China Proposes to Prohibit Export of Certain Human Cell Cloning and Gene Editing Technologies

On December 30, 2022, China’s Ministry of Commerce (MOFCOM) published a proposed version of the Catalogue of Technologies Prohibited and Restricted from Export (Proposed Catalogue) for public comment, adding human cell cloning and gene editing technology to the prohibited list, and certain biotechnology used in drug manufacturing to the restricted list. Biopharmaceutical companies utilizing such technologies could be substantially impacted if the proposed additions are adopted in the final version.

Technology Export Control

China regulates the export of technology under the Foreign Trade Law (2022), the Administrative Regulations on Import and Export of Technologies (2020), and the Administrative Measures on Technologies Prohibited and Restricted for Exportation (2009). The Catalogue of Technologies Prohibited or Restricted (Catalogue) was issued pursuant to these laws and regulations, with the first version issued in 1998 and three amendments issued in 2001, 2008, and 2020.

“Export of technology” refers to the transfer of technology (patent right, patent application right, know-how, etc.) from mainland China to overseas, by assignment or licensing. The prohibition or restriction only applies to the technologies, and not the products utilizing the prohibited or restricted technologies.

The government sets two types of export controls: prohibited and restricted. If a technology is listed as prohibited, no export will be permitted. If a technology is listed as restricted, export will be permitted after obtaining government approval; the exporter must apply for and obtain a Letter of Intent for Technology Export from government authorities before entering into any substantial negotiations or signing any technology transfer contracts. The government authorities will then review the signed technology transfer contract and reject or approve it by issuing an export license.

If a technology is neither listed as prohibited nor restricted in the Catalogue, the export of such technology is permitted without requiring government review or approval. The technology transfer contract, however, must be registered with government authorities in order to facilitate the follow-up procedures in China, such as tax filing, foreign exchange approval, and customs clearance.

Prohibitions and Restrictions on Biotechnology

The Proposed Catalogue adds 7, removes 32, and clarifies 36 technologies, placing a total of 139 technologies under export control, including 24 prohibited and 115 restricted technologies:

• Adds seven technologies, including one on the prohibited list (human cell cloning and human gene editing technology) and six on the restricted list (CRISPR gene editing technology, photovoltaic silicon wafer preparation technology, lidar systems, synthetic biology technology, crop hybridization utilization technology, and bulk material handling and transportation technology);
• Removes 32 technologies from the restricted and prohibited list, involving grain processing technology, agricultural machinery manufacturing technology, chemical pesticide production technology, photosensitive material production technology, industrial detonator production technology, engineering machinery application technology, and electrical materials production technology; and
• Clarifies the status of 36 technologies by providing clarifying descriptions of the elements and technical specifications involving information and communications technology, such as computer hardware and external equipment manufacturing technology, communication and transmission technology, computer network technology, information processing technology, unmanned aerial vehicle technology, high-performance detection technology, and acoustic engineering technology.

Substantial Impact

The addition of the seven technologies to the Proposed Catalogue has caused significant concern among biopharmaceutical companies and other stakeholders in the biotechnology industry, especially those in the human gene and cell therapy space. The prohibitions and restrictions could hinder companies operating in China in their efforts to license-in the prohibited or restricted biotechnologies from overseas companies, because the overseas companies would object to any contractual provision that prohibits or restricts the licensing back of the subsequently discovered or improved technologies from Chinese companies to overseas companies. Furthermore, the prohibitions and restrictions could prevent companies operating in China from conducting product research and development overseas, or manufacturing products overseas, when a transfer of the technologies is needed.

Conclusion

Companies should continue to monitor the development of the Proposed Catalogue, consider submitting comments, and adjust their business and product strategies in order to avoid potential risks.

If you have any questions about the Proposed Catalogue or the overall technology export control, please do not hesitate to contact us.

* Jessica (Siyao) Gao contributed to this Advisory. Ms. Gao is employed as an Intern at Arnold & Porter's Shanghai office.

© Arnold & Porter Kaye Scholer LLP 2023 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.