Japanese Government to Introduce New Advanced Technology Transfer Regulations

 
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As noted in our previous blog post, the Ministry of Economy, Trade, and Industry (METI) is expected to promulgate regulations requiring companies to report technology transfers in fields where Japan has an advantage that other countries are interested in matching to METI in advance. The Ministry’s Subcommittee on Security Trade Control under the Division on Commerce and Trade of the Industrial Structure Council issued an interim report on March 24 outlining the specifics of the advance reporting system.

The primary objective of the advance reporting system is to address the growing risk of technology leakage by imposing measures to address specific technology leakage risks. The report explains that the previous system, in which technology transferor companies verified the uses and end-users of their technologies, is no longer adequate to prevent the diversion of civilian technology to military use. The report also suggests that the public and private sector share information and discuss their views on companies and regions of concern as well as technology transfer control efforts by other companies and countries to improve the effectiveness, transparency and predictability of the system and its manner of operation.

The report states that an ideal prior reporting system should not immediately require permission from the government for transactions subject to export control. Rather, it should take the following three steps: (1) require companies to report transactions to METI in advance; (2) strengthen dialogue and consultation between METI and companies, including disclosure of METI’s concerns and advice on addressing them; and (3) if concerns about technology leaks cannot be dispelled through dialogue, require permission under the Foreign Exchange and Foreign Trade Control Law.

The following recommendations are made in the report with respect to each of these steps.

Step (1): prior reporting

From the viewpoint of fairness and certainty, reporting should be required before the contract for a transaction is signed.
The techniques and types of actions to be subject to the reporting obligation should be clearly stated in the laws and regulations.
In order to minimize the impact on businesses, it should be indicated in advance how much time the prior reporting process will take.
Even if prior reporting is not done, the government should first respond by offering careful guidance except in the most egregious cases.
Step (2): strengthening of communication

The government should in principle provide information on concerns about certain companies and regions, technology control efforts being made by other companies and policy trends in other countries.
The public and private sectors should communicate actively to promote the goal of satisfactory enforcement.
Since information provided may be confidential, the government should manage it appropriately.
Step (3): application for METI’s approval

If the public-private dialogue results in a conclusion that it would be effective to attach permission conditions under the Foreign Exchange and Foreign Trade Law, the license application system may be used.
However, the use of the license application system should be limited to cases of serious necessity, and it is preferable to aim for an amicable resolution through the public-private dialogue outlined in (2) whenever possible.
The recommendations conclude by stating that while it is necessary to strengthen technology transfer controls, it is also necessary to avoid discouraging companies from doing business overseas and that the government should give sufficient consideration to applications and take appropriate action when companies face difficult situations.

(MAY 28, 2024 ,From Baker Mckenzie,Written By Junko Suetomi, Takumi Hasegawa, Maito Tozawa, Ikumi Maruta, Soichiro Fujiwara, Taku Takanami and Eitaro Hirose )