also themeans that constitutes exporting of technical data under(ITAR 22 C.F.R. section 120.10(c)-10(e) and section125.2(c).
121. 15 C.F.R 379.1(b) (2)(1985). It should also be notedthat training personnel in the United States or abroad,servicing or installing equipment (even when no foreign
146person receives a disclosure of information), or designingor constructing facilities abroad, or providing tangibletechnical data all constitute a release. See supra note 109,at 75.
122. Letterman, sUDra, note 109, at 74. See also 50 USCAsection 2404(a) (i), 2415(5) (B), 2415(5) (C) (West, 1986).123. Such exercise of control over reexports has generatedprotests and opposition from foreign countries. SeeLetterman, United States Requlation of Hiqh-TechnoloqvEXDorts, 20 INT'L LAW, 1147, 1173 (1986).124. 15 C.F.R. section 370.2. Reexport from CoCom countriesto China is explicitly permitted under certain conditions.15 C.F.R. section 374.2(i) & (j) (1986).125. 15 C.F.R. section 371.22, 372.8(c) & 373.3(d) (3) (ii) (c)(1986) •126. 15 C.F.R. section 371.2 (1985).127. Letterman, SUDra note 109, at 77.128. Gonzalez, SUDra note 10, att 420. There are two typesof end-user statement. For exports to West Germany, France,Greece, Hong Kong, Italy, Japan, Luxembourg, theNetherlands, Norway, Portugal, Turkey or the United Kingdom,the exporter's customer must obtain an "International ImportCertificate and Delivery Verification" (ICjDV) from itsgovernment warranting that the customer's government willexercise jurisdiction over the goods. In most other cases,the foreign purchaser must sign OEA's standard Form ITA-629"Statement By Ultimate Consignee and Purchaser", agreeingthat the product will not be reexported without OEA's priorapproval. See also 15 C.F.R. section 371.2 (1985).
In the case of China, after the OEA's 1985 amendment toEAR, licensing application to export"A" items in CommodityControl List (CCL) must now be supported by a PRC End-UserCertificate, issued by the Technology Import and ExportDepartment of the Chinese MOFERT, to assure that the goodswill not be diverted or reexported. This substituted theformer IA-629. McKenzie, SUDra note 50, at 332.129. Gonzalez, SUDra note 10, at 420. Compare with theMilitary Critical Technologies List (MCTL) to refine its CCL,and as established by 000. MCTL is to be used by DOC aguidance to the US Patent and Trademark Office. See SUDranote 109, at 61-2.130. Gonzalez, supra note 10, at 421.131. Id.
147132. 15 C.F.R. section 379.3.133. 15 C.R.F. section 379.4.134. However, this does not include information involvingresearch under contract and related directly orsignificantly to industrial processes, or disseminated byother means and not directly and significantly related toindustrial processes. See suora note 109, at 78.135. Id. Under a proposal these three categories of techdata were to be expanded to four: (1) Public availability,(2) fundamental research (3) educational information, and(4) patents.136. 15 C.F.R. section 379.4{b) (1) (i) & (ii) respectively.137. Letterman, suora note 109, at 79-80. EAR section379.4{i) also lists additional restrictions on the GTDR forexports of technical data to China.138. EAR section 379.5.139. Letterman, suora note 109, at 81.140. A Comprehensive Operating License is intended to effectshipments under long-term contracts from a domestic concernto and among its foreign affiliates, joint-verdure and forwhich no implementing EAR regulations have yet been issued.50 USCA section 2403 (a) (2) (B) (West 1986).
A Project License is for multiple shipments over timeto a large special project. 50 USCA section 2403 (a) (2) (c)(West, 1986). See also suora note 102, at 81-82 n.88 andn.89.141. Id., at 76.142. Gonzalez, suora note 10, at 434. See also EAA 1979,Pub. L. NO.96-72 section 4{a),reprinted in 1976 U.S. Code,Corg. & Ad. News (93 Stat.) 503, 505.143. Gonzalez, suora note 10, at 435. See also 15 C.F.R.section 373.2, section 373.3, section 373.7 (1985). The"Project License"is designed for use with a substantialcapital expansion project, for supplying maintenance andrepair service, or for use in the production of othercommodities for sale.
A "distribution license" is designed to cover exportsby a U.S. individual or company to its affiliated foreigndistributor;
A "service supply procedure" is to enable USindividuals or companies to provide service for U.S.equipment exports or to foreign manufacturers who use parts
148imported from the u.s.
It should finally be noted that certain types oftechnical data are subject to special export controltechnical data. For detail discussion, see supra note 109,at 82-84.144. These agencies include DOD, DOE, DOA, DOS, Departmentof Treasury as well as CoCom.145. Letterman, supra note 123, at 1174.146. The ACEP conducts its reviews at five operationallevels: the senior staff level, the Deputy AssistantSecretary level, the Assistant Secretary and Secretarylevel, and the President, who has the final authority toresolve all interagency disputes. Supra note 10, at 422.147. Id.148. 50 USCA app. section 2409 (g)(1) (West, 1986).149. Id.150. Id. DOD does not review all licenses for exports tocontrolled countries. It has exempted itself from about two-thirds of the applications in this category. See supra note10, at 423.
It has been widely said that DOD has been authorized toselect and review export applications for seven ECCNcommodities and to fifteen free-world countries. For a list,see supra note 123, at 1176.151. Gonzalez, supra note 10, at 422. However, if an agencyrecommends disapproval of the export, OEA's rejection ofthat assessment is highly unlikely. Id., at 423.152. 50 USCA app. section 2405 (1982 West).153. 15 C.F.R. section 378. Supp.1 (1986).154. Letterman, supra note 123, at 1176.155. For detail discussion of CoCom, see infra, notes156. 50 U.S.C. app. section 2409 (h) (West, 1982).157. Items with performance exceeding preestablished levelswill be subject to formal CoCom approval. Letterman, supranote 123, at 1177.158. Formal approvl will take longer than an informalapproval. The former will usually take over one year whilethe latter 120-150 days. Id.
149159. Meese, suora note 7, at 31.160. Gonzalez, supra note 10, at 423.161. This period of time may involve resolving interagencydifferences and then either granting or denying a license.Id., at 423-24.162. Id., at 424. In the event that CoCom review is notconcluded in these 60 days, DOC may grant a final license.However, if the granting of the license is detrimental tothe United states, no license will be issued until wheneverCoCom makes its decision. This means further delay anduncertainty for exporter.163. Id.164. Hearing Before the Subcommittee on International Tradeand Economic policy and Trade of the Committee onInternational Relations. Mar 14, 1979 (Statement by FredrickW. Huszagh, Executive Director, Dean Rusk Center andProfessor of Law; Gary K. Bertsch, Senior Fellow, Dean RuskCenter and Professor of Political Science; John R. McIntyre,Research Fellow, Dean Rusk Center. Professor Huszagh iscurrently teaching at the University of Georgia School ofLaw). See also suora note 7, at 31.165. Gonzalez, suora note 10, at 439.166. Letterman, suora note 123, at 1178. The united Statestends to have more stringent control than its CoCompartners. Besides the CoCom list, US controls about 38commodities on the national security list unilaterally. Mostof those are items that are uniquely available to US. USalso unilaterally control certain technical data in the formof unpublished information, whether or not it is related tothe CoCom controlled items (other CoCom countries onlycontrol technical data to the extent that it is related tothe item on CoCom list). Supra note 74, at 23. See alsosuora note 36 and accompanying text.167. Note, suora note 9, at 587. The lack of a criterion,coupled with the fact that too many agencies were involvedin making foreign availability determination were the twomajor problems of EAA 1969. Id., at 588.168. 50 USCA app. section 2404 (f) (1) (West 1982).169. Letterman, suora note 123, at 1178-79.170. Id., at 1179. 50 USC App. section 2405 (i) (j) (West,1986) stipulates that foreign availability can not beclaimed in case of controls under international agreements
150for exports of crime control equipment and for exports toterrorist states. For a list of items for which foreignavailability is available, see id., at 1178.171. IQ., at 1179. See also 15 C.F.R. section 391.4(a) (5) &(b) (4) (1986).172. Gonzalez, supra note 10, at 427-30. See also infranotes 175-187 and accompanying text.173. Gonzalez, supra note 10, at 415. That OTA report pointsout that:
"the debate over U.S. export administration policycenters on how to simultaneously pursue and balance fourdifferent objectives. All members of the export licensingcommunity believe to some extent in each of these goals.They differ in their priorities, and in the past, therelative emphasis accorded these elements has shifted. Anew or revised Export Administration Act will reflectcongressional decisions on how best to accommodate all four[objectives]." See also Off. Tech. Assessment, Congo of theU.S. Technoloqy and East-West Trade: An Update iii, (1983)(hereinafter "OTA 1983").174. For a detailed discussion of the changes made by EAAA1985, see Gonzalez, supra note 10, at 426-502.175. According to Gonzalez, other changes to promote tradeinclude: narrowing the focus of controls, broadeningavailable license types to serve marketing needs andfunding. Gonzalez, supra note 10, at 430, 434. 438.176. Note, supra note 9, at 591.177. So the version after change reads: "••.•in any case inwhich the Secretary determines, ... that any such goods ortechnology are available in fact to such destinations fromsuch sources in sufficient quantity and of comparablequality so that ..•• the Secretary may not •..• require avalidated license." See also Gonzalez, supra note 10, at428.
178. However, these was a proposal to change "sufficient"quantity also to "comparable" quantity. See ide179. EAAA 1985 Pub. L. NO.99-64,(99 Stat.129) section 107(b) (3) (1985).180. The new Act reads: "The Secretary shall make a foreignavailability determination .••• on the Secretary's owninitiative ..• the Secretary shall accept therepresentations of applicants .•., unless such
151representations are contradicted by reasonable evidence ..."Id.181. Note, supra note 9, at 593.182. EAAA 1985, supra note 179, section 107(d).183. Id.184. Note, supra note 9, at 593.185. Gonzalez, supra note 10, at 429.186. Pub. L. No.99-64 (99 stat. 131) section 107 (c) (1985).The President may extend negotiation for another 12 monthsafter the end of the initial 6-month period.187. Note, supra note 9, at 594. In congress there was alsoapposition to the relaxing standard of foreign availability,that even if an item is available on foreign market, usshould not decontrol it because us is the "political andmoral leader of the free world." See Gonzalez, supra note10, at 428.188. Gonzalez, supra note 10, at 438.189. Id., at 441.190. Public L. No.99-64 (99 Stat. 131) section 105 (h) (2)(1985).191. This fast-track licensing applies to individual licenseapplications only, not to multi-export license applications.Gonzalez, supra note 10, at 442.192. Id.193. Id., at 443. Thus, OEA will have 60 days (not 90) inwhich to act upon a license if interagency review is notrequired. otherwise, within 20 days (not 30), DOC must referit to other agency, which will have 40 (not 60) days toreview the application. Thus 2 months has elapsed when DOCgets back the application from other agency. After this, DOCstill has 60 (not 90) days to make a final decision. Thus,totally 4 months, and not more than 4 months will be takento make a final decision if interagency review is required.194. Id.195. Id., at 445.196. McKenzie, supra note 50, at 318.
152197. statement of Secretary Baldrige, supra note 55, at 4.
198. Statement of Secretary Baldrige. Id., at 6.
199. Even some military end-use application can be approved.However, a VL is always required for national securitypurposes." Seabolt, supra note 27, at 608. See 15 C.F.R.section 385.3 and Supp. No.1 to 15 C.F.R. Pt. 385 (1983).
200. Seabolt, supra note 27, at 608. See 15 C.F.R. section385.4 (b) (1983).
201. 15 C.F.R. section 379.4(c)-(d), 379.5(e), 379.8,385.4(b) (1983). See also Seabolt, supra note 27, at 608.202. Seabolt, supra note 27, at 608.
203. Id., at 612.
204. Id.
205. Id., at 612-13. However, in some cases, OEA may requireexpress written assurances from a country Group Vend-userthat the technical data will not be transferred directly orindirectly to certain proscribed foreign country. A PRC End-User certificate sometimes must be obtained from MOFERT. Seesupra note 121.
206. Seabolt, supra note 27, at 613. See also 48 Fed. Reg.53067.
207. 48 Fed. Reg. 53066 (November 23, 1983).
208. Statement of Secretary Baldrige, supra note 55, at 5.The levels of technology have also been raised within thiszone so that more applications will be processed morequickly. According to one statistic, there was virtually100% approval for applications in this zone. Workman, USExport Control to the People's Republic of China (PRC),collected in Theroux, Leqal Aspects of Doinq Business withChina, New York: Practicing Law Institute (1986), at 310.
209. Statement of S. Baldrige, supra note 55, at 5.Secretary Baldrige continues to say that he expects "we willapprove a large number of cases in the intermediate zone,subject to a close national security review."
210. Id. Items in this zone will have direct application toadvanced military systems and would pose a clear threat toUS security interests.
211. "200th Anniversary: Statement of Secretary Baldrige",supra note 72, at 6.
153212. The next items that will receive early review indeveloping guidelines are: lasers, radio communicationsequipment; digital receivers; microware equipment, andnumerically-controlled machine tools. "Once there areas havebeen reviewed and guidelines established, almost all of theimportant export areas will be covered." Id. at 7.213. Gillespie and Shea, supra note 104, at 34.214. Workman, supra note 201, at 309.215. McKenzie, "Controls and Recent Developments". supra note50, at 329. This agreement was implemented by US through twosets of amendments to EAR, issued on December 31, 1984 andSeptember 11, 1985 respectively. see 49 Fed. Reg. 50608-50632and 50 Fed. Reg. 37112-37161 respectively.216• McKenzie, supra note 50 at 331. This agreement wasimplemented by amendments to EAR which were published onDecember 27, 1985. see 50 Fed. Reg. 52900-52912 ( December27, 1985)217. McKenzie, supra note 50, at 331.218. For a list of these 27 items and their licensed values,the percentage they account in all CCL, see "TechnologyTransfer to China", supra note 13, at 206.219. These three items include photo sensitive components andphotographic equipment. supra note 203, at 309.220. 15 CFR sec 371 (1985). Other kinds of general licensesinclude: General License GIT (investment shipments); GeneralLicense GLR (return or replacement of certain commodities),etc. For detail analysis, see Seabolt, " Technology Exports:Current Developments", supra note 27, at 621-623.221. 48 Fed. Reg. 53068-69 (1983).222. McKenzie, " Controls and Recent Developments", supra note50 at 324.223. Id. at 325. see 15 C.F.R. sec. 373 (198~). Othermultiple licenses are project license and servl.ce supplyprocedure. see also supra note 136 and accompanying text.224. 48 Fed. Reg. 53065 ( Nov. 23, 1983 ).225. However, there are a number of conditions to thisprocedure. McKenzie, supra note 50, at 326-327.226. Gillespie and Shea, supra note 104, at 34.
154227. 15 C.F.R. sec. 376.10 (1985).228. For other required documents, see McKenzie, supra note50, at 333.229. Id. see also 15 C.F.R. sec. 376.11 (1980).230. Id. at 337. These include virtually all letter "A" and"B" commodities on CCL. see supra notes 197-200 andaccompanying text.231. 15 C.F.R. sec. 379.1(a) Computer software is letter "A"commodity on CCL.232. However, on April 26, 1985, OEA issued amendmentsgoverning computer software export to China. This "softwareamendment " eliminated validated licensing requirements forexport of many kinds of software to China. This amendmentdivided software into three hierarchies. Only the third tierof software may be exported to China under General LicenseGTDR. MCKenzie, "Controls and Recent Developments" supranote 50, at 340-342.233• This may be the result of China's cutting back ofduplicate foreign imports and tightening control onexpenditure of foreign currencies in the early 1986.234. "Technology Transfer to China", supra note 13, at 206.235. In 1985, DOC specially established a China Team Center inorder to speed up review. In November 1985, this was replacedby four commodity teams that handle individual validatedlicenses for exports to China in the hope of further speedingthe review. For details of these four commodity teams, seeide at 208.236. Id. at 210.237. Id.238. Id. at 216.239. Gillespie and Shea, SUDra note 104, at 35.240. Hunt, "The Role of CoCom", supra note 33, at 1286. seealso supra notes 1-2 and accompanying text.241. It is not clear that any written agreement has everexisted. A gentlemen's agreement may be entered into wherebythe parties agreed to follow the export licensing rulesdeveloped by unanimous decisions of CoCom. infra note 232, at108. Initially, a Consultive Group was set up to develop andsupervise an embargo list at the policy level. In addition,
155the Coordinating Committee (CoCom) was also established as agroup of specialized representatives to carry out the embargopolicy on a day-to-day basis. After a few years the formerceased to meet and the entire multilateral apparatus becameknown as CoCom. Hunt," The Role of COCom", supra note 230,at 1286-87.
242. CoCom has its base in Paris. All nations of NATO exceptIceland are CoCom members. Japan is the only non-NATO member.Webster, Paul C., CoCom: Limitations on the Effectiveness ofMultilateral Excort Controls, 1983 Wisconsin Int'l L. J. 108(hereinafter "CoCom's Effectiveness").
243. Id. at 109. The united states successfully gainedcooperation in the immediate years after World War II majorlybecause its economic dominance. It used several means to gainthe participation of all non-Communist countries in theembargo front:l)CoCom; 2)Coordination of export controls within the BritishCommonwealth nations; 3) bilateral agreements between the usand other nations; 4) domestic legislation to use economic aidas a level to compel compliance. Therefore, most countriescooperated to some extent.
244. Hunt, supra note 230 at 1287.
245. Id. at 1288.
246. This CoCom list itself consists of three lists: theInternational Atomic List, the International Munitions Listand the International List. The third list contains dual-useitems not included in the first two lists. Id. at 1288-89.
247. Sometimes a specific category of commodities may bereviewed not necessarily at the same time the whole list isreviewed. In US, DOS has the primary responsibility tonegotiate in CoCom, taking advice from DaD and DOC. Id. at1291 and 1290.
248. CoCOm meets every Tuesday to act on exception requests.Id. at 1291-92.
249. Id. at 1291.
250. Id. at 1292. Such review may be a lengthy process.
251. Webster, " CoCom's Effectiveness", supra note 232, at109-120. see also supra note 33, at 1287.
252. Some author says CoCom' s structure is "such that itcannot properly be termed an I organization'" see supra note33, at 1287.
156
253. Webster, supra note 232, at 125.254. Id.255. For other systemic problems of CoCom, see id. at 127.256. Gosain, supra note 3, at 324. There has been dispute asto CoCom's role. US argues that CoCom has played a major rolein deterring technology transfer to the East, mostsuccessfully in computer area. supra note 232, at 122.However,European and Japanese businessmen were asked "if noCoCom, would things be different? ", the answer is " yes, butnot very much". infra note 169.257. Kim, Chin. The "CoCom Case". 4 J. of World Trade L. 604(1970). When the defendant, Minister of International Tradeand Industry (MITI) of Japan denied an export license toPlaintiff or exporting certain items to be put on display in1968, the plaintiff exporter sued MITI. The Japanese courtruled that the administrative decision to refuse the licensebased on the CoCom embargo list was illegal; that strictadherence to the CoCom agreement would have to be legitimizedby the adoption of new legislation. However, the defendantwon the case because the scheduled exhibition in China wascalled off.258. "Technology Transfer to China", supra note 13, at 131.
259. Id. at 135. Both Europeans and Americans accuse eachother of hypocrisy in CoCom. see infra note 250, at 167.
260. US Congress, Office of Technology Assessment,Technoloqy and East-West Trade. 1979 (Washington, DC:Government Printing Office, 1979), at 154. (hereinafter"East-West Trade").
261. Id. at 161.262. Hunt, "the Role of CoCom", supra note 33, at 1297.263. see supra note 246.264. "East-West Trade", supra note 250, at 164.265. Webster, "CoCom's Effectiveness", supra note 232, at 112.266. " East-West Trade ", supra note 250, at 162.267. China views CoCom as an American puppet. supra note 81,at 55.
157268. US Congress, Joint Economic Committee, China's EconomvLooks Toward the Year 2000 (Vol. 2) Economic ODenness inModernizina China" ( 99th Congo 2nd Sess., May 1987) at 266.
269. US has unilaterally controlled an additional 38 itemsbesides the CoCom list items. "East-West Trade", supra note250, at 127.
270. see supra note 208-209 and accompanying text.
271. It is observed that a stimulus for new determinations inprecedent-setting cases often comes from other CoCom membercountries who push harder than US for approvals to export asin some key decisions on the sale of seismic equipment.However, a full review of China policy would still bestimulated by the buildup of another backlog of US cases inCoCom. This demonstrates that US still has a dominant role inCoCom, although such role is decling. "Technology Transfer toChina", supra note 13, at 218.
272. Id. at 216-217.
273. Id. at 217.
274. Id.
CHAPTER IIITECHNOLOGY TRANSFER CONTRACT
INTRODUCTION
It is not enough for a Chinese party or an Americanparty to know each other's technology policy and legalframework governing technology import or export. Anagreement has to be reached to effectuate an actual transferof technology.
This chapter will discuss the legal aspects ofnegotiating such a technology transfer contracts between theAmerican tranferor and the Chinese transferee.
Since most of the technology transfer contracts arenegotiated and signed in China, this chapter will alslogenerally describe the Chinese contractual policy andpractice. A clause-by-clause description of the contents ofa typical technology transfer contract will be presented tofurther illustrate the Chinese positions on each issue andthe problems both parties have encountered or wouldencounter in each area. They are not exhaustive, but onlyto offer insights on the major contract issues, for Americanlicensors, as well as Chinese licensees.
158
159
A. CHINESE CONTRACTUAL POLICY AND PRACTICE
1. The Importance of ContractContract is important in a transaction where the
governing law does not exist. Before the enact ion of theChinese patent law, the protection of foreign patents orknow-how was mainly provided by contract on a transaction-by-transaction basis. Therefore, it was exclusively "withinthe four corners of the contract" negotiated by the partiesthat the licensor obtained patent and know-how protectionwhich he would normally have received under statutes inother countries. 1 Because the lack of a Chinese commercialcode, quite often the only source available to govern therights and duties of the parties is the contract itself. Inthis sense the contract is the "law" governing thetransaction2 and has legal effect. Even when there is agoverning the law, contract is still an important legaldocument for the parties, since many Chinese laws onlyconsist of general principles and leave the details to benegotiated by the contracting parties. As one observernoted, the codified laws are generally "vague, brief andloosely constructed".3 Therefore, the carefulnegotiation and drafting of a technology licensing contractis of vital importance to a licensor as well as to licensee.
The Chinese generally are diligent in performingcontracts, because they believe this is the best way todevelop close and mutually profitable relationship,4
160
which the Chinese have traditionally cherished. One authorstated that in performing their contract duties, "theChinese have shown as much good faith as most foreign ordomestic licensees, with the risk of a Chinese licensee'sbreach being intensified only by distance and undefined ornonexistent procedures."s
However, the parties should now be aware of the ForeignEconomic Contract Law (FECL) and Economic Contract Law (ECL)of the People's Republic of China - the two main codifiedlaws governing all contracts when a Chinese party isinvolved. 6 The parties should also be aware of thebilateral treaties existed between China and US whichprovide protection for intellectual properties, such as theUS-China Trade Agreement.7
2. Form ContractThe Chinese, as do many foreign businessmen, find
simple form contracts perfectly adequate8 and insist onthe use of form contract for most internationaltransactions. In international trade, the form contract isnot uncommon. It is used to meet the common need of tradersto minimize risks of international transactions and the needfor uniformity of commercial practice. However, the Chinesewhen using the standard form contract seem to be motivatedby other reasons. They are more concerned about the need toinsure inviolability of their sovereignty and to keepinitiative in their own hands.9 It is their belief that
161
the complex style of Western statutes and codes is to keepthe law unintelligible to the people and the Western legaldrafting "allows evasion of the intent and spirit of law andtends to make the populace litigious. ,,10
The Chinese standard form contract is so brief thatnormally the only negotiable terms are price and quantity.It does not contain a choice of law clauses.11 It alsoprecludes the use of parol evidence from interpreting thecontract and limits the interpretation within the fourcorners of the contract itself if there is not a governinglaw.12 In the form contract China also refuses to considerthe possibility of bad faith or improper dealing on its ownpart in the performance of the contract.13
Some Western commentators found such a practiceunacceptable and suggested that China abandon itsstandardized form contract in favor of negotiating eachcontract separately or develop a workable commercialcode.14 However, such a suggestion would be too westernfor the Chinese to accept now. A more reasonable suggestionwould be that China use its standard form as a basis fornegotiation, allowing easy modification and expansion whereneeded, since form contract has the advantage of reducinglengthy negotiation and encouraging trust and businesshonesty, while developing a separate national commercialcode would be contrary to the objective of internationaltraders to ensure more uniformity, because the first step toinsure uniformity is to "prefer the law of the contract to
162
that of any national legal system" in interpretinginternational contracts.15
China's practices in recent years seems to demonstratethat China is adopting a more flexible attitude innegotiating its international contract.
3. China's Foreign Trade Organizations and OtherOrganizations Involved in Technology Import
The Ministry of Foreign Economic Relations and Trade(MOFERT) is the central organization in China's foreigntrade. It was organized in 1982 from several otherorganizations including the former Ministry of ForeignTrade. 16 The major responsibility of MOFERT is to help thestate Planning Commission (SPC) formulate national tradeplans, to negotiate international trade agreements, toparticipate in international trade organizations.17 Itsrole in China'importation of foreign technology is toprovide policy advice on China's needs for a giventechnology; to approve the language of a technology transfercontract; to propose new regulations or revise and clarifyexisting technology regulations; and to certify Chinese endusers of sensitive high-teCh (PRC End-User Certificate) inaccordance with the CoCom 1985 agreement.18
There are 16 national Foreign Trade Corporations (FTC)which act as independent legal entities but under thesupervision of MOFERT (there are also other FTCs under otherindustrial ministries). Prior to 1982, these FTCs were the
163only entities authorized to negotiate trade contracts. Evenafter the decentralization of foreign trade apprartus beganin 1979, the FTCs are still responsible for negotiating andconducting the major portion of China's foreign trade. Theyact as middlemen for Chinese end-users and sometimes signcontract in conjunction with end-users.19 They arenormally organized to handle specific commodities orservices and can delegate their responsibilities to theirbrances. The key FTC in China's technology import is theChina National Technical Import Corporation (TechImport).2o
The China Council for the Promotion of InternationalTrade (CCPIT) is a non-government organization majorlyinvolved in trade promoting activities such as holding tradefairs, trade exhibitions, sending and hosting tradedelegates, etc. It is the Chinese version of internationalChamber of Commerce. ~
Other important organizations in technology transferdecision-making besides MOFERT are: the state PlanningCommision (SPC) , which formulates technology import plan;the state Economic Commision (SEC) which has specialresponsibility for technical transformation through itsTechnical Transformation Bureau (TTB); and the state Scienceand Technology Commision (SSTC) which is centrally involvedin importing technology for national research andtechnological develop~nt projects, besides setting nationaltechnology policy. 21
164
4. China's Foreign Trade PolicyIn any international trade, including contract
negotiation, the Chinese strictly hold to three foreigntrade policies: " the policy of independence and keepinginitiative in their own hands, the policy of equality andmutual benefit, the policy of taking into considerationinternational practice. ,,22Any foreign businessmanintending to deal with the Chinese should be aware of thesethree principles.
The first principle is the natural and direct result ofChina's experience in the "century of humiliation"(1840-1949).23 The Chinese would not hesitate to sacrifice adeal in order to protect its sovereignty andindependence. 24 All foreign trade will be concluded onlyafter careful consideration of its effects on Chineseinterests and practices. However, stated in other words,this principle expresses no more than China's intention to"take advantage of the world market while protecting its ownintegrity" just as any nations does.25 In this sense,there is no peculiarity to this Chinese policy.
The second policy reflects one of the traditionalChinese philosophy "Li", the essence of which is thatfriends deal with each other with sincerity, not from apower base, but rather as equals, considering the needs ofeach other.26 This is an unusual concept in internationaltrade, because on the international market place, it istaken for granted that most parties deal with each other at
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arms-length and utilize their power and position to theirbest advantage. 27
The third principle is the recognition by the Chinesethat, from a practical view, China must recognizeinternational business practice and business custom in orderto do business in the international community28, i.e.,China must compromise its principle of sovereignty andindependence with international practice and custom to adegree that business with foreign countries are possible.Whenever these principles are in conflict, the principle ofequality and mutual benefit will guide the process anddegree of compromise. 29
5. Negotiation Process and Style(a) pre-Negotiation: Contact and Exchange of Information
It is often difficult for American licensors to knowthe Chinese market, either because there is not muchinformation there, or because the available information anddata are ambiguous, unofficial and made up of principlesonly. One curious thing about the Chinese trade practice isthat they keep their detailed trade and economic plansalmost totally secret after spending great efforts indevising them. 30
The Chinese have also experienced difficulty ingathering foreign trade information they need because oflimited manpower, lack of expertise and the absence of anoverall information network. As a result, quite often the
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FTCs purchase from abroad without the benefit of competitivebids.31
Traditionally, the main fora for exchanging tradeinformation have been trade exhibitions and trade fairs.The exhibitions are usually organized by CCPIT to displayforeign products and equipments. They constitute majorcommercial events in China. The purpose is to introduceproducts and technology to China's technical personnel, whoconstitute the majority of visitors to the exhibitions.Typical Chinese trade exhibitions have the followingfeatures: 1) the exhibitors are often very prestigious andpresent the most advanced technology available in fields ofparticular interest to the Chinese; 2) some exhibits travelto more than one city; 3) the exhibits usually providehundreds of technical seminars and industrial films alongwith demonstrations and displays; 4) technical data andglossy catalogues, specially printed in Chinese, aresupplied for free and in large quantities; and 5) thevisitors are selected by Chinese government, usually byinvitation only and generally limited to highly qualifiedspecialists from major manufacturing and research centers."In short, the exhibitions make the search for relevantforeign technology remarkably easy for the Chinese. ,,32
The most famous trade fair is perhaps the biannualChinese Export Commodities Fair-the Canton Trade Fair,33which exhibits both Chinese and foreign goods. Despite itsexport purpose, this fair is an important forum for business
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negotiation and large amount of deals are made during eachfair. Many other Chinese cities also started to host "mini"trade fairs for specialized products.34
As China expands its foreign trade, the channels fortrading have also been expanded. Today, both Chinese andforeign businessmen have more access to each other's market.Commercial advertising by foreign firms has become morecommon. More foreign firms have established branches inChina. Associations such as the National Council for US-China Trade (US) and its publication China Business Reviewhave played important roles in providing Americanbusinessmen information about Chinese market and customers.Consulates, embassies and other government departments havealso been important channels for exchanging tradeinformation. 35 The Chinese are also sending moredelegations to visit American plants. Nevertheless, most ofthe negotiations are taken place in China because theChinese still holds to the tradition (albeit to a lesserdegree) of conducting foreign trade "on China's terms" andon their own turf.36 Therefore, quite often the foreignlicensors must travel to China either themselves or throughsales literature.u
(b) the Chinese Negotiation StylesOnce both parties have established business contact,
they will get down to business. The Chinese will not invitea foreign firm to China until they are ready to do serious
168negotiation, although an invitation does not mean an assuredcontract. 38
There are usually two phases in a technology transfercontract negotiation. Technical specialists are invitedfirst to discuss comprehensively the nature and performanceof the technology and equipment. If the Chinese end-userfeel the technology or equipment are worth purchasing, asecond team will be invited to actually negotiate thecontract.39
The Chinese usually consider a transfer of technologytransaction as the beginning of a longer relationship. "Aspart of this relationship, PRC parties expect the foreignparty to work with them to resolve problems that may ariseand, to some extent, share responsibility for suchproblems.,,40 Friendship, cooperation, and mutual relianceare usually emphasized in the agreement. 41
However, the Chinese are known as tough negotiators.42
"They will often steadfastly hold to a position, explainingonly that 'it is not our practice' to accede to a pointpressed by the other side".~ They want to get as much fortheir money's worth as possible, because the price oftechnology always seems exorbitant to them. During thenegotiation, they also want to extract the maximum amount ofinformation from licensors,44 sometimes demandingblueprint or other know-how or other technical informationnot normally divulged in the absence of a signed contract orUS export license. Conversely, the Chinese themselves often
169
withheld information which the other side deems essentialsuch as the site of a given plant, because they areconcerned that they may have divulged "state secrets".45
In order to strike a good deal, the Chinese may pushsome foreign negotiators to the ends of their patience.46
The negotiations may be very lengthy. During a complextransaction, the Chinese negotiators may repeatedly consultwith higher authorities on major points and this causesfurther delay.47 The negotiation time will range from aminimum of several months to a maximum of years.48 Thelengthy negotiations have seriously discourage small-to-medium American firms who want to do business with China.49
B. NEGOTIATION OF CONTRACT PROVISIONS
1. PartiesA u.S. licensor should check the status of his Chinese
counterpart, not only because the US export control law mayrequire information about the end-user, but also because aChinese negotiator may not necessarily be the end-user ofthe would-be transferred technology. The Chinese negotiatormay be a FTC which is acting as a middleman.~ As oneauthor pointed out "it is theoretically possible for alicensor never to meet the beneficiary of the contract-theend-user. ,,51Therefore, if the national FTC (e.g. theTechimport) is negotiating the contract for itssubsidiaries, it is important to have the actual end-user
170involved and sign the contract if possible, since the end-user (the real licensee ) will control many of thelicensor's concerns such as confidentiality and set-up ofplant or process.52 Also DOC may require the licensor toprovide information about the end-user and may demand theright to supervise the use of the technology transferred tothe end-user. On the other hand, if the real licensee isnegotiating the contract, it will be helpful for theAmerican licensor to involve the national FTC or any otherorganization under which the licensee is affiliated. Thereason for this is, if the transfer of technology willrequire the use of other resources (raw materials,transportation, energy, etc.), or if the future sale ofproduct manufactured with the technology will requiredistribution throughout China, support from a nationalcorporation (or even better a government department) willmake things much easier for the licensor.~
The American licensor is also advised to check whetherthe Chinese party is legally eligible to negotiate a foreigntrade contract, because a Chinese entity needs to meet tworequirements to enter into a contract with a foreign party,i.e., it must be a legal person; and it must possess foreigntrade authority. Besides, a licensing contract is oftensubject to the approval by an approving authority (usuallyMOFERT or its designated authority).M
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2. LanguageCommunicating with Chinese in Chinese can be trying for
American licensors and their attorneys. Perhaps realizingthe difficulty of their language posed to foreignbusinessmen, the Chinese usually brings interpreters duringthe negotiation and they normally formalize businesstransactions with us firms in straightforward writtenEnglish agreements. The parties may also provide thatcorrespondence as well as other technical documentation bein English. However, in large-scale transactions, thepractice has been to execute the agreements in both Englishand chinese.55 Although normally both Chinese and Englishversion are equally binding, there is a tendency towardregarding the Chinese language version as paramount.~
3. Price and PaYmentThe Chinese used to view royalties as "exploitative,
monopolistic and capitalistic".57 They always see theprice tag as too exorbitant.~ This may be due to tworeasons: first, the high value of dollar comparing to thelow value of the Chinese Renminbi (RMB) and the general lowliving standard and commercial exchange in China; second,the Chinese tend to perceive licensing as a transfer ofdocuments instead of a transfer of the technology and know-how represented by the documents.59 Since the profit to berealized from the sale of the product or equipmentrepresents a return not only on the manufacture of the
172product but also on the investment in R & D of thetechnology behind it,~ the Chinese often fail to see thelatter part as well as the value of the know-how andpersonal skills involved in the transfer.
As the Chinese party persistently pushes down theprice, the American licensor may face the dilemma of eitherhaving to lower his price and risk losing his profit, or"stand his ground and risk losing not only the deal, butaccess to a market of vast potential importance. ,,61
However, quite often the Chinese attract the licensor bypromising more future business and use the huge Chinesemarket as a bait to break down the price. Such tactic hadbeen successful usually.
The Chinese also resent price escalation clause in thecontract, although they have been willing to add inflationinto the one-time fixed cost.~ A price clause in atypical current licensing agreement consists of initial feeand a certain percentage of royalty as the contractprice. 53
It should be noted that the Implementing Details of theRegulations on Administration of Technology Import Contractsof the People's Republic of China (the" ImplementingDetails") expressly state that a contract which contains"unreasonable" price and payment will not be approved.54
Also, if raw materials and parts have to be transferredtogether with the equipment or technology, their price
173should not exceed the price of like products on theinternational market. 65
Once a price is agreed, the Chinese are usually willingto pay. PaYment used to be made in cash for everythingbought.~ However, new forms of paYment such as bankcredits, and compensation trade (paYment by part of themanufactured goods) are now used. The credit rating of theBank of China and general Chinese buyers is exceptionallygood and foreign sellers "have seldom, if ever, beendissatisfied with the Chinese speed of paYment".67
The Implementing Details also insists that the ways ofpaYment be "reasonable", 68 and the ways of paYment, likeprice, must be stipulated in a contract.~
4. Delivery
The Chinese normally buy F.O.B. or FAS, but they alsobuy on basis of C.I.F •• They are very cautious about thedelivery of goods, especailly in large and complextransactions. They demand a detailed delivery schedule andadvance notice of each shipment, as well as name of thecarrying vessel, shipping agent, and marks of each crate,etc. Other precise information on the shipping containersor crates, such as contract number, consignee code, casenumber, weight and measurement, etc. are also specified inthe contract. Costs incurred in the first 30 days by delayof shipment will be charged to the seller. The buyer will
174
also charge seller costs attributable to the seller'sfailure to ship by the designated vessel.
The Chinese buyer also demands uttermost care be givento the packing of goods or equipment, and there is usually aclause in the contract requiring same.70 Seller should beliable for any damage caused by improper packing.
5. Inspection and AcceptanceThe Chinese usually insist the right of final
inspection of the equipment exported to China. This is anotable instance of uneven application of the principle of"equality and mutual benefit" since they do not allowforeign seller the right of final inspection. 71 Ifdiscrepancies are found between the equipment and thespecification of the contract, the Chinese buyer has the"right to claim for replacement with new goods or forcompensation, and all the expenses (such as inspectioncharges, freight, insurance, storage, loading and unloading)shall be borne by the seller". 72 In the alternati ve, theChinese buyer may reject the goods within 60 days.73 Theevidence for such claim and rejection is the certificateissued by the Chinese Commodity Inspection Bureau (CCIB).The CCIB has earned a reputation for "meticulousness andobjectivity" in its inspection procedures. 74 Somecommodities that could be measured by weight in the West maybe counted by hand individually by the Chinese. They stickto the contract to such a degree as to be "compulsively
175
honest".75 For example, they would complain discrepancyeven if foreign supplier shipped, at no extra cost, newermodels of machinery than those specified in the contract.76
The requirements insisted by the Chinese as buyer andthose insisted when they are seller are often unequal andnon-reciprocal, which further raise suspicions to theprinciple of "equality and mutual benefit". As a buyer, theChinese party demands an equipment or commodity with "bestmaterials" and "first class workmanship warranted for acertain period of time", but as a seller, China will only beresponsible for "badworkmanship" or faulty materials,while no warranty is offered, either.77 Obviously, theChinese are trying to get more favorable treatment both asbuyer and as seller. Such unequal dual practice has causeddoubt among foreign traders as to the sincerety of Chinesemotives. 78 Therefore, in order to have better businessrelationship with foreign traders, China should abandon suchnon-reciprocal practice.
6. Guaranty of Claims by SellerThe scope and requirement for the technology to be
imported is also a "must-clause" in a technology transfercontract. 79 If there is no "reasonable" provision on the"guaranty of technological level and economic effect,including guaranty of the quality of the productmanufactured by the imported technology", the contract willnot be approved by the Chinese approving authority.80
176
The Chinese law also requires that licensor guaranteethe "completeness and accuracy" of the transferredtechnology or documents, and guarantee that the intended"technological goal" be achieved by the transferedtechnology. 81 In addition, the submission of technicaldocuments should be timely enough to accomodate theoperation of the plant.82 Since these terms are quiteambiguous, the parties are well advised to define them inthe contract. It has been suggested to the licensor thatthe guaranty be qualified by two conditions: 1) that thelicensee follows the instructions of the licensor; 2) thatthe licensee's equipment and facilities meet the licensor'srequirements. 83
The period of warranty (if there is any) should also bespecified because the Chinese party tend to expectmaintenance and repair for an indefinite time.84
The Chinese law also requires another warranty beprovided by the licensor, i.e., that the licensor be the"legitimate owner of the transfered technology", orguarantee that it have "the right to transfer or license"said technology.85 This serves as an insurance on thetechnology acquired by the Chinese, because if the Chineselicensee is sued for infringing intellectual property by athird party while using the technology, the licensor has theresponsibility to answer the claim; and if there is merit inthe claim by the claimant, all damages suffered by Chineselicensee shall be compensated by the licensor.86
1777. Protection of Licensor's Intellectual Property
It is perhaps the licensor's first and ultimate concernin granting a license that the technology shall be protectedagainst infringement by any party in any form, while at thesame time bringing licensor the expected market return. Theenactment of Chinese patent law assured foreign licensor theprotection of their patented technology to some degree.However, technology protection clauses in the contract arestill necessary to supplement the general and sometimesambiguous terms of the patent law. The technologyprotection clauses should normally cover the issues ofsecrecy, sublicense and assignability of the transferredtechnology.
The essence of a secrecy (confidentiality) clause is acommitment by both parties not to disclose the licensedknow-how to "third parties" unless it otherwise enters thepublic domain.87 The Chinese usually prefer a shorter termfor licenses and a short-term secrecy requirement, arguingthat the know-how or expertise is likely to become obsoleteor publicly known in a relatively short time anyway.88 TheImplementing Details stipulates that the confidentialityperiod normally should not exceed the term of the licensingcontract. 89 If for special reasons it has to exceed theterm of the contract, explicit provisions should be put downin the contract as such and reasons be given when applyingfor approval of the contract.~ However, if licensorcontinues to supply licensee improvements on the originally
178licensed technology, the Chinese licensee will keepconfidential the newly supplied technology even after theexpiration of the original contract, for a period of thesame length as the term of the contract, beginning from thedate when the improvement was supplied. 91
The Chinese want to continue the use of the technologyafter the expiration of the contract without payingadditional royalties. Any prohibition of such continuinguse in the contract should be subject to the scrutiny of theapproving authority.92 However, if the technology ispatented by the licensor, and the patent is still validafter expiration of the contract, the relevant provisionsof the Chinese patent law will govern.~
The problem of negotiating sublicensing andassignability to a third party is exacerbated by thedifficulty of defining "third party". As noted earlier, theChinese negotiating party is often a national FTC, whichrepresents all of its affiliates and branches nationwide.If the end-user is not known at the time of negotiation,provisions should be made limiting the scope or type of end-user. Even if the end-user is the actual Chinesenegotiating party, explicit provisions specifying its rightto sublicense or assign should be put down in the contract.Since China is a country with centrally planned economy,whereby the resources are allocated according to the centralplan, and since China has traditionally resented thesuggestion that proprietary knowledge be withheld from one
179segment or one region to another, such contract provisionsare more than necessary. However, because of the vastnessof the country, it is hardly practical for foreign licensorto supervise that the technology or know-how would not besublicensed or assigned to another Chinese user.
However, the foreign licensor should not be overlyconcerned about infringement, since the Chinese begin torealize the adverse effect of illegal sublicensing andassigning.~ In order to keep foreign investors coming in,in recent years, the Chinese have compromised on a lot ofissues, adopting a series of practice close to or moreacceptable to Western sellers. Moreover, as noted earlier,the Chinese have proved to be faithful to their word oncetheir agreements are put down in the contract.95
Trademark issues are also critical in a technology transfercontract. The Chinese trademark law was enacted in 1982 toprotect trademarks registered in China.~ since onlytrademarks registered in China will be protected by the law,the foreign licensors are highly advised to register theirtrademarks in China even before the related technology orequipments are transferred to China. Also, the foreignparty should ensure that the Chinese party will use thetrademark only if it maintains the quality of the product.
The Chinese copyright law was enacted in september 1990to protect the copyright owner's interests. This indeed isfurther good news to foreign investors. However, since thecopyright law is still in its early stage (effective June 1,
1801991), if licensor's copyright is involved in the technologytransfer, the parties are still well advised to negotiate acontract as the governing law.
8. Prohibition of Restrictive ClausesIn order to protect proprietary information, licensors
often want to restrict licensee in such aspects as quantityof production, sales channels, and the sale price ofprocduct. In fact, one method often used by multinationalcorporations (MNEs) to maximize profits from transferringtechnology to less developed countries (LDCs) is to includenumerous restrictive business practices and clauses in thelicensing contract.97 One example is the tying clause,which requires the licensee to buy exclusively from licensorall unpatented components, supplies and equipment necessaryto manufacture under the license, even when these items canbe bought more cheaply from other sources.98 Otherexamples include price fixingj field-of-use restrictionwhich limits a licensee's right to exploit the subjectmatter of a license to one or more specific useSj and exportrestrictions.
However, the Chinese, like many other LDCs, has usuallyresented the restrictive clauses in the technology transfercontract. The Chinese Regulation for Control of TechnologyImport Contract explicitly prohibits nine kinds ofrestrictive clauses in the technology contract without priorapproval. For example, clauses requiring the licensee to
181accept attached conditions unrelated to the contract,including the purchase of unnecessary equipment or rawmaterials (tying arrangement); clauses restricting thelicensee from developing and improving the technology;clauses imposing unequal conditions for the exchange ofinformation relating to improvements of the technology.~The Implementation of The Chinese Joint Venture Law alsoprevents the technology exporting party from "putting anyrestrictions on the quantity, price or region of sale of theproducts that are to be exported by the technology importingparty. ,,100 However, comparing to similar laws in manyother LOCs, these provisions against restrictive clauses areless restrictive. 101
In practice, the parties may find it difficult to reachagreements on these issues. If a licensor is prohibited toplace certain restrictions on licensee, the licensor may tryto include in the cost of its technology its projection oflost sales due to competition by the recipient or it mightsimply refuse to sell for fear of creating a new competitor.However, successful negotiation must be based on compromisefrom both sides.
9. Chioce of Law and Contract InterpretationSince most technology transfer agreements are
negotiated and signed by both parties in China, thecontracts are generally made subject to interpretation underChinese law.102 Before the passage of FECL, China has not
182
only resisted the governing of foreign law, but avoided thechoice-of-Iaw clause in the contract altogether. The FECLallows the parties to choose Chinese law or other law forinterpretation and dispute settlement. In the absence ofsuch a choice, laws of closest connection or internationalpractice will apply. However, the equity or contractualjoint venture contracts and the contracts of cooperativeexploration and development of natural resources, which areperformed in the territory of China, must be governed byChinese law.103
10. Arbitration and Dispute SettlementThroughout the years, China has developed its
perculiar ways for settling dispute, somehow reflecting itsold maxim: " it is better to enter a tiger's mouth than acourt of law. ,,104
While this is only literal expression, it is true thatthe CHinese would try to settle a dispute before it wouldeven go to arbitration so that litigation could be totallyavoided.
The Chinese methods of settling commercial disputesare, in their preference: friendly negotiation;consultation; conciliation; arbitration. Litigation is thelast resort, which usually means the result of their failureto settle the dispute.
Friendly negotiation are conducted directly between theparties to a dispute, either by correspondence or in person
183in China. Such friendly negotiation is not necessarily oneof reaching compromise by making concessions (althoughcompromise is necessary); rather it is basically carried outwithin the terms of the contract. 105
If no settlement can be reached through friendlynegotiations, one or both parties may request the assistanceof the Foreign Trade Arbitration Commision (FTAC),106
which will help the parties in reaching a settlement. Thisbegins the process of consultation. During this process,both parties will be asked to submit to FTAC an analysis oftheir positions, along with all relevant documents andinformation. Or the FTAC may gather information andinvestigate by itself and then disclose all the informationobtained to both parties. 107 After this fact-findingprocess, both parties will be advised (by FTAC) the strengthand weakness of their positions in the dispute so that eachparty will reconsider its arguments and claims and negotiatea friendly settlement. If no settlement is reached, theprocess will be repeated before the dispute goes toconciliation. 108 If no result comes out of the process ofconsultation, FTAC will make non-binding recommendations toboth parties for settlement of their dispute. This is againtrying to conciliate the disputing parties in a friendlymanner and avoid formal arbitration. 109
All these processes are intended to reachreconciliation in such a manner that the businessrelationship is allowed to continue in a cooperative spirit,
184instead of by judging the parties. 110 Even if the partieshave decided to go to arbitration at the beginning, thedispute will go through these processes successively beforeit directly goes to arbitration. 111
Despite the strong preference for settling disputes byfriendly negotiation, consultation, and conciliation, theChinese usually do put an arbitration clause in theircontract. Some suggest that the arbitration clauses areincluded in contracts solely for the purpose of avoiding thejurisdiction of foreign courts, there being no intent toarbitrate dispute. 112 A typical arbitration clause wouldrequire:
"All disputes in connection with this contract or theexecution thereof shall be settled through friendlynegotiations. In case no settlement can be reachedthrough negotiation, the case may then be submitted forarbitration to the Foreign Trade Arbitration Commissionof the China Council for the Promotion of InternationalTrade. The decision of the Arbitration Commision shallbe final and binding upon both parties; neither partyshall seek recourse to a law court or other authoritiesto appeal for revision of the decision. ,,113
As can be seen in this typical clause, China used toinsist arbitration take place in China. However, inincreasing occasions, the Chinese have begun to acceptarbitration in a foreign tribunal such as in stockholm,Geneva, London and Toronto. 114
The role of arbitration in China's commercial disputesettlement is limited. Although most Chinese contractscontain arbitration clauses, very few cases of formalarbitration have actually taken place. During a trip to
185Beijing in 1975, representatives of the American ArbitrationAssociation were told that during 1974, only one disputefrom all of China's foreign trade contracts was resolvedthrough arbitration. 115 According to another source,though thousands of contracts contain Swedish arbitration,no trade dispute involving China has yet been brought toStockholm as of 1987.116
China is now a party to the United Nations Conventionon the Recognition and Enforcement of Foreign ArbitralAwards. Therefore, there is a reason to believe that theruling of a foreign arbitral tribunal still generally behonored if it is fair and does not violate China's publicorder.l17 The foreign party may request either CCPIT or aChinese law court to assist in the enforcement of theawards. However, there will probably be more arbitrationstaken place in China than in a third country. If thearbitration is taken place in China, the Chinese arbitraltribunal118 will usually adhere to three rules which arealmost the same as the three general principles guidingChina's foreingn trade. These rules are: 1) independenceand initiative; 2) equality and mutual benefit (pertain tothe terms of the contract); and 3) reference tointernational practice. 119
Litigation in court is even more rare. Even today, theChinese government still resist the jurisdiction of aforeign court, considering that as a subjugation of itsindependence and sovereignty to a foreign country.
186So far most of the disputes have been settled friendly
in the process of friendly negotiation, consultation andconciliation. The settlement of disputes by friendly mannercan no doubt promote good business relationship besidesavoiding litigation fees. However, some US businessmen areuneasy over the Chinese dipute resolution system whichseemed to compel "friendly negotiation" in China on Chineseterms. 120 Dissatisfaction with this system by foreignsellers and investors has gradually persuaded the Chinese toadopt a more flexible approach toward dispute settlement by,for example, allowing more arbitration in third countries.On the other hand, it is unlikely that CHina will adopt theAmerican-style adjudicatory proceedings as the majorchannels of dispute settlement. Attempts to impose Americanstyle litigation on the Chinese should be avoided, "if forno other reason than that it would be culturallyoffensive •••121
As one commentator pointed out, "what will determinethe success or failure of the drive for foreign investmentwill not be the number and nature of disputes which arise,but rather the manner in which they are settled •••122 Thisis true not only for attracting foreign investment, but alsofor importing foreign technology. If disputes are settledin a fair and reasonable manner, long term businessrelations will be maintained; if settled in an arbitrarymanner which favors the local partner, foreign investors and
187sellers will likely withhold their investment andtechnology.
11. TaxA comprehensive discussion of tax regulations is
outside the scope of this thesis. Yet a brief guide toChinese tax regulations may be useful to provide a licensorwith some guidance.
Of direct concern are the following tax regulations:1) Interim Provisions of the Ministry of Finance
Concerning the Reduction or the Exemption from Income Tax onRoyalties for Proprietary Technology, ("Tax on Royalties")(implemented from January 1, 1983);123
2)Interim provisions of the Ministry of FinanceConcerning the Reduction or Exemption of Income Tax onInterest Derived from China by Foreign Business ("Tax onInterest Derived in China") (implemented from January 1,1983);
3) the Individual Income Tax Law of the People'sRepublic of China ("Individual Income Tax Law") (September10, 1980) and its implementation rules (December 14 1980);
4) the Income Tax Law of the People's Republic of ChinaConcerning Foreign Enterprises ("Foreign Enterprise IncomeTax Law", December 13, 1981) and its implementation rules(February 21, 1982);
5) the Income Tax Law of the People's Republic of ChinaConcerning Chinese-Foreign Joint Ventures ("Joint Ventures
188Income Tax Law", September 10, 1980) and its implementationrules (December 14, 1980);
6) Interim Regulations of the State Council of thePeople's Republic of China Concerning Reduction or Exemptionof Enterprise Income Tax and Industrial and CommercialConsolidated Tax in Special Economic Zones and 14 CoastalPort Cities ("SEC and Port Cities Tax") (November 15, 1984).
In addition, a number of provisions in various jointventure regulation and technology import regulations offertax incentives to foreign investors who bring advancedtechnology to China. For example, the newly promulgatedprovisions of the State Council of the PRC For theEnforcement of Foreign Investment ("The 22 Provisions",October 11, 1986).1~
Instead of by one tax code, the Chinese tax regulationsare made up by pieces of regulations. It may lackcomprehensiveness and integrity, therefore, the foreignlicensor should consult all relevant regulations in draftingits tax plan and check with the Chinese authority in case ofconflicting or ambiguous provisions.
CHAPTER SUMMARYIn doing business with China, the contract is an
important instrument which may be "the law" governing anindividual transaction. This is true especially for an area
exist, the contract may still be the governing document,where there is no governing law. -(,
Even a governing law does
189since many Chinese law and regulations consist of generalprinciples only.
The Chinese tend to use their standard form contract.The national Foreign Trade Corporations (FTCs) are the majorplayers in foreign trade negotiations. Often they act asmiddlemen for their affiliates and branches nationwide andthey co-sign the contracts, although they may not be theultimate end-users. During the negotiations, the Chinesestrongly uphold their foreign trade principles (theprinciple of independence, equality and mutual benefit, andtaking into consideration of international practice).Throughout the years, the Chinese have developed their ownnegotiation styles and have gained a reputation as toughnegotiators. However, during recent years, the Chinese haveadopted more flexible approaches, which made their practicesmore close to and acceptable by Western sellers. This canalso be seen from the different provisions in recentcontracts regarding inspection, choice-of-law, andespecially regarding arbitration and dispute settlement,where more contracts containing third country arbitrationare signed.
The successful negotiation of a technology transfercontract will depend on a lot of elements. Given theremarkable difference of culture and legal system betweenChina and the West, it is often difficult to reach anagreement. However, as more and more technology aretransfered to China, both parties will gain experience in
dealing with each other, which will hopefully make thenegotiations easier for both sides.
190
Endnotes:
1. Theroux, Eugene A. Th~dnoloav Sales to China: New Laws andProblems, 14 The J. of Int'l L. & Economics 185, 230 (1980)(hereinafter "Technology Sales to China").2. Notes, An Anal vsis of Chinese Contractual Policy andPractice, 27 Waynes L.R. 1229, 1242 (1981) (Hereinafter"Policy and Practice").3. Id. at 1234. see also Gu, Ming, Recent DeveloDments inChinese Economic Leaislation, 21 U. of San Fran. L.R. 217, 225(1987).4. Tobert, Preston M. The American Lawver's Role in Trade withChina", 63 ABA Journal 1117, 1120 (1977) •.5. Moga, Traian T., Making Foreian Thinas Serve China: AWestern Licensor's Guide To the Chinese Market, 28 Saint LouisU. L.J. 771, 792 (1984).6. see supra note 175-193 of Chapter I and accompanying text.The ECL is supposed to cover all contract regardless one orboth parties are Chinese parties. FECL specifically governscontracts between a Chinese party and a foreign party. For acomparison of ECL and FECL, see Zheng, Henry R. A ComDarativeAnal vsis of the Foreian Contract law of the PRC, 4 UCLAPacific Basin L. J. 30 (1985).7. see supra notes 244-248 of Chapter I and accompanying text.8. supra note 4, at 1119.9. supra note 2, at 1240-41.10. Id. at 1234.11. Id. at 1241.12. Id. A usual clause prohibiting the use of parol evidencereads: "after the signing of this contract all precedingnegotiations and correspondence pertaining to same shallbecame null and void."13. Id. at 1245.
191
19214. Id. at 1242, 1243.
15. Id.
16. Theroux, Eugene A. Licensina Technoloav and Know-how toChina in LEGAL ASPECTS OF DOING BUSINESS WITH CHINA, 22(Eugene A. Theroux ed. 1986).17. Id.18. US Congress, Office of Technology Assessment, TechnologyTransfer to China, OTA-ISC-340 (Washington, DC: US GovernmentPrinting Office, July 1987) at 51. (hereinafter "TechnologyTransfer to China"). see also McKenzie, John F., US EXDortControls on Hian Technoloav Exports to The PeoDle's ReDublicof China: Recent Developments, in LEGAL ASPECTS OF DOINGBUSINESS WITH CHINA 332 ( Eugene A. Theroux ed. 1986)(hereinafter "Recent Developments")
19. supra note 16, at 22.
20. Id. at 23. Other FTCs involved in technology importinclude China International Trust and Investment Corporation(CITIC), China National Machinery Import Export Corporation(Machinpex), etc.
21. supra note 18, at 50-51.
22. supra note 2, at 1235.
23. see supra notes 21-25 of Chapter I and accompanying text.
24. However, notions and scope of sovereignty have changeddramatically as many "forbidden zones" are broken. Manypractices which would be considered as sacrifying nationalsovereignty are now considered as normal business. An obviousexample is the introduction of foreign investment and allowingforeign businessmen to capture the profits they earn, apractice which would not be allowed ten years ago.
25. supra note 2 at 1236.
26. Id.
27. Id.
28. For example, as most countries do,according to standard meaning of F.O.B.,other customary terms.
29. supra note 2, at 1236.
30. Theroux, supra note 1, at 200.
Chinese also tradeC.I.F. and a lot of
19331. Id. at 201. The first open international bidding by theChinese was placed in the People's Daily on July 16, 1980 byTechimport.
32. Seabolt, D. Grant, Jr. united States Technoloay Excortsto The PeoDle's ReDublic of China: CUrrent DeveloDments in Lawand POlicy, 19 Texas Int'l L.J. 577, 592-593 (1984).
33. This fair has operated since 1950 and now the premiseshave been expanded and transformed into a year-round foreigntrade center. It is no accident that the Chinese selectedCanton ( now GuangZhou) as the site, because two hundred yearsago, the Chinese rulers, fearful that unristricted commercialcontacts between Chinese and Western would weaken theirpolitical rule, confined all foreign trade with the West toCanton. Two hundred years later, Canton again becomes themain experimental province for receiving foreign investmentand remains at the forefront of China's openning door. supranote 4 at 1118.
34. The first US trade exhibition in China was held inNovember 1980. supra note 1, at 201. see also US Departmentod Commerce, Excort Market Guide. Uni ted States NationalExhibition Beiiinq. China, Nov. 17-18, 1980 (1979).
35. This include the PRC Division of the US DOC. The UnitedStates has consulates in Guangzhou, Shanghai, Hong Kong andEmbassy in Beijing.
36. supra note 4 at 117.
37. supra note 1, at 206.
38. Id. at 210.
39. Id. at 210-211.
40. Conroy, Charles J. Technoloav Transfer to China: Leaal andPractical Considerations, 21 Stanford J. of Int'l L. 549,563(1985).
41. As one author pointed out: ••successful business relationsin the PRC turn on mutual trust ••• This is especiallyemphasized in case of a dispute. One Chinese traderepresentative was quoted saying •• you do not do businessagain with a partner who has sued you in the court, do you? ••see Moga, supra note 5, at 778.
42. Id. at 776.
43. supra note 1, at 211.
19444. US Congress, Office of Technology Assessment, Technologyand East-West Trade, (Washington, DC: US Government PrintingOffice, 1979 ) at 271-272.
45. supra note 1, at 212. The Provisional Regulations onGuarding State Secrets, promulgated on June 8, 1951 categorizethe following as •• state secrets ": secret information ontrade plans, state financial olans and budgets, railways,construction plans and undertakings, scientific inventions anddiscoveries, etc.
46. Id. at 211.
47. Id.48. An illustration of the lengthy negotiation is theMcDonnell Douglas venture in China, which took 10 years tofinalize the deal. see supra note 18, at 73.
49. Id. at 101-102.
50. see supra notes 19-20 and accompanying text.
51. supra note 5, at 775. However, such practice has beenreduced after the decentralization of foreign trade beginningin 1979 and the reorganization of foreign trade organizationin 1982.
52. supra note 40, at 559.
53. Id. at 552.
54. Id. at 559. Frequently the end-user does not have thepower to negotiate a contract buying foreign technology ,therefore, authorization from its governing entity is needed.The Implementing Details of the Regulation on Administrationof Technology Import Controls of the People's Republic ofChina ( promulgated January 20, 1988. Hereinafter ••Implementing Details •• ) does not mention what kinds oforganization are supposed to have authority to negotiateinternational contract. Nor does the FECL and the ECL. seealso Implementing Details art. 3 in People's Daily, January20, 1988.
55. supra note 1, at 213-214. In contrast, some other non-English developing countries require all contracts be drawn inboth English and their native language.
56. supra note 16, at 44.
19557. US Congress, Committee on Science and Technology,TechnoloQV Transfer to China, (Nov. 13 & 15, 1979) at 226.However, Chinese. have changed their view during recentpractice and agreed to pay royalties based on the output ofproduct manufactured by the transferred technology. see supranote 1, at 217-218. see also infra note 63 and accompanyingtext.
58. supra note 1, at 216. This has proved to be the mostdifficult problem in negotiation.
59. Wilson, Philip J. The Leaal Structures GoverninaTechnoloQV Transfers and Joint Ventures with the PeeD Ie'sRepublic of China, 3 Int'l Tax and Bus. L. 1, 38 (1985).
60. Jeffries, Countess Pease, Reaulation of Transfer ofTechnoloQV: An Evaluation of the UNCTAD Code of Conduct, 18Harvard Int'l L.J. 309, 314 (1977).
61. Theroux called such a dilemma a "Hobson's choice", supranote 1, at 216.
62. Id. at 216-217.
63. For a sample know-how contract, see Theroux, Eugene A.LEGAL ASPECTS OF DOING BUSINESS WITH CHINA.1986, (New York:Practising Law Institute, 1986) at 744.
64. The Implementing Details, supra note 54, art. 18.However, what is unreasonable is totally within the discretionof the approving authority, although certain standard (likecertain amount) can be traced out.
65. Id. art. 10.
66. supra note 1, at 218.
67. Id. at 220.
68. The Implementing Details, supra note 54, art. 18.
69. Id. at art. 7.
70. supra note 1, at 221-222. Such a clause usually contains:" (goods or equipment) to be packed in new strong wooden casessuitable for long distance ocean transportation and wellprotected against dampness, moisture, shock, rust and roughhandling. The sellers shall be liable for any damage of thecommodity and expenses incurred therefrom on account ofimproper packing and for any rust damage attributable toinadequate or improperprotective measures taken by the sellersin regard to the packing." see supra note 2, App.II, at 1254-1255.
19671. supra note 1, at 222.72. Id. at 223.73. supra note 2, at 1243.74. Note, Foreian Investment in the PeoDle' s ReDublic ofChina: ComDensation Trade. Joint Ventures. Industrial ProDertyProtection and DisDute Settlement, 10 Ga. J. Int'l & Compo L.233, 240 (1980) (hereinafter "PRC: Compensation Trade").75. Wilson, supra note 59, at 40.76. Theroux, supra note 1, at 222.77. Note, supra note 2, at 1243.78. Id. at 1244.79. The Implementing Details, supra note 54, art.7.80. Id. art. 18(6).
81. Id. art. 9. The Chinese used to demand that thetechnology be "most up-to-date", and the equipment be of "bestquali ty" • However, such demand does not normally occur inpractice today.82. Id.83. Conroy, supra note 40, at 564.84. Theroux, supra note 16, at 35. This may well illustratethe Chinese old saying: " Once you began to help someone, helphim to the end (Bang Ren Bang Dao Di)".85. The Implementing Details, supra note 54, art. 11. seealso notes 167-171 of Chapter I and accompanying text.86. Id.
87. Wilson, supra note 59, at 41. A typical confidentialityclause reads as follows: "within years after signing the
contract, the buyer shall not disclose in whole or in partto any third party the know-how, Technical Documentation andother information of the process obtained under the contract.The secrecy does not apply to those parts ••• which becomespart of the public knowledge or literature. The license,know-how, Technical Documentation and other information are tobe used only for the construction, operation, and maintenanceof the contract plant."
19788. Theroux, supra note 1, at 231. see also Conroy, supranote 40, at 562.89. The Implementing Details, supra note 54, art. 13.90. Id.
91. Id. During the confidential period, if the technologybecomes publicly known for which the licensee is notresponsible, the licensee is no longer under an obligation tokeep the technology confidential.92. Id. art. 15•93. Id.94. Wilson, supra note 59, at 43.95. see supra note 5 and accompanying text.96. The Trademark Law of the Peopele's Republic of China,reprinted in PRIVATE INVESTORS ABROAD--PROBLEMS AND SOLUTIONSIN INTERNATIONAL BUSINESS IN 1983, ( Martha L. Landwehr ed.1983) at 226.97. Jeffries, supra note 60, at 314.98. Another kind of tying arrangement is to sell other patentsto licensee not needed by licensee together with the one thelicensee needs. Kalinowski, Julian O.Von, AntitrustConsiderations in the Transfer of Technoloav to China.printed in PRIVATE INVESTORS ABROAD--PROBLEMS AND SOLUTIONS ININTERNATIONAL BUSINESS IN 1983, (Martha L.Landwehr ed 1983) at 313-314. ( Hereinafter" Antitrust Considerations" ).99. Regulations of The PRC for the Control of TechnologyImport Contract, art.9. ( promulgated on May 24, 1985) (hereinafter as "Technology Regulations"). reprinted in LEGALASPECTS OF DOING BUSINESS WITH CHINA.1986,(Eugene A. Therouxed 1986) at 691. see also supra note 157 of Chapter I andaccompanying text.100. see Regulation for the Implementation of the Law of thePeople's Republic of China on Joint Ventures Using Chinese andForeign Investment, art 46 ( hereinafter "Joint VentureImplementation") (Promulgatedon September 20,1983) • reprintedin LEGAL ASPECTS OF DOING BUSINESS WITH CHINA 1986, (Eugene A.Theroux ed 1986) at 513. see also supra note 249 of ChapterI.
101. see relevant provisions of Mexican law collected inUNCTAD, SELECTED PRINCIPAL PROVISIONS IN NATIONAL LAWS,REGULATIONS AND POLICY GUIDELINES, UN Doc.
198
TD/B/c.6/AC.I/2/Supp.I/Add.I (1975). see also similarprovisions of the Andean Common Market (ANCOM) provided in"Decision 24 of the Commision of the Cartaaena Aareement.Common Regime of Treatment of Foreian CaDital and ofTrademarks. Patents. Licenses and Rovalties", Dec. 31, 1970.Registro Official (R.O.) No. 264 (Ecuador), reprinted in IIIntll Legal Mats. 126 (1972).
102. Theroux, supra note 1, at 236.
103. FECL, art. 5. reprinted in LEGAL ASPECTS OF DOINGBUSINESS WITH CHINA 1986 (Eugene A Theroux ed 1986) at 675.
104. Note, II PRC: Compensation Trade ", supra note 74, at 260.
105. Note, supra note 2, at 1246.
106. FTAC is one section of the Department of Legal Affairs ofthe China Council for the Promotion of International Trade(CCPIT).107. Note, II PRC: Compensation Trade II supra, note 74, at 264.
108. Id. Examples of successful settlements by consultationare also presented in this article.
109. Most disputes would have been settled by this stage,because FTAC has already been familiar with the disputes, andits recommendations will be very similar to the outaome of anarbitration. For examples of successful settlements by FTACconciliation, see ide at 265-266.
110. Id. at 261.
111. Id.
112. Id. at 260. II it is not uncommon to find that disputeswhich arise in the sale of goods are settled by one partygiving the other a better in a later transaction ••• (forexample) give lower prices in subsequent transactions withoutadmitting liability II
113. Id.
114. Chwang & Thurston, Technoloav Takes Command: The Policyof the Peo'Plels ReDublic of China with ReSDect to TechnoloavTransfer and Protection of Intellectual ProDertv, 21 The Lnt 11Law. 129, 166 (1987). (hereinafter II Technology Takes Command"). The Chinese are more willing to accept foreign sites forarbitration if the foreign party is defendant.
115. Tobert, supra note 4, at 1119.
--,1
199116. united states Congress, Joint Economic Committee. China'sEconomv Looks Toward the Year 2000. --Economic ODenness inModernizing China (vol.21, (Washington, DC: GovernmentPrinting Office, 1987) at 297.117. Chen, An. To ODen Wider. or To Close Again: China'sForeian Investment Policies and Laws, 6 N.Y. L. School J.ofInt'l & Compo L. 1, 20 (1984). see also Chwang & Thurston,"Technology Takes Command", supra note 114, at 166.118. The main Chinese arbitral tribunals are FTAC and MaritimeArbitration Commision of CCPIT.119. Chwang & Thurston, supra note 114, at 116. Some foreignobserver has noted that in important and complex cases, theChinese government may cut in and guide the Arbi trationCommittee so that it acts "reasonably and correctly". supranote 2, at 1238.120. Theroux, supra note 1, at 238.121. Note, "PRC: Compensation Trade", supra note 74, at 270.122. Id. at 259.123. All regulations listed here are reprinted in LEGALASPECTS OF DOING BUSINESS WITH CHINA 1986 (Eugene A. Therouxed 1986), except otherwise noted.124. reprinted in Technology Transfer to China, supra note 18,at 107.
CONCLUSION
Technology transfer is one of the major internationaltransactions today. It has a significant impact on theworld economy. As Professor Wilner pointed out,
"the economic impact of transfer of technologytransactions has been recognized as significant inall countries, including the most prosperousindustrial countries of the West ••• for countrieswhose dependency on foreign technology is great,it is now universally understood that the impactof the terms and conditions of its transfer isfelt not only by the party acquiring thetechnology but by the acquiring country's economyin general. ,,1China and the United States represent almost two
extremes in the development of technology: onetechnologically backward and one advanced. Besides, thetwo countries have tremendously different social,ideological and cultural systems. It is the magic oftechnology that had linked these two countries and such alink is becoming an increasingly stronger commercial,cultural and political tie.
The transfer of technology from the United States toChina can be better seen both bilaterally andmultilaterally. China needs technology to fuel its drivefor its "Four Modernization" program. It has adoptedvarious policies based on its own interest and is developing
200
1I!i
201a legal framework that will facilitate its import oftechnology from different suppliers. It will acquire mosttechnologies from Japan or Europe even if the united statesdoes not sell technology to China; obviously, the Unitesstates realize that it is in its own interest to sell itstechnology to China.
Although at present the United states, along with otherWestern countries, still maintains controls on exports oftechnology to China, as more and more technologies aretransfered to China, the current suspicion and fear existingin the West will be replaced by trust and good will. On theother hand, the successful modernization of China by usingmodern technology will not only benefit the United states,but the whole world, for a modern, industrial China will notonly contribute to the development of human technology, butto the peace of the world.
Endnotes:
1. Wilner, Gabriel, An International Leaal Framework for theTransfer of Technoloav, in THE POLITICAL ECONOMY OFINTERNATIONAL TECHNOLOGY TRANSFER (McIntyre and Papp ed.1986), at 55-56.
202
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