Page 28 - May2019_BarJournal

be protected by the FIL. Local governments, jurisdictions, foreign investments that might Commerce and Finance Ministries and other
for purpose of incentivizing FIEs to invest in affect China’s national security will be subject powerful authorities much leeway to craft more
their own territories, may make special policy to a national security review process (“NSR”). detailed implementing regulations. With the
commitments to give FIEs preferential treatments. The NSR decisions are final decisions which are three existing foreign investment statutes to be
Article 25 of the FIL requires local governments not subject to administrative reconsiderations repealed, their associated regulations may be
to fulfill their policy commitments to and or judicial review (Art.35 of FIL). China did amended or abolished accordingly. The process of
contracts with FIEs. However, in practice, some not have a formal NSR process until 2011. Since drafting new regulations and amending existing
local governments made policy commitments then, most of the NSRs have been applied during ones can take months or years, but FIEs shall be
to FIEs that were beyond the governments’ foreign acquisitions of domestic companies with consulted during the implementation process
authority. If the local governments breached their particular concerns on strategic and sensitive (Art.10 of FIL). FIEs established under the
contract with FIEs, disputed provisions in the industries such as defense, agriculture and three existing foreign investment statutes will
contract would be declared as invalid by a court energy, etc. With many countries currently have five years to comply with the Company
because the local governments had no authority restricting technology exports to China and Law and Partnership Law (Art.42 of FIL). As
to make those policy commitment. However, China’s own innovation efforts, China issued a such, shareholders in equity or cooperative joint
under the FIL, even though the contract between regulation in 2018 requesting that any transfer ventures may have to renegotiate or confirm the
local governments and FIEs are invalid because of domestic sensitive technologies to foreign terms of their joint ventures, such as corporate
the policy commitments are made beyond the investors be subject to NSR. Therefore, if certain structure and capital structure, to ensure that
governments’ authority, the local governments technologies are transferred during foreign they comply with the FIL.
must compensate the FIEs for any loss sustained acquisitions of domestic companies, the NSR
as a result (Art.25 of FIL). In addition to the process will be triggered.
existing dispute resolution mechanism, Article Yao Liu is an attorney with Cavitch
26 of the FIL allows FIEs to file complaints Implementation of the FIL Familo & Durkin Co., L.P.A. As a
against administrative agencies through an FIE With 42 articles, the FIL sets out only the bi-lingual and bi-cultural lawyer,
complaint working mechanism, which essentially basic framework of China’s new era for foreign trained in both the United States and
gives FIEs preferential treatment over domestic investments – relaxing regulatory control China, he routinely assists clients
entities with regard to dispute resolution. on FIEs and offering FIEs equal treatments with unique issues that arise in cross-border
as domestic entities. However, the FIL gives transactions. He has been a CMBA member since
National Security Review government authorities such as the National 2014. He can be reached at (216) 621-7860 or
Consistent with the practice of many other Development and Reform Commission, yliu@cavitch.com.

GivinG a voice
)
( and a Venue

to cleveland

• Room for 4 to 400, from keynotes to breakouts

• Discounts for members
CleMetroConference.com
• Conveniently located downtown at the corner info@CleMetroConference.com
of East 9 and St. Clair (216) 539-3709
th

28 | Cleveland Metropolitan Bar Journal clemetrobar.org