COVER STORY • Role of Business in New Global Governance • 8International Technology
Transfer

By Andrea Andrenelli, Julien Gourdon & Evdokia Moise
Encouraging or Imposing the Transfer ofTechnology?
Research and development (R&D) collaboration between firms,
including in the form of joint ventures and investments to acquire
knowledge and capabilities, are central features of businessinteractions in today’s knowledge economy. The transfer of technology,
in particular by Multinational Enterprises (MNEs), is considered an
important source of knowledge diffusion and economic growth
worldwide. For that reason, it is increasingly a focus of policies aimed
at attracting and retaining international business.
Governments may take steps to encourage technology transfer anddiffusion. These interventions typically seek to promotetechnology‑related foreign direct investment (FDI); to enhance thecapacity of the local economy to absorb technologies transferred via
such investment; and to establish an intellectual property rights (IPR)
framework that is conducive to technology transfer. However, there areclear and growing concerns that other policies and measures may
have the effect of “forcing” international technology transfer (ITT) by
imposing on affected firms conditions that restrict their access to themarket, or by undermining their control over their proprietary
technology. Addressing these concerns can be complicated, not onlyin terms of identifying policies and measures of concern but also interms of exploring appropriate disciplines and paths likely to offer
relief.
Distinguishing between voluntary and mutually agreed-upon ITT,and ITT that is, or is perceived to be, compelled, is not always
straightforward. Policies may or may not distort the normal process oftechnology transfer, depending on a number of factors, related both tothe measures themselves and to the broader policy environment inwhich those measures are adopted and implemented. It can also be
difficult to gather information on practices which are generally hidden
and that companies may be reluctant to report publicly, including forfear of losing access to valuable markets.
While there are clearly questions of degree, forced technology
transfer can involve situations in which the owner of a technology (e.g.
an investor or licensor) is required to transfer technology either to bepermitted to operate under the same conditions as local firms or toaccess the market at all. Therefore, although the owner of thetechnology might consent to transfer the technology in order toovercome those obstacles, the obstacles may still be viewed as forcing
the owner’s choice to give away proprietary technology. This isespecially true for markets which are central to economic activity ingiven sectors and thus very difficult for a company to forgo.
36 Japan SPOTLIGHT • March / April 2020

AuthorAndrea Andrenelli

AuthorJulien Gourdon

AuthorEvdokia Moise

As a result, government efforts to distinguish policies that enablecross-border diffusion of technology, with the resulting benefits forwidespread innovation and growth, from policies that may compel thetransfer of technology in order to benefit competing firms are
particularly challenging.

The OECD Continuum of ITT-related Policies
In order to help make this distinction, the OECD has elaborated acontinuum of measures related to ITT, ranging from policies aimed atcreating an appropriate supporting environment for ITT, to policies that
may have the effect of imposing ITT to varying degrees, to policies
which clearly result in a forced transfer of technology. This “ITT
continuum” maps policies according to their potential to compel
disclosure of commercially valuable and sensitive technology, basedon the degree of compulsion the policies impose on foreign firms
when they interact with local counterparts and the effect they have on
foreign firms’ control of their proprietary technology (Chart 1).
Along the continuum, three main categories of policies can affect
ITT. The first, which normally does not raise concerns, includes
policies to enhance absorptive capacity, aimed at enabling andmaximizing the benefits of ITT, and technology-related FDI promotion
and facilitation measures, which aim to attract and help to shape ITT
effects. Investments in education and training, funding for networks
between universities and foreign firms, or policies that facilitate
investor access to human capital in technology-intensive areas may be
an indispensable ingredient in successfully attracting and diffusing
foreign technology. Policies aimed at fostering collaboration on R&D
among foreign and local firms may also help upgrade local absorptive
capacity. Investment promotion and facilitation measures such as
streamlining administrative procedures, setting up informationexchange networks and more generally improving the businessenvironment also help, by creating the conditions for a supportive
https://www.jef.or.jp/journal/

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CHART 1

ITT continuum map
Absorptive capacity
for ITT

FDI promotion
measures

Investment
incentives

Outboundinvestment

Performance

Administrative requirements
requirements
FDI restrictions

Mandatory
joint venture
requirements

Data localization Requirements
requirements
to disclose
source code

Level of concern for policy-makers

Safe ITT
measures

The grey area

Of concern

Source: “International Technology Transfer Policies” by Andrea Andrenelli, Julien Gourdon and Evdokia Moise, OECD Trade Policy Papers, No. 222, OECD Publishing, Paris, 2019business climate that will appeal to potential investors.
The second category encompasses a number of grey area policies,
such as technology-related investment incentives which impose ITT
obligations on foreign firms in exchange for financial benefits. They
may take the form of preferential tax treatment on income fromroyalties, licensing and R&D capital gains, or grant schemes
dependent on the technology transfer characteristics of theinvestment, as well as incentives for using local facilities, employing askilled local workforce or building local suppliers’ capacity. These
incentives are less of a concern as such, but can drive companies todiscount the risk of involuntary transfer of technology if they are
essential for recipient firms to be able to operate competitively in agiven market (for instance where all domestic companies in the sector
already receive the benefit). Certain types of ITT-related outboundinvestment, motivated by the acquisition of foreign technologies, canalso be of particular concern where they are directed by the state insupport of state industrial plans (including in the case of mergers andacquisitions financed by state-owned banks or state-backed funds).
State involvement can impact the competitive environment for othermarket participants when state-owned enterprises (SOEs) takeadvantage of their domestic protected status to expand internationally.
The third category covers policies often reported as problematic byfirms, many of which impose technology transfer as a precondition foraccessing the market, or otherwise jeopardise the firm’s control overits proprietary technology. Concerns have been raised about the use ofregistration, certification and approval procedures by government
bodies to request, formally or informally, sensitive proprietary
information, including sensitive designs or other IP-related information
which does not appear to be necessary for (or related to) the relevant
administrative process. FDI restrictions such as screening processes
can also be of concern where there is a requirement to provide
sensitive information as a specific determinant of approval of the FDIby the relevant regulatory body. When such disclosure of information
is not necessary to verify that products conform to legitimate public
safety or security objectives, they can be considered as mandating
technology transfer, especially if there is no transparency regarding theuse by the regulator of the acquired information, if the protection of
trade secrets is weak, or if the information may be transferred tocompetitors in the market. This category also includes technologyrelated performance requirements that impose local sourcing with thepotential to compel involuntary technology transfer. These policies canlimit the ability of foreign firms to enter into agreements with local
partners on market-based, voluntary and mutually agreed contractual

terms.
A further area that can be of concern is mandatory joint venture
requirements which oblige foreign investors to have local partners,
and which can require transfer of, or have implications for, control ofproprietary IP and know-how. Mandatory joint-venture requirements
may or may not raise concerns depending upon their conditions, butthey are of particular concern if they specifically require the transfer oftechnology. Lastly, some measures are highlighted as being ofparticular concern, such as requirements to disclose source code andlocalisation of data storage which can allow proprietary technology
and trade secrets to be unintentionally transferred to or accessed by
local firms, especially in combination with restrictions on cross-borderdata flows.

Factors Shaping the Impact of ITT-related Policies
on Technology Transfer
The degree to which a given measure can be viewed as forcing
foreign firms to transfer technology is influenced by factors related
both to the measure itself and the broader policy environment. The
most important of those factors are whether there is a quid pro quo
established between access to the market and transfer of technology,
potential discrimination and lack of transparency characterizing themeasure or the broader policy environment, and the role of the statein the economy. Finally, the role of intellectual property rights andtheir enforcement are pivotal in preserving the technology owners’
interests or, on the contrary, in resulting in unplanned transfers oftechnology when they are weak or discriminate against foreign firms.
When a measure imposes the transfer of proprietary technology as
a precondition to enter or operate in a foreign market, firms may still
have the choice not to enter the market at all, but face a high degree ofcompulsion to hand over their technology should they wish or need toenter the market.
Discrimination against foreign holders of technology, not just interms of the measure itself (non-discriminatory measures can stillcompel ITT) but in the broader environment (e.g., lack of equal accessby foreign firms to the courts or to contract enforcement) can
complicate firms’ efforts to resist involuntary ITT. In this sense, theconditions in which domestic firms operate, both in relation to specific
ITT measures and in the broader environment, are a good yardstickagainst which to assess whether policy measures contain a lesser orgreater degree of compulsion for technology transfer from foreign
firms.
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Number of relationships

independence of the administrative or regulatory bodies and about the
The same applies to lack of transparency, both in terms of how
appropriate protection of information provided to them, a normal
measures are formulated and applied (e.g., where the criteria forprocess of seeking administrative approval could become a potential
receiving a license or certification are unclear or discretionary) and inchannel for involuntary technology transfer. Where such aggravating
the broader policy-making environment. For example, where joint
conditions apply, the measure can “leap” from the safe or the grey
venture requirements lack clarity on the respective ITT-relatedarea of the ITT continuum into the area of concern.
obligations of the two partner firms, or where the criteria for receiving
a license or certification are unclear or discretionary, or where thebroader policy-making environment is non-transparent, there is a
The Private Sector Perspective
greater risk that policy measures may affect disproportionately theforeign firm’s leeway in ITT decisions.
The private sector perspective is key for promoting an informed
The role of the state in the economy may also be relevant in terms
debate on technology transfer. Firm-level data can be leveraged toof the broader policy environment. Where the state is a player in theprovide evidence on business relationships among companies
economy, with a significant stake in companies competing or
operating internationally, in order to draw a general mapping of thecollaborating with foreign firms, the conditions for the market-based
main technology transfer arrangements in place among multinationals
transfer of technology under voluntary and mutually agreed terms canand their business partners.
be compromised, including in the context of giving rise to concerns
The forms of technology transfer arrangements identified among aabout the protection of information provided to government bodies forsample of 160 MNEs in 14 different economic sectors, across boththe purposes of approvals or licensing. Concerns may also arise whenmanufacturing and services, are international equity investments, joint
SOEs seek to obtain cutting-edge technologies and IP throughventures, technology licensing agreements, and researchmergers and acquisitions of foreign firms or where the state directs orcollaborations. At the aggregate level, companies appear to interact
facilitates outbound investment in support of state policy.
most frequently with foreign partners through research collaborations.
Finally, protection of IPRs plays a central role in attracting FDI andThis is followed by international licensing of technology and byencouraging technology transfer and knowledge spillovers. Theinternational joint ventures. However, firm and sector characteristics
efficiency of the patent system in providing the necessary legal
appear to be important drivers of the form of technology transfer
protection of inventive technology, while improving knowledge
arrangement adopted between companies. In the available sample,
dissemination through the disclosure of relevant aspects of thechemicals, electronics, IT services, Internet/software services, motor
inventions and in promoting further development of technologies
vehicles, pharmaceuticals, semiconductors and telecommunications
through its licensing rules, is a critical factor for facilitating
equipment particularly stood out for involvement in suchcommercialization of innovative products. Adequate protection of tradearrangements (Chart 2), showing significant heterogeneity. For
secrets is also important, especially in the context of digitalization.
example, while research collaborations are most commonly observed
Weak or discriminatory IPR protection and enforcement which enables
in IT services, semiconductors and telecommunication equipment,competitors to imitate or reverse engineer protected technology
firms in electronics and pharmaceuticals tend to use licensing as a
products may be a strong disincentive for companies to risk exposure
form of direct ITT arrangement, whereas joint ventures are particularlyof their cutting-edge technology in that market. At the same time, hostimportant in the motor vehicles sector.
countries need sufficient technological endowment to be able tobenefit from the positive effect of stronger IPR
CHART 2protection on technology transfer, a capacity thatTechnology transfer arrangements bydeveloping economies may lack in the absence ofindustry
appropriate assistance.
These factors can mean that an otherwise neutral
700
measure, particularly in the grey area of the ITT
Research Collaboration
continuum, could be viewed as actually placing greater
600
Licensingconstraints on a foreign firm’s choices in whether andJoint Venture
500
Equity Investment
how to transfer technology locally, or on its capacity tocontrol proprietary technology in a non-transparent
400
policy environment or where the involvement of thestate in the economy and the ITT process is high. Not
300
all these factors are equally pertinent for all measures,200
and a combination, such as a lack of transparency
coupled with discrimination, can compound the effects
100
of a measure in terms of compulsion and control. For
0example, if administrative requirements regarding theChemicals Electronics IT services
Internet/
Motor Pharmaceuticals
Telecomtype of information required for product certification
softwarevehiclesSemiconductors equipment
servicesare not transparent, and where the role of the state in
Source: OECD, based on FactSet Supply Chain Relationships
the economy gives rise to doubts over the
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CHART 3R&D location requirements
prohibited

Exclusive supplierrequirements includedin PR prohibition

Technology transfer includedin PR prohibition

Prohibition of performancerequirements (PR)IP defined as investment

National treatment or
MFN provisions

Pre-establishment
national treatment

Provisions in investment chapter of RTA

Source: Authors, based on Andrenelli, Gourdon and Moise (2019)

Relevant disciplines related to IPR protection, and ITT more broadly,
can be found in the WTO and International Investment Agreements(IIAs), which include both Bilateral Investment Treaties (BITs) andrelevant provisions in regional trade agreements (RTAs). International
disciplines include WTO TRIPS provisions calling for national
treatment with regard to the protection of intellectual property;
exclusive rights conferred to patent holders; non-discrimination forpatents in all fields of technology, irrespective of their place of
invention or whether resulting products are imported or locally
produced; and protection of undisclosed information from unintended
disclosure and unfair commercial use, including in the context ofmarketing approval procedures. Recent RTAs also provide more
extensive guidance as regards the protection of undisclosed
information, with 25% of RTAs signed over 2010-2018 including
provisions on trade secrets in their chapter on Intellectual Property
Protection.
Beyond IP-related disciplines, provisions governing the wider
investment policy environment can be found among WTO TRIMS
provisions on national treatment, the WTO General Agreement on
Trade in Services, notably in relation to scheduled commitments
relating to market access and national treatment for mode 3, as well as
in investment chapters in RTAs and BITs. Two-thirds of all RTAs
concluded since 2010 and containing detailed investment provisions
require the recipient country not to discriminate between foreign anddomestic investors, not only with respect to their operations in the
country once the investment has been established, but also as regards
the conditions for establishing such investment (Chart 3).

Involuntary technology transfer is a complex issue, about which

TRIPS reaffirmation

Provisions in IP chapter of RTA

International Disciplines Related to ITTConclusion

Enforcement procedures

80%
70%
60%
50%
40%
30%
20%
10%
0%

Trade secrets

2010-2018: Share of RTAs with specific provisions
relevant for international technology transfer

Patents

The use of firm-level data produces a heatmap of technology
transfer arrangements that would be most sensitive to ITT
policies in different economic sectors. It also provides
interesting insights on the effect of sector-level restrictions on
the form of technology transfer arrangement adopted by firms.
For example, China appears as a main location for joint venture
partners in the motor vehicles sector, which could be explainedby restrictions on foreign investment in the automotive sector.
The data also confirms that interactions between MNEs andgovernments – at the federal, provincial or local level – are notunusual in global value chains, serving a wide variety of policy
purposes, such as information exchange, capacity building andimprovement in absorptive capacities. In order to distinguishvoluntary technology transfer from its more constraining
variants, the wider policy environment hence constitutes a key
element, in particular as regards transparency in the terms ofcollaboration between companies and governments and on thenature of the collaborating MNEs (such as in the case of stateowned or state-backed enterprises) and regarding theobjectives governments are seeking to attain through suchcollaborations.

there are clear and growing concerns. In order to think through theissues and identify the most appropriate policy responses, policymakers need to apply a systematic and analytical approach toassessing which policies are of the greatest concern. ITT-related
policies can range from measures aimed at creating an appropriate
supporting environment, to those that may have the effect of imposing
ITT to varying degrees, to policies which can clearly result in
involuntary transfer of technology. The distinction between the various
groups of policies depends on the degree of compulsion they impose
on foreign firms and how they affect the bargaining power between
foreign and local firms; and the effect they have on foreign firms’
control of their technology.
Broader factors may also shape the impact of ITT-related policies,
such as the conditions affecting the ability to access or compete in agiven market; the transparency not only of the policy itself, but also inthe broader governance environment; the extent to which the policy or
the wider business environment discriminates against foreign firms;
and finally, the role of the state in the economy, including in terms of
the implications for the confidence of business in the independence ofregulatory bodies.
Note: The opinions expressed and arguments employed are those of
the authors and do not represent the official views of the OECD or ofits member countries. This article draws heavily on work found in“International Technology Transfer Policies” by Andrea Andrenelli,Julien Gourdon and Evdokia Moise, OECD Trade Policy Papers, No.
222, OECD Publishing, Paris, 2019 (http://dx.doi.
org/10.1787/7103eabf-en).

Andrea Andrenelli and Julien Gourdon are trade policy analysts, and Evdokia
Moise is senior trade policy analyst at the Trade and Agriculture Directorate of
the Organisation for Economic Cooperation and Development (OECD).

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