On August 28, 2020, China took its own swing in the fight over TikTok. The blow, however, may land right in the middle of U.S.-China technology research, collaboration, and innovation. New export regulations may require licenses from the Chinese government before researchers in China may share their technological advances with colleagues, counterparts, or customers in the United States.
The Wind-Up
On August 28, 2020, the Ministry of Commerce (MOFCOM) and the Ministry of Science and Technology published a new rule revising Chinese export controls on technology, called the Catalogue of Export-Prohibited and Export-Restricted Technologies of China, which was last revised in 2008. The purported purpose of the rule change is to promote technological advancement and safeguard the national economic security.
However, the major effect of the rule is that any U.S. suitor looking to buy TikTok may need to apply for a license to acquire the social media app’s secret sauce, the algorithm that drives viewers to consume more and more content on the platform.
The Impact
The update consists in the addition of 23 export-restricted technology items to the Catalogue, including the following key emerging technologies:
- Artificial Intelligence
- 3D Printing Technology
- Aerial drones related technology
- Laser technology
- Efficient detection technology
- Information defense technology
- Basic software security enhancement technology
- Space remote sensing image acquisition technology
Virtually, all transfers of technology outside of China must comply with the new rule. Therefore, sales of business and assets that including technology by a Chinese seller to a foreign buyer may be considered as a “technology export” subject to restrictions. In that light, it appears the new regulation may give Beijing a say in any potential sale of TikTok’s U.S. operations by ByteDance, which likely now require prior approval under the new rule.
The Byblow
While it appears to have been aimed squarely at the potential TikTok sale, the rule may affect technology sharing between Chinese researchers and their U.S. colleagues. Because new agreements to share technology developed in China will require government authorization, the regulations may slow collaborative developments between the two countries.
The Breakdown
Under the new rules, prospective exporters will be required to submit a license application to the provincial level commerce department before any substantive negotiations with foreign parties. The authorities will approve or deny a license application within 30 working days of receipt.
Where an application is approved, the authorities will issue a “letter of intent for technology export licensing.” The applicant may only engage in substantive discussion or sign technology export contracts with foreign parties after it has obtained that letter of intent.
Once the applicant has concluded a contract to export its technology, the exporter will be required to submit the following documents to the authorities in order to obtain the export license:
- The letter of intent for technology export licensing;
- A copy of the technology export contract;
- The list of technological materials to be exported; and
- Documents showing the legal status of both parties.
The licensing authority will review the submission and grant or deny a license within 15 working days or receipt.
The Follow Through
Exporters and importers of technology from China should assess whether the expanded rule will impact any ongoing or upcoming ventures in which technology may move from China to the United States or elsewhere.
Complicating things further, the broadly-written regulations may, in practice, vary in how they are implemented depending on which provincial authorities are administering the controls and licensing.
Our International trade team is following the developments out of China and will provide further updates as new information comes to light.