Detailed Presentation of Trade and technology transfer

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1 WTO E-LEARNING COPYRIGHT 12 Detailed Presentation of Trade and technology transfer OBJECTIVES Describe the relationship between trade and transfer of technology; Explain the provisions relating to trade and transfer of technology in the WTO Agreements; Explain the working group on trade and transfer of technology. M y C o u r s e s e r i e s

2 I. INTRODUCTION The impact of technology on economic growth and development in this increasingly interdependent world is well recognized. As knowledge increasingly becomes a key strategic resource for national economic development, technology has assumed a key role for job and wealth creation, income generation, value addition, achieving economies of scale and competitiveness, and for shared prosperity. Overall technological advancement has an enormous developmental effect on national economy of country. This developmental impact of technology and innovation on national development strategies results from a long and complex process involving the interaction of both national and international actors, including governments, businesses, academia and international institutions and their interaction. As knowledge increasingly becomes a key strategic resource for national economic development, there may be a need to identify means to facilitate the transfer of technology to the presently technology-poor developing countries. I t is generally viewed that appropriate national policies and international guidelines and understandings may have the potential to facilitate efficient and effective generation, application and transfer of technology. Issues related to transfer of technology on the one hand and, international trade liberalization and foreign direct investment, on the other, are closely interlinked. Acquisition, adaptation, and diffusion of technology improve competitiveness in the traditional manufacturing sectors, agriculture as well as in the services sectors which are the mainstay of many developing country economies. Technology is also a major contributor to higher value addition in manufacturing. Technological improvement is an important vehicle for developing countries to improve their terms of trade in traditional manufacturing exports and to find their way out of low value-added production and exports. Technological advancement can have major impact in overall productivity of agricultural produce. Services sectors form the backbone of all production and supply chain processes. Therefore, the importance of know-how, management skills and skilled human resource has become even greater in this sector where innovation and informatics play a critical role. Developing country participation in the production, supply, and export of competitive services is quite limited and will remain so without access to relevant technologies and information networks. Since technological capability is key to developing countries' efforts to integrate in the global economy, therefore, for these countries technology transfer/acquisition will be a key element for pursuing any development strategy. The fact that generation and innovation of technology, its acquisition, adaptation and application is a long and a complex process which involves a host of national and global actors, requires that the debate on transfer of technology must be based on a holistic rather than a narrow view of the technology transfer process. In this regard lessons drawn from the success stories and national experiences of those countries that have rapidly developed present a good model. The module focuses on highlighting the crucial role of technology as an important factor of production in achieving competitiveness, economies of scale and improving quality. Learning from a number of success stories the module content will centre around the importance of technology in product and market development, securing export markets and hence its role in achieving developmental goals. The module will, therefore, first focus on the theoretical debate on the importance of technology and its generation, in identifying various modes and channels of technology transfer, the process of technology transfer and the crucial actors in the process. In highlighting good practices adoption of which have resulted in successful diffusion and absorption of technology across national economies the module will shed light in finding possible answers to the questions such as; ''What is the importance of technology and its transfer to developing countries?'' ''How issues related to technology transfer have been addressed by the international trading system?'' 2

3 I.A. TRANSFER OF TECHNOLOGY AND THE WTO The Marrakech Agreement that established the World Trade Organization (WTO) recognizes the need for special efforts designed to ensure that developing countries, and particularly the least developed among them, secure a share in the growth in international trade commensurate with the needs of economic development. The achievement of this goal may be facilitated by narrowing down the technology gap between developed and developing countries. Accordingly various WTO Agreements contain a number of provisions relating to transfer of technology to developing and least developed countries. Some of these, among others, can be found in the General Agreement on Trade in Services (GATS), Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), Agreement on Technical Barriers to Trade (TBT), Agreement on Sanitary and Phytosanitary (SPS) Measures. Based on the monitoring work and reports from the relevant WTO bodies, the module will discuss these provisions. A brief summary of these provisions, prepared by the Secretariat at Members' request is also available in document (JOB/DEV/10 of 19 November 2010). I.B. PROVISIONS RELATING TO TRADE AND TRANSFER OF TECHNOLOGY IN THE WTO AGREEMENTS I.B.1. TRADE-RELATED ASPECTS OF INTELLECTUAL PROPERTY RIGHTS (TRIPS) The TRIPS Agreement contains standards that affect transfer of technology and a number of provisions related to directly transfer of technology. The stated objectives of the Agreement include that the "... protection and enforcement of intellectual property rights should contribute to the promotion of technological innovation and to the transfer and dissemination of technology...". Similarly, the Article on Principles states that Members may adopt measures to promote technological development provided these measures are consistent with the provisions of the TRIPS Agreement. The TRIPS Agreement also stipulates that "developed-country Members shall provide incentives to enterprises and institutions in their territories for the purpose of promoting and encouraging technology transfer to least-developed country Members in order to enable them to create a sound and viable technological base". Preamble Recognizing also the special needs of the least-developed country Members in respect of maximum flexibility in the domestic implementation of laws and regulations in order to enable them to create a sound and viable technological base; Article 7 (Objectives) The protection and enforcement of intellectual property rights should contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations. 3

4 Article 8 (Principles) 2. Appropriate measures, provided that they are consistent with the provisions of this Agreement, may be needed to prevent the abuse of intellectual property rights by right holders or the resort to practices which unreasonably restrain trade or adversely affect the international transfer of technology. Article 40 (Section 8: Control of Anti-competitive Practices in Contractual Licences) 1. Members agree that some licensing practices or conditions pertaining to intellectual property rights which restrain competition may have adverse effects on trade and may impede the transfer and dissemination of technology. 2. Nothing in this Agreement shall prevent Members from specifying in their legislation licensing practices or conditions that may in particular cases constitute an abuse of intellectual property rights having an adverse effect on competition in the relevant market. As provided above, a Member may adopt, consistently with the other provisions of this Agreement, appropriate measures to prevent or control such practices, which may include for example exclusive grantback conditions, conditions preventing challenges to validity and coercive package licensing, in the light of the relevant laws and regulations of that Member. 3. Each Member shall enter, upon request, into consultations with any other Member which has cause to believe that an intellectual property right owner that is a national or domiciliary of the Member to which the request for consultations has been addressed is undertaking practices in violation of the requesting Member's laws and regulations on the subject matter of this Section, and which wishes to secure compliance with such legislation, without prejudice to any action under the law and to the full freedom of an ultimate decision of either Member. The Member addressed shall accord full and sympathetic consideration to, and shall afford adequate opportunity for, consultations with the requesting Member, and shall cooperate through supply of publicly available non confidential information of relevance to the matter in question and of other information available to the Member, subject to domestic law and to the conclusion of mutually satisfactory agreements concerning the safeguarding of its confidentiality by the requesting Member. Article 66 (Least-Developed Country Members) 2. Developed country Members shall provide incentives to enterprises and institutions in their territories for the purpose of promoting and encouraging technology transfer to least-developed country Members in order to enable them to create a sound and viable technological base. 4

5 I.B.2. AGREEMENT ON THE APPLICATION OF SANITARY AND PHYTOSANITARY (SPS) MEASURES The relevant Article in the Agreement on SPS Measures promises the provision of necessary technical assistance to developing countries, including in the areas of "processing technologies, research, and infrastructure". Article 9 (Technical Assistance) 1. Members agree to facilitate the provision of technical assistance to other Members, especially developing country Members, either bilaterally or through the appropriate international organizations. Such assistance may be, inter alia, in the areas of processing technologies, research and infrastructure, including in the establishment of national regulatory bodies, and may take the form of advice, credits, donations and grants, including for the purpose of seeking technical expertise, training and equipment to allow such countries to adjust to, and comply with, sanitary or phytosanitary measures necessary to achieve the appropriate level of sanitary or phytosanitary protection in their export markets. 2. Where substantial investments are required in order for an exporting developing country Member to fulfil the sanitary or phytosanitary requirements of an importing Member, the latter shall consider providing such technical assistance as will permit the developing country Member to maintain and expand its market access opportunities for the product involved. I.B.3. AGREEMENT ON TECHNICAL BARRIERS TO TRADE (TBT) The Agreement on TBT recognizes "the contribution which international standardization can make to the transfer of technology from developed to developing countries". Preamble Recognizing the contribution which international standardization can make to the transfer of technology from developed to developing countries; Recognizing that developing countries may encounter special difficulties in the formulation and application of technical regulations and standards and procedures for assessment of conformity with technical regulations and standards, and desiring to assist them in their endeavour in this regard; 5

6 Article 11 (Technical Assistance to Other Members) 11.3 Members shall, if requested, take such reasonable measures as may be available to them to arrange for the regulatory bodies within their territories to advise other Members, especially the developing country Members, and shall grant them technical assistance on mutually agreed terms and conditions regarding: the establishment of regulatory bodies, or bodies for the assessment of conformity with technical regulations; and the methods by which their technical regulations can best be met Members shall, if requested, advise other Members, especially the developing country Members, and shall grant them technical assistance on mutually agreed terms and conditions regarding the steps that should be taken by their producers if they wish to have access to systems for conformity assessment operated by governmental or non-governmental bodies within the territory of the Member receiving the request. I.B.4. GENERAL AGREEMENT ON TRADE IN SERVICES (GATS) The GATS recognizes that increasing participation of developing countries in world trade in services needs to be facilitated. This will require the strengthening of the capacity and competitiveness of their services sectors, inter alia, through access to technology on a commercial basis. The GATS also obliged developed countries to establish contact points for the availability of services technology. The GATS contains an obligation in Article IV paragraph 2 as follows: developed countries to establish contact points to facilitate the access of developing country members' service suppliers to information related to their respective markets concerning the availability of services technology. Article IV (Increasing Participation of Developing Countries) 1. The increasing participation of developing country Members in world trade shall be facilitated through negotiated specific commitments, by different Members pursuant to Parts III and IV of this Agreement, relating to: (a) the strengthening of their domestic services capacity and its efficiency and competitiveness, inter alia, through access to technology on a commercial basis; (b) the improvement of their access to distribution channels and information networks; and (c) the liberalization of market access in sectors and modes of supply of export interest to them. 6

7 2. Developed country Members, and to the extent possible other Members, shall establish contact points within two years from the date of entry into force of the WTO Agreement to facilitate the access of developing country Members' service suppliers to information, related to their respective markets, concerning: (a) commercial and technical aspects of the supply of services; (b) registration, recognition and obtaining of professional qualifications; and (c) the availability of services technology. Article XIX (Negotiation of Specific Commitments) 2. The process of liberalization shall take place with due respect for national policy objectives and the level of development of individual Members, both overall and in individual sectors. There shall be appropriate flexibility for individual developing country Members for opening fewer sectors, liberalizing fewer types of transactions, progressively extending market access in line with their development situation and, when making access to their markets available to foreign service suppliers, attaching to such access conditions aimed at achieving the objectives referred to in Article IV. 3. For each round, negotiating guidelines and procedures shall be established. For the purposes of establishing such guidelines, the Council for Trade in Services shall carry out an assessment of trade in services in overall terms and on a sectoral basis with reference to the objectives of this Agreement, including those set out in paragraph 1 of Article IV. I.B.5. GATS ANNEX ON TELECOMMUNICATIONS 6. Technical Cooperation (c) In cooperation with relevant international organizations, Members shall make available, where practicable, to developing countries information with respect to telecommunications services and developments in telecommunications and information technology to assist in strengthening their domestic telecommunications services sector. (d) Members shall give special consideration to opportunities for the least developed countries to encourage foreign suppliers of telecommunications services to assist in the transfer of technology, training and other activities that support the development of their telecommunications infrastructure and expansion of their telecommunications services trade. 7

8 I.B.6. AGREEMENT ON AGRICULTURE Domestic support measures that meet the criteria of Annex 2 of the Agreement on Agriculture are exempt from reduction commitments. There are some specific provisions in Annex 2 dealing with transfer of technology: ANNEX 2 DOMESTIC SUPPORT: THE BASIS FOR EXEMPTION FROM THE REDUCTION COMMITMENTS 2. General services Policies in this category involve expenditures (or revenue foregone) in relation to programmes which provide services or benefits to agriculture or the rural community. They shall not involve direct payments to producers or processors. Such programmes, which include but are not restricted to the following list, shall meet the general criteria in paragraph 1 above and policy-specific conditions where set out below: (a) research, including general research, research in connection with environmental programmes, and research programmes relating to particular products;... (c) training services, including both general and specialist training facilities; (d) extension and advisory services, including the provision of means to facilitate the transfer of information and the results of research to producers and consumers;... (g) infrastructural services, including: electricity reticulation, roads and other means of transport, market and port facilities, water supply facilities, dams and drainage schemes, and infrastructural works associated with environmental programmes. In all cases the expenditure shall be directed to the provision or construction of capital works only, and shall exclude the subsidized provision of on-farm facilities other than for the reticulation of generally available public utilities. It shall not include subsidies to inputs or operating costs, or preferential user charges." In the Uruguay Round, a Ministerial Decision was adopted on "Measures Concerning the Possible Negative Effects of the Reform Programme on Least-Developed and Net Food-Importing Developing Countries". While the Decision is not formally part of the Agreement on Agriculture, its implementation and follow-up is mandated in the Agreement on Agriculture and is conducted in the Committee on Agriculture. Paragraph 3(iii) of the Decision specifically focuses on technical and financial assistance to least-developed and net foodimporting developing countries. 8

9 Article 16 Least-Developed and Net Food-Importing Developing Countries 1. Developed country Members shall take such action as is provided for within the framework of the Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least- Developed and Net Food-Importing Developing Countries. 2. The Committee on Agriculture shall monitor, as appropriate, the follow-up to this Decision. "DECISION ON MEASURES CONCERNING THE POSSIBLE NEGATIVE EFFECTS OF THE REFORM PROGRAMME ON LEAST-DEVELOPED AND NET FOOD-IMPORTING DEVELOPING COUNTRIES 3. Ministers accordingly agree to establish appropriate mechanisms to ensure that the implementation of the results of the Uruguay Round on trade in agriculture does not adversely affect the availability of food aid at a level which is sufficient to continue to provide assistance in meeting the food needs of developing countries, especially least-developed and net food-importing developing countries. To this end Ministers agree:... (iii) to give full consideration in the context of their aid programmes to requests for the provision of technical and financial assistance to least-developed and net food-importing developing countries to improve their agricultural productivity and infrastructure." 3. There are two other provisions in the Agreement on Agriculture which permit Members to provide investment support to their agriculture sectors. These support measures are used by Members, inter alia, for carrying out farm mechanization programmes (capital machinery etc.) and building farm infrastructure. Support measures under both of these provisions are exempt from reduction commitments provided the relevant criteria are met: Article 6 Domestic Support Commitments In accordance with the Mid-Term Review Agreement that government measures of assistance, whether direct or indirect, to encourage agricultural and rural development are an integral part of the development programmes of developing countries, investment subsidies which are generally available to agriculture in developing country Members and agricultural input subsidies generally available to low-income or resource-poor producers in developing country Members shall be exempt from domestic support reduction commitments that would otherwise be applicable to such measures, as shall domestic support to producers in developing country Members to encourage diversification from growing illicit narcotic crops. Domestic support meeting the criteria of this paragraph shall not be required to be included in a Member's calculation of its Current Total AMS." 9

10 ANNEX 2 DOMESTIC SUPPORT: THE BASIS FOR EXEMPTION FROM THE REDUCTION COMMITMENTS Structural adjustment assistance provided through investment aids (a) Eligibility for such payments shall be determined by reference to clearly-defined criteria in government programmes designed to assist the financial or physical restructuring of a producer's operations in response to objectively demonstrated structural disadvantages. Eligibility for such programmes may also be based on a clearly-defined government programme for the re-privatization of agricultural land. (b) The amount of such payments in any given year shall not be related to, or based on, the type or volume of production (including livestock units) undertaken by the producer in any year after the base period other than as provided for under criterion (e) below. (c) The amount of such payments in any given year shall not be related to, or based on, the prices, domestic or international, applying to any production undertaken in any year after the base period. (d) The payments shall be given only for the period of time necessary for the realization of the investment in respect of which they are provided. (e) The payments shall not mandate or in any way designate the agricultural products to be produced by the recipients except to require them not to produce a particular product. (f) The payments shall be limited to the amount required to compensate for the structural disadvantage. I.C. WORKING GROUP ON TRADE AND TRANSFER OF TECHNOLOGY (WGTTT) In July 2001, a group of developing countries tabled a proposal in the WTO General Council that proposed that the 4th WTO Ministerial Conference to be held at Doha, Qatar establish a Working Group on Trade and Transfer of Technology (WT/GC/W/443 of 18 September 2001). The demandeur argued that technology was a driver of economic growth and development and that enhanced technological intensity can potentially transform the production systems into high yield and high quality sectors. They proposed that the Working Group, among others, explore the relationship between trade and transfer of technology, collect and assess information on existing flows of technology to developing countries, examine legal and administrative frameworks particularly in technology exporting countries as well as existing financing mechanisms and carry out technology related assessment needs of developing countries. 10

11 Ministers agreed to establish Working Group in Paragraph 37 of Doha Ministerial Declaration and mandated it to undertake the: examination of the relationship between Trade and Transfer of Technology; and based on that work to see if Members could make any possible recommendations on steps that might be taken within the mandate of the WTO to increase flows of technology to developing countries. At its 4th Session the Working Group on Trade and Transfer of Technology (WGTTT) adopted a Work Programme and has since focused on the examination of the relationship between trade and transfer of technology. In 2003, Members also began an examination of the recommendations contained in a joint submissions (WT/WGTTT/W/6), made shortly before Cancún Ministerial, by a group of developing countries. A large number of issues have been touched upon during discussions on the various submissions, presentations and background papers. These include the following: (i) Definition of Transfer of Technology Members have expressed two views on the definitional aspect of technology and its transfer. One group of countries which includes the EU, Japan, Canada and some others have argued in favour of a broad and inclusive definition of technology transfer. They believe that a narrow definition of technology transfer would risk excluding relevant factors and processes that hinder developing countries in their efforts to making use of the opportunities that the access to and the use of technology offers. The other group comprising mainly of countries like India, Pakistan, Brazil, Cuba, Egypt and others have argued that the WGTTT should avoid duplication and benefit from a large body of available literature on this aspect. In their view getting caught up in the definitional aspect would only deviate Members' focus from their work. (ii) The Enabling Environment Members have discussed the vital role of domestic policy and framework in the generation, transfer and diffusion of technology. There is a recognition that development of human capital, infrastructure, legal framework, macroeconomic conditions and the level of indigenous skill of workers and the domestic education system are key elements in creating a suitable enabling environment for the flow and diffusion of technology. A number of presentations have also emphasized the role of absorptive capacity in deriving economic gains from transfer of technology. (iii) Role of Home and Host Country Measures Underlying the importance of partnership in technology transfer and for it to be a win-win situation, the evolving discussions seem to recognize that both home and host countries measures are important factors in facilitating transfer of technology. Members share the understanding that transfer of technology is a two-way process but have somewhat different views on the relative importance of home and host country measures. The developed countries feel that the regulatory framework and other supportive measures in the host country to attract technology are of crucial significance in creating an enabling environment. On the other hand the developing countries continue to hold the view that home country measures, including financing for transfer of technology, incentives to stimulate FDIs with a technology transfer component, incentives for Small and Medium Enterprises seeking partners in developing countries, simplification of rules of origin and the establishment of a database to ensure the flow of all relevant information on technology are much more important in facilitating technology transfer. 11

12 (iv) The role of Intellectual Property Rights Discussions have suggested that though the empirical evidence on the subject is mixed, an appropriate IPR regime could play a crucial role in technology transfer as an inducement to direct investment; as a stimulus to innovation; and as a source of inexpensive technological know-how. However views have also been expressed that one cannot be precondition for the other. A number of Members have stated that it is only after a developing country has acquired sufficient national scientific and technological capacity that the protection of intellectual property becomes an important element in the transfer of technology. (v) The role of Foreign Direct Investment (FDI) The discussions in the WGTTT have underscored the importance of FDI as a critical mechanism for technology transfer. Some Members (e.g., the EU, USA, Switzerland, Canada, Japan) have held the view that role of FDI in technology transfer has been reinforced by the attributes which it brings with it, including, passive (through import of technologically advanced machinery and equipment) and active (technical know-how) knowledge spill-overs, increased interaction among foreign and local firms, establishment of backward and forward linkages and positive demonstration effects. Another group of countries (India, Cuba, Egypt, Pakistan, etc.) are of the view that although FDI could result in the technology transfer but much actually depended on the nature of FDI (whether it was vertical or horizontal FDI or a portfolio investment) and that its importance should not be overstated. (vi) Provisions relating to technology transfer in WTO Agreements A group of developing countries has highlighted the importance of examining the existing WTO provisions relating to technology transfer and the extent to which these have been effectively implemented. In their view most WTO provisions related to technology transfer are of a "best endeavour" nature, rather than binding obligations. In this context a number of provisions relating to TRIPs and TRIMs, SPS, TBT and Services Agreements relating to technology transfer have been cited.. Some of the developed country Members hold the view that the WTO provisions are underpinned by several priorities such as integrating countries into world trade, protecting IPRs, increasing the flow of investment and promoting sustainable development and that transfer of technology cannot override these objectives. These Members have also not been willing to introduce any element of negotiation into the Working Group. (vii) The role of Technical Assistance The discussions have acknowledged the role of training and capacity building in the transfer of technology. The proponents believe that as production becomes increasingly knowledge and technology intensive, issues of technology transfer and technological capacity building will become even more important for achieving sustained growth and development. They have felt that enhancing the effectiveness of the relevant WTO instruments for transfer of technology and capacity building in developing countries will be important. The role of technological capacity and learning in any development strategy with the aim of keeping up with rapidly advancing technological frontiers and successful efforts to remain competitive will remain important. Members have also found it useful to invite other intergovernmental organizations to make share their work in the area of innovation and technology transfer. So far, the discussions in the Working Group have benefited from useful contributions by the World Bank, IMF, UNCTAD, FAO, OECD, UNIDO, the Institute for New Technologies of the United Nations University etc. A number of national experts have shared their country's experience and perspectives on Research and Development, innovation, technology generation and its transfer, such as Brazil, Canada, Switzerland, the Philippines. These contributions/presentations have highlighted the role of various modes and actors in the technology transfer process besides underscoring the importance of 12

13 national regulatory and investment regime, the enabling environment and the assimilation and absorptive capacity. Sometime ago the Secretariat, at the request of Members, had prepared a summary note that captured the essence of discussions in the Working Group - JOB(09)/18). It might be useful for the trainees to glance through this document. The work in the Working Group has shown that the relationship between trade and transfer of technology is complex and of a multifaceted nature. Since technology and innovation is a powerful tool for development, the work in the Working Group has a continuing relevance and importance, in particular for the developing countries. The discussion held thus far has shown that a host of factors play an important role in technology generation and its transfer. A better comprehension of the nexus between trade and technology transfer can be facilitated only if the issue is viewed in holistic manner. Members seem to broadly acknowledge the fact that both private and public sectors in the home and host countries play a crucial role in this process through cohesive partnerships. Based on a few non papers by the proponents, Members also continue to examine any possible recommendations on steps that might be taken within the mandate of the WTO to increase flows of technology to developing countries. 13

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