RESTRICTEDWORLD TRADE
ORGANIZATIONWT/WGTTT/M/1
5 June 2002
(02-3128)
Working Group on Trade and Transfer of Technology
First Session
NOTE ON THE MEETING OF 16 APRIL 2002
Chairman:  H.E. Mr. Stefan Johannesson (Iceland)
Subjects discussed:
A. ADOPTION OF THE DRAFT AGENDA
1. The draft agenda was contained in Airgram WTO/AIR/1760/Rev.1 of 3 April 2002.  The
reason why the date of the meeting had been changed from a one-day meeting to two mornings was
because of scheduling problems in relation to WTO bodies.  The Chairman indicated that the Working
Group had received a submission from a number of delegations and that he would give the floor to the
representative of Pakistan to introduce it under Agenda Item C.  The Agenda was adopted.
B. REQUEST FOR OBSERVER STATUS (UNCTAD)
2. There was a request for observer status in the Working Group from the United Nations
Conference on Trade and Development (UNCTAD).  UNCTAD was granted observer status without
discussion.
C. PRESENTATIONS BY UNCTAD AND INTECH
3. As agreed in informal consultations, the Chairman had invited representatives from
UNCTAD and the Institute for New Technologies of  the United Nations University (UNU/INTECH)
to introduce the subject of trade and transfer of technology and to explain what they were doing in the
area of trade and transfer of technology.  The presentations are annexed to this report.
4. One delegation mentioned that despite the opportunities presented by technology transfers to
developing countries, in reality such transfers did not take place, to any large extent, if left to marketforces alone.  Developing countries therefore had to use pro-active policies in this area.  Several
delegations said that a number of WTO Agreements mentioned or alluded to the issue of transfer of
technology.  One delegation referred to these clauses as mostly being of a best endeavour nature.
Another said that the interrelationship of the provisions had to be considered.  A third was of the view
that the definition of technology transfer for the purposes of the Working Group should be sufficientlywide as to include all issues delegations might wish to address.  The Working Group should consider
not only the possible restrictions to technology transfer but also the possible opportunities of trade and
investment in the multilateral trading system.WT/WGTTT/M/1
Page 2
(i) Presentation of a submission by Members
5. The representative of Pakistan presented a submission it had made jointly with the delegations
of Bangladesh, Cuba, Dominican Republic, Egyp t, Honduras, India, Indonesia, Jamaica, Kenya,
Mauritius, Pakistan, Sri Lanka, Tanzania, Uganda, and Zimbabwe.  The submission, contained in
document WT/WGTTT/W/2, was not on the agenda as it had only been circulated the day before themeeting.  It contained a proposal regarding the objectives and terms of reference for the Working
Group.  The delegations behind the submission were of the view that the terms of reference of the
Working Group should reflect the emphasis in the Doha Ministerial Declaration on the relationship
between trade and transfer of technology and possible steps that might be taken, within the mandate of
the WTO, to increase flows of technology to developi ng countries, with a view to ensuring that the
latter participate in, and implement more adequately, international trade disciplines established in the
context of the WTO.
6. Other delegations generally said that the proposal was welcome and covered many of the
issues of importance to the Working Group.  However, a number of delegations mentioned that the
Doha mandate had to be kept in mind and that some of the issues in the proposal might be outside the
WTO mandate and better dealt with by other international organizations.  Two delegations also
mentioned that they were reluctant to introduce any element of negotiation into the Working Group.
Another delegation said that it was important not to confuse the work in the Working Group with that
to be carried out elsewhere in the WTO.  One de legation mentioned that it wished to identify the
degree of flexibility in existing WTO provisions and consider national policies which impede or
increase transfer of technology.  Two other delegations wished the Working Group to study the
implementation, and possible problems therein, of existing WTO provisions.
7. The Chairman would consult informally with delegations with respect to the proposal and the
work of the Working Group.  It was agreed that the proposal be put on the agenda for the next
meeting of the Working Group.  The Chairman also invited other delegations to come forward withsubmissions for that meeting.
D. B
ACKGROUND NOTE BY THE SECRETARIAT (DOCUMENTS WT/WGTTT/W/1 AND ADD.1)
8. It had been agreed in informal discussions that the Secretariat would assist the Working
Group by producing background introductory material on trade and transfer of technology.  The
Secretariat had provided a document in WT/WGTT/W/1 and had also prepared a bibliography of
reference materials on the subject of trade and technology transfer in
document WT/WGTT/W/1/Add.1.
9. One delegation said that data in the field of transfer of technology was sometimes difficult to
collect, especially with respect to intellectual property, and that even the empirical data available
might not give a correct picture of reality.  The presentation of country experiences would therefore
be helpful.  It was agreed that the two documents by the Secretariat would remain on the agenda for
the next meeting of the Working Group, scheduled for 11 June 2002, at which time the issue of theirpossible derestriction would also be considered.WT/WGTTT/M/1
Page 3
ANNEX I
Presentation by Mr. Khalil Hamdani,
Chief of Branch of the Investme nt and Technology Division, UNCTAD
First session of the WTO Working Group on Trade and Transfer of Technology
16 April 2002
10. UNCTAD has carried out much work on transfer of technology, spanning several decades.
This includes case studies and normative work, as well as analytical work on the interrelationship
between investment and technology transfer.  UNC TAD has also helped develop the concepts of
technological capacity building and technology partnerships.
11. Over the past quarter century, it is apparent that there has been a major evolution in thinking
on technology.  In the 1970s and early-eighties, the attention of countries was focussed on the
asymmetries in technology development, and the weak bargaining position of developing-country
enterprises vis-à-vis  large corporations in negotiating fair and equitable terms and conditions for
technology transfer.  In the drive for rapid industri alization, a frequent strategic question was whether
to import turnkey plants or to unbundle technology packages and only import the essentials.
Countries were also concerned about the development impact of the patent system, which was
considered inappropriate for local needs.  Policy responses to these concerns included national
screening mechanisms for technology agreements;  and, at the international level, reform of the Paris
Convention and negotiation of the Code of Conduct on Transfer of Technology.
12. Since the mid-eighties, emphasis has been placed on capacity-building, and better
understanding of technology as a learning proce ss involving diffusion and mastery of technology.
This period has been characterised by deregulation of the economy and liberalisation, including
privatisation, of the public sector.  National policies have evolved, with greater emphasis, generally,on attracting foreign direct investment and technology, streamlining of approval procedures and fewer
provisions on technology transfer and other operating requirement.  Technology transfer was also
increasingly considered as a firm-to-firm transaction undertaken through the market on a commercial
basis.  The Uruguay Round addressed some of the new concerns, particularly the concerns of
industrialised countries for the protection of technology assets and their initiative for TRIPS.
13. UNCTAD's contribution to three decades of debate includes the conceptualisation of
technology issues, such as the legal environment fo r technology transfer and the various channels of
acquisition;  case studies of the energy, food processing, and capital goods sectors, among others;  and
country studies of best practices in technology acquisition.  In the area of consensus building,
UNCTAD provided a forum for deliberations of issues and negotiation of terms and condition for
transfer and acquisition of technology.  A complete compendium and user's guide to UNCTAD's work
on technology since 1975 is available on the UNCTAD website
1.
14. Current challenges are many.  Foremost, is the continuing technology gap between countries,
evident in the low share of many developing countries in technology exports, the digital divide and
shortfalls in learning indicators.  The technology gap faced by LDCs and African countries is
particularly wide.  So wide, in fact, that technology imports are not even visible in the import
structures of African LDCs.  This surprising finding of low technology demands is a reflection ofweakness in the enterprise sector and the need for policies to encourage development of the private
sector.
                                                     
1 http://www.unctad.orgWT/WGTTT/M/1
Page 4
15. The need for technology transfer, especially to developing countries, has been recognised in
various international fora.  UNCTAD's Compendium of existing measures contains a selection of
35 multilateral and 25 regional and interregional instruments that contain provisions related to transfer
of technology and capacity building.  When bilateral agreements are included, the number of
instruments exceeds 80.  The provisions on transfer of technology and capacity building in theseinstruments are underpinned by a variety of shared concerns:  effective integration of the developing
countries in world trade and investment, protection of intellectual property rights and sustainable
development.  These provisions have different objectives and scope, and different modes of
implementation, including the possibility of financing, and are subject to different terms and
conditions.  In most cases, however, such provisions take the form of "best efforts" commitments,
rather than mandatory rules.  Thus, the operationalization of international arrangements remains a
challenge.
16. Other challenges include the need for effective participation of all countries in the setting of
standards and technical regulations, and the need for flexibility in the implementation of existing
agreements to allow adequate policy space for national measures for technology transfer and
diffusion.  For example, one of the agreed reco mmendations adopted at the recent session of the
UNCTAD Investment and Technolo gy Commission, urged Governments to examine the interface
between commitments in the TRIPS arrangements and national implementation requirements with a
view to also facilitating the application of the TRIPS arrangements to local innovation needs.  Similar
examination  of the relationship between trade and technology transfer could facilitate implementation
of other existing arrangements, such as TRIMS and the Agreement of Subsidies and Countervailing
Measures.
17. Technology is also relevant to the approach to  the new issues of competition and investment.
A recurring issue is the control of anticompetitive practices by technology right holders or the resort
to practices that unduly impede the transfer and dissemination of technology.  It has been observed
that transfer of technology is often most successful when accomplished by means of foreign direct
investment.  However, even in these successful cases, active and dynamic national policies haveproved important for making the interaction between technology transfer and FDI a virtuous
relationship.
18. Perhaps the most important insight in the evolution of technology thought is the recognition
that technology transfer is primarily a means to accomplish the more fundamental goal of building
technological capacities.  Technology transfer is a process, not a one-off transaction.  Transfer of
technology involves the successful learning of information by one party from another party, and the
effective application of that information in generating marketable products and services.  It is alsorecognized that a key component of any technology transfer process is the effective transfer of the
skills and intangible know-how that ensure production capability.  Such transfers are costly and
require investment by both parties in a process with uncertain outcomes.  As a dynamic and evolving
process, it requires constant adaptation by all actors.  Enterprises – large and small - are key actors.  In
fact, enterprises are the main instrument for technology creation and transfer.  Their actions can beencouraged and promoted by other actors, including host and home countries, as well as by
international capacity building programmes, to build a sound technological base, particularly in least-
developed countries.  Elements of these programmes include technical skills formation for upgrading,
creating business linkages (partnerships) for upgrading, linking science and technology systems to
production systems (commercialization) and enhancing the national systems of innovation.
19. UNCTAD's current work include extensive policy analysis embracing global trends,
particularly in the UNCTAD World Investment Repor t.  The most recent and exhaustive review of
transfer of technology was in the 1999 World Investment Report but also in the 2001 Report there was
an examination, in considerable detail, of the que stion of linkages between foreign enterprises and
backward linkages with the domestic economy through affiliates.  UNCTAD had also compiled aWT/WGTTT/M/1
Page 5
compendium on International arrangements on Trade and Transfer of Technology earlier referred to.
UNCTAD also carries out science, technology, innovation policy reviews for Colombia and Jamaica
as well as Ethiopia in 2001.  In addition, in the in vestment policy reviews, technology features as a
major element.  For Tanzania, which had been reviewed in early 2002, a number of interesting
findings had been made.  For example, the review suggests that Tanzania does not lack anytechnology infrastructure and that there are various ways that infrastructure could be closely linked
with the productive sector and be made conducive to the support of business activities.
20. UNCTAD also had an extensive programme in the area of trade and environment, including
on environmentally sound technologies.  It also c ontinued to carry out a number of sectoral and case
studies.  Recent sectoral studies include automobile s, drugs and aircraft and country studies in the last
couple of years include Costa Rica, Ghana, Kenya, Republic of Korea, Malaysia, Singapore, Tanzania
and Uganda.  A number of the studies, particularly those for Africa, were carried out in the context ofthe JITAP
2.  That had been particularly useful as the studies then had fed into the national trade policy
programmes.  It was currently being explored if technology could be included in the Integrated
Framework for LDCs.  Investment already features in that programme but technologies had not yet
been directly addressed.
21. UNCTAD regularly services expert meetings such  as International arrangements for transfer
of technology, home country measures, commer cialization of biotechnology and the important
question for SMEs of financing technology.  A num ber of regional capacity building seminars and
workshops in the area of trade and environment had been carried out on questions of technical
standards.  Another line of activity has been to support the Commission on Science and Technology
for Development.  This Commission is a subsidiary body of the UN Economic and Social Council(ECOSOC) which provided advice to the General Assembly and the ECOSOC and through them to
governments.  It was a forum for discussion and understanding of science and technology issues.  It
had, since 1992 been serviced by the UNCTAD Secretariat.  The Commission had a biannual work
programme.  It was currently looking at the question of technology development and indicators under
the title of "Technology development and capacity-bu ilding for competitiveness in a digital society".
In the previous work programme it looked at "National capacity-building in biotechnology".  A
number of background papers were issued for that Work Programme which are being released.  One
was already available.  The finding of that work was that there was a need for balanced information.
At present time, most information on biotechnology was either too technical or too journalistic.  That
gap could be filled with more recent and balanced information.  Prior to that the Commission
considered "Science and technology partnerships and networking for national capacity building" and
the "Information and communication technologies (ICT)" where the focus was to draw guidelines fornational ICT strategies.  A readable publication was issued on that work called "Knowledge
societies".  It was helpful to the quick establishment of the United Nations ICT task force.
22. UNCTAD was currently exploring how to provide training and support for intergovernmental
discussions from the viewpoint of providing information of often technical questions relating to
science and technology, and to build negotiating capacity on science and technology aspects.  Thetarget audience was scientists, diplomats and policy makers and they would be joint ventures between
UNCTAD, Harvard University and the United Nations University (UNU).  UNCTAD serviced the
Commission on Investment, Technology and Relate d Financial Issues.  Recent work of that
Commission included identifying best practices for transfer of technology, reviews of a number of
international instruments drawing attention to build-in implementation mechanisms conducive to
transfer of technology, in particular the Montreal Protocol, and more recently in the clean
development mechanism (CDM).  There was an attempt to extract the elements of how those
mechanisms help in the implementation of the objectives as regards transfer of technology.
                                                     
2 The Joint ITC/UNCTAD/WTO Integrated Technical Assistance Programme in Selected
Least-Developed and Other African Countries.WT/WGTTT/M/1
Page 6
Strengthening capacity to negotiate technology transfer provisions was another dimension of the
challenges which had to be addressed.  UNCTAD had been disseminating information concerning
home-country measures, including through the sign-posting system on its Website set up immediately
following the expert meeting.
23. The UNCTAD Secretariat also attempted to use the Internet.  A gateway had been established
which linked UN work on technology with that of national institutes.  In addition, the gateway also
provided access to the UNCTAD database on international agreements.  The aim was to include
regular updates on news and views around the world.  The UNCTAD Website
http://www.unctad.org/stdev provid ed information on-line, including to the WTO Working Group on
Transfer of Technology for delegations to get information about work carried out in the past.  Finally,
the Compendium and user guide to UNCTAD's wo rk on issues of technology for development
1975-2001 contained over 400 reports and studies.  It was organized by major themes, includingInternational conventions and arrangements, Channels, mechanisms and best practices for technology
transfer, Technology partnerships, Intellectual property rights and the like.  Some of the more recent
work could be directly downloaded from the Website and the other material could be obtained in hard
copies.WT/WGTTT/M/1
Page 7
ANNEX II
Presentation by Mrs. Lynn Mytelka, Director, INTECH
First session of the WTO Working Group on Trade and Transfer of Technology
16 April 2002
24. It was with some surprise that I learned of the establishment of a WTO working group on
Trade and Technology Transfer.  My surprise was not due to the belief that these two subjects were
unrelated.  Nor did it result from a failure to recognize the broad range of technology issues thatunderlie negotiations at the WTO in areas seemingly as diverse as agriculture, services, investment or
intellectual property rights (IPRs).
25. To the contrary, it was this very recognition that led me, as one of my first initiatives at
UNU/INTECH, to propose the publication of a seri es of Technology Policy Briefs.  These are
designed to provide policymakers with credible in formation on critical technology issues they face in
the domestic and international arenas, as well as to create awareness of the extent to which these
technology issues cut across  international negotiat ing fora.  I have brought copies of our first two
Technology Policy Briefs with me and welcome your comments on them.
26. Why then my surprise at the creation of a working group on trade and technology transfer.
The surprise came rather at what appeared to be a break with a traditional taboo concerning the needfor technology transfer and, even more importantly, for a pro-active stance on measures to increase
flows of technology to developing countries.  If indeed this is a break with the past, how will we
arrive at such measures?  Where is the dialogue an d discussion concerning these issues since the Doha
Ministerial meeting last November?
27. I have looked everywhere for it and was disappointed. One of the few publications to deal at
length with post-Doha issues of concern to developing countries, the ODI Development Policy
Review of March 2002 (Laird:  2002), scarcely men tions technology transfer or this Working Group.
Is this indifference, reluctance to face the difficult choices that lie ahead or simply a lack of
knowledge about the issues?  Building up a common knowledge base in this working group, can
become the basis for a broader informed consensus on how to deal with the relatively low level of
technology transfer to developing countries.
28. Your task will not be easy since these issues cannot be conceptualized in a piecemeal fashion.
This is because a number of factors interact to limit the flow of technology to developing countries
and these will have to be dealt with from a broader systems perspective.  To do so requires an
understanding of the importance of technology transfer for learning, technology capability building
and innovation in developing countries.
Why a focus on learning and innovation?
29. It is now a commonplace to stress the importance of learning and innovation in strategies of
catching up and keeping up with a rapidly advancing technological frontier.  Learning takes place
through doing, using and interacting.  It is one of the principal factors stimulating innovation in
product design and quality, in production processes, management routines and marketing strategies.
Today such innovations are the essence of compet itive dynamics in the global economy whether we
are talking of production and trade in fish, pharmaceuticals, cut flowers, textiles or
telecommunications.WT/WGTTT/M/1
Page 8
30. International flows of technology have much to contribute to the processes of learning and
innovation.  These flows can take three principal forms: embodied technology, tacit knowledge and
codified knowledge.  Each of these is now gove rned, at least in part, by international regimes
negotiated within the WTO.
31. Embodied technology, such as the scientific and technological knowledge embodied in
machinery and equipment, falls under the rules shap ing the international trading system.  The tacit
knowledge flows that enable imported machinery and equipment to function optimally, however, are
not covered explicitly in the trading regime, though the literature on catch-up in the Asian newly
industrialized economies has emphasized the importance of learning through interactions such as the
transfer of tacit knowledge from machinery suppliers to their clients.
32. Tacit knowledge transfer can also take place through foreign direct investment which is dealt
with under the TRIMs agreement though in its curren t form the TRIMS agreement pays little attention
to the quality of FDI or its contribution to technology transfer.
33. The literature on FDI refers to tacit knowledg e transferred through foreign direct investment
as technology spillover.  For technology spillovers to occur a first condition is that foreign firms are
located in a developing country. Simple location how ever is not enough.  At least one of the following
must also happen:
• A positive demonstration effect takes place, that is, local firms that have the technological
capacity needed to do so, emulate the products, processes or practices of the foreign firm,alternatively;
• Labour mobility  enables  employees to transfer the experience they have acquired through
learning by doing and by using in the foreign firm, to a local firm;  or
• Linkages  are created that involve the transfer of knowledge about quality standards, process
improvements or management techniques between a foreign firm and its local suppliers.
34. As we shall see, these conditions are rarely met in developing countries.
35. In addition to knowledge embodied in mach inery and equipment and tacit knowledge,
technology also takes the form of knowledge codified in patents, blueprints, training manuals and
books.  Some codified knowledge enters the flow of traded goods.  Others, such as patents are
governed under the TRIPs agreement
3.
36. Existing rules and regimes thus appear to open opportunities for increased technology flows
to the developing world.  But do they?  I would argue that they currently do not and there is much that
can be done to strengthen the contribution of trad e, investment and intellectual property systems to
technology transfer.
37. In what follows, therefore, I identify a number of factors related to the functioning of the
systems governing trade, international investment and intellectual property rights that interact tonarrow the opportunities for learning and innovation in developing countries.  Time will not permit
me to do more than sketch in the broadest outlines of these factors and the way in which they create
missed opportunities for technology transfer and thus for learning, technological capability building
and innovation.
                                                     
3 These frequently involve intra-firm transactions. When they give rise to royalties, they are recorded in
what the OECD has termed the technology balance of payments.WT/WGTTT/M/1
Page 9
38. To deal with this complex subject and do so with reasonable clarity and economy, I am
obliged to generalize and of course there will always be exceptions to these generalizations.  But do
not be mistaken.  A few exceptions, however positive they may be, do not negate the less positive
experience of the majority of developing countries today.
Disincentives to learning and innovation thro ugh the Trading, Intellectual Property and
Investment Systems
39. We can start by looking at three factors related to the functioning of the trading system that
limit technology transfer and reduce opportunities for learning and innovation in developing
countries.  These are the continued existence of tariff peaks and escalation with stages of processing,
the lack of capacity to import technology embodied in machinery and equipment and the
vulnerabilities of developing country exports to changes in standards, notably sanitary and
phytosanitary standards.
40. These three issues are already found on the various agendas of WTO working groups. But it is
important to understand their longer term, interactive and dynamically negative impact from the
perspective of learning, innovation and technological catch-up.
41. Tariff peaks concealed within overall trade-weighted average tariffs and escalation with
stages of processing, create a strong disincentive to move towards processed raw materials andagricultural commodities and higher value added manufactured products.  Recent research has shown
that intra-industry trade plays a larger and more significant role in transferring technology that does
inter-industry trade (Hakura & Jaumotte:  1999).  But to engage more fully in intra-industry trade,
developing countries must upgrade their product and process technology.  Thus, tariff peaks have
multiple negative impacts -- in addition to reducing  the gains from trade, create a disincentive for
technological upgrading and limit a country’s financial capacity to import of embodied technology.
42. This leads to the second point.  In the late 1980s UNCTAD (1988) looked into the capacity of
developing countries to import capital goods and concluded that capacity to import was declining.
Part of the problem lay in a lack of financing opportunities.  A second lay in the absence of credible
and impartial information concerning both the nature of the technology to be imported and thetraining and other tacit knowledge elements that are required for its effective use and the learning
needed for technological absorption.  Both of these problems can find solutions through the work of
this working group.
43. Problems associated with the capacity to import have acquired new urgency in the current
period as "used" machinery and equipment flood into developing country markets.  This further
reduces incentives and opportunities for learning and technological capacity building in these
countries.  Let me just briefly mention a few of these.
--- used machinery and equipment, for example, is not exported by manufacturers
and thus is not accompanied by tacit knowledge transfers.
--- used machinery and equipment often cannot fulfill the tasks for which it is
needed under contemporary competitive conditions.  Countries that are attempting
to diversify exports by developing the fishing industry, for example, lack thecapacity to import new refrigerator trucks and thus import used refrigerator trucks
whose compressors no longer function.  There is a danger that this will create
problems in meeting sanitary and phytosanitary standards in the future nor does it
serve the goals of learning and technological capability building for the future.WT/WGTTT/M/1
Page 10
--- used car imports present a similar problem for technology catch-up by slowing
down the need for local micro and small enterprises engaged in auto repair to
upgrade their skills.  Skill upgrading is needed to deal with the growing importance
of numeracy associated with electronic controls that not only characterize modern
cars but machinery and equipment more generally.  This problem is already beingfelt in a number of countries in Africa and solutions in the area of training could
easily be envisaged.
44. Combined, the disincentives and difficulties that tariff peaks and a lack of capacity to import
create for learning and technological capacity build ing are setting the stage for a significantly less
virtuous cycle of growth through trade in the future.  And the downward spiral will accelerate if the
speed of technological change and the need for learning and innovation in all industries and all
countries proceeds at its current pace.
45. To this must be added the difficulties faced by developing countries in knowing about and
meeting the new standards for trade set within the WTO.  SPS, for example, have become particular
disincentives for rapid technological catch up by hitting developing countries where they are most
vulnerable -- the need to diversify production.  The impact that new SPS and TBTs have is often felt
in precisely the areas into which many developing countries are moving.  Vulnerability is the bane ofsmall and poor economies.  With only limited scanning capabilities and resources, most developing
countries do not perceive changing standards in time, cannot evaluate their likely impact or plan a
strategy to deal with them.  Overtime, as producers who have taken the risk of investing in
diversification for export face the sudden impact of new standards and an absence of support
mechanisms to assist in meeting them, the downward spiral is reinforced.
46. Let us move on briefly to consider how the TRIPS and TRIMs agreements contribute to the
process of limiting technology transfer and reducing opportunities for learning and innovation in
developing countries.
47. Patents confer a monopoly on patent holders in e xpectation that they will stimulate invention,
through disclosures, speed the diffusion of knowledge about new discoveries and, perhaps mostimportantly for developing countries, contribute to technology transfer.  To what extent are these
beliefs and expectations justified in the case of developing countries.
48. As a stimulus to invention, patents would be most relevant where a solid knowledge base, a
developed R&D and enterprise structure and the financing to sustain a process of innovation are well
established.  These conditions are not found in a majority of developing countries
49. Similarly, disclosure is only likely to enhance knowledge spillovers when it stimulates
competitors to undertake further innovation and perhaps to make a new discovery.  Once again, whilethis might apply to the more industrialized countries, few developing countries are likely to benefit
from disclosure alone as a vehicle for technology tr ansfer.  In most developing countries firms have
neither the capacity nor the resources to scan broadly and to detect useable ideas.  Even were they
able to do so, it is highly unlikely that they would have the resources to innovate ‘around the patent’,
especially where both processes and products are patented.
50. For patents to be effective as a vehicle for technology transfer to developing countries they
must enhance learning, technological capacity building and innovation.  Few patents granted in
developing countries, however, are currently put into production and where they have been, a large
percentage of the licenses are granted only to the local affiliates of the patent-holding firms.  Thus
data for the 1990s show that 70 per cent of global royalty and licensing payments were paid byaffiliates to their parent firms (UNDP:  1999,68),WT/WGTTT/M/1
Page 11
51. To those who might argue that foreign direct investment could offset the limited contribution
of patents to learning and innovation in devel oping countries, let me point not to theoretical
possibilities but to the realities faced by developing countries since the 1980s and still with us today.
--- Foreign Direct Investment flows mainly to countries with large or growing
markets and those with particular assets which enhance export production – specifickinds of natural resources such as oil in Angola, for example, or skills and other
knowledge-based competences such as the programming and systems analytic
capabilities in Bangalore, India.  These are not the strong points, however, of most
developing countries.
--- Studies of technology spillover in the developing countries moreover show very
mixed results in the few countries where these have actually been done
4.  Currently
UNU/INTECH is undertaking a number of studies across the developing world,
using a comparative methodology and in some cases moving below the aggregate
level, through interviews that enable us to examine the extent to which technology
spillover to local firms is taking place.  Evidence thus far adds to the skepticism that
FDI can be counted upon as a solution to the problem of technology transfer in muchof the developing world.
What then can be done?
52. In view of the number and reinforcing nature of the factors that are currently reducing
opportunities for learning and innovation through the systems governing trade in agricultural products
and capital goods, investment and intellectual property, the creation of a working group on Trade andTechnology Transfer comes not a moment too soon.  Although the list of negative factors is long, this
should not be taken as a measure of our defeat but as an opportunity to move forward towards creative
solutions that enhance the flow of  technology to developing countries.  Two broad areas for future
reflection commend themselves to this purpose.
53. The first is to systematically analyze ways and means of removing the many factors that are
creating disincentives to learning and innovation and limiting technology transfer in existing
agreements within the WTO and in the functioning of  the trading, investment and intellectual property
systems more broadly.  Identifying these and developing potential solutions could constitute an
important step towards increasing the flows of technology to developing countries.  Serious research
will be needed to reconceptualize issues in learning and innovation terms.  Let me give just one
example:
--- the current debate over Article 31(f) of the TRIPs agreement concerning the
requirement that a compulsory license must be predominantly used for the domestic
market. From a learning and innovation perspective, this Article could be modified
to create an incentive for learning by doing and using, as well as a stimulus to
efficient production and to trade amongst developing countries.
                                                     
4 There is a further paradox in assigning too great a role in technology transfer to Foreign Direct
investment.  Many studies of technology spillover measure this as increases in productivity, that is in output per
person/hour worked.  But increased productivity may merely reflect a situation in which smaller local firms are
driven out of the market by larger foreign firms in industries where scale economies are important.  Unless we
know more about the ability of smaller local firms to acquire the financing needed for expansion, we cannotattribute the change in productivity to a technology spillover but merely to the replacement of existing capacityby more capital-intensive foreign firms.  Productivity increases, moreover, are not necessarily accompanied bygrowing competitiveness as measured by market shares in the domestic or export markets.  Measuringtechnology spillover is thus a problem.WT/WGTTT/M/1
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54. The reconceptualization of this article would thus not only promote learning and
technological upgrading but increase the gains from trade for developing countries.  Enhancing the
ability of the TRIPS, TRIMs, GATS and other agreements to contribute to technology transfer would
thus become a point of entry for this Working Group to contribute to the work of other working
groups and do so in a manner that takes account of the cross-cutting and interactive nature of theseissues.
55. The second area for concerted effort is to consider a number of innovative initiatives that
might stimulate and support the flow of technology to the developing countries.  These would build
upon the WTO’s mandate in technical assistance.
(a) Putting Patents into Practice  is a critical element in the processes of learning by
doing and by using since disclosure alone does not permit developing countries with
weak technological capabilities to innovate around existing patents.  There are anumber of classical ways to approach this issue.  Developed countries might create
incentives to induce home-based enterprises that patent in developing countries to put
those patents into practice.  Developing countries might design foreign investment
strategies that attract foreign firms to locate production of goods and services that
embody patents locally and put in place the necessary infrastructure, training andpartnership programmes that increase the probability that technological spillovers will
take place
5.  But there are other more innovative initiatives that could be used to put
patents into practice. Let me give you one of these.
A Patent Bank :  A number of companies are seeking to divest themselves of certain
businesses based on patents that they hold.  Still other enterprises have expressed
their willingness to put patents into the public domain.  Many of these patented
products and processes are of utility to developing countries but they are either not
aware of these or unable to put them into operation without support.  This working
group could explore the feasibility of creating a patent bank with a service componentdedicated to the search for potential partners in the developing world to whom this
technology and its related tacit knowledge component could be transferred.
Networks have been created in both the North and the South that provide support to
transfer of technology and they would make excellent partners for such an initiative.
(b) Increasing capacity to import embodied and disembodied technology is a second
critical area for new initiatives within the WTO.  Research needs to be undertaken in
two areas.  One is to learn more about the technology import capacities of developingcountries and their current needs.  The other is to analyze possibilities for the
development of innovative import financing schemes to support technology imports.
One approach here might be to explore the possibility of creating a Global Eximbank
with contributions from existing national Ex imbanks who would be its members.  The
Global Eximbank would combine financing of technology embodied in machineryand equipment destined for the productive sector in developing countries with
advisory services to provide assistance in acquiring credible economic and technical
                                                     
5 This is costly and requires considerable competences that many developing countries do not have but
where they might be built through technical assistance programmes such as those developed by UNCTAD inconjunction with the World Association of Investment  Promotion Agencies and the EMPRETEC enterprise
development programme or that of the World Bank’s FIAS.WT/WGTTT/M/1
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information on the technologies being sought and in ensuring the transfer of related
tacit knowledge.
(c) A third area for technical assistance lies in the creation of an early warning system for
SPS standards.  The unexpected closure of major external markets, as we have seen
above, adds to the vulnerability of developing countries, creates a disincentive todiversification and thus to imports of new technologies, to learning and to
technological upgrading.  The emphasis here is on the difficulties that developing
countries have in monitoring approaching ch anges, evaluating their likely impact and
knowing where to go for help in building the capacity to respond in a timely and
appropriate fashion.  The WTO is precisely the place where an early warning and
referral system could most rapidly become operational.
Bibliography
Hakura, D. and F. Jaumotte (1999) " The Role of Inter-and Intraindustry Trade in Technology
Diffusion", IMF Working Paper WP/99/58.
Laird et al. (2002) "Policy Symposium: WT O, Doha and Development Countries" in ODI
Development Policy Review, Vol. 23 No. 1, March.
UNCTAD (1988) "Recent trends in international technology flows and their implications for
development", TD/B/C.6/145, August.
UNDP (1999) "Globalization with a Human Face", Human Development Report 1999.UNDP (2001) "Making New Technologies Work for Human Development", Human Development
Report 2001.
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