Collge du Management de la Technologie CDM

1
Technology Transfers toward LDCs need more
incentives does article 66-2 succeed?

• Pr. D.Foray
• Prepared for the IP group meeting
• 7 december
• ICTSD

2

• Article 66-2 of TRIPS agreement asked developed
  country members to provide incentives to their
  enterprises and institutions for promoting and
  encouraging transfer to LDCs
• This is a good idea
• 5 years after, LDCs remain unhappy with how rich
  countries fullfill their obligations
• What do show the country reports?
• Some foods for further discussion

3
This is a good idea

• Incentives matter when activities exhibit
  potentially high social return but negligible
  expected private profitability, there is a need
  for providing  more incentives 
• Historical precedents show that it may work
• Orphan diseases
• Neglected diseases

4
The case of PPPs to support RD in the area of
neglected diseases

• For the last four years, the number of neglected
  disease drug projects has increased significantly
  a sign of deep-seat structural change
• Standard theory does not predict such outcome
  whats going on?
• Companies recognize the value of RD operations
  of far smaller (or no) commercial returns
• They commit ressources on a  no profit no loss
  basis 
• Centrality of cost containment (and therefore
  PPPs role) to sustain the model

5
LDCs frustrations

• At the TRIPS council of 2007, LDCs complained
  that the kind of technical assistance featured in
  the country reports do not lead to  real TTs 
  (or at least it is not clear!)

6
What do the country reports show?

• These reports are very difficult to read and
  assess
• Very little quantitative data and measurement of
  importance, size and economic effect of TTs
• Difficult to differentiate between activities
  that are coming under the general  ODA like
  obligations  and those that have been launched
  as a specific response to the 66-2 provision
• Qualitative interviews in Bern tend to show that
  governments would have strong difficulties to
  draft reports including only 66-2 oriented
  activities
• Very little (no) description of  best (new)
  practices  in the incentive mechanisms
• Hard to know whether the private sector is really
  responding to new incentive mechanisms
• Series of  success stories  and cases

7
What do the country reports show?

• Interesting (but not quantitative) information on
  the kind of areas TTs are targeted to
• Lets have a look at the Swiss report on the
  implementation of article 66-2, WTO, 1st October
  2007
• Warning!

8
What kind of areas are selected in the case of CH?

• Export oriented goods facing deteriorating terms
  of trade TTs here do not need much incentives
  since the positive effect of efficiency
  improvement are captured mainly by the import
  countries (cacao, tea, coffee, cashew nuts,
  fruits,etc..)
• Vital needs TTs would need very strong
  incentives to be done by private firms, but most
  are done by the public sector (neglected
  diseases, educational project)
• Infrastructures again strong incentives are
  needed and most projects involve public
  production or public procurement (water
  production, treatment and distribution, bridges
  and roads), but do such projects promote TTs?
• Simple traditional capital goods and services to
  meet a true demand for technology to support
  entrepreneurial activities targeting local needs
  this should be the real target of 66-2

9
(No Transcript)
10
What do the country report show?

• No surprise!
• Export oriented areas are the only areas where
  the need for further incentives is not strong
• The main beneficiaries of efficiency improvement
  in these areas are the firms importing the goods
• Since these goods are characterized by
  deteriorating terms of trade, successfull TTs are
  likely to worsen the economic situation of the
  considered sector in the LDCs!
• This will be the case if i) the demand is price
  inelastic, and ii) the same activities are
  improved in different LDCs. As a result, the
  total value of the marketed commodity falls and
  the countries have reallocated resources to an
  activity that is yielding fewer returns as time
  passes

11
What do the country reports show?

• No surprise!
• TTs addressing vital needs are mainly originating
  from public sectors
• Those TTs are important but are not likely to
  create positive entrepreneurial dynamics in the
  LDC

12

• No surprise!
• Infrastructure projects are done through public
  production and public procurement
• Verly little information to know whether private
  firms contracting for such projects are really
  transferring technologies

13
What do the country report show?

• Very few cases of TTs in which the private sector
  responds to a local demand for technology as an
  indispensable ingredient for the development of
  entrepreneurial activities
• Local needs (domestic consumption) ?
  entrepreneurial opportunities ? demand for
  technology ? transfer from a developed country

14

• The aims of advancing science and technology in
  LDCs are
• Modest (reasonable) gains in the areas of export
  commodities, and
• Immodest (extraordinary) gains in the areas of
  non-traded goods and goods for domestic capacity
  building and consumption
• National responses to 66-2 seem to do just the
  opposite!

15
Foods for thoughts

• First, the locus of decisions concerning the
  areas for TTs is in the foreign assistance bodies
  and, therefore the decisions are clearly
  sub-optimal
• for example there is a premium for projects
  related to trade policy vis-à-vis projects
  related to innovation policy
• Second, most of the projects in the list do not
  need further incentives they are either
  profitable activities for the private sector of
  developed countries or done by the public sector
  - meaning that most projects do not comply with
  article 66-2
• Third, the country reports should be more
  transparent and informative on what are the TTs
  undertaken by the private sector (and backed by
  new incentives) to meet a particular (local)
  demand for technologies in order to address local
  needs through entrepreneurial activities

16
Suggestion

• Developing a typology of TTs areas that developed
  countries should use to write their reports

17
Foods for throught

• A danger of splitting development programs in two
  logics
• A humanitarian logic no hope for return, no
  attempt to help the development of domestic
  innovation system development assistance only
  address vital needs, transfer of knowledge for
  passive consumption and do not involve strongly
  TTs as a learning process
• An economic logic development assistance address
  trade policy in LDCs and innovation policy in
  catching up economy very nice cases in CH (Clean
  production centers in latin America that involve
  all components of a system of innovation)
• LDCs are mainly affected by the humanitarian
  logic and the economic-trade policy oriented -
  logic
• Current debate in CH

18
(No Transcript)
19

• In CH, institutional division of labour between
• SECO (economic department) that will only address
  emerging economies
• economic logic/innovation policy/strong
  commitment of CH private sector)
• DDC (foreign affair) that will target the poorest
• humanitarian logic, private sector not concerned
  (or only through public procurement)