WORLD TRADE
ORGANIZATIONWT/WGTTT/W/3
11 November 2002
(02-6177)
Working Group on Trade and Transfer of Technology
A TAXONOMY ON COUNTRY EXPERIENCES ON
INTERNATIONAL TECHNOLOGY TRANSFERS
Note by the Secretariat
SUMMARY ........................................................................................................................ ....................2
I. INTRO DUCTION ................................................................................................................. ...6
II. MOTIVATIONS FOR GOVERNMENT INTERVENTION TO FAVOUR
TECHNOLOGY T RANSFER.................................................................................................6
III. BARRIERS TO TECHNOLOGY TRANSFERS FOR DEVELOPING
COUNTRI ES...................................................................................................................... .......7
IV. GOVERNMENT OPTIONS TO F AVOR TECHNOLOGY TRANSFE RS .......................8
A. A M ENU OF POLICY OPTIONS TO FACILITATE TECHNOLOGY TRANSFER ..................................8
B. P OLICY INSTRUMENTS ..............................................................................................................13
C. A N OVERALL CLASSIFICATION OF POLICY STRATEGIES ..........................................................17
V. CASE STUDIES APPROACH : A CAUTIONARY  NOTE ................................................18
VI. CASE STUDIES: A TAXONOMY OF POLI CY INSTRUM ENTS ..................................20
A. N EW GENERATION REFRIGERATORS IN INDIA :  DUTY EXEMPTIONS , RESEARCH
PARTNERSHIP , MONITORING ....................................................................................................20
B. D IFFUSION OF WIND AND SOLAR ENERGY IN INDIA : CREDIT FACILITIES , TAX
INCENTIVES AND A MARKETING CAMPAIGN ............................................................................21
C. C OAL POWER PLANTS IN CHINA :  THE ROLE OF ECA TO FAVOUR TECHNOLOGY
TRANSFERS THROUGH TRADE ..................................................................................................22
D. A LTERNATIVE TECHNOLOGY TO CFC  SOLVENT IN MEXICO : THE ROLE OF SETTING
STANDARDS , PROVIDING INFORMATION AND COLLABORATION WITH
MULTINATIONALS .....................................................................................................................22
E. S WEDISH PROGRAMME FOR THE BALTIC STATES : ENCOURAGING JOINT -VENTURES
AND LOANS ON FAVORABLE TERMS ........................................................................................23
F. C ONCRETE ARMOURING FOR THE COAST IN SOUTH AFRICA :  COOPERATIVE R&D
AGREEMENTS ENABLED BY THE FEDERAL TECHNOLOGY TRANSFER ACT..............................23
G. S OUTH TO SOUTH TECHNOLOGY TRANSFER : TRAINING , SUBSIDIES , MONITORING ...............24
H. W IND ELECTRICAL SYSTEM IN INNER MONGOLIA : UNIFIED NETWORK FOR R&D,
MANUFACTURING AND DISTRIBUTION .....................................................................................24
I. I NDIAN PHARMACEUTICAL SECTOR : FROM PROTECTIONISM TO LIBERALISM ..........................25
J. I NTEL AND COSTA RICA: GOVERNMENT SUPPORT OF (POTENTIAL ) SUPPLIERS OF
FOREIGN TECHNOLOGY ............................................................................................................26WT/WGTTT/W/3
Page 2
K. T HE AUTOMOTIVE INDUSTRY IN SOUTH AFRICA AND THE ROLE OF THE SOUTH
AFRICAN BUREAU OF STANDARDS ...........................................................................................27
L. A GRICULTURAL TECHNOLOGY TRANSFER IN NICARAGUA : PAID EXTENSION
SERVICES ............................................................................................................................... ....27
M. H UMANITARIAN USE LICENSING IN AGRICULTURE ..................................................................28
N. T HE TECHNOLOGY DIFFUSION SCHEME IN MAURITIUS : CREATE A M ARKET IN
TECHNOLOGY SERVICES ..........................................................................................................28
O. I NCENTIVES FOR JOINT VENTURE CAPITAL AND SCIENCE -BASED INDUSTRIAL PARKS :
THE CASE OF CHINESE TAIPEI ....................................................................................................29
P. I NDUSTRIAL PARKS AND BUSINESS INCUBATORS : THE CASE OF KOREA ................................30
Q. T ECHNOLOGY TRANSFER POLICY OF CHINA : SPECIAL TREATMENT AND CONDITIONS
TO FDI A ND REPATRIATION GRANTS .......................................................................................30
R. B UILDING A T ECHNOLOGY TRANSFER INFRASTRUCTURE :  THE CASE OF SUPERNET
IN THE UNITED KINGDOM (UK)................................................................................................31
1. The Working Group on Trade and Transfer of Technology was established, in accordance
with the mandate in paragraph 37 of the Doha Ministerial Declaration, to examine the relationship
between trade and transfer of technology.  A recent document (WT/WGTTT/W/1) prepared by the
Secretariat provides an overview of the issues related to trade and technology transfers in the existing
literature.  Document WT/WGTTT/W/1 examines how new technologies are created, how theytransfer across countries and how they diffuse within a country.  At the meeting on Wednesday,
11 June 2002, Members agreed that the Secretariat examine government policies related to transfer of
technology and produce a factual compilation of country experiences.  This note, which has been
prepared under the Secretariat's own responsibility, and which is without prejudice to the positions of
Members or their rights and obligations under the WTO, responds to this request.
SUMMARY
2. A recent document (WT/WGTTT/W/1) prepared by the Secretariat examines how new
technologies are created, how they transfer across countries and how they diffuse within a country.  In
particular, it identifies the stages of technology transfer, highlights the channels through which
technology is spread geographically, distinguishes the factors that determine the technology transfer
potential of trade, FDI and partnership agreements, and introduces the concept of absorptive capacity.
3. Some of the concepts introduced in document WT/WGTTT/W/1 are a useful background to
the present discussion.  A brief overview is given below of the main issues discussed in
document WT/WGTTT/W/1.
Stages of technology transfers
4. Four phases can be identified in the process of technology transfer.  These are:
(1) Cross-border  Transfer or Acquisition , the actual passage of a technology from the innovating
country to the technology receiving country;
(2) Learning , the process of learning how to use the technology (know-how) and eventually the
learning of the principles of the new technology (know-why) by the receiving country;WT/WGTTT/W/3
Page 3
(3) Adaptation , the process of fitting the foreign technology to local conditions.  At this stage it is
required that the country receiving the technology master the know-why of the technology and invest
in R&D activity1;
(4) Diffusion, the spread of the new technology within a country.
The channels of technology transfers
5. Four main channels serve to transfer technology across countries.  These channels are:
(a) using technologically advanced intermediate products that have been invented abroad;
(b) accessing the knowledge codified in a blueprint;
(c) person-to-person communication or learning-by-doing; this channel of diffusion of
knowledge is particularly important for tr ansmitting tacit knowledge, i.e. non-codified
information and can take two forms:
(i) formal training: on-the-job training, schooling, personnel exchange;
(ii) informal knowledge sharing: informal contacts, academic contacts, technical
publications, etc.
(d) interaction between domestic and foreign firms;  in particular, technology transfer can occur
through:
(i) backward/forward linkages:  these linkages favour technological diffusion, as
technologically advanced foreign affiliates support their local suppliers and the host
country firms involved in later stages of the production process to raise their quality
and service standards;
(ii) demonstration effect:  this effect consists in the copying, imitating and
reverse engineering of new technologies and the adoption of managerial, marketingand production processes of higher efficiency (for example, local firms can learn and
benefit from greater expertise in exporting and a larger portfolio of international
contacts of foreign affiliates);
(iii) competition effect:  competition favours technology transfers as local firms
may feel the pressure of foreign competitors in the market and adopt new managerialhabits.
Absorptive capacity
6. The notion of absorptive capacity is the idea that a firm or country needs to have a certain
type of skill in order to be able to successfull y adopt foreign technological knowledge.  This idea
covers the technology transfer phases of learning and adaptation.
7. A country's absorptive capacity is determined by the following factors:
(a) the successful interaction  of basic research and applied research and development
(the application of the results of basic research to specific uses, and the development
of new products);
                                                     
1 Sometimes the term absorption is used in relation to the process of technology transfer. In terms of
the phases of technology transfer, absorptio n covers the learning and adaptation phase.WT/WGTTT/W/3
Page 4
(b) the level and nature of the education system ;
(c) the technology gap  between the level of advancement of the technology in use in the
local market and the level of the technology imported (via trade, or FDI or other
forms of alliances between foreign and domestic firms);
(d) the entrepreneurial environment  in the domestic country;  this concerns the capacity
of local firm managers to undertake risky investment and their managerial and
organizational abilities;
(e) other economic conditions  of the host country, such as its intellectual property
regime.
The potential of technology transfers
8. For a given absorptive capacity of the host country, the potential for technology transfer is
determined by:
• the volumes and the type of imported goods;  imports of capital goods or imports of machinery
and equipment have a higher average technological content than total manufacturing and therefore
a higher potential for technology transfer;
• the flow and the type of FDI as defined by the level of technology advancement of the good
produced by the investor and the technology intensity of the activity undertaken in the host
country;
• the number and type of partnership agreements;
• the extent of integration of the foreign firm with the local economy;  if a foreign firm is well
integrated in the domestic market say, through the use of locally produced intermediate goods and
local skilled and unskilled workers,  FDI acts as a mechanism of technology transfer through all
possible channels (backward/forward linkages, learning by doing, demonstration and competition
effects).
Internal diffusion of technology
9. Finally, technology diffuses better within a country under the circumstances indicated below.
• Flexible labour markets;
• Efficient financial markets;
• There is an entrepreneurial environment in the technology receiving country that favours
start-ups.  The training and the learning-by-doing that MNEs, for example, offer to local workers
becomes embodied in the worker.  The knowledge accumulated as human capital will diffuse
internally into the local market if an employee leav es a foreign firm to go to work in a local firm
or start up a new business.  In this context, the flexibility of the labour market and the efficiency
of financial markets in the host country play a crucial role in determining internal diffusion ofknowledge.  If the labour market is not flexible, local firms cannot match the wage required to
attract a trained worker from the multinational.  On the other hand, if financial markets are
inefficient, the worker may face liquidity problems  that would hinder any decision to leave the
MNE or start a new business.WT/WGTTT/W/3
Page 5
10. The present note examines the role that national governments can play in enhancing the
transfer, learning, adaptation and diffusion of foreign technology in the receiving country or
transferring technology abroad.  In particular, the present note provides a taxonomy of policy
instruments that governments can adopt to attract tec hnology transfers, to facilitate cross border flows
of technology through all channels of technology transfers, to increase absorptive capacity and tofavour the internal diffusion of technology.
11. A number of case studies are reported.  They provide examples of country experiences in
relation to the adoption of one or more of these policies.  Each experience is analysed in the specific
context in which it took place.  Strong emphasis is placed on the limits of any generalisations of the
lessons drawn from these experiences.  Therefore, the case studies reported are not intended to
provide a menu of policy strategies, but rather to provide a picture of the diversity of policies that can
be utilised to favour technology transfers and their flexibility.  This does not imply that the note hasno message to convey.  On the contrary, it asserts clearly the need for a mixed strategy that combines
efforts toward attracting foreign technology and increasing a country's absorptive capacity.
12. The main findings of the present note can be summarised as follows:
• The major barriers to technology transfers to developing countries are: lack of access to
information about the full range of technological alternatives, inability to identify the technology
best suited to needs, limited access to finances, inadequate level and quality of education andskills, insufficient linkages between University and research institutes on the one hand and
industry on the other, regulatory constraints, market distortions and weak and inefficient
institutions.
• Technology transfer policy can be classified accord ing to the extent of government intervention in
the economy and the preferred mode of technology transfer. It emerges that governments can
have a minimal intervention approach , consisting in creating the market environment for
successful private-sector-driven technology transfers, or they can have a proactive approach ,
consisting in promoting government-driven programmes.  Moreover,  governments can
implement an externalisation-oriented policy strategy that aims to build up domestic capacity and
favour technology transfers in externalised mode; i.e. a transfer from a multinational enterprise to
an entity that is not controlled by that enterprise and can take the form of licensing, minority jointventures, technical cooperation contracts, etc.  Alternatively, an internalisation-oriented strategy
would favour technology transfers in internalised  mode;  i.e. technology transfers that occur
between a parent of a multinational enterprise  and a foreign affiliate under the ownership and
control of that enterprise.  Finally, a mixed strategy  favours the flow of technology through all
mechanisms - trade, FDI and partnership agreements - and simultaneously builds localtechnological capabilities to enhance absorptive capacity and technology diffusion within the
country.
• The examination of country experiences related to technology transfer provides a picture of the
diversity of policies and strategies utilised to favor technology transfers.  The lessons that can bedrawn from the analysis of case studies is often difficult to generalise.  Each experience needs to
be analysed in the specific context in which it took place.  Economic policies need to be tailored
to the specific case. Governments need to take into account alternative options and approaches,
involving considerations such as:
/g216 the type of institution transferring and receiving the technology, whether they be government
agencies, universities, or private firms;
/g216 the mechanism through which technology is transferred, including licensing, person-to-person
communication, formal literature, trade and FDI;
/g216 the type of technology, such as product or pr ocess-based know-how or scientific knowledge;WT/WGTTT/W/3
Page 6
/g216 the characteristics of the market where the technology is destined, including the
substitutability with other technology in the domestic market, pre-existence of subsidies or
other forms of protections, and degree of competition in the product market;
/g216 the goal.
• Overall, it emerges that governments have an important role to play in developing local learning
capacity, skills and institution building.  The credibility of institutions and their ability to plan areoften associated with successful technology transfer policies.
• It is very important to integrate the process of cross-border technology transfer with that of
capacity building.  When learning capacity is insufficient, the importation of technology can atbest improve the efficient use of endowments at a given point in time, but it will not lead to a
continuous upgrading of technology.
I. INTRODUCTION
13. On Wednesday, 11 June 2002, the Working Group on Trade and Technology Transfers agreed
that the examination of government policies and expe riences relating to transfer of technology would
provide a useful contribution to the understanding of the relationship between trade and transfer of
technology.  In this context, it was agreed that the Secretariat would produce a factual compilation ofcountry experiences.
14. The present document was prepared in response to this request.  It has been prepared by the
Secretariat on its own responsibility and is intended only for the purpose of analysis in order to assist
delegations in their work on trade and transfer of technology.  The note begins by examining the
justifications for government interventions in re lation to technology transfers.  Market failures,
national interest and other political reasons are identified as motivations for a government to adopt
policies that facilitate transfer of technology.  The note then provides an overview of the policy
approach and policy instruments that governments have adopted to favour technology transfers.  The
role of government is identified in promoting certain programmes (direct university-government-
industry partnerships, government supported resear ch and development programmes) and in creating
the market environment for successful private-sect or driven technology transfers (through financial or
fiscal incentives, regulation and education programmes).  Finally, a number of country case studies
are surveyed, in order to examine experiences in respect of a range of policies and institutional
options available for facilitating transfer of technology.  It should be noted that the discussion of
various policy experiences is entirely without prejudice to the relationship between such policies andthe WTO obligations of Members.
II. MOTIVATIONS FOR GOVERNMENT INTERVENTION TO FAVOUR
TECHNOLOGY TRANSFER
15. Empirical evidence suggests that innovation is the driving force for economic growth.  As a
consequence of the importance of innovation for development, nearly all governments in the world
have adopted a technology policy;  i.e. a policy targeted to foster innovation, diffuse innovationwithin a country, or increase technology transfers fro m abroad.  In particular, technology transfers are
potentially a very important source of technological catching-up, growth and development in
developing countries.
16. According to neo-classical economic theory, under perfect competition, markets allocate
information and technology in the most efficient manner.  Growth and development are maximised
without government intervention.  So why have nearly all governments in the world adopted a
technology policy?WT/WGTTT/W/3
Page 7
17. First, there is a case for government support for technology transfers when there is a market
failure2.  In these circumstances, the market price of a new technology does not reflect the social
benefit of its introduction, so too little or too much is invested.  Market failures occur when:
(a) There are distortions; taxes or subsidies may distort the market price of a certain
technology, so that the price is no longer the right signal for the quality of atechnology;
(b) Information about the quality of a technology or the risks associated with it is
unavailable or asymmetric;
(c) There are positive externalities, i.e. the benefits of technology transfer cannot be fully
captured in the market.  Consider, for ex ample, the case of a new technology that
would lower fuel consumption, where the environmental benefits of lower fuel
consumption were not taken into account  by private investors in the new technologybecause these investors would not be able to capture fully the returns from
environmental benefits to society as a whol e. Without government intervention in this
case, markets would fail to capture the full benefits of the new technology;
More generally, whenever private and social costs or benefits do not coincide, a case
might be made for government intervention. Many governments have pursuedpolicies which reflect the conviction that without intervention, there will be under-
investment in socially beneficial technology;
(d) Transaction costs are high.  It can be difficult, for example, to find the appropriate
suppliers of a certain technology.  The cost of finding these suppliers may be so high
that they actually represent a barrier to the acquisition of technology.  Technologydiffusion will then be too low, if left only to market forces.
18. Second, governments may want research to target particular objectives such as regional
development or industrial diversification.  Nation al security considerations may dictate that the
government rather than the private sector operates in some sectors.  As a consequence, the role of
government in many countries is also to perform R&D and favours technology transfers in specificsectors, such as defence, energy production and conservation, and agriculture.
III. BARRIERS TO TECHNOLOGY TRANSFERS FOR DEVELOPING COUNTRIES
19. Technology transfer is a four stage process, consisting in acquisition, learning, adaptation and
diffusion.  Market failures, as described in the previous section, can act as barriers to technology
acquisition and diffusion of technology. Some forms of market failure may be particularly important
barriers to technology transfers to developing countries.  The process of technology transfer todeveloping countries may also encounter major obstacles in the phases of learning and adaptation.
20. What are the major barriers to technology transfers to developing countries ?  There are two
types of problems -  firm-level problems that derive from the specific characteristics of a firm, and
systemic problems that derive from the environment in which firms operate.
                                                     
2 There is a market failure when one of the conditions defining perfectly competitive markets is not
satisfied.  Perfect competition assumes that (1) products are homogeneous –i.e. consumers perceive products asidentical, (2) firms freely enter and exit the market, (3) buy ers and sellers know prices, (4) transaction costs are
low, and (5) there are no externalities.WT/WGTTT/W/3
Page 8
(a) At the firm level, possible barriers to technology transfers include:
• incomplete knowledge about all ranges of technological alternatives;
• inability to identify the technology that best suits its needs;
• limited access to finances;
• inadequate workforce skills and mechanisms for their upgrading;
• slower pace of technological development in downstream or upstream firms that inhibits the
upgrading of technology;
• organizational rigidities within firms.
(b) At the systemic level, barriers to technology transfers may include:
• lack of access to information on new technologies and innovations;
• market distortions, including barriers to trade;
• lack of education and skills;
• ineffective institutions for carrying out R&D;
• Universities and research institutions disconnected from the needs of industry;
• inadequate development of the financial and insurance markets;
• lack of resources, knowledge and capabilities within policy institutions;
• regulatory constraints.
IV. GOVERNMENT OPTIONS TO FAVOR TECHNOLOGY TRANSFERS
21. So far this document has discussed justifications for government intervention to facilitate
technology transfers and has highlighted the major barriers to the acquisition, learning, adaptation and
diffusion of technology in developing countries.  In this section, technology transfer policies are
described in terms of the policy approach and the specific policy instruments that a government can
utilise to enhance technology transfers.
22. There is no optimal policy for all circumstances.   However, it is generally argued that a
government policy which aims to increase the transfer of technology must simultaneously provide
incentives to increase cross-border flows of techno logy and  to invest in human capital formation
(Mayer, 2000).  If a government policy only aims to import more technology, it is likely that the
positive economic effects of the reduced technology gap between the technology importing country
and the innovating country will not endure (when the new technology becomes obsolete the
technology competitiveness effects gained with the introduction of the new technology will
disappear), and might have negative effects on income inequality3.
23. The joint expansion of human capital and technology imports may generate an upward spiral
of adoption of higher technology, higher demand for skilled labour, higher employment of an
educated workforce and lower costs for further adoption of new advanced technologies.  This would
prevent decreasing returns to human capital and maintain the incentive for upgrading technology.
A. A M ENU OF POLICY OPTIONS TO FACILITATE TECHNOLOGY TRANSFER
24. Technology transfers can be limited by supply-side problems, such as monopolistic practices.
This section abstracts from this type of problem and focuses on policies that may enhance technology
                                                     
3 Advanced technologies increase demand for skilled labour. If there is no intervention in the supply of
skilled labour, the wage of skilled labour force will incr ease.  This in turn will increase the wage gap between
skilled and unskilled workers, thus increasing income in equality in low-income countries where skill labour is
scarce.WT/WGTTT/W/3
Page 9
transfers for a given supply of technology.  The literature on technology transfer identifies four stages
of technology transfers: transfer, learning, adaptation and diffusion of foreign technology.  In order to
increase technology transfers, a government policy may enhance cross-border technology transfer,
increase absorptive capacity or facilitate the diffusion of technology within a country.  This section,
for clarity of exposition only, distinguishes among these different policies.  However, these policiesare inter-linked and a strict differentiation among them is impossible.  So some repetition is likely to
occur.
25. It is worth underlining that these policies represent a list of policy options, but do not define a
policy strategy.  A policy strategy would be likely to include many of the policies listed below.  In
particular, a successful policy strategy would be likely to include a selection of complementary
policies that facilitate cross-border technology transfer, promote learning and adaptation, and facilitate
diffusion.
1. How can a government provide incentives to facilitate cross-border technology
transfers?
26. A recent document (WT/WGTTT/W/1) prepared by the Secretariat identifies four channels of
technology transfers through trade, FDI and partnership agreements.  These channels of technology
transfers work through the use of technologically advanced goods, accessing codified knowledge,learning-by-doing and interactions between foreign and domestic firms.  Policies that enhance the
transfer of technology from abroad include policies that attract a higher supply of foreign technology
from innovators or increase the demand for foreign technologies, policies that encourage the
interactions between domestic and foreign firms and policies that support the training of the local
labour force by multinationals.
Attracting a greater supply of foreign technology
27. How can governments attract higher supply of foreign technology?  This can be done by
attracting a larger number of licensing agreements or joint ventures and specific types of FDI (either
more technology intensive or more likely to integr ate with the domestic market).  Incentives could
also be provided for multinationals already pr esent in the market to upgrade their technology.
(a) In order to attract foreign technology, governme nts need to create an environment favourable
to FDI. This includes policies such as:
• providing infrastructure;
• guaranteeing a certain regime of intellectual property rights;
• setting up a competitive market environment for investment.  In general, a sound
competition policy is important to attract FDI and to avoid predatory practices and anti-competitive behaviour that can arise with the arrival of multinationals, and that would be
damaging for technology transfers.
(b) Specific types of technology may be attracted by establishing a positive list of industries open
to FDI, or indirectly by offering various incentives
4.  For example, in order to attract
technology-intensive FDI, government policy should aim to make available human resources,
physical infrastructure and a regulatory setup that technology intensive MNEs need.  Policies
may include:
                                                     
4 It is worth mentioning that this policy presents the important problem of giving discretionary power
to policy makers in selecting the most appropriate sect or.  Therefore, it requires a high degree of competence
and resistance to lobby pressure.WT/WGTTT/W/3
Page 10
• supporting universities and institutions of higher learning in adapting their curricula to area of
needs to MNEs;
• supporting industry-oriented R&D projects in universities and research institutes;
• fostering linkages between research centers and MNEs;
• developing industrial parks with high quality infrastructure;
• enforcing a strong regime of intellectual property rights.
(c) Incentives for TNCs to upgrade their locally employed technology may include policies such
as:
• strengthening the regime of intellectual property rights;
• creating a competitive environment, by liberal ising trade for example, to promote the use of
globally competitive technologies;
• enhancing quality standards in the host country;
• providing information about the technical, research and training facilities in the host country.
28. As far as the above-mentioned policies are concerned, it is worth recalling5 that the benefits a
country can reap from higher flows of FDI or licensing agreements depend on the technology
intensity of the FDI, but also on the gap between the technology level of FDI and the host country
level of technology.  If that gap is too large, a country might need to concentrate its efforts in the firstinstance on the primary sector, and on lower skilled labour intensive manufacturing or services.
Supporting demand for foreign technologies
29. How can governments increase the demand for foreign technologies?  This can be achieved
through policies that reduce the costs of technology adoption.  These policies include:
• reducing tariffs, quotas or other forms of technical barriers to trade of technologically
advanced goods or inputs to their production;
• introducing tax exemption on advanced technology imports;
• providing technical support to ensure efficient performance of the technology;
• providing information about the range of technologies available in the market and the
quality of service these technologies provide;
• assisting in technology needs assessment by, for example, helping to define a plan of
technology upgrading based on a coherent set of priorities;
• providing intermediation between domestic investors and finance providers;
• providing government loan guarantees and/or technology advisory services to decrease
the perceived risk of technology investments;
• encouraging R&D by providing support or tax reductions;
• initiating promotion campaigns (see Part B.7 of this Section).
Encouraging interactions between domestic and foreign firms
30. Technology transfers occur through the development of backward and forward linkages in
the production chain, business linkages between research centres and product development centres,
and between companies that can develop links in research or production.  These synergies can be
increased by encouraging interactions between domes tic and foreign firms.  What policies can serve
this target?
                                                     
5 For a more extensive discussion on this, the reader is referred to Secretariat
document WT/WGTTT/W/1.WT/WGTTT/W/3
Page 11
(a) The establishment of research partnerships, by offering fiscal incentives for R&D, for
example;
(b) The promotion of business alliances (joint ventures, licensing agreement) with foreign
companies.
In the case studies reported in this note, the introduction of wind energy in Mongolia, the case
of Intel in Costa Rica, that of concrete armouring for the coast in South Africa and the case of the
introduction of a new boiler technology in the Baltic States represent examples of policies favouring
joint ventures and partnerships (case studies H, J, E, F respectively).
31. Backward and forward linkages between technologically advanced foreign firms and the
domestic economy can be fostered by encouraging the creation of networks across stages of the
development, production, marketing and distribution of a product, by, for example, encouragingforeign firms to source components from local firms.  This can take different forms:
• promoting subcontracting by:
− providing information about the technical, research and training facilities in the host
country;
− assisting local firms in building local br and names, for example, that might be
attractive to MNEs;
− providing technology support services to domestic firms (to help them develop the
quality standards demanded by foreign firms);
− improving extension services to build up local firms' capabilities to compete as
suppliers or clients of MNEs;
− developing clusters and networks of local enterprises (to help local suppliers to deal
with the generally large-scale requirements of multinational enterprises).
• introducing clauses on dissemination of technologies, when, for example, a government
privatises a state-owned enterprise.
• local content requirements (which can be de trimental to efficiency).  The purchase of
inputs, components and services from local suppliers rather than foreign suppliersdepends on relative costs, quality and the reliability of information.  Proximity lowers
transactions costs, favours personal contact and allows greater flexibility.  However,
foreign firms tend to have little information about local suppliers.  This is a market failure
which government policy may address.  In Singapore, for example, multinationals wereencouraged to establish sourcing contracts with local SMEs and provide training and
technical assistance to these domestic firms.  The government would provide assistance to
the local firms.
32. In general, the establishment of industrial parks, information clearinghouses and business
incubators can serve to forge closer links between foreign and national firms (for further information
on these policies the reader refer to Part B of this Section).
Supporting training of the domestic labour force
33. Technology transfers also occur via human capital mobility.  A foreign company that trains a
local labour force increases know-how in the host country.  There are several ways a government cansupport the training of domestic labour force :WT/WGTTT/W/3
Page 12
(a) making available local research resources (through, for example, issuing information about
available local expertise, supporting collaborative research);
(b) fostering international cooperation with respect to laboratory use and the education and
training of scientists;
(c) requiring that a project be implemented in phase s, so as to allow the local partner to acquire
the know-how needed to handle and produce the new technology.
The case of the introduction of new refrigerator technology in India represents an example of
this policy (case-study A).  It has sometimes been claimed that the strong bargaining power of the
Chinese Government with respect to the entry of foreign companies into the Chinese market has been
used indirectly to influence policies of foreig n companies toward technology transfers to China.
2. How can a government increase absorptive capacity ?
34. The notion of absorptive capacity relates to the capacity to learn how to use a new technology
(know-how), to learn about the principles of its working (know-why) and to adapt a technology
developed abroad to the local conditions of a country.  A government can create the conditions,
design incentives and initiate programmes to increase domestic absorptive capacity.  These policies
include:
(a) extending the domestic education system,
(b) improving quality of education, for example, by:
• providing an industrially-geared higher technical education structure;
• fostering international cooperation with respect to laboratory use and the education and
training of scientists;
(c) improving the mechanism to upgrade skills, by, for example, setting up a system for
specialised worker training;
(d) removing obstacles to the recruitment of professionals from abroad, including establishing
programmes to reintegrate people who have been educated abroad;
(e) directly supporting R&D activity for technology adaptation to the domestic market or
upgrading existing plant and equipment;
(f) favouring links between academic research and firms in order to make the former more
business oriented;
(g) developing the ability to use consulting firms regardless of nationality.
3. How can a government favour the diffusion of a technology within the country ?
35. Technology transfer is a two party business.  There is a technology provider and a technology
recipient.  Successful technology transfers require that the host country be able to acquire the
technology and that this technology is diffused internally.  Technology diffuses within a country
through backward and forward linkages, through demonstration and competition effects among local
firms, or when workers trained in multinationals or abroad move to local firms.WT/WGTTT/W/3
Page 13
36. What facilitates internal technology diffusion?  As far as technology diffusion through
backward and forward linkages, competition and demonstration effects are concerned, policies that
can facilitate technology diffusion include:
(a) promoting competition, as the competitive threat of being displaced from the market will
provide the incentive to invest in quality upgrading;
(b) enhancing quality standards so that the technology diffusion process is not hampered by a
slower pace of technological development in downstream or upstream firms;
(c) establishing information clearinghouses (see Part B.5 of this Section for more information on
this).
37. As far as technology transfers acquired thr ough learning-by-doing are concerned, labour
mobility allows the spread within the host country (internal diffusion) of the know-how of foreign
affiliates.  Therefore, policies that encourage technology diffusion include:
(a) increasing labour market flexibility, which for example, can allow local firms to increase
wages for workers previously employed in a multinational;
(b) encouraging start-up companies that build on the skills of people trained in MNEs or educated
abroad, for example by:
• providing venture capital to encourage employees of MNEs to start up new companies
utilising the expertise acquired by working in the multinationals;
• devising mechanisms to avoid a brain drain, by offering nationals educated abroad
financial incentives to start high-technology firms.
B. POLICY INSTRUMENTS
38. In general, a technology transfer policy can provide market support, help sustain the demand
for technology (through adequate financial incentives ), create an enabling regulatory environment,
establish infrastructure, and directly organize government programmes.  The previous section
provided a menu of policy options available to national governments to facilitate technology transfers.
This sections deepens the discussion on specific policy instruments, such as fiscal and financial
incentives and regulation.  In addition, it examines some more complex policy options that favour
technology transfers by facilitating transfer through various channels contemporaneously, such as thedevelopment of high technology industrial parks, information clearinghouses and business incubators,
and the utilisation of promotion campaigns.
1. Financial incentives
39. A government can finance technology transfers directly through grants, loans to enterprises or
equity participation, or indirectly through financial institutions.  In the latter case, it can promotelending from commercial banks to enterprises that  invest in technology by providing a government
guarantee for a loan or an interest rate subsidy.
40. Depending on the target that the government pursues, financial incentives can be
characterised as:
• Development Incentives
These incentives typically support R&D. Subsidies to R&D are commonly adopted to favour
technology transfers.  The policy adopted by the Indian Government in the case of theWT/WGTTT/W/3
Page 14
introduction of environmentally friendly refrigerators (case study A) and in the case of the
pharmaceutical sector (case study I) are examples of this approach to favour technology
transfers.
• Technology sales subsidies (i.e. subsidies to end-users of the technology)
This subsidy consists in a lump-sum payment that end-users receive as a rebate from the
government for the purchase of a technology.  This subsidy permits a reduction of risks
involved in introducing a new technology and a reduction in the up-front costs of a new
technology, which can create a barrier to its adoption, especially among the poor.  The Indian
Government adopted this policy, together with others, as a strategy to favor the diffusion of
solar energy among rural consumers (case study B).  The World Bank also suggested this
strategy to develop a market for technology services in Mauritius (case study N).
A risk associated with up-front payments is th at after the payment has been received, there is
no control on whether the technology is made to perform well.  The policy adopted by the
Nepalese Government in the case of the introduction of biogas digesters technology
(case study G) represents a possible approach to this problem.  In this case, the Nepalese
Government has provided subsidies in stages over several years, and monitors results.
• Market-support subsidies
These are subsidies for infrastructural support or information programmes, and for technical
assistance through provision of services.  An example here is the case of agricultural
technology transfers in Nicaragua made up of services freely provided or provided for a fee
(case study L).  In a wider sense, policies aimed at the development of industrial parks,promotion campaigns, clearing houses and business incubators (se below) are also examples
of market-support subsidies.
• Educational subsidies/grants or repatriation grants
Subsidies on training expenses to acquire technology and technological expertise fall into this
category.  In Tunisia, for example, the Government pays up to 50 per cent of the cost of
human resources trained in connection with technological investment
6.  Also included here
are repatriation grants, i.e. grants offered to pe ople educated abroad who return to their home
country.  This policy seeks to lessen the negative effects of a brain drain.
• Credit assistance
This includes preferential rate loans, guarantees for risk, subsidies for start-ups and
technology upgrading.  The role that Export Credit Agencies have played in the introduction
of coal power plant in China (case study C) and the importance of credit facilities offered by
the Indian Government to diffuse solar energy are examples of this approach.
2. Fiscal incentives
41. Fiscal incentives have often been used by governments.  These incentives can take the form of
income tax reductions or exemptions:
• Tax reductions or exemptions on profits, capital, value added, R&D expenditure etc.
                                                     
6 UNCTAD (2002) "Financing Technology for SMEs" TD/B/COM.3/EM.16/2.WT/WGTTT/W/3
Page 15
In Korea, for example, firms are allowed to retain up to 20 per cent of their income before
taxes for technology development.  Under Malaysian law, companies engaged in high
technology activities can have a tax exemption of up to 100 per cent of statutory income.
The Korean government development strategy included a tax exemption for 10 per cent of the
cost of equipment relevant for investment in  R&D facilities, a reduced excise tax and a
special accelerated depreciation for technology intensive products, tax credits for R&D
expenditure as well as upgrading human capital related to research and setting up industry
research institutes.7
• Tax reductions or exemptions on  imports or exports of technology
For example, the Korean government development strategy promoted import of technology
through tax incentives.  These included reductions of duties on imported research equipment,
tax-deductions on transfer costs of patent rights and technology import fees, and tax
exemptions on income from technology consulting on income of foreign engineers.
Among the country experiences reported in this study, the adoption of this approach is
highlighted in the case of the diffusion of new generation refrigerators and solar energy in
India.
3. Regulatory environment
42. Governments can also affect the pace of adoption of new technologies using policies related
to standards, protection of intellectual property rights, enforcement of contracts, and signals of a
strong commitment to a given policy.
• Setting standards as an incentive to adapt new technologies such as labeling programmes
The strong commitment of the Mexican Government to the Montreal Protocol made an
important contribution to the introduction of alternative technology to CFC solvents inMexico.  The introduction in the United States of a law requiring the labelling of products
made either with or containing ozone-depleting substances represented a definite step toward
the successful diffusion of clean technologies world-wide (case study D).
In general, setting standards has proven to be a powerful tool in the diffusion of
environmentally friendly technologies.
• Protection of intellectual property rights
Although there is no consensus among economists on the relationship between the extent of
protection of IPR and technology transfers, it is generally agreed that a country's IPR regime
plays an important role in determining the mode  and the effectiveness of technology transfers.
• Guaranteeing the enforcement of contracts
The ability of a government to guarantee the enforcement of contracts is an important element
in the decision of a firm to licence a technology, as in the case of the so called humanitarian
use licensing contracts (case study M).  Actual enforcement is a function of the policy
authorities' "ability" or capacity to enforce a law (e.g. resources, training of judges, etc.) aswell as the authorities' willingness to enforce a law.
                                                     
7 Source:  UNCTAD (1999) World Investment Report 1999: Foreign Direct Investment and the
Challenge of Development , Geneva.WT/WGTTT/W/3
Page 16
• Signalling a strong commitment to a programme of technology transfers
In the case of the diffusion of biogas detergent from China to Africa and the Asia-Pacific
region, a strong commitment of the Government to monitor performance worked as an
incentive for a successful diffusion of the technology (case study G).  Similarly, assigning thecoordination of a project to a foreign company, as in the case of the project to diffuse "Eco-
refrigerators" in India, can help a government to resist lobby pressure.
4. Developing local high technology areas
43. The development of local high technology areas can involve building adequate technical
infrastructure, training managers and engineers, and providing technical assistance aimed at the
acquisition of skilled researchers and academics.
44. This policy fosters technology transfers as it attracts high technology foreign direct
investments, which are characterised by a higher potential for technology diffusion.  Moreover,
geographical proximity among universities, research centres and industries can favour technologytransfers by allowing person-to-person communication across the different stages of the introduction
of a technology, thereby fostering understanding of codified knowledge, production of a good through
technological know-how, and marketing of the product through management experience.
45. These policies have been pursued, for example, through the creation of science-based
industrial parks in Chinese Taipei and Republic of Korea (case studies O and P).  There are scienceparks in many countries.  A study by Felsenstein (1994), comparing 160 firms in Israel, some located
in science parks and some not, finds that location in a science park confers status and prestige and
these indirectly promote technology transfer and information flows.  However, this does not directly
contribute to innovation.
5. Establishing information clearinghouses to facilitate the dissemination of technology
information
46. One of the obstacles to transfer of technologies arises from the mismatch (in terms of
geographical location and type of agents) of information among those supplying and demanding
technology.  It might be very costly, for example,  for a small or medium-sized enterprise (SME) to
identify the specific technology suppliers that satisfy its needs.  Suppliers and demanders haveasymmetric information about the quality of a product and the needs that a technology has to meet.
47. Governments can intervene to favour the flow  of technology information from suppliers to
demanders.  An example of this policy given in this note is the attempt by the British Government to
set up a centralised network for the acquisition and distribution of information.  This experiment is
known by the name of Supernet (reported in case study R).
48. Another example of this approach to technology transfer policy is represented by the
establishment in 1988 by the Indian Government of the Technology Information, Forecasting and
Assessment Council (TIFAC).  TIFAC is an au tonomous organisation under the Department of
Science and Technology (DST).  Its role is to undertake technology assessment and forecasting
studies, favour technology information flows, perf orm analysis and keep track of global technology
developments.  It functions as a clearinghouse for information.  Its aim is to provide
techno-commercial information on business opportunities, especially to entrepreneurs and businessplanners.  It has proved to be useful in areas such as leather, chemical and aerospace technology.WT/WGTTT/W/3
Page 17
6. The creation of business incubators and other institutional support
49. Business incubators are institutions that offer SMEs the opportunity to utilise their human and
physical resources to undertake development and research activity, and market research.  The case of
Korea and the automotive industry in South Africa reported in this study are two examples of this
policy of technology transfers (case studies P and L respectively).
7. Promotion campaigns  from governmental and non governmental agencies
50. Governments, particularly local governme nts, can encourage successful community
programmes by proactively identifying community-l evel needs, and by encouraging and responding
to community initiatives.
51. NGOs raise awareness and articulate public concerns about technology transfer issues.  They
may also influence public policies and represent the priorities of interest groups.  In some
circumstances they provide services such as publi c education, professional training, development of
model legislation, demonstration projects, and innovative financing schemes in developing countries.
52. Marketing campaigns have been used for the diffu sion of solar energy in India.  Collaboration
with NGOs has been sought by the Mexican Government for the introduction of new solvent
technologies.  In general, this type of policy has been used to foster transfer of environmentally
friendly technologies.
C. AN OVERALL CLASSIFICATION OF POLICY STRATEGIES
53. To sum up, a table is produced below which identifies possible policy strategies, a menu of
policy instruments and the conditions required for successful policy strategies.
54. It is generally recognised that technology transfer policies divide into two categories:
domestic framework policies and specific initiatives and programs8.  The former category includes
policies that tend to create an efficient market-place for successful private-sector driven technology
transfers.  The government, in this case, prefer s minimal intervention.  The latter category covers
government-driven programmes, where a government  adopts a proactive approach toward technology
transfer policies.
55. Within the context of the above-mentioned policy categories, governments can implement an
externalisation-oriented policy strategy  that aims to build up domestic capacity and favour technology
transfers in externalised mode;  i.e. a transfer from  a multinational enterprise to an entity that is not
controlled by that enterprise and can take the form of licensing, minority joint ventures, technical
cooperation contracts, etc.  Alternatively, governments can design an internalisation-oriented policy
strategy that favours technology transfers in internalised  mode;  i.e. technology transfers that occur
between a parent of a multinational enterprise a nd a foreign affiliate under the ownership and control
of that enterprise.  Finally, governments can adopt a mixed strategy  that favours the flow of
technology through trade, FDI and partnership agreements, and simultaneously builds local
technological capabilities to enhance absorptive cap acity and technology diffusion within the country.
                                                     
8 This terminology is also used in the submission from Canada to the Working Group on Trade and
Technology Transfers contained in document WT/WGTTT/2.WT/WGTTT/W/3
Page 18
Policy Strategy Policy Instruments Conditions
Externalisation-
Oriented Policy• conditions on FDI;
• incentives to
partnership
agreements;
• government support
to domestic firms;
• foster national
flagship firms.• limit foreign
ownership, other
investment
conditions;
• financial and tax
incentives to localfirms;
• technical support;
• incentives to R&D;
• export promotion
• encourage hiring of
foreign experts.• availability of
skilled labour;
• financial
resources;
• entrepreneur
willing and able to
undertake riskytechnology
investment.
Internalisation-
Oriented Policy;
Minimal
Approach• favouring large flows
of FDI;
• derestriction to FDI;
• ensuring stable
macroeconomic
environment.• removing restrictions
on FDI;
• liberalise trade;
• fostering competition;
• enforcing IPR;
• providing
infrastructure.• efficient and
credible
institutions.
Internalisation-
Oriented Policy;
ProactiveApproach• targeting MNEs;
• provide incentives for
technology intensive
FDI or for FDI to
upgrade theirtechnology in the host
country.• industrial parks;
• strong IPR regime;
• higher quality
standards.• institutions able to
handle incentives;
• institutions able to
select
technologies.
Mixed Strategy • promote linkages with
domestic economy;
• build local
technological
capabilities.• business incubators;
• information
clearinghouses;
• industrial parks;
• support R&D;
• support JV, licensing
and collaborations;
• support training of
domestic labour force.• institutions able to
bargain with
MNEs;
• institutional ability
to plan
strategically;
• ability to integrate
skills, financialmarket,
infrastructure
building,
technological
capacity building.
V. CASE STUDIES APPROACH: A CAUTIONARY NOTE
56. The case studies reported in this document intend to provide a picture of the diversity of
policies and strategies utilised to favor technology transfers.  This note largely focuses on successful
cases of technology introduction and transfer.WT/WGTTT/W/3
Page 19
57. It is worth noting that the lessons that can be drawn from the analysis of case studies is often
difficult to generalise.  Each experience needs to be  analysed in the specific context in which it took
place.  Developing countries are very heterogeneous and policy choices should be made after due
consideration on prevailing conditions and realities.  Lack of monetary income to pay for technologies
in the formal market sense, up-front costs even for technologies that have reasonable pay-back times,the need for training and information resources concurrently or in advance of the availability of an
appropriate technology, and technical mismatch (technology not appropriate to local needs and skills)
are only few examples of possible constraints upon the repetition of policy experiments across
counties to favour technology transfer and diffusion.
 9
58. Economic policies need to be tailored to the specific case.  Governments need to take into
account alternative options and approaches, involving considerations such as:
• the type of institution transferring and receiving the technology, whether they be government
agencies, universities, or private firms;
• the mechanism through which technology is transferred, including licensing, person-to-person
communication, formal literature, trade and FDI;
• the type of technology, such as product or pr ocess based, know-how or scientific knowledge;
• the characteristics of the market where the technology is destined, including the
substitutability with other technology in the domestic market, pre-existence of subsidies or
other forms of protections, and degree of competition in the product market.
59. It is also important to define the goals in respect to the design of a technology transfer policy.
Governments will not only be interested in transferring technologies per se , they also want to make
sure that the technology is used and has a positive impact on firms' sales and profitability.  Indeed, the
commercial success of a transferred technology may depend on a series of factors (recipient agent
problems in manufacturing and marketing strategies, for example), over which the government is not
very likely to have direct control.  These considerations call for careful policy choices.
60. How can policy instruments be adapted to different circumstances across countries?
Considerations such as macroeconomic instability, imperfect capital markets and governance
administrative challenges may be relevant.
(a) Macroeconomic Instability
If a country suffers from a certain macroeconomic instability, government policies should be
adjusted in a way that guarantees inflation-protected returns or protections against exchange
risks.
(b) Inefficient Capital Market
Where the stock market is underdeveloped and the capital market is not flexible, the
possibility of securing returns on investment may be more difficult.  In these circumstances,government policies should aim to ensure long-term investor interest by, for example,
offering tax rebates in return for long-term holding.
(c) Governance/Administrative Challenges
A potential problem in government-administrated fiscal incentive schemes arises from scarce
managerial skills in government, delays in decision, and poor monitoring of investments thathave received government loans.
                                                     
9 Examples of this type of failure stories of technology transfers can be found in Feder and Umali
(1993), Mansfield (1994), Gereffi (1983) and Goulet (1989).WT/WGTTT/W/3
Page 20
The scope for the above constraints to deter the effectiveness of policies targeted to
technology transfers suggests the need for carefully considered policy choices.  For example,
a government can choose whether to fund technology investments through direct subsidies or
via the intermediation of a financial institution.  In the light of good governance
considerations, it might be worth considering that in the former, government officials lessconcerned with the return of the project are responsible for the distribution of funds, in the
latter case, banks make decisions.
Alternatively, a government can arrange various monitoring methodologies, such as
appointing an independent local auditing firm, employing a foreign audit company or
referring to a scientist with an impeccable reputation. Considerations about
governance/administrative challenges might ente r into play in driving a government policy
decision.
VI. CASE STUDIES: A TAXONOMY OF POLICY INSTRUMENTS
61. The case studies reported in this section are intended to provide examples of possible national
policy initiatives aimed to favour technology transf ers.  In order to provide a wide coverage of
possibilities, some case studies provide country experiences in relation to a specific project oftechnology transfers (i.e. policies adopted to favour the introduction and diffusion of a specific
technology into a country), and others focus on the different approaches in terms of technology
transfer policy adopted by some successful countries.  Case studies A to H are stories of the
successful transfer of a specific technology;  of these, case studies E, F and G reflect policies to
favour technology transfers adopted by the country providing the technology.  Case studies I to R areexamples of technology transfer policies that have led to improved performance of the country
adopting the policy.
A. N
EW GENERATION REFRIGERATORS IN INDIA :  D UTY EXEMPTIONS , R ESEARCH
PARTNERSHIP , MONITORING10
62. The Indian Government, represented by the Ozone  Cell of the Ministry of Environment and
Forests (MOEF), has supported a project targeted to adapt the hydrocarbon technology (HT)
developed by German manufacturers for Indian domestic and commercial refrigeration appliances.
63. The project involved a voluntary partnership between the Swiss, German and Indian
Governments and private industries.  The technology transfer policy implemented by the Indian
Government has consisted in various activities, including:
• subsidies;
• financial intermediation with the local industry and foreign government;
• structuring of the project so as to guarantee th e diffusion of the know-how or tacit knowledge;
making available local research resources and requesting the implementation of the project in
phases;
• duty exemptions.
64. The Indian Government signed a MoU with th e Swiss Government and with Indian industry
partners, namely, Godrej and Voltas and selected the Indian Institute of Technology (IIT) in
New Delhi, the National Chemical Laboratory (NCL) in Pune and the Tata Energy Research Institute
                                                     
10 Case studies reported in Sections from A to H are based on Intergovernmental Panel on Climate
Change (2000) "Methodological and Technological issues in Technology Transfer" UNEP, WMO.http://www.grida.no/climate/ipcc/tectran/index.htmWT/WGTTT/W/3
Page 21
(TERI) in New Delhi as the local research partners in the project.  A Swiss consulting group
coordinated the project. Both the Swiss and Ge rman Governments had made donor contributions
towards the cost of consultancy services for planning and project implementation, equipment,
materials and other imports, and consultancy services of Indian research institutes.
65. The Indian private industry partners contributed about 50 per cent of the cost of the project.
The Indian Government facilitated  the import of plant machinery under this project as Swiss and
German contributions, exempted from all customs and excise taxes.
66. The project was carried out in two phases.  During Phase I, two pilot plants imported from
Italy and Germany have been installed.  The installation was completed as per German safety norms.
In this phase the two Indian industry partners acq uired the know-how needed for handling the new
technology on a commercial scale.  Phase II of the project was targeted to transfer know-how for safe
designs of domestic refrigerators from Liebherr, Germany to Voltas and Godrej in India.  Thisincluded the additional activities of adaptive research, pilot production, information dissemination,
and networking.  The involvement of  Indian resear ch partners in adaptive research have been found
to be a very effective method for replication and sustainable development.
B. D
IFFUSION OF WIND AND SOLAR ENERGY IN INDIA : CREDIT FACILITIES , TAX INCENTIVES
AND A MARKETING CAMPAIGN
67. The Indian Government introduced a series of policies in the 1990s to support the
commercialisation of wind power and solar PV technologies in India.  The success of this technology
transfer highlights the importance of intervention both on the supply and demand side.
68. On the producer side, Indian Government policies included:
• special tax incentives for small independent power producers;
• strengthening the capabilities of the Indian Renewable Energy Development Agency
(IREDA) to promote and finance private sector investments in wind farms;
• raising funds internationally; funds were made available by the World Bank, International
Development Association (IDA) and the Danish Government;
69. On the consumer side,  the Indian Government intervened by:
• providing a marketing campaign to raise consumer awareness and capability of using the new
technology;
• credit facilities and subsidies to rural consumers to purchase solar systems.
70. As a result of these policies, the number of companies involved in the wind industry increased
from 3 to 26 by 1998.  Many of these companies had foreign partners.  High-technology wind turbines
were produced by 14 companies and exported.  Moreover, there were 16 domestic companies
involved in the solar PV industry in 1991 (when the program started) and by 1998 there were more
than 70 companies in this sector in India.WT/WGTTT/W/3
Page 22
C. COAL POWER PLANTS IN CHINA :  THE ROLE OF ECA TO FAVOUR TECHNOLOGY TRANSFERS
THROUGH TRADE
71. In 1997, Huaneng Power International Inc. (HPI), a Chinese utility and a subsidiary of the
Ministry of Electric Power (MOEP), financed three new power stations.  The realisation of this
project required the use of high technology boiler and turbine equipment from western suppliers.Funds were raised by share issues on international stock markets and by using export credit finance
for the procurement of western equipment.
72. The manufacturers approached commercial banks and Export Credit Agencies
11.  The buyer
credit was in the form of commercial bank loans fo r HPI.  To enable these commercial banks to make
these loans available, export credit backing was re quired (i.e the government was guarantor for the
risk).
D. ALTERNATIVE TECHNOLOGY TO CFC  SOLVENT IN MEXICO : THE ROLE OF SETTING
STANDARDS , PROVIDING INFORMATION AND COLLABORATION WITH MULTINATIONALS
73. Chlorofluorocarbon (CFC) solvent is being phased out under the terms of the Montreal
Protocol on substances that deplete the ozone layer.
74. The Mexican Government has favoured the diffusion of alternative technologies to CFC by
showing (a) a strong commitment to this poli cy;  (b) providing information and developing
confidence;  (c) forming collaborative arrangements with multinationals in Mexico.
(a) How did the Mexican Government show commitment?
Mexico was the first country to sign and later ratify the Montreal Protocol.
(b) How was information increased and confidence raised in the potential of the new
technology?
The Mexico aerosol industry association "Instituto Mexicano del Aerosol A.C."
(IMAAC), in collaboration with NGOs, orga nised a voluntary phase-out of CFCs in
cosmetic and pesticide products, achieving the phase-out at least five years faster thanthe European Union.
This exercise demonstrated the ability of the Mexican industry to implement
alternatives, and train experts in this field.  Workshops and training for solvent
cleaning experts were financed.
(c) How was collaboration with international businesses and organisations achieved?
The credible announcement of a CFC phase-out goal by the Mexican Government
motivated multinational companies to modernise their Mexican production facilities.
AT&T built in Mexico their first CFC-free factory in the world, demonstrating the
technical superiority of aqueous cleaning.  Nortel built a new factory using "no clean"soldering that eliminated the need to clean with CFCs.
                                                     
11 Export Credit Agencies, commonly known as ECAs, are public agencies that provide government-
backed loans, guarantees, credits and insurance to private corporations fr om their home country to do business
abroad, particularly in the financially and politically risky developing world.  Most industrialized nations have at
least one ECA, which is usually an official or quasi-official branch of their government.WT/WGTTT/W/3
Page 23
E. SWEDISH PROGRAMME FOR THE BALTIC STATES : ENCOURAGING JOINT -VENTURES AND
LOANS ON FAVORABLE TERMS
75. This case study shows an example of policies available to developed countries to favour
transfer of technology to developing countries.
76. In 1993 the Swedish Government put in place a series of policies aimed to introduce boilers
that used biomass fuel rather than coal and oil in the Baltic region (Northwest Russia, Poland, Estonia,
Latvia, and Lithuania).
77. The Swedish Government, through the agency NUTEK (Swedish National Board for
Industrial and Technical Development), provided the following:
• financing with 10-year loans at 7-8 per cent interest and a three-year grace period;  i.e. a loan
rather than a grant;
• risk-reduction mechanisms, by guaranteeing a 15 per cent minimum fuel-cost reduction
independent of relative biomass and oil prices;
• technical assistance in developing the skills to use the new technology;
• encouragement of joint ventures between Swedish and Baltic companies.
78. Two major joint ventures between Baltic and Swedish manufacturers were established, and a
third Baltic manufacturer forged technology coopera tion links with Swedish and Danish firms.  A
commercial biomass-fuel market did not exist in Baltic countries prior to the programme, but the
programme has now provided a market for industrial wood wastes.
F. CONCRETE ARMOURING FOR THE COAST IN SOUTH AFRICA :  C OOPERATIVE R&D
AGREEMENTS ENABLED BY THE FEDERAL TECHNOLOGY TRANSFER ACT
79. Similar to the Swedish programme above, this is another example of policies available to
developed countries to favour transfer of technology to developing countries.
80. In 1993, two researchers at a United States federal laboratory, the U.S.  Army Engineers
Waterways Experiment Station (WES), developed a nd patented a new design for breakwater concrete
armouring.
81. Research was entirely sponsored by the Government of the United States.  Technology
transfer occurred thanks to collaboration between the inventors and a South African firm.  The
incentives provided by the Federal Technology Transfer Act of 1986 for the government laboratory
and the inventors to pursue commercialisation of their innovation is the most important feature of this
case study.
82. The Federal Technology Transfer Act of 1986 (FTTA) 12 allows Federal laboratories to enter
into cooperative research agreements with private industry, universities, and other interested parties.
                                                     
12 The Stevenson-Wydler Technology Innovation Act of 1980, PL 96-480:   The Act mandates Federal
laboratories to:  (1) actively seek cooperative research with State and local governments, academia, nonprofit
organizations or private industry;  (2) disseminate information;  (3) establish the Center for the Utilization of
Federal Technology at the National Technical Information Service;  (4) establish and define the basic activitiesof an Office of Research and Technology Applications at each Federal laboratory, and (5) set aside 0.5 per cent
of each laboratory's budget to fund technology transfer activities (later amended to "sufficient funding to supportWT/WGTTT/W/3
Page 24
This Act provides laboratories with clear legal au thority to enter into these arrangements and thus
encourage technology transfer from Federal laboratories to the private sector.  Under this Act a
Cooperative Research and Development Agreement (CRADA) can be implemented that protects
proprietary information, grants patent rights, and provides for user licenses to corporations, while
allowing government expertise and facilities to be applied to interests in the private sector.
83. The developers and WES took advantage of the FTTA and entered into a CRADA with a
South African firm interested in using the armouring units for a project.
G. SOUTH TO SOUTH TECHNOLOGY TRANSFER : TRAINING , SUBSIDIES , MONITORING
84. The case of the diffusion of biogas technology is an interesting example of a South-South
technology transfer.
85. In 1981, the Chinese Government in collaboration with the United Nations Development
Programme (UNDP) established Asia-Pacific Region Biogas Research and Training Centre (BRTC)
in China, to spread the use of the biogas technology in other countries.
86. BRTC was responsible for training technical engineers in countries from Africa and the
Asia-Pacific region.  During the period 1980 to 1990, this centre assisted in the construction of over
70 digesters13 in 22 developing countries.
87. Small farmers have been assisted in raising fi nancial resources to cover the initial costs of
constructing a biogas digester by their national governments.  In some cases, like in Nepal, the
Government has conditioned the distribution of subsidies to successful performance.
H. WIND ELECTRICAL SYSTEM IN INNER MONGOLIA : U NIFIED NETWORK FOR R&D,
MANUFACTURING AND DISTRIBUTION
88. In the early 1980s, the Government of China's Inner Mongolia Autonomous Region (IMAR)
initiated a programme to spread local production and dissemination of stand-alone wind electric
systems among its rural herding population.  The technology transfer centred on local adaptation of
                                                                                                                                                                    
technology transfer activities"). This Act also estab lished the National Medal of Technology.  This is a
Presidentially awarded medal to either individuals or companies for "outstanding contributions to the promotion
of technology or technological manpower for the improv ement of the economic, environmental, or social well-
being of the United States.Federal Technology Transfer Act of 1986, PL 99-502:  The Act amends the Stevenson-Wydler Act by codifyinga number of changes that impact on the technology tran sfer process, such as: (1) Scientists and engineers are
now responsible for, and evaluated for their abilities to get technology transferred out of the laboratory. (2)Inventors from Government owned and operated laboratories (GOGO) are required to receive a minimum of a
15 per cent share of any royalties generated through patenting or licensing. (There are a number of rules that
affect the GOGO laboratories. Directors of GOGOs, not contract operated, were given the authority (a) to enterinto cooperative research and development agreements (CRADAs), (b) to license inventions that might resultfrom such arrangements, (c) exchange laboratory personnel , services and equipment with research partners and
(d) to waive rights to lab inventions and intellectual property under CRADAs. The Act allows for Federal
employees, both current and former, to participate in commercial development if there is no conflict of interest.
The Act established and created a charter for the Federal Laboratory Consortium for Technology Transfer. TheConsortium is responsible for a variety of activities, including training courses, providing advice and assistancefor technology transfer programs, and functions as a clearing house for technical assistance.
13 Biogas digesters are manure management systems designed to enhance the anaerobic decomposition
of organic material and to maximise methane production and recovery.WT/WGTTT/W/3
Page 25
foreign products.  It resulted from the colla boration between SVIAB of Sweden and the Shangdu
plant, which produced turbines for SVIAB in return for the technology license.  The key development
was local design changes to adapt generators to low wind speeds in IMAR.
89. The policy followed by the IMAR Government was based on:
• Provision of subsidies for production and sales of wind systems;
• The Government appointed a high-level New Energy Leading Group (NELG) to oversee
development and coordinate projects, bringing to gether the agricultural, finance, and planning
ministries, universities, research institutes, factories, local governments, and herders;
• A unified network combining R&D, manufacturing, distribution, and service was created
under the leadership of the IMAR New Ener gy Office (IMARNEO).  A technical board
determined whether frequent failures result ed from quality defects or design flaws.
Manufacturers addressed quality defects; IMAR Polytechnic University addressed design
flaws;
• The Government also support service centres in 60 of IMAR's 88 counties.
I. INDIAN PHARMACEUTICAL SECTOR : FROM PROTECTIONISM TO LIBERALISM14
90. The Indian Government in the 1970s sought to develop the Indian pharmaceutical industry
with various policy initiatives, including:
• The Drug Price Control Order, which subjected the pharmaceutical sector to rigorous price
control;
• The Patent Act established a weak IPR regime.  The patent law granted only process patents,
thus encouraging the development of an alternative process for products patented in other
countries, and a relatively short patent term.  Moreover, it brought drug inventions underautomatic compulsory licenses;
• The adoption of a new Drug Policy which relaxed provisions relative to licensing policy
applicable to the Indian pharmaceutical industry, and imposed restrictions on foreign firmsproducing formulations
15 based on imported bulk drugs and intermediates:  they had to start
manufacturing from the basic stage within two years and invest at least 4 per cent of their saleturnover on R&D;
• The Foreign Exchange Regulation Act which provided that the share of foreign equity in
pharmaceutical enterprises registered in India not using high technology in production, wasreduced to 40 per cent;
91. According to some, the weak regime of patent protection provided an incentive for Indian
firms to reverse engineer the process, or in other wo rds to copy the product.  First, Indian firms would
serve the local market, then they would export the drug to developed countries, when the patent
expired.  However, according to others, the weak regime of patent protection is responsible for
                                                     
14 Based on Biswajit Dhar and Niranjan Rao (2002), "Transfer of Technology for Successful
Integration in the Global Economy: A Case Study of Pharmaceutical Industry in India" Investment Policy an
Capacity-Building Branch.
15 Bulk drugs are chemicals having therapeutic value, intermediates and formulations are medicines
ready for consumption by the patient.WT/WGTTT/W/3
Page 26
maintaining the number of joint ventures between  foreign and domestic companies very limited.
Moreover, in the 1990s, the policy regarding transfer of technology was reformed.  The number of
drugs subject to price control was vastly reduced, limitations on the use of imported drugs were
abolished, foreign holding up to 51 per cent was allowed16.  In the same period, the Indian
pharmaceutical sector experienced a large expansion in terms of output and foreign earnings.
92. Other important aspects of the pharmaceutical sector in India throughout its development
have been the close interaction between private-sector firms and publicly funded laboratories, as well
as tax concessions and exemptions from price controls for firms that engage in R&D.
J. INTEL AND COSTA RICA: GOVERNMENT SUPPORT OF (POTENTIAL ) SUPPLIERS OF FOREIGN
TECHNOLOGY17
93. In 1997 Intel decided to invest in a microprocessor plant in Costa Rica.  It has been argued
that Costa Rica was chosen because it offered important location-specific advantages.  The most
important of these were the already existing tax ex emptions for any firms satisfying certain conditions
under the free zone scheme, the high educational level of the labour force, and a stable political
scenario.
94. Intel's decision had an important impact on the economy, particularly in respect of exports,
imports, GDP, unemployment and wages.  It has also been argued that it had an impact on
productivity in other companies, through externalit ies, including forward and backward linkages,
technological spillovers, and employee training.
95. There have been initiatives by the Costa Rican Government aimed at intensifying these
spillovers.  CINDE (Coalición Costarricense de In iciativas para el Desarrollo) and PROCOMOR, for
instance, have carried out a program to develop suppliers since 1997.  Such programs are not meant
specifically to support suppliers of Intel, but to help any firm whose intention it is to supply inputs to
exporting firms under the free-zone agreement.  Of course, given the high proportion of the total
demand for inputs generated by Intel since 1997, this firm has become a fundamental player in the
programme.  A basic characteristic of the inputs th at Intel requires is that they have to satisfy
international standards of quality.  In addition, they must satisfy norms of environmental safety.
Quality and environmental safety have been the two most important areas of advisory work with
suppliers.
96. Successful examples of the programme are companies that provide freight transportation
services to firms in the free-zones, as well as ones that produce high-electric-resistance packaging
materials for Intel.  There are also several small fi rms that now provide services to Intel's machinery
and manufacture parts for repairing sophisticated equipment at Intel.  Again, all the inputs andservices under this programme are made available not only to Intel or to firms in the free-zone, but
also to all firms in the economy.
                                                     
16 The product patent regime will be introduced in  2005.
17 Based on Larrain Felipe B., Luis F. Lopez-Calva, and Andres Rodriguez-Clare (2000): "Intel: A
Case Study of Foreign Direct Investment in Central America", CID Working Paper No. 58, Center for
International Development at Harvard University.WT/WGTTT/W/3
Page 27
K. THE AUTOMOTIVE INDUSTRY IN SOUTH AFRICA AND THE ROLE OF THE SOUTH AFRICAN
BUREAU OF STANDARDS18
97. Institutional support and select policy interventions have played an important role in the
development of an internationally competitive automotive industry in South Africa.  These policies
have been particularly important in ensuring st andards for the international market and enhancing
quality competition.  Institutions such as the South African Bureau of Standards (SABS), the
Department of Trade and Industry (DTI), and various research and academic institutes all have a part
to play in enhancing the competitiveness of the automotive industry.
98. The SABS plays a critical role, especially for firms wanting access to international markets.
Goods are inspected, tested and analysed in terms of compulsory specifications, and are tested in
accordance with numerous international test methods. Individual firms may also set standards against
which products can be tested by the SABS.  Commodities that do not meet the specified requirementsare rejected, or even destroyed.  Testing and certification facilities at the SABS are increasingly being
considered as a passport to export opportunities for South African companies, and collaboration
between the SABS and various automotive firms has been an encouraging feature of the industry's
quest for international competitiveness.
99. Collaboration between the SABS and automotive fi rms has led to the establishment of various
testing and certification facilities.  One such example is the EuroType Test Centre (Pty) Ltd, a state-
of-the-art laboratory that can perform vehicle exhaust emission testing to the most exacting European,
American and Japanese environmental requirements.
L. A
GRICULTURAL TECHNOLOGY TRANSFER IN NICARAGUA : PAID EXTENSION SERVICES19
100. A paid extension service is a service that is provided either by public agencies or private
companies for a fee.  Paid extension services have been used in developing as well as developed
countries.  They differ in terms of the conditions of payment.  Payment by farmers for an extension
service can be calculated taking into account produc ers' income levels (as in some cases in Chile,
Mexico and Colombia), crop or profit shares (like in Ecuador) or they can be calculated as a lump-sum payment for the service (as in for the case of Queensland, Australia), or as a time-cost
(United Kingdom).  It can be a contract betwee n the Government and the consultants or between
producers and consultants.
101. Nicaragua has used paid extension services as a mechanism to increase crop productivity.
The Instituto Nicaraguense de Tecnologia Agropecuaria (INTA) was created in 1993 with the
mandate to expand the provision of extension services to small and medium farmers.  In order to
reduce costs, INTA restructured the national agricultural technology transfer services to includeextension services free of charge, paid extension services carried out by INTA staff, and paid
extension services provided by private firms.  In the latter case, INTA directly stipulated contracts
with private consultants to provide extension services for a certain period of time.
102. A study of the World Bank compares the costs and the performance between public and paid
extension programmes and among several paid extension programmes in Nicaragua.  Costs aremeasured by salaries, training, transportation costs and the number of extension service suppliers
                                                     
18 Based on Hartzenberg, Trudi and Samson Muradzikwa (forthcoming):  "Transfer of Technology for
Successful Integration in the Global Economy: the Case of the South African Automotive Industry", InvestmentPolicy and Capacity-Building Branch, DITE, UNCTAD, Geneva.
19 Dinar, A. and Keynan G. (1998) ''The Cost and Performance of Paid Agricultural Extension
Services: the Case of  Agricultural Technology Tr ansfer in Nicaragua'', World Bank Working Papers -
Agriculture, Washington: World Bank. http://econ.worldbank.org/docs/493.pdfWT/WGTTT/W/3
Page 28
employed in the programme.  Performance is measured in terms of the number of farmers contacted
by the extension service suppliers, farmers' participation in extension activities, change in agricultural
practices after the provision of the extension services, higher profitability or higher production of
crops or larger crop variety.  Data were collected for the period  1995-1997.
103. The study claims that although data do not al low a comparison between the quality of the
publicly provided services and those provided by private consultants, it is apparent from the
increasing and stable participation rate in paid extension services that producers are satisfied with the
service.  Cost recovery rates are higher for privately provided services.  Paid systems have resulted in
higher agricultural production and increased profitability.
M. HUMANITARIAN USE LICENSING IN AGRICULTURE
104. Technology suppliers regulate the transfer and use of their technology through licensing,
franchising or partnership agreements.  Licensing typically involves an up-front fee and royalty
payments.  There are circumstances when the technology suppliers might be willing to transfer a
technology without receiving a payment as long as  a contractual strategy for segmenting markets is
designed.
105. In agriculture there are examples of so-called humanitarian use licensing  contracts.  I n this
type of contract, agricultural multinational corporations or Universities transfer their proprietary
technology to poor farmers organised in general by local governments, without requesting the
payment of a royalty.
106. The use of humanitarian use licensing contracts is, however, limited by the specific type of
technology transferred.  The requirement behind this contract is that the use of technology remains
limited to the users to whom it is donated, i.e. inte rnational markets must be segmented.  This is more
likely to occur in agriculture than in the pharmaceuti cal sector, for example.  In agriculture, a new
technology could consist of a special type of seed that could be used only in a certain region.  This
specificity implies that the transferred technology ca nnot be used in another place, so there is limited
risk of losing property rights.  But such inaccessibility is clearly more difficult for the pharmaceuticalsector.
107. Humanitarian use licensing agreements are under consideration for the transfer of ring-spot
virus resistant papaya from Cornell University to Thailand, delayed ripening papayas from Syngentato Southeast Asia and some local varieties of potato from Monsanto to Mexico.  Similar clauses are
being studied to segment access to Golden Rice (genetically modified crop), whose owners of key
proprietary components have committed to donate to the poor.
20
N. THE TECHNOLOGY DIFFUSION SCHEME IN MAURITIUS : CREATE A M ARKET IN TECHNOLOGY
SERVICES 21
108. The Technology Diffusion Scheme (TDS) was set up under a World Bank project to grant
private firms (51 per cent or more privately owned) half the costs of buying services for raising
competitiveness through improved productivity, quality and design services, and information on new
technologies.  The TDS was set up under the Ministry of Industry and Industrial Technology, but is
managed by a private sector contractor.
                                                     
20 Travis Lybbert "Humanitarian Use Technology Transfer: Issues and Approaches" IP Strategies
Today, forthcoming.
21 Based on Lall, Sanjaya and Ganeshan Wignaraja (1998):  "Mauritius: Dynamising Export
Competitiveness, Commonwealth Secretariat, London.WT/WGTTT/W/3
Page 29
109. The reasoning of the scheme was that "in the face of labour shortages and increased
international competition, and resultant pressures to enhance value-added and productivity, there is
growing demand for technology support services in the areas of productivity, quality and design."  A
number of institutions in the country, such as EPZDA, MSB, SMIDO, and MEPZA22 provide
technology support services to their respective constitue ncies, but there is a need to promote their use
and acceptance by industry.  The World Bank project intended to create a market in technology
services by lowering the cost of purchasing these services for some time.  The strong demonstration
effects created would spill over to other firms.  Firms receive one grant per service (a firm could
receive more than one grant to cover different services), and thereafter would have to pay the full
market cost of the service.  The scheme covers both local and foreign consultants.  The qualifying
activities for the scheme were as follows:
• labour or capital productivity, to reduce costs per unit of output;
• product quality, uniformity and reliability;
• product design, including grading, counter sampling, packaging design and modification;
• improved response time to order;  and
• introduction and adaptation of new technologies.
O. INCENTIVES FOR JOINT VENTURE CAPITAL AND SCIENCE -BASED INDUSTRIAL PARKS : THE
CASE OF CHINESE TAIPEI
110. In the 1980 the Government of Chinese Taipei developed a strategy to develop its high-tech
industry.  The strategy combined three policies: incentives for joint venture capital, development ofScience Parks and strengthening domestic firms absorptive capability.  In 1983, the Government of
Chinese Taipei introduced legislation to encourage venture capital.  This legislation contained three
important features
23:
(a) Individuals willing to invest in professionally managed venture capital firms could
benefit from a tax rebate of up to 20 per cent, provided they maintain the investmentfor at least two years.
(b) In 1991 not only individuals but also corporate investors were allowed up to
20 per cent in tax rebate.
(c) This rebate was extended to overseas investment, as long as benefit to Chinese Taipei
was demonstrated.
111. In order to favour technology transfers and favour development the Government of Chinese
Taipei attempted to attract foreign and domestic investment in high technology by developing a high
technology area.  The Government established the Hsinchu Science-Based Industrial Park to house
high-tech companies near the Industrial Technology Research Centre (ITRI), a government funded
centre specialised in R&D, technology scanning and technology transfers.  Not coincidentally, theITRI was  built next to the two best science-orient ed universities in Chinese Taipei.  ITRI identified
the products, chose the channels of technology transfers, mobilised firms and ran the negotiations
with developed country firms, including dealing w ith the issues of intellectual property rights.
112. The use of licensing agreement per se  does not necessarily lead to technology transfers.  A
good policy strategy would complement policies that encourage licensing, for example, with policies
                                                     
22 EPZDA refers to Export Processing Zone Development Authority, MSB to Mauritius Standards
Bureau, SMIDO to Small and Medium Industry Development Organisation, and MEPZA to Mauritius ExportProcessing Zone Authority.
23 UNCTAD (2002) "Financing Technology for SMEs" TD/B/COM.3/EM.16/2.WT/WGTTT/W/3
Page 30
that strengthen domestic firms learning capabilities and provide the right competitive incentives for
their technological improvement.  Accordingly, th e Government of Chinese Taipei also encouraged
R&D activity and established a strongly export-oriented setting-up, that would provide incentives to
local firms to upgrade their technology by exposing them to international  competition.
113. In some cases, the foreign company was requested to participate in the technological
development of local firms. In the case of the Singer Sewing Machine Company operating in Chinese
Taipei, for example, the Government agreed that Singer source 83 per cent of components locally
within one year and provide technical assistance to local suppliers to improve quality and
productivity.
114. As a consequence of this policy strategy, the venture capital industry in Chinese Taipei
increased significantly.  It has worked as an important channel to raise capital for technology-based
small and medium enterprises.  It has promoted start-ups of high technology companies that havedeveloped links with Silicon Valley.  ITRI led the formation of about 30 consortia in the IT industry
over the 1990s.
P. I
NDUSTRIAL PARKS AND BUSINESS INCUBATORS : THE CASE OF KOREA
115. Korea attempted to create a venture capital industry from the early 1980s onwards, but this
industry did not take off until the mid 1990s, when the Government accompanied the policy pro
venture capital with the creation of a high technology industrial park in Daeduck, and further
encouraged venture capital by offering matching funds for venture capital limited partnerships.
116. Major government research institutes were located in this area.  One of the largest, ETRI
(Electronics and Telecommunication Research Institute) began to produce spin-off companies byallowing its scientists to establish firms using minor technologies developed during the process of
producing major technologies.  110 have been produced since its inception.
117. In 1994, the Korea Advanced Science and Technology (KAIST) established a business
incubator.  The target was to provide small high-technology firms with opportunities to take
advantage of KAIST's research staff and facilities.  By 1999, about 80 firms had moved into this newbusiness incubator.  Moreover, the number of instit utions that operated business incubators grew to
13 within the Daeduck area, hosting over 300 firms.  According to a recent survey
24 based on a
questionnaire distributed to the managers of these venture firms, there appear to be strong linkages
between these venture firms and the research institutions in the Daeduck area in terms of source of
recruitment of technical staff, resource of managerial and technical information.
Q. TECHNOLOGY TRANSFER POLICY OF CHINA : SPECIAL TREATMENT AND CONDITIONS TO FDI
AND REPATRIATION GRANTS25
118. Chinese technology transfer policy has evolved from fully government funded centrally
planned R&D activity to a policy characterised by limited government funding, supplemented by
preferential loans and incentive plans.
119. Specific provisions introduced  to favour transfer of technology to China include:
                                                     
24 Dong-Ho Shin (2000) "Network of venture firms around a Science Park:  The case of Taejon in
Korea" Taegu University, Taegu, Korea, mimeo. econgeog.misc.hit-u.ac.jp/icgg/intl_mtgs/DHShin.pdf
25 DFI International (1999)  "US Commercial Technology Transfers to the People's Republic of China",
prepared for the Office of Export Administration, Department of Commerce, US.
http://www.stanford.edu/~fravel/ChinaFP/tech.htmWT/WGTTT/W/3
Page 31
• Establishment of NERCs (National Engineering Research Centre) "to actively import, digest
and absorb foreign technology so as to support enterprises in their technological progress" 26.
• Involvement of the Chinese Academy of Sciences in the spread of technology throughout the
country by encouraging the collaboration between researchers and industry for thecommercialisation of innovation.
• Fiscal Incentives to attract FDI.  In the 1980s, the so called Special Economic Zones (SEZ)
were established in the south-eastern coastal provinces of Fujian and Guangdong.  In theSEZs foreign direct investment benefits from up to 50 percent reduction in customs duties,
lower income tax, and certain duty free imports.
• Preferential Treatment to FDI.  Since the SEZ led to light and low technology FDI, in the
1990s the Chinese Government started High-Technology Development Zones.  These zones
are industrial and science and technology parks. They are open to domestic and foreign
investors.  Foreign investors benefit from incentives to establish high-technology joint
ventures within these zones, consisting of tax breaks and tariff reductions.
• Creating competition among foreign producers.  China's technology import strategy consists
of involving many international providers of technology in a project (so, for example, AT&Tonly managed to obtain a small role in a project for undersea cables).  This creates
competition among foreign firms to access the Chinese market, and provides an incentive forthem to commit to foster technology transfer s.  Intel, IBM and Wang for example, have
established laboratories for joint R&D, donated equipments and scholarships, and trained
Chinese workers.  In general, foreign-sponsored research centres have mainly worked in
adapting existing technology rather than innovating.
120. A key factor in determining the ability to utilise foreign technology is the availability of a
skilled workforce and the possibility to communicate with international experts in high-tech fields.
China has a large pool of skilled workers.  Chinese academics, scientists, technicians and engineers
are more and more engaged in international activities, workshops and seminars.  Chinese scholars
educated abroad (mainly in the US) have increased si gnificantly over the past few years.  In order to
prevent a brain drain and foster technology transf er through the movement of human resources, the
Chinese Government has also introduced incentives to students abroad to go back to China.  These
incentives include:
• preferential hiring policies in a new high-tech industrial park in Beijing and research grants
for Chinese scientists and researchers abroad;
• increase in the deposit requested to be left in China to study abroad.
R. B
UILDING A T ECHNOLOGY TRANSFER INFRASTRUCTURE :  T HE CASE OF SUPERNET IN THE
UNITED KINGDOM (UK)27
121. This case study is an example of a technology diffusion policy within a country rather than
technology transfer across countries.  However, it is a very useful example to address some policy
issues of international technology transfer such as the idea of creating a patent bank28.
                                                     
26 From page 12 of the DFI International Report.
27 Bessant, J. (1999) ''The Rise and Fall of  'Supernet': A Case Study of  Technology Transfer Policy for
Smaller Firms'', Research Policy  28, 6: 601-614.
http://www.elsevier.com/inca/publications/store/5/0/5/5/9/8/index.httWT/WGTTT/W/3
Page 32
122. There is a case for government intervention to favour technology diffusion among small and
medium enterprises (SMEs), as most of SMEs lack the capability to realise their technology needs and
acquire information about new technology opportunities.  To target this market failure policy makers
have used innovation consultants, established technology information centres or introduced financial
and fiscal incentives to favour technology transfer activities and encourage business clusters.
123. The technology transfer policy adopted by the United Kingdom Government has changed
over time. Initially, it consisted in financial support for R&D activity.  Then it was more focused on
raising awareness about technology advancements and providing technology advice.  More recently,
United Kingdom Government technology transfer poli cy has pointed to the utilization of regional
networks, the so-called Business Links to assist SMEs  in their business development.  There are two
important groups in the United Kingdom that deal with technology transfers:  The Innovation and
Technology Counsellors (ITC) and the Design Counsellors (DC).
124. One experiment run by the United Kingdom Government to increase technology transfer to
SMEs was the Supernet.  During the period 1994-97, Supernet worked as a technology network,
matching technology needs and sources.  SMEs would communicate their needs to the Supernet team.
The latter would sign-post it to the most appropriate technology source.
125. The United Kingdom experience revealed that ingredients of a successful technology
network, i.e. of a network that people use and that helps solving their problems include:
• developing a network that is widely extended both geographically and in terms of
technological coverage;
• ensuring the good quality management of the network;
• guaranteeing easy access, by establishing a deep level of integration with local agents, such as
emerging business links.
126. Supernet's success was modest. The number of Members using it remained limited.  A sample
analysis of Supernet activity suggests that only 20 per cent of inquires led to direct contacts between
the SMEs and the business links, and a much lower percentage led to remunerative projects.  What
went wrong?  Many SMEs began to use local service providers rather than Supernet.  Maybe Supernetshould have been open for enquiries to end-users.
                                                                                                                                                                    
28 This was suggested by Lynn Myltelka in her  pr esentations at the First Session of the Working
Group of Technology Transfer WT/WGTTT/M/1 Annex 2.WT/WGTTT/W/3
Page 33
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