while continuing to correspond with the European seller involved on all matters other than arbitration; eventually the claim was compromised. Moreover, some sellers who have negotiated a Chinese claim feel that in order to preserve the air of compromise they were forced to yield to some extent even when they were convinced that the claim was groundless or exaggerated.34

Another illustration of the Chinese preference for non-adjudicated dispute settlement, which has recently received attention in a SinoU.S. dispute, is a strong emphasis on conciliation. An authoritative Chinese statement on the subject reads:

"In concrete work, the [Foreign Trade Arbitration Commission] and the [Maritime Arbitration Commission] adopt the method of combining arbitration with conciliation... Experience proves that most of the cases... can be settled by conciliation in the course of investigation or examination, prior to the arbitration proceedings or before an award is granted.

Recently, a dispute betwen an American commodities seller and a Chinese buyer was resolved through a form of conciliation devised by the Legal Department of the China Council for the Promotion of International Trade and by the American Arbitration Association. Conciliators appointed by the two parties met in Peking in October, 1977, and arrived at a mutually satisfactory basis for resolution of the agreement in the course of a ten-day period.36

The cooperation between the Chinese and U.S. sides is innovative and encouraging. However, it should be realized that the more institutionalized conciliation becomes, the greater the difficulties are likely to be encountered by the American disputant who wishes to stop negotiating and bargaining over the terms of a settlement and wants to proceed to a definitive third-party adjudication. At any rate, this recent case of joint conciliation is a development that American and other foreign sellers should watch with interest.

Improvisation of bilateral efforts to settle trade disputes offers considerably more hope for reaching solutions satisfactory to the American side than the unrealistic suggestion that the United States and the P.R.C. should agree that "legal and natural persons ought to have access to the domestic courts of the two countries." 37 Not only do U.S. corporate counsel not know enough about the Chinese legal system to enable them to decide whether they want to seek remedies in Chinese courts, but the considerable amount of general information available on the Chinese legal system suggests that the basic assumptions underlying that system are too different, and its rules too indefinite and difficult to ascertain, for U.S. sellers realistically to prefer Chinese domestic courts to Chinese or third-country trade arbitration. The Chinese have avoided using courts to settle trade disputes, a preference that helps to explain the creation of Chinese trade arbitration bodies. Moreover, it is highly unlikely that the Chinese corporations would want access to U.S. courts; lawsuits initiated by Chinese commercial entities in any foreign court since 1949 are extremely rare. On balance, U.S. sellers and their advisers, while seeking to

34 Ibid.

35 Jen Tsien-Hsin and Liu Shao-Shan, "Arbitration in China", p. 3 (mimeographed copy given to the author in Peking in March, 1978.

China Business Review, Nov.-Dec., 1977

37 Theroux, Legal and Practical Problems in the China Trade, China: A Reassessment of the Economy Joint Economic Comm., 94th Cong., 1st sess., A Compendium of Papers 533, 588 (1975).

devise novel methods of bilateral dispute settlement, are also advised to continue probes and general discussions and, like European veterans of trade with the P.R.Č., to press for third-country arbitration.

H. Industrial Property

1. PATENTS AND KNOW-HOW

Contract clauses on protection of foreign patents and know-how in the P.R.C. are particularly important since there is no Chinese statutory scheme for their protection. A P.R.C. statue permits P.R.C. citizens or foreign individuals or groups to register invention and receive cash awards, 38 but all inventions, apparently including those unregistered, become the property of the P.R.C. Accordingly, the only way a foreign seller can protect his rights in his industrial property is by bargaining for a contract clause that will afford him protection. The China National Technical Import Corporation, which negotiates for the purchase of whole plants, is likely to be involved in negotiating the clause, In a few rare occurrences, the Technical Import Corporation has purchased technology without also buying equipment, as when it negotiated with the Berliet Company of Paris for licenses to manufacture trucks. Generally, however, purchases of technology occur in the context of a whole-plant purchase. Practice apparently varies on whether the license has a specified portion of the contract price assigned to it, or whether it is included in that price, but there apparently are never any payments of royalties. The provisions covering patents and knowhow make the agreement a lumpsum sale. The actual payments may be completed at the time the plant begins operations or may be included in the installments paid under deferred payment terms.

39

The foreign seller of technology must rely on the contract to protect him against use of his industrial property in ways extending beyond the scope of the contract, either by Chinese duplication of it or by Chinese disclosure or subsequent unlicensed transfer. Officials of the CCPIT Legal Affairs Department with whom this question has been discussed have acknowledged that the Chinese side must be willing to provide the protection, and the Technical Import Corporation, which has negotiated licenses with foreign licensors, has concurred. In some contracts, the Technical Import Corporation has agreed never to disclose the licensed technology; in other contracts nondisclosure has been limited to a period of years. The original license usually assumes a fixed periodic output at a disclosed number of plants, but the Chinese sometimes wish to use the licensed process in other plants. In varying language the Technical Import Corporation has agreed not to duplicate a plant utilizing the process covered by a license, subject to a Chinese right to improve the plant or plants covered by the license and to increase production at those plants without any obligation to the seller. The Technical Import Corporation at times has sought to obtain the licensor's approval of unlimited

Regulations of Nov. 3, 1963, Concerning Awards for Inventions, [1964] 13 Chung-Hua Jen-Min KungHo-Kuo Fa-Kuei Hul-Pien (FKйP](Compilation of Laws and Regulations of the Peoples' Republic of China 241. For English translation, see U.S. Consulate, Hong Kong, Survey of the China Mainland Press, No. 3117, Dec. 11. 1963 at 6.

This variation has been described to the author in private conversation with representatives of European and American companies who have discussed licensing with the Technical Import Corporation. It has also been reported in How China Buys Foeign Technology, Bus. Int'l, Dec. 5, 1972, at 396.

use of the licensed technology. One licensor retained the technology for production of a vital catalyst, and can measure Chinese production by their purchases of the catalyst from the licensor.

Consistent with its preference for lump-sum purchases, the Technical Import Corporation often has been willing to forego the right to make use of future improvements of a process by the licensor if further payments would be required. Certain licensing agreements, however, require the licensor to continue to inform the Chinese licensee of improvements for a stated period of time. often as a minimum until the plant begins operations. On the other hand, the Technical Import Corporation has been unwilling to agree to disclose subsequent Chinese improvements.

Foreign sellers often seek to prohibit the P.R.C. from exporting products manufactured by the plants. It is difficult to determine how readily the Technical Import Corporation will agree to this restriction. The author has been informed that in at least one agreement with a Japanese licensor, the Corporation has agreed that the products would not be exported.

2. TRADEMARKS

41

Although no known contract has involved the use of a foreign trademark in the P.R.C., Chinese legislation on trademarks has created a framework for dealing with this type of industrial property. A Chinese statute specifically permits a foreign enterprise to register marks to which it has rights in its own country " if that country has reached an agreement with the P.R.C. on the reciprocal recognition of trademarks. Nationality of the applicant appears to be the governing criterion of belonging to a foreign country. The precise language of the statute suggests that it may be possible for protection to be given to an applicant from a country that has not formally concluded an agreement, but that protects Chinese trademarks by virtue of its own laws, as is the case with the United States.*

43

44

Indeed, early in 1978 the Chinese government announced that registration of foreign trademarks in Peking would be permitted according to the principle of reciprocity. As a result, U.S. trademarks may now be registered in Peking, although the United States and China have not concluded an agreement on the subject. Similarly, this writer has been informed that reciprocity will determine other aspects of registration. Formerly, for instance, registrants in Peking had to file copies of their original certificates of registration, but now that requirement will be dispensed with whenever it would not be imposed on foreign applicants by the registrant's country.

Invocation of reciprocity by the Chinese in trademark matters has a variety of implications. Obviously it will interest U.S. manufacturers who are zealous about extending protection of their often very highly valuable trademarks. In addition, this development may reflect the

40 For a discussion of China's application of trademark laws and regulations, see Randt, Trademark Law in the PRC: Case Fables with Morals for Western Traders, U.S.-China Bus. Rev., May-June 1974, at 3. Regulations of Apr. 10, 1963, Concerning the Control of Trademarks, [1964] 13 FKHP 162 (hereinafter cited as Regulations on Control of Trademarks]; Rules of Apr. 25, 1963, Concerning the Implementation of the Regulations Governing the Control of Trademarks, [1964] 13 FKHP 164.

42 Regulations on Control of Trademarks, § 12(1).

See Implementing Regulations, supra note 41 at §§ 16, 20. These regulations make specific reference to the "certificate of nationality" which foreign enterprises must file. Id.

"It should be noted that the registration process is simple and inexpensive, consisting of filing a single application with the Legal Affairs Department of CCPIT, which must be given a power of attorney by a notarized document. The fee for regulation is a nominal RMB 20, approximately $12.00 at the rate of exchange prevailing in late May, 1978.

interest of Chinese trade corporations in protecting their own trademarks, particularly since some of them are exporting products bearing brand names used in China before 1949, and that are now being used by the former owners doing business from Taiwan. The Chinese action also raises another interesting question: does invocation of international reciprocity reflect increased Chinese interest in international legal practice? Recent emphasis throughout China on developing domestic legal institutions suggests that Chinese interest in formal legal institutions has noticeably increased.

III. RECENT DEVELOPMENTS IN CHINESE POLICIES TOWARD LAW

For over twenty years formal legal institutions have had little importance in China.45 From 1949 to 1957 China experimented, with varying degrees of commitment and intensity, with a legal system based on that of the Soviet Union. A three-tiered judicial system was established, law schools began to train the nucleus of a small bar, and attempts were made to institutionalize substantive and procedural rules. These activities were repeatedly interrupted by wave after wave of mobilizational social and economic change which destroyed landlords and urban bourgeoisie alike and brought about the socialization of China's economy.

Throughout these early years, certain conflicts over basic ideas of leadership, administration and policy-implementation remained unresolved in the legal system. The relative roles of objective standards as against the subjective judgements of administrative cadres, rules rather than persuasion, legal specialists rather than political generalists, were not clearly defined. Yet as part of the drive to industrialize China the framework of a modern legal system was established, some legal specialists were trained, and many laws and regulations were promulgated. By 1956 work was begun on law codes, several legal periodicals were publishing regularly, and the small bar was beginning to become active.

However, attempts to regularize and expand the legal system foundered in 1957, when China's leaders, greatly concerned at the vehemence of much of the criticism that was expressed during the "Hundred Flowers" of 1956-1957, launched a campaign against "rightism". Among the chief targets of the campaign were the legal specialists and the codes and objective standards they had favored. The specialists had complained at the gaps in the law, the failure to

45 It is impossible in the brief space available to trace the complicated history of Chinese policies toward law The interested reader would be well advised to consult an excellent overview, Victor H. Li, Law Without Lawyers (1977). The roots of the Chinese Communist policies toward law lie in the history of the Chinese Revolution itself. See e.g., S. Leng, Justice in Communist China 1-76 (1967). For a broad interpretation of Chinese Communist attitudes toward law, see Li, The Role of Law in Communist China, China Q., Oct.-Dec. 1970, at 66.

On criminal law, J. Cohen, The Criminal Process in the People's Republic of China 1949-1963 (1968), contains many translations of Chinese materials and a useful chronological discussion and an analysis of developments in the Chinese legal system to the mid-1960's. For other work on Chinese criminal law, see Li, The Evolution and Development of the Chinese Legal System, in China: Management of a Revolutionary Society 221 (J. Lindbeck, ed. 1971); Lubman, Form and Function in the Chinese Criminal Process, 69 Colum. L., Rev. 535 (1969).

No general Western language text or collection of materials on civil law has yet been published. For selected civil law topics, see Lubman, Methodological Problems in Studying Chinese Communist "Civil Law", in Contemporary Chinese Law; Research Problems and Perspectives 230 (J. Cohen ed. 1970); Huang, Reflec tions on Law and the Economy in the People's Republic of China, 14 Harv. Int'l L. J. 261-285, 89 (1973); Lubman, Mao and Mediation: Politics and Dispute Resolution in Communist China, 55 Calif. L. Rev. 12814 (1967); Pfeffer, Contracts in China Revised, With a Focus on Agriculture, 1949–63, 28 China Q. 106 (1966).

est

make progress on the new codes, and the disregard of established laws and procedures by many cadres. As a result of the campaign many legal specialists lost their jobs, codification projects were suspended, and the content of legal curricula was greatly politicized.

Since 1957 the courts have been little used in China, most of the few thousand lawyers trained before then were assigned to other jobs, and some functions of the courts such as sanctioning for minor offenses were distributed to the police, to local neighborhood organizations in the cities and lower levels of the rural communes, and to work units such as factories and offices. The procuracy, a prosecutorial institution established during the nineteen-fifties, disappeared.

The Cultural Revolution saw yet further attacks on the formal legal system, including the police, which was for years supplanted by the People's Liberation Army in its role of maintaining public order. During the early nineteen-seventies the police reappeared, the law courts were occasionally mentioned in the press, and at least one law department, at Peking University, began to be more active again. However, not until early 1978 has law been prominently mentioned, either in the sense of denoting a set of desirable institutions or as an academic discipline. In the wake of the overthrow of the "Gang of Four", as China's leadership firmly attempts to set China upon a course of economic modernization, it has obviously given thought to using law to strengthen China's administrative system.

In March, 1978, a new Constitution was adopted by the Fifth National People's Congress. Although like other Chinese constitutions it is both a programmatic statement as well as a framework for the structure of the Chinese state, it contains separate sections devoted to the courts and to the newly reappeared procuracy, and to citizens' fundamental rights. In addition, strong signs have appeared of a leadership policy to reconstruct and develop China's legal institutions.

In February, 1978, it was announced that the newly-established Chinese Academy of Social Sciences included a Law Institute, which was going to offer graduate courses. Han Yu-t'ung, the Deputy Director of the new Institute, has since made several interesting statements which apparently reflect official policy. In an interview in late February she accused the "Gang of Four" of having sabotaged the police and the courts, and stressed the need to follow orderly procedures in handling criminal cases. 46

Notably, on March 16, 1978 Han Yu-t'ung published an important article in the People's Daily entitled "Smash Spiritual Shackles-Do Legal Work Well"," the article calls for law-making and discipline according to law in terms that have not been used in China for many years. The article blames the failure to formulate necessary laws and to revise others on the "Gang of Four"; some observers would trace the deemphasis of law farther back, as has been suggested above. More striking than the focusing of blame for neglect of law, however, is the call for new activity.

The article says that Chairman Mao himself stated in 1962 that "it won't do to have no law", and a program of law-making is proposed:

46 "Deputy Director of Law Institute Discusses Socialist Legality", People's Republic of China Mission to the United Nations Press Release No. 12, 21 Feb. 1978.

47 People's Daily, Peking, March 16, 1978, p. 3,