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Press Center Technology transfer in China
Press Center Technology transfer in China | Technology transfer in China |
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| Written by Lynn Sum | |
| 2010-07-23 | |
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I. Introduction
The former leader of China, Deng Xiao Ping said that “Science and technology are the primary productive forces”. China as one of those who have highest economy growth rate, knows the principle well. Nonetheless it has the highest IP infringement rate in the world, because of its poor IPRs protection. With the fast growing domestic market, China requires more technology transfers and related services, which means that China has to offer a strong protection of foreign technology holder’s right, otherwise they are not willing to transfer their technologies.[1]
US holds majority of the IPRs, and consider intellectual property protection essential to maintain their economic welfare and development. So during and before the negotiation of China’s accession to WTO, U.S. manifested aggressive and imposed pressure to the IP protection.
It’s easy to find that China’s legal system related to IP, including technology transfers changed rapidly after its accession to WTO because of various factors. In the following sections, I will analyze the IPRs and technology transfer issues, with the purpose of deducing how the internal and external pressures shaping the trade and investment regime.
[1] ntellectual property: protection and enforcement, <http://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm7_e.htm> accessed to on March 23, 2010
II. Economic development and Technology Transfer in China
1. The relation between IPRs and economic development
One of the most important forces behind the economic development is the trend that the technologies transfer from more developed countries to the less-developed countries.[1] It is because that most of the advanced technology for production, human health as well, are controlled by developed countries like U.S. Though the development of economy also depends on other factors, such as expanding the technical infrastructure and maintaining an open and transparent market, the weight of technology can not be changed.
Nonetheless, there are a number of counter arguments to the statement that better or strong IPRs protection will boost economic development in a country. Normally, at the early stage of developing for a country, “borrow” from other countries always is an applicable way. Because most of the high and advanced technology is controlled by developed countries, the transferring of technology, the price of which becomes prohibitive, directly leads to money that could be used to develop the domestic technological infrastructure of developing countries, flows abroad for obtaining technology.[2] In other words, in some extent, technology transfer is regarded as a block of economy in developing countries in short term.
However for the long term development of economy in developing countries, strong technology protection regime is still considered as the necessary element for encouraging the domestic development of economy by, stimulating domestic innovation by granting protection of development to nascent technology; preventing brain drain by ensuring the award of innovator’s effort; and fostering technology transfers, such as FDI, licensing, and imports.[3] If everyone can pirate, steal or copy without punishment, there will be no innovator. Without innovation, society will not progress, which are the same for both domestic and abroad
For China, it’s the general principle that there is no free lunch. China has to change its IP related policy, revise laws and establish new government department, in order to satisfy its internal requirement, economy development, as well as for the purpose of a sustainable and long-term development.
2. Development of Government Policy shaping Technology Transfer Regime
In practice, some scholars classify the following will be regarded to be technology transfer in China:
l “Simple pure technology transfer;
l Transfer of computer software;
l Transfer of technology together with product;
l Technology transfer through Sino-foreign joint ventures or wholly foreign-owned enterprises(“WFOEs”), including internalized transfer and externalized transfer[4];
l Technology transfer through cooperative production or cooperative research;
l Technology transfer by way of technical consultancy or technical services; and
l Technology transfer through lease.”[5]
Also there are different laws in China governing technology transfer related issues: the first type establishes the legal rights associated with patents and technology (patent laws…); the second types regulates the rights and obligations of parties and other issues in relation to technology transfer contracts, including technology import and export issues, such as ‘2001 PRC Regulations on Technology Import and Export Administration’; the third type governs the infringement of technology related rights.[6] This kind of issues will be elaborated in the next section.
Here it is easy to see technology transfer is relevant to several areas, such as patent, copy right, as well as JV and WFOE. Obviously, technology transfer can not even exist without IPR. The government policies guiding IPRs normally also direct technology transfer. The fist large-scale flow of foreign technology into China brought complete sets of equipment from Eastern Europe and Soviet Union which start in 1950s. Meanwhile Chinese leader at that time consider that China will depend on foreign technology if China can not establish its own scientist education and technology innovation system. After splitting from Soviet Union, China tried to rely on itself of the technology development, but failed. In 1970s, China began to import a large amount of foreign technology. Nonetheless the importation of such a massive scale of technology causes assimilation problems, partially because the infrastructure of China’s economy is not ready to receive such burden. [7] After China realized this, the smaller and easily assimilated technology replaced the whole plants or factories import.
Furthermore, during 1950s to 1963, the Invention Award Regulations is “all invention belongs to the State.” The represent of Sate normally is the State owned enterprise. From 1984 to 1992, although economic reform was carried out and continued, China’s economy was still dominated by the state sector. Take patent law as an instance, the Patent Law 1984 contains some special clause regarding SOEs. First, an SOE cannot own but can “hold” a patent right. Second, an SOE holding a patent right cannot transfer the right without approval from the relevant administrative governmental authority. However, from 1992, the government brought a set of new policies that virtually liberalized the non-state sector in the economic development. In 2000 Patent Law, the restrictive provisions on SOE is removed and accorded equal treatment of both state-owned and non-state enterprises in obtaining patent ownership rights.[8] This change is for the purpose of encouraging invention and patent transfer，developing the economy. Subsequently nowadays the government policy for the technology transfer lean more priority to climate-friendly technology, rather than simply accept all kinds of technology that may promote economy without break domestic laws.
III. External Pressures and Technology Transfer in China
1. Post-WTO legal framework for technology transfer in China
Patent Law, trademark and copyright governing licensing and technology transfer were all modified after China’s WTO accession. In addition, the 1994 Foreign Trade Law, the Unified Contract Law of 1999, the 2002 Regulations on Administration of Technology Import and Export by the Ministry of Foreign Trade and Economic Cooperation (MOFTEC, now it is MOC), etc. were all the laws and regulations governing the areas of technology transfer, many of which promulgated in 1985,1988, and the 1990s were abolished or materially amended shortly after the accession of China to WTO.[9]
In today’s legal frame, the laws and regulations governing this area that are still effective, besides Unified Contract Law 1994, include:
l The Foreign Trade Law of PRC 2004 (did amendment of 1999version)
l The Regulations on Administration of Technology Import and Export 2002
l Administrative Measures for the Registration of Technology Import and Export Contracts 2009
l Measures for the Administration of Technologies Prohibited or Restricted from Import 2009
l Catalogue of Import Prohibited and Restricted Technologies 2007
l Catalogue of Export Prohibited and Restricted Technologies 2008
l The Catalogue for Guidance on Foreign Investment in Industries 2007
l The Regulations on Guiding the Direction of Foreign Investment 2002
According to Article 16,17 of Foreign Trade Law, Chapter 18 of Unified Contract Law with the Supreme Court Judicial interpretation, and Article 2 of the 2002 Regulations on Administration of Technology Import & Export, the following transactions may be among the subject of the MOC approval process:
l “Patent assignments
l Assignments of patent application rights
l Assignments of know-how or trade secrets
l Technical service and other unspecified forms of technology transfer
l Technical training contracts
l Cooperative research and development contracts
l Software importation contracts
l Trademark licenses or assignments combined with patented or non-patented technology.”[10]
Comparing with one tier of approval for every technology, technologies are now classified into one of three categories: “prohibited” or “restricted” or “permitted”. If the products or technology is not exist in the list of “prohibited” or “restricted”, it is deemed to say it is “permitted”, namely free trader. Refer to the Chinese legal systems, technology transfer requires a written technology transfer contract which includes four types: technology development contracts, technology transfer contracts, technical development contracts, technical consultancy contracts and technical services contracts. Here technical development contract also consists of two kinds of contracts: Commission development contracts and cooperative development contracts.[11] As the regulation mentioned above, such contracts, except technology permitted to export and import freely, are required to be registered in the authorities refer to Article 3 of Administrative Measures for the Registration of Technology Import and Export Contracts 2009.
It’s easy to see the laws and regulations are more updated, which are all enacted or modified after WTO accession, and some have been amended for several times. Though the mentioned laws and regulations have not referred to the Notice of Supreme Court yet, it looks still a bit complicated. But a gradual progress can be easily recognized since China’s accession to WTO, that China try to liberalized and somewhat simplified its rules of technology transfer, making it clear and transparency to foreign investors and technology holders.
2. The effect of TRIPS on technology transfers in China
WTO brought a lot of opportunities to China’s domestic development, pressures as well, to strengthen its IPRs protection regime for foreign related IP. Any country who wants to be a member of WTO, has to not only accept GATT 1994, but all the agreement in Uruguay Round, including TRIPS. China as a member accepted TRIPS too. The fundamental provisions in GATT 1994 are also applicable to TRIPS, such as MFN and ‘national treatment’. So after China’s accession, China has to pay attention to the obligation of general provisions for MFN and national treatment in Art.I and III of GATT 1994. For example, maybe our implementation of the items in Catalogue of Prohibited and Restricted Technology would be inconsistent with China’s obligations under its WTO agreement, e.g., prohibited item of “technology that endangers national security or social public interests”, and restricted item of “to establish or speed up the establishment of a relevant domestic industry”, unless this kind of prohibition and restrict also applies to domestic technology[12]. Consequently, China’s implementation of WTO obligations is monitored by all the member states that making China refers to WTO every time when it behaves.
In fact, TRIPS outlines a minimum standard for the IP protection that each member nation must provide in their national laws.[13] TRIPS agreement looks at different kinds of intellectual property rights and how to protect them, adding a significant number of new or higher standards, in order to supplement the inadequate protection of WIPO. TRIPS cover the area of Copyright, Trade marks, Geographical Indications, Industrial Designs, Patents, Integrated Circuits Layout Designs, Undisclosed Information and Trade Secrets, Curbing anti-competitive licensing contracts.[14] China’s current patent law dates from 1984 and was amended in 1992 and again in 2000 and 2002 to bring it closer to the WTO requirements. In current patent law, there are three types of patent, inventions, utility models and designs. Most of the post-WTO amendments deal with procedural and enforcement matters; not with basic patentability issues.[15] When the WTO agreements took effect on 1 January 1995, developed countries were given one year to ensure that their laws and practices conform with the TRIPS agreement. Developing countries and (under certain conditions) transition economies were given five years, until 2000. Least-developed countries had 11 years, until 2006 — now extended to 2013 in general, and to 2016 for pharmaceutical patents and undisclosed information.[16] In the very beginning, less developed countries did not agree that TRIPS will be quite favor to their interests. Because they did not have the infrastructure necessary to implement TRIPS immediately and it entailed a transfer of wealth from them to those countries holding most IPRs, in particular OECD countries. On contrast, in TRIPS, Article 66.2 prescribes that developed countries’ governments to provide incentives for their companies to transfer technology to least-developed countries. Developing countries, like China see technology transfer as part of the bargain in which they have agreed to protect intellectual property rights. [17]Additionally those developed countries tried to convincing less-developed countries that strong IP protection would benefit technology transfer and economy development. At last the less-developed countries agree with the TRIPS, as return they granted concessions on agriculture and textiles, two areas of great importance to the labor-intensive economies of developing countries.[18] It’s better than unilateral pressure from U.S.
At the end of 2009, according to a summary of the Session on Technology Transfer, that several technology transfer barriers were mentioned, including the lack of necessary knowledge and human resources within states, appropriate intellectual property rights protection as well. However, it was surveyed that many companies remain unwilling to transfer technology due to lack of strong IPR protection.[19] Thus developing countries, like China, make great efforts to change the situation of domestic IPRs protection, it can not be achieved by one day. It depends on the level of domestic development of economy and other factors, from which also deduce that the level of IPRS protection should be arranged proportionally on the base of current reality in a country.
3. Other external pressures especially from U.S.
The earliest IPR “negotiations” occurred in 1979, when China committed itself to protect foreign patents, copyright, and trademarks in the U.S.-China Bilateral Trade Agreement of 1979. During the 1980s, China developed its Patent Law (1984), revised its Trademark Law (1985). However by 1989, the United States was pressuring the Chinese to fulfill their remaining commitments in the 1979 agreement. Specially, China had not yet formulated a copyright law, and U.S. copyright trade associations were appealing to the USTR to compel China to do so.[20]
During 1993 to 1995, China implemented many of the provisions of the 1992 Memorandum of Understanding (MOU). In April 1993, China joined the World Copyright Convention and the Convention for Recorded Products. But on June 24, 1993, in Washington, during hearing on international trade law, a representative from Business Software Alliance (BSA) argued that in 1993, U.S. software industry had “directly losses of $322 million in China”.[21] Then the US responded by intimidating $3 billion tariff for China in order to punish the failure to fulfill its obligation to IPR enforcement.[22]
Controversy between the two parties lead to 1995 U.S-China negotiations, but less than a year later, the U.S. government had to come back at the negotiation table to force the Chinese to be compliance with the 1995 agreement. In June 1996, the United State again successfully force China making a new commitment of strengthen its measures, including the establishment in each province of an IPR Conference Committee headed by a vice governor to coordinate all agencies involved in enforcement, and the creation of parallel local IPR committees including police and other agencies.[23]
When December 2001 China access to the WTO, it made further amendment to its domestic patent trademark and copyright laws and regulations and promulgated measures and rules for administration and implementation, which also constituted great progress bring China’s IPR related regime coincidence with the TRIPS.
IV. Conclusion remarks
China’s current legal framework relevant to intellectual property, is materialized both as a result of the requirement from domestic economy and the external pressures. In some extent the government’s independent incorporation of the existing rules of the world’s most prominent countries in its IPR legislation may contribute to the current legal framework. The primary motive for China to open its market is for technology improvement and economy promotion. It’s the most important motive for all the countries involving international technology transfer. If China wish to take full advantages of the entry into world economy for a long time, the strong protection of IPRs will be necessary.
[1] Keith E. Maskus, Intellectual Property Challenges for Developing Countries: An Economic Perspective, 2001 U. ILL. L. Rev. 457, also cited by Mikhaelle Schiappacasse, ‘Intellectual Property Rights in China: Technology Transfers and Economic Development’ (2003-2004) Buff. Intell. Pro. L.J.Vol.2 164
[2] Mikhaelle Schiappacasset, ‘Intellectual Property Rights in China: Technology Transfers and Economic Development’ (2003-2004) Buff. Intell. Pro. L.J.Vol.2 164
[3] Ibid 167
[4] WTO Working Group on the Relationship between Trade and Investment, ‘Key Issues Concerning Foreign Direct Investment and The Transfer and Diffusion of Technology to Developing Countries’(16 August 2002 WT/WGTI/W/136)
[5] Yongfuli, Doing Business in China (People’s Republic of China), (Freshfields Juris Publishing New York 2000-2009)12.5-12.6
[6] Ibid 12.3-12.4
[7] Charles J. Conroy, ‘Technology Transfer To China: Legal And Practical Considerations’ (21 Stan. J. Int’l L.1985) 550-551
[8] Kong Qin Jiang, WTO, Internationalization and The Intellectual Property Rights Regime in China (Marshall Cavendish Singapore 2005)10-11
[9] Catherine Sun, ‘Technology Import and Export in Post-WTO China’ (21 IPL Newsl. 22 2002-2003), https://www.copyright .com/ccc/basicSearch.do?&operation=go&searchType=0&lastSearch=simple&all=on&titleOrStdNo=1940-3593
[10] David Williams Russell, ‘Technology Transfers From the United States to the People’s Republic of China’, 3 J. Int’l Bus. & L. 81 2004
[11] Yongfuli, Doing Business in China (People’s Republic of China), (Freshfields Juris Publishing New York 2000-2009)12.7
[12] Yongfuli, Doing Business in China (People’s Republic of China), (Freshfields Juris Publishing New York 2000-2009) 12.19
[13] Mikhaelle Schiappacasset, ‘Intellectual Property Rights in China: Technology Transfers and Economic Development’ (2003-2004) Buff. Intell. Pro. L.J.Vol.2 169
[14] Intellectual property: protection and enforcement, <http://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm7_e.htm> accessed to on March 23, 2010
[15] David Williams Russell, ‘Technology Transfers From the United States to the People’s Republic of China’, 3 J. Int’l Bus. & L. 81 2004
[16] Intellectual property: protection and enforcement, <http://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm7_e.htm> accessed to on March 23, 2010
[17] Technology transfer, <http://www.wto.org/english/tratop_e/trips_e/techtransfer_e.htm> accessed to on March 23, 2010
[18] Mikhaelle Schiappacasset, ‘Intellectual Property Rights in China: Technology Transfers and Economic Development’ (2003-2004) Buff. Intell. Pro. L.J.Vol.2 171
[19] Summary of the Session on Technology Transfer, <http://www.wto.org/english/tratop_e/envir_e/wksp_goods_sept09_e/sum_tech_e.pdf> accessed to on March 23, 2010
[20] Andrew Mertha, The Politics of Piracy (Intellectual property in contemporary China, Cornell University Press U.S.A 2005)44
[21] Ibid 46
[22] Joseph A. Massey, ‘ The Emperor is far away: China’s Enforcement of Intellectual Property Rights Protection, 1986-2006’ 7 Chi. J. Int’l L. 235 2006-2007
[23] Ibid 236
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