State the guidelines for entering into Foreign Collaboration Agreements.

Answer 4(b) GUIDELINES FOR ENTERING INTO FOREIGN COLLABORATION AGREEMENTS These guidelines cover the following aspects of foreign collaboration agreements: Investment: wherein a foreign collaboration agreement, equity participation is involved, the value of the shares to be acquired about be brought in cash. Lump sum payment: The amount agreed to be paid by an Indian party to a foreign collaborator technology transfer should be paid in three instalments as follows: one-third to be paid after the agreement has been approved by the Central Government; one-third on transfer of the technical documents; and one-third on the commencement of commercial production. Royalty: Royalty payable to a foreign collaborator has to be calculated on the basis of net ex-factory selling price of the product less excise duties and cost of imported components. The normal rate of royalty may be three per cent to five per cent. This rate will depend upon the nature and extent of the technology involved Payment of a fixed royalty is preferred by the Government in certain cases. There should be no provision for payment of a minimum guaranteed royalty, regardless of the quantum and value of production. Duration of agreement: Normal period of a foreign collaboration agreement is eight years subject to maximum of ten years. The period is approved by the Government usually for five years from the date of the agreement in the first instance or five years from the date of commencement of commercial production: the total period, however, not exceeding eight years from the date of the agreement. Renewal or extension of agreement: The Central Government may consider an application for renewal of a foreign collaboration agreement or for extension of its period on merit. Remittances: Remittances to foreign collaborators are allowed only on the basis of the prevailing exchange rates. Sub-licensing: An agreement shall not normally impose any restriction on the sub-licensing of the technical know-how to other Indian parties. The terms of such sub-licensing will be as mutually agreed to between all the concerned parties including the foreign collaborator. Sub-licensing is, however, subject to the Central Government's approval. Exports: No foreign collaboration agreement shall be allowed to contain any restriction on the free export to all countries, except in a case where the foreign collaborator has licensing arrangements in which case the countries concerned shall be specified. Procurement of capital goods etc.: There should be no restriction on procurement of capital goods, components, spares, raw materials etc. by the Indian party. The Indian collaborator must be free to have control over pricing facility and selling arrangements. Technicians: The number, terms of service, remuneration, etc, of technicians to be deputed on either side are subject to approval of the Reserve Bank of India. Training: Provision shall be made in the agreement for adequate facilities for training of Indian technicians for research and development. Exploitation of Indian patents: Where any item of manufacture is patented in India, the payment of royalty or lump sum to the foreign collaborator should make provision for compensation for use of such patent until its expiry. There should also be provision for manufacture by the Indian company of the said item even after the expiry of the collaboration agreement without making any additional payment. Consultancy: If the necessity for any consultancy arises, it should be obtained from an Indian company. If, however, in the special circumstances foreign consultancy becomes essential, even then the prime consultant should be an Indian company. Brand Name: There should be no insistence on the use of foreign brand names on products for sale in India. There can, however, be no objection for use of foreign brand name on products to be exported to other countries. Indian Laws: All collaboration agreements shall be subject to Indian laws. Approval of Central Government: Every foreign collaboration agreement shall be approved by the Central Government. While drafting a collaboration agreement, care should be taken that it is in strict compliance with the guidelines detailed above. Every collaboration agreement must contain one or more clause to the effect: "The agreement shall we subject to Indian laws. The agreement shall be subject to the approval of the Government of India".