China’s Revises Draft Rules on “Indigenous Innovation”

China is seeking comments on the revised draft rules by May 10, 2010.

Prior Draft Excluded Certain Foreign Suppliers from Govt Procurement

The prior draft rules issued in November 2009 and entitled, “Notice Regarding the Launch of National Indigenous Innovation Product Accreditation Work for 2009,” raised significant concern that foreign intellectual property-holding companies would have been excluded from government procurement contracts involving the covered products.

In fact, according to previous Council comments, the earlier draft would have made it virtually impossible for any non-Chinese suppler of a covered product to participate in Chinese government procurement.

Revised Draft Has a Number of Improvements

According to the Council, the latest draft contains the following improvements:

IP Ownership Requirements Relaxed

According to the Council, requirements governing intellectual property (IP) ownership in China appear to have been relaxed under the new draft rules since indigenous innovation accreditation would be allowed for products based on IP that had been licensed for use in China from overseas.

This would mark a significant departure from the previous requirement that limited indigenous innovation accreditation to products that were based solely on IP developed and owned in China.

Trademark Registration Requirements Modified

Requirements for trademark registration have also been modified as indigenous innovation accreditation would no longer require trademarks and brands to be first registered in China. Instead, applicants would be required to have exclusive rights to the product's trademark, or have the right to use the trademark, in China.

Technology Requirements Changed

The current draft no longer states that a product would have to possess highly advanced technology that reaches or surpasses international standards to be considered eligible for indigenous innovation accreditation. Instead, it states that a product would have to possess technologies that have proven effective in conserving energy, reducing pollution, and/or raising energy-efficiency, or substantially improve on an original product's structure, quality, material, craftsmanship, or performance in order to be eligible for indigenous innovation accreditation.

Eligible Product Areas Unchanged

The Council notes that the six product areas eligible for the National Indigenous Innovation program are unchanged. These are: computing and application hardware, telecom hardware, modern office equipment, software, new-energy products, and highly efficient energy-reducing products.

Remaining Concerns

Though the revised accreditation requirements are a step forward, the U.S.-China Business Council states that several significant issues in China's indigenous innovation policies remain.

Use of the Product List

In particular, the notice does not address the use of the product list or its link to government procurement preferences.

Nat’l Product List and Local Product Lists

Moreover, the proposed changes to the National Indigenous Innovation Product qualification criteria do not clear up questions about the relationship between the national product list and the continued validity and use of provincial- and local-level product lists that have been compiled based on discriminatory accreditation criteria.

Import Substitution

Finally, though the accreditation criteria no longer mention import substitution as a policy goal, the notice apparently does not change the November notice's application form, which asks whether an applicant's product can substitute for imports.

¹Jointly announced by China’s Ministry of Science and Technology (MOST), the National Development and Reform Commission (NDRC), and the Ministry of Finance (MOF).

(See ITT’s Online Archives or 04/06/10 news, (Ref: 10040650), for BP summary of an American Chamber of Commerce in the China survey which indicated China’s Indigenous Innovation program was of great concern to U.S. companies.

See ITT’s Online Archives or 12/28/09 news, (Ref: 09122899) #11, for BP summary of the Council’s letter to various Chinese officials objecting to the Indigenous Innovation program.)

U.S.-China Business Council press release (dated 04/12/10) available at http://www.uschina.org/public/documents/2010/04/ii_accreditation_translation.pdf

U.S.-China Business Council translation of China’s most recent draft “Notice Regarding the Launch of National Indigenous Innovation Product Accreditation Work for 2010” (dated 04/10/10) available at http://www.uschina.org/public/documents/2010/04/ii_accreditation_translation.pdf

BP Note

The Office of the U.S. Trade Representative has posted a press release on Deputy USTR Marantis' recent discussions with Chinese officials on a range of trade and investment topics, which states the Deputy USTR has highlighted serious U.S. concerns about China's "indigenous innovation" policies in every meeting.

USTR press release (dated 04/14/10) available at http://www.ustr.gov/about-us/press-office/blog/2010/april/ambassador-marantis-continues-discussions-beijing

U.S.-China Business Council comments on previous draft (dated 12/10/09) available at http://www.uschina.org/public/documents/2009/12/indigenous_innovation_letter.pdf