On August 28, 2020, the Ministry of Commerce (MOFCOM) and the Ministry of Science and Technology (MOST) of the People’s Republic of China issued a joint announcement amending the Catalogue of Technologies Prohibited or Restricted from Export (“Catalogue”). This is the first time the Catalogue has been revised since 2008. The revisions removed 9 technical items that are either prohibited or restricted from export, and modified the control points and technical parameters of 21 technical items. Notably, they introduce restrictions on 23 technology exports, including certain information processing technology, such as artificial intelligence interactive interface technology and personalized information push services based on data analysis, cryptographic security technology, high-performance detection technology, information defense, and countermeasures technologies.
The Chinese government defines technology exports as the transfer of technology overseas through trade, investment, or economic and technical cooperation. Over the past 20 years, technologies have grown to become one of the country’s top export. In fact, MOFCOM reported in 2019 that China’s technology export contracts were valued at US$32.1 billion while data processing machine exports were worth US$167 billion.
Since 1998, China has maintained a catalogue of technology exports. Under the Regulations on Technology Import and Export Administration of the People’s Republic of China enacted in 2001, the State Council foreign trade department works with other relevant State Council departments to formulate, revise, and publish the catalogue of exported technologies that are prohibited or restricted. While prohibited items cannot be exported, foreign parties interested in restricted technologies must obtain licensing approval before engaging in negotiations and executing contracts.
The licensing procedure involves two phases. In the preliminary phase, interested parties must file an application with the State Council foreign trade department which is then subject to examination. The State Council will approve or disapprove it within 30 days of receiving the application. Upon approval, the foreign trade department will issue a letter of intent for licensing which allows the interested parties to begin negotiations. For the final phase, the interested parties must submit to the State Council: (1) the letter of intent; (2) a copy of the technology export contract; (3) technical information relating to the export; and (4) any regulatory document certifying the legal status of the two parties to the contract. Once received, the State Council will examine the documents and give notice of their approval or disapproval within 15 days. If approved, the foreign trade department issues the license, and the contract takes effect.
The timing of these restrictions came amid escalating tensions between China and the U.S. following President Trump’s executive order threatening to ban the popular short video app TikTok over national security concerns. In another executive order issued on August 14, President Trump gave the app’s Chinese parent company, ByteDance, 90 days to divest its control of TikTok and destroy all U.S. user data. The new Chinese export restrictions, reported to give China more control over the sale, complicated negotiations with companies like Microsoft and Oracle. Instead of an outright sale, President Trump tentatively approved a deal on September 19 for the new incorporation of TikTok Global, which will be headquartered in the U.S. Although four out of five board members will be Americans, ByteDance has 80 percent ownership while Oracle and Walmart jointly own 20 percent in this agreement. It remains to be seen if China’s technology export restrictions will have any additional implications on the fruition of this deal.
If you have any questions on how the new Chinese technology export restrictions may impact your organization, do not hesitate to contact an attorney at Barnes, Richardson & Colburn, LLP.