WORLD TRADE
ORGANIZATIONWT/WGTTT/W/7
9 May 2003
(03-2472)
Working Group on Trade and Transfer of Technology Original:  English
CREATING INCENTIVES FOR THE TRANSFER OF ENVIRONMENTALLY
SOUND TECHNOLOGIES (EST)
The Experience of the Swiss Development Cooperation
Communication from Switzerland
The following communication, dated 7 May 2003, has been received from the above
delegation with the request that it be circulated.
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I. BACKGROUND
1. At the Ministerial Conference in Doha, WTO Members underlined the importance of
technology transfer (TT) for development.  This submission examines the Swiss experience with TT
to developing countries based on hands-on experience with centres working in the field of transfer ofEnvironmentally Sound Technologies (ESTs).
2. The Swiss State Secretariat for Economic Affairs (SECO) finances various centres in Africa,
Asia, and Latin America engaged in the transfer of ESTs including know-how as well as hardware
transfer
1.  Such centres focus on improving the absorption potential of a country to assimilate new
technologies through training and information exchange (this is just one of the factors determining the
absorption capacity of a country for TT, see document WT/WGTTT/W/3, for further factors).  The
centres are also active in identifying Best Available Technology and act as information clearinghouseto facilitate the dissemination of technology information – another field identified as important to
facilitate TT (see document WT/WGTTT/W/3).  As the experience of these centres has shown there
are ways of creating incentives for the transfer of  EST.  This communication attempts to illustrate
some of them.  While the promotion of ESTs is a specific field and a specific application of TT, the
experience gained here might also serve as an indicator of problems encountered in other areas of TT.
3. The support of EST centres represents only part of the Swiss effort to facilitate TT.  Other
activities have been listed in document IP/C/W/388/Add.3, dated 8 January 2003.
II. OUTLINE
4. Technology and its transfer can be regarded like any economic market with agents on the
demand and on the supply side.  Under perfect market conditions no government intervention or
technology policy would be needed.  However, market failures potentially exist including distortions
                                                     
1 Centres supported by the SECO operate in Brazil, China, Colombia, Costa Rica, El Salvador,
Guatemala, India, Morocco, Peru, South Africa and Vietna m. The establishment of centres in other countries is
planned.WT/WGTTT/W/7
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through taxes and subsidies, high transaction costs acting as barriers (including information and seek
costs), or positive externalities (see document WT/WGTTT/W/3 for arguments on market failure)2.
5. Considering the demand and supply side, various reasons can be identified why technology
demand as well as technology supply linked through TT (through various market channels such as
imports, business and research partnerships includi ng subcontracting, licensing, FDI etc.) are of a
lower magnitude than perhaps expected or aspired to by national authorities. Based on concrete
experiences of the technology centres active in the domain of EST some important restraining factors
have been identified.  The following discussion illustrates some of these factors.  Their importance
varies depending on the economic sector and on the country.  However, the discussion  points to some
core factors on the firm – and economy wide level which may be limiting TT more generally.
III. DEMAND ASPECTS
6. TT happens if economic agents have a demand for goods and services requiring new
technology that is not yet commonly used in the spec ific country.  This technology might be imported
or produced nationally - a prerequisite to be sustainable in a market is that a demand exists for this
type of technology.
7. Important factors that favour a significant demand for new technologies are:
• Large sector of export-oriented enterprises and/or enterprises with demanding product
requirements and with important linkages in the supply chain;
• Pricing of environmental "goods" and "bads" such as energy, water, waste-water etc., which
make the use of new technologies attractive;
• Firm specific factors such as knowledge and information about technological alternatives,
access to finance, and adequate skills within firms.
8. Export-oriented enterprises and supply chains as demand stimuli:  The experience of TT
centres sponsored by the SECO has been that major agents with a demand for new technologies,
specifically ESTs, are export-oriented enterprises.  These basically include enterprises exporting
consumer end-products or high quality intermediate products to quality oriented markets or clients.Technologically complex supply chain links, cate ring often to multinational and high-standard
enterprises, are another factor that increases the demand for new technology.  On the other hand,
enterprises focusing on the national market or without strong links towards demanding industrial
clients often have a limited interest in new ESTs.  This latter segment includes a large part of national
SMEs.  An export-oriented and open trading regime worldwide thus favours transfer of EST.
9. Environmental cost internalisation as a demand factor :  As the Swiss experience of the
EST transfer has shown, the regulatory framework often makes the investment in new ESTs
non-profitable or risky.  ESTs embody a decrease in the use of resources such as energy, water, raw
materials etc., and/or reduced emissions to the environment of potentially harmful substances.  In
countries where environmental costs are (at least partially) internalised ESTs often have a positive
cost-benefit ratio and their application is thus widespread.  Old and "outdated" technology is therefore
replaced more quickly than in other countries, where the environmental costs are not or to a lesserextent internalised.  In the experience of the Swiss financed technology centres it has become
                                                     
2 The existence of market failure in itself is, however, not a sufficient argument for government
intervention as the government might be ineffective or cause even more distortions thus leading to a worsesituation than without intervention.WT/WGTTT/W/7
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apparent that a gradual increase of measures aimed at internalising external environmental costs, can
have a two-folded positive impact:
• Improved environment and health of citizens;
• Increased EST transfer and thus also benefits from spill over to other enterprises.
10. Export-oriented enterprises, and those in complex supply chains, cater for clients requiring
high product quality and respect for environmental standards.  They are usually ready to use new
technologies.  This might lead to a gradual spill over to other sectors (for technology diffusion and
spill over effects, see document WT/WGTTT/W/1).  The pace of application of new technologies
could be increased significantly by enabling conditions favouring the demand for ESTs.  A positive
incentive of that type is given e.g. by the Clean Development Mechanism (CDM) pricing the formerly
"worthless" emission reductions of Greenhouse Ga ses (GHGs).  New technologies, e.g. for power
generation, thus become profitable and even with low current trading prices of CO 2 many renewable
energy projects were implemented in the last few years.  Reducing subsidies and internalising
environmental costs into the price of goods a nd energy resources would considerably boost EST
transfer while having a positive impact on the environment and the socio-economic well-being of the
country.
11. Firm-specific factors  identified as impediments to TT include incomplete knowledge and
information about technological alternatives, limited access to finance, inadequate skills, or
organizational rigidities within firms.  These are explicitly tackled through the EST programs
supported by the SECO by offering integrated services including information, training, assessments
and providing for links to finance sources.  The latter is currently expanded through a new Green
Credit Trust Fund facility.
IV. SUPPLY ASPECTS
12. There are a number of factors that may prevent or limit the engagement of technology
suppliers in the transfer of EST.  Two core factors that the technology centres have encountered as
critical for the transfer of EST are:
• Intellectual Property Rights (IPRs) and their enforcement;
• The enabling environment including specifically the investment climate and risk.
13. IPRs:  Weak or non-enforced property rights diminish the attractiveness for EST providers to
work together with national firms.  Enterprises fear that processes or products are copied and are thus
reluctant to provide sensitive technology.  This ha s been a limiting factor e.g. in technology upgrading
of chemical and dyestuff industries in various countries.  Especially SMEs are dependent on
transparent and enforceable rules with an efficient judicial system to solve possible conflicts.  In the
absence of such rules the risk of engaging in EST transfer is high thus provoking a lack of interest of
EST suppliers or their charging high prices to absorb  the high risks associated with a lack of enforced
IPRs.
14. Investment climate :  In countries where country or investment risks are perceived as high it
is difficult to mobilize EST suppliers.  This is especially true for countries where the product has no
large national or regional market.  Hence it would be highly beneficial for these countries to strive to
enforce attractive investment regulations.WT/WGTTT/W/7
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V. CONCLUSIONS
15. There are various ways of creating incentives for TT, many of which have been analysed in
other documents (see document WT/WGTTT/W/1/Add.1) .  Technology is essentially in the hands of
private actors.  Activities to introduce new technologies thus focus either on the firm directly or the
regulatory framework.
16. The SECO through the EST centres supports proj ects and measures both in enterprises and
with regulatory institutions.  Various incentives are provided to foster TT.  To be successful, these
efforts require a stable, transparent and enforceable enabling environment (through IPRs, an open
trade regime and measures improving the investment climate).
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