The PRC Foreign Economic Contract Law
The People’s Republic of China (PRC) enacted the PRC Foreign Economic Contract Law on March 15, 1985. This law provides a legal framework for the foreign economic cooperation and investment in the PRC and mainly consists of three parts. The first part stipulates basic principles and general provisions. It specifies that Chinese citizens, companies and other organizations doing business with foreign countries must do so in accordance with PRC law and international agreements, and should also maintain foreign economic relations in accord with the political, economic, and cultural policies of the PRC. The second part mainly features special provisions and applies in particular to contracts, guarantees, and arbitration matters. The third part deals with miscellaneous provisions and various procedures.
All foreign economic contracts and activities are to be governed by the provisions of the Law. The Law distinguishes between two kinds of foreign economic activities. The first, “normal” or “routine” in nature, are those that are approved by a State body in accordance with regulations stipulated by the State Council. These activities, which are subject to certain regulations and/or control, may be exempted from the certain requirements, such as approval by the State. The second kind, “special” or “non-routine”, are those not approved by the State Council. These activities are subject to more stringent regulations and/or control than those of the normal activities. Enterprises engaging in foreign economic activities of this category should preferentially use the forms of contract, the State Council has approved or recommended. The Law requires each signatory to a foreign economic contract to enter into it on a voluntary basis and to do so in accordance with the relevant laws and regulations.
The Law defines the requirements of the parties’ agreement of the foreign economic contract, including content and form. It provides that the foreign economic contract should be concluded in written form. The contract must clearly set out the rights and obligations of both parties, their areas of economic cooperation, their economic exchange and collaboration, etc. The content of the contract must not violate the law and regulations of the PRC, the interests of the State, the society, the public and common moral standards. The parties to the contract should have sufficient autonomy to negotiate the rights and obligations of their agreement, but the contract must be signed before the commencement of business activities.
The Law explains how the resolution of disputes related to foreign economic contracts should proceed. It specifies that a Contract Dispute Arbitration Committee should be established for handling cases according to the China International Economic and Trade Arbitration Commission Rules. The Law allows parties to foreign economic contracts to agree in the contract that disputes the contract should be resolved through arbitration, but the State Council must approve contracts which require the use of foreign arbitration tribunals.
The Law also provides provisions for the transfer of foreign technology. It stipulates that foreign technology should not be transferred and used in contravention of Chinese laws and regulations. Technology transfer contracts should be concluded in written form and should clearly specify the subject matter of the tech transfer, the unit price, delivery time, etc., and may include other matters.
The Law has played an important role in regulating the foreign economic activities in the PRC. The provisions in the Law have improved the legal system in the PRC’s foreign economic area, protected enterprises’ rights and obligations in dealing with foreign economic activities, and established a sound legal environment for all participants. The Law is seen as a milestone in the development of foreign economic activities, becoming the foundation for all foreign economic cooperation and competition in China.
