South Asia Watch on Trade, Economics & Environment (SAWTEE)

« View All Articles

WTO rules and technology transfer
Published: The Kathmandu Post, 17 September 2004
By: Ratnakar Adhikari

Technology transfer and diffusion can contribute to economic development via productivity growth it ensues. However, developing countries and least developed countries (LDCs) lag behind in technology frontier and confront the issue of how best to bridge the technology gap. They do not only have limited capacity to generate technology, but also lack requisite infrastructure and legal mechanisms to make best use of the acquired technology. The process of technology diffusion or transfer, regardless of the channel by which it occurs, is neither automatic nor costless. There are two channels through which technology transfer occurs, namely direct channel such as trade in technology, joint venture, licenses and FDI and indirect channel such as international trade in goods and services, movement of labour and imitation. Open trade policies are critical for developing countries in attracting technology. But openness is not sufficient – there needs to be absorptive capacity and ability to adapt foreign technology, both of which are related to human capital endowments and investment in research and development (R&D) intensive industries.

In the past, developing countries like South Korea made extensive use of national policy tools such as screening and choosing investors that were more willing to transfer technology. This might not be possible in the current era of "race to the bottom" policy pursued by a number of developing countries to attract investment. Moreover, investment agreements could also severely circumscribe the ability of the host countries to make technology transfer a mandatory requirement for foreign investors. Though a full-fledged investment agreement is not yet included in the WTO, it has been included in various bilateral agreements being signed by the developing countries with the developed ones.

Even within the WTO, the Agreement on Trade Related Investment Measures (TRIMS) considers any action on the part of the host country, which tantamount to import substitution, as WTO-incompatible. Therefore, technology transfer requirement, if adopted, is likely to trigger legal challenge at the WTO. After the decision made by the WTO Dispute Settlement Body on Indonesian car case, the already grey area within TRIMS is becoming even murkier.

In this context, a multilateral mechanism to facilitate technology transfer is considered a superior instrument. However, how is that going to happen is far from clear. One way of doing it is to strengthen various agreements within the WTO.

Among the various WTO agreements that deal with the issue of technology transfer, the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) is the major one, which contains explicit provisions relating to international technology transfer.

Article 7 of the TRIPS Agreement, which lays down the very objective of the agreement, notes that IPRs should contribute to the promotion of technological innovation and the transfer and dissemination of technology. Similarly, Article 8.2 recognises that countries may wish to adopt policies to prevent the abuse of IPRs by rights holders or the use of practices that "adversely affect the international transfer of technology." Both these provisions provide, in theory, a much needed leeway for the developing countries to acquire foreign technology. However, given the fact that the above mentioned provisions are "best endeavour" in nature, the potential for their legal enforceability is, at best, uncertain.

It is also necessary to also see as to what is the fate of a seemingly binding provision of the TRIPS Agreement. Article 66.2 of the Agreement requires the developed members to provide incentives to enterprises and institutions in their territories for the purpose of promoting and encouraging technology transfer to LDCs in order to enable them to create a sound and viable technological base. Despite the use of the word "shall" in the text of the Article, which is considered more binding in legal parlance, developed countries have not done enough to operationalise it. One reason is the lack of monitoring mechanism, another being the conspicuous absence of any milestone and deadline to make that happen.

Due to the growing realisation of the need to bridge the gap between the technology producers (North) and technology takers (South) and the imperatives to implement the Article 66.2 of the TRIPS Agreement, paragraph 11.2 of the Declaration on Implementation Related Issues and Concerns adopted at Doha Ministerial Conference reaffirms that the provisions of Article 66.2 of the TRIPS Agreement are mandatory. Ministers also agreed that the TRIPS Council shall put in place a mechanism for ensuring the monitoring and full implementation of the obligations in question.

They also required the developed country members to submit prior to the end of 2002 detailed reports on the functioning in practice of the incentives provided to their enterprises for the transfer of technology in pursuance of their commitments under Article 66.2. However, to date, only a few developed countries have provided the information requested. The largest potential donor of technology to the developing world – the United States – has not even bothered to provide such information.

Equally disturbing is the fate of Paragraph 37 of the Doha Declaration, as per which it was decided to set up a Working Group under the auspices of the General Council, to examine the relationship between trade and transfer of technology, and of any possible recommendations on steps that might be taken within the mandate of the WTO to increase flows of technology to developing countries. It was also decided that he General Council shall report to the fifth Session of the Ministerial Conference on progress in the examination. Since General Council was bogged down with several other contentious issues, it could not prepare the progress report for the submission to the fifth Ministerial Conference. Even if the report was submitted, it would have remained in oblivion because of the failure of the fifth Ministerial Conference held in Cancun last year.

A group of trade economists are of the view that liberalisation of temporary movement of workers and professionals to the developed countries under the General Agreement on Trade in Services (GATS) is the surest way of ensuring technology transfer. However, this needs to be supplemented by an in-built mechanism to ensure their eventual return to the home country, and a favorable investment climate at home.

Given this appalling scenario, what should be the policy of Nepal – the newest member of the WTO? There has to be a mixture of policy instruments to move up the technology ladder. First, charity on technology issue should begin at home. It is necessary for the Nepalese private sector, hitherto least concerned about investing in R&D, to pool their resources and make investments in invention of new technologies. Second, there is a need to move beyond rhetoric in terms of public-private partnership for the generation of new technologies. Third, private sector as well as government should fund academic and research institutions in their pursuit to excel in R&D. Fourth, efforts should be made to enhance the flow of South-South technology transfer, for instance, through regional economic cooperation arrangements such as SAARC and BIMSTEC. Fifth, Nepal should join forces with other like-minded member countries of the WTO to make its provisions and decisions on technology transfer enforceable.

Finally, we need to be cognisant of a major caveat – technology transferred from outside can be put to good use only by developing human resources, legal regime and institutional set up to enhance our absorptive capacity.

« View All Articles