RESTRICTED
WORLD TRADE WT/CTE/W/22
21February 1996
ORGANIZATION(96-0695)
Committee onTrade andEnvironment
FACTORS AFFECTING TRANSFER OFENVIRONMENTALLY-SOUND TECHNOLOGY
Note bytheSecretariat
1. Thispaper isprepared inresponse toarequest bytheCommittee onTrade and
Environment forabackground document onfactors affecting transfer ofenvironmentally-sound
technology. Thatrequest included addressing "theissue inamore analytical framework which
would complement WT/CTE/W/8" (WT/CTE/M/4, page28).
2. Document WT/CTE/W/8 covers anumber ofissues relating totheenvironment andthe
Agreement onTrade-Related Aspects ofIntellectual Property Rights ("TRIPS Agreement"),
including thelinks between intellectual property rights (IPRs) andenvironmentally-sound
technologies (EST). Itmentioned thatIPRs could havetwotypes oflinks withEST,
i.e.promotion orgeneration oftechnology, andaccess toandtransfer oftechnology. Regarding
theformer, document WT/CTE/W/8 states that"[a]fundamental feature ofIPRsystems andof
theTRIPS Agreement, particularly intheareaofpatents, istoprovide incentives forthe
generation ofnewtechnology, bygiving theinventor anexclusive right(subject tocertain
exceptions) overtheuseofhisinvention forafinite period oftime....TheIPRsystem provides
protection totheresults ofinvestment inthedevelopment ofnewenvironmentally-friendly
technology, thusgiving theincentive andthemeans tofinance suchresearch anddevelopment. A
combination ofawell-functioning IPRsystem andappropriate price signals inthemarket, which
direct research anddevelopment effort toenvironmentally-sound technologies, canplayamajor
roleindeveloping thetechnologies thatwillrespond toenvironmental problems" (page 16).
3. Thispaper focuses mainly ontheissue transfer oftechnology. However, animportant
point tobearinmind isthattheexistence ofanytechnology isaprerequisite toapossibility of
access tothattechnology, i.e.ifcertain technologies havenotbeengenerated thentheirtransfer is
bydefinition notpossible. Thus, theroleofIPRs inproviding anincentive fortheirgeneration
should notbeforgotten indiscussions about theirtransfer.
4. Section Iofthispaper summarises themain factors thataffect thetransfer ofEST. Since
therequest forthispaper wasmade inthecontext ofItemeight oftheCommittee 'swork
programme, Section IIofthepaper focuses ontheeffects ofIPRs, inparticular patents, onthe
transfer ofEST. Section IIfirstclarifies thescope oftheissue, andthensummarises thedifferent
aspects ofpatents inthecontext oftransfer oftechnology. Based onthisdiscussion, itprovides a
simplified analytical framework toconsider thelinkbetween IPRs andtransfer ofEST. Finally,
Section IIsummarizes theempirical evidence ontheimportance ofIPRs fortechnology transfer.
Section IIIprovides theconclusions.
5. Themain points mentioned inthispaper canbesummarized asfollows. There area
number ofdifferent ways inwhich technology transfer takes place, andIPRs areonlyoneofthe
factors, andusually notthemost important ordominant factor, which affect thetransfer of
technology. Forthose seeking technologies, information about thetechnologies, access tofinanceWT/CTE/W/22
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andtechnological capability havebeenmentioned much more often thanIPRs asthecrucial
factors determining acquisition oftechnologies. Forthose supplying thetechnology, anIPR
regime inthehostcountry improves thewillingness oftechnology suppliers toprovide the
technology buttheimportance ofIPRs varies across different activities andindustries. Incertain
cases suchasjointventures ortechnology licensing, IPRs inthehome market might alsoincrease
thewillingness ofthose demanding thetechnology toacquire it.Thus, IPRs contribute positively
totechnology transfer inthese situations bothfrom theperspective ofthetechnology supplier and
those demanding it.However, incases where technology canbeeasily copied, itsprotection by
IPRs willmean thattheauthorization oftheIPRowner hastobeobtained touseitwhen inthe
absence ofsuchprotection itcould beusedwithout suchauthorization. Ifavoluntary transfer of
suchtechnologies isnotforthcoming onreasonable terms within areasonable period, theycould
beacquired under compulsory licensing, subject totheprovisions ofArticle 31oftheTRIPS
Agreement. Animportant point tobearinmind isthatiftechnologies cannot beeasily copied
(there arealarge number ofsuchtechnologies), thecooperation ofthetechnology supplier
becomes essential fortransferring technologies. Insuchcases, evencompulsory licensing willnot
result intechnology transfer unless thecooperation ofthetechnology supplier isobtained.
I. FACTORS AFFECTING TRANSFER OFENVIRONMENTALLY-SOUND
TECHNOLOGY
6. Theimportance oftransfer ofenvironmentally sound technologies ("EST") hasbeen
recognized inseveral fora; forexample, Agenda 21(chapter 34,paragraph 34.7) states that"...
access toandtransfer ofenvironmentally sound technology areessential requirements for
sustainable development". Likeother technology thatisrequired tobeusedpursuant totechnical
regulations orstandards, theneedfortheuseofESTmight ariseduetorequirements imposed by
legislation, other standards ormultilateral agreements. However, itisnoteasytoarrive ata
definition ofESTsince most technologies produce some kindofenvironmental impact, and
several technologies might qualify asESTs, ranging from end-of-pipe technologies topreventive
technologies ofamore systemic nature suchascleaner andefficient processes ofproduction.
Thus, itisoften difficult todistinguish between ESTandother technologies. This, however, does
notposespecial problems inassessing which factors affect transfer ofESTbecause thefactors
which affect transfer ofESTareessentially thesame asthose affecting transfer oftechnology in
general.
7. Todevelop aconceptual framework toidentify thevarious factors affecting transfer of
technology, itisuseful toconsider thedifferent ways inwhich technology istransferred.
Technology could betransferred through foreign direct investment, which might taketheform of
awholly owned subsidiary ormight involve ajointventure withhostcountry investors.
Alternatively, aperson could acquire certain technologies bycopying them, including through a
process ofreverse engineering which maynotrequire anyassistance from thesupplier ofthe
technology. Technology transfer could alsotakeplace through different contractual arrangements
suchaslicensing, management contracts, orsubcontracting, ortechnology could beobtained by
purchasing off-the-shelf themachinery thatembodies it.
8. Conceptually, thedifferent methods oftechnology transfer could beconsidered as:
(i) atransaction involving onlythesupplier ofthetechnology, e.g.foreign
direct investment inawholly owned subsidiary;
(ii) atransaction involving onlythose inthehostcountry whousethe
technology, e.g.thesituation where thehostcountry national copies the
technology, including through reverse engineering;WT/CTE/W/22
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(iii) atransaction involving boththesupplier anduseroftechnology, where
specific commercial conditions arestipulated withregard totheuseofthe
technology, and/or thesalesordistribution ofprofits bytheenterprise inthehost
country, e.g.technology licensing orajointventure involving foreign direct
investment;
(iv) atransaction involving boththesupplier anduseroftechnology, but
without anycommercial conditions stipulated regarding theoperations, saleor
distribution ofprofits bytheenterprise using thetechnology (e.g.purchase ofa
machine inthemarket, which embodies thetechnology).
Inthedifferent situations mentioned above, thefactors which affect technology transfer could be
considered from theperspectives ofthesupplier ortheuserofthetechnology. Theperspective of
thetechnology supplier affects itstransfer insituation (i).Insituation (ii),thetransfer of
technology depends onthepossibility oftechnology acquisition bythose demanding itinthehost
country. Insituations (iii)and(iv),technology transfer isbased onaninteraction between the
perspectives ofthesupplier andtheuserofthetechnology.
9. Technology transferred through foreign direct investment depends onseveral factors which
affect theperceptions regarding riskandreward toforeign investors. Factors especially important
forforeign direct investment arethehostcountry 'seconomic andpolitical stability, well
developed labour skills andtechnological andinfrastructural base, andawellfunctioning
regulatory framework. These factors positively affect investment decisions byimproving the
possibility ofassessing themedium tolongtermeconomic situation inacountry, andincreasing
thelikelihood forefficiently installing andutilizing thetechnology.
10. Other factors which affect theprofitability ofinvestment andthusthelikelihood offoreign
direct investment aretheavailability ofnatural resources, market structure inthehostcountry,
access tofinance, andincertain cases theextent ofintellectual property protection provided inthe
hostcountry. From theperspective ofthesupplier oftechnology, adequate IPRs inanother
country provide anincentive totransfer technology tothatcountry bypreventing unauthorized
duplication inthatterritory (seebelow formore detail onthispoint).
11. Thelikelihood oflicensing atechnology depends ontheprofitability ofproviding alicense
toother investors, which inturndepends onthepossibility ofexcluding competitors from the
existing markets ofthelicensor. Thus, IPRs provide anincentive forlicensors tosupply the
technology. Inaddition, thecostoflicensing atechnology islowered ifthelicensor andlicensee
haveadequate technological skills andexperience, andthehostcountry hasappropriate
infrastructural facilities.1
12. Forhostcountry investors, information about thetechnology isaparticularly important
factor. Such information isrequired ontheexistence ofthetechnology aswellasonthevarious
operational aspects ofthetechnology. Thisisespecially sofordeveloping countries because
transfer oftechnologies tothese countries isusually accompanied bycertain modifications tosuit
thedifferent infrastructural andtechnical environment. Other important factors forinvestors in
thehostcountry include access tofinance, knowledge ofwhattonegotiate inatechnology transfer
package, domestic technological capability andtheavailable infrastructure foracquiring and
1Forexample, inthecaseoflicensing andjointventure, themanufacturing experience ofpartners, theirsizeofoperation andR&D
intensity havebeenmentioned asaspects which reduce thecostoftechnology transfer. See,forinstance, D.J.Teece (1977),
"Technology Transfer byMultinational Firms: TheResource CostofTransferring Technological Know-How", TheEconomic Journal ,
Volume 87,pages 242-261.WT/CTE/W/22
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utilizing thetechnology.2Factors which affect thepossibility ofacquiring atechnology by
copying itinclude information about theparticular technology, technological capability to
efficiently install andutilize it,access tofinance andwhether ornotthetechnology isprotected by
IPRs.
13. When boththeforeign andhostcountry investors areinvolved inthetransfer ofany
technology, e.g.either through licensing orpurchase ofmachinery suchasinsituations (iii)and
(iv)above, thevolume, price andtypeoftransfer oftechnology willdepend onaninteraction
between theconcerns ofboththese types ofinvestors. However, intellectual property rights
("IPRs") areunlikely tobeaimportant factor affecting theacquisition oftechnology insituation
(iv),because themachinery embodying therelevant technology isavailable off-the-shelf.
II. IPRs AND TRANSFER OFENVIRONMENTALLY-SOUND TECHNOLOGY
14. Asmentioned above, IPRs areamong thefactors affecting transfer oftechnology. IPRs
cover copyright andrelated rights, trademarks, geographical indications, industrial designs,
patents, breeders 'rights, layout-designs related rights, trademarks, geographical indications,
industrial designs, patents, layout-designs (topographies) ofintegrated circuits, andundisclosed
information. Though ithasbeennoted thatanumber ofdifferent types ofIPRs could affect
transfer oftechnology3,those referred tomost often inthecontext oftransfer oftechnology are
patents andprotection ofundisclosed information. Thissection willtherefore focus mainly on
patents andundisclosed information ortrade secrets.4
15. Thissection begins withaclarification ofthescope oftheissue, andthensummarizes
thevarious aspects tobeconsidered inanyassessment oftheeffects ofIPRs ontechnology
transfer. Thisprovides abasis forasimplified conceptual framework toidentify themain effects
ofIPRs ontechnology transfer, which isfollowed byasummary oftheempirical evidence onthe
effects ofIPRs ontransfer oftechnology.
(a) Scope oftheissue
16. Animportant aspect tobeborne inmind regarding theeffect ofIPRs ontransfer of
technology isthatgeneration ofthetechnology hastoprecede thepossibility ofitstransfer. A
fundamental feature ofIPRsystems andoftheTRIPS Agreement5,particularly intheareaof
patents, istoprovide incentives forthegeneration ofnewtechnology bygiving theinventor an
exclusive right(subject tocertain exceptions) overtheuseofhisinvention forafinite period of
time. Such anexclusive rightprotects theresults ofinvestment inthedevelopment ofnewEST
2Thus, itiscontended thatsmall andmedium enterprises, particularly indeveloping countries, arelikely tofacegreater problems
regarding technology transfer inview oftheirshortcomings withregard toinformation, expertise andfinance.
3Forexample, theimportance ofcopyright hasbeennoted fortechnology transfer forsoftware, integrated circuits areconsidered
important forthemicroelectronics industry, breeders 'rights forthefoodindustry, industrial designs forindustries suchasclothing,
automobiles, andelectronics, andtrademarks could haveimportant implications fortechnology transfer inseveral industries. See
United Nations Transnational Corporations andManagement Division (1993), Intellectual Property Rights andForeign Direct
Investment ,United Nations, NewYork.
4Apatent provides therighttoexclude others from theuseofatechnology foralimited timeperiod. Protection ofundisclosed
information doesnotestablish suchanexclusive right, butonlyoperates against disclosure, acquisition anduse"inamanner contrary
tohonest commercial practices".
5Theobjectives oftheTRIPS Agreement include promoting technological innovation and"thetransfer anddissemination of
technology, tothemutual advantage ofproducers andusers oftechnological knowledge inamanner conducive tosocial andeconomic
welfare, andtoabalance ofrights andobligations." (Article 7).Moreover, theTRIPS Agreement contains some specific requirements
ondeveloped country Members toprovide incentives fortechnology transfer toleast-developed country Members.WT/CTE/W/22
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technology, andprovides anincentive toconduct, andthemeans tofinance, suchresearch and
development. Thispaper doesnotdiscuss theissue oftheeffects ofIPRontechnology
generation, butfocuses onlyontransfer oftechnology.
17. Further, theeffects ofIPRs ontechnology transfer arebydefinition limited to
technologies subject tosuchrights. Most technology isinthepublic domain, either because
protection wasnever sought inthefirstplace orbecause anytermofprotection granted has
expired. Itshould berecalled thatinorder tobenefit from patent protection, itisnecessary to
obtain aseparate patent ineachjurisdiction andthatpatent isonlyvalid inthatjurisdiction. The
extent towhich patents aresought andgranted varies greatly from country tocountry.6
18. Inaddition, different commercial considerations apply totechnology subject toIPRs
depending onwhether itisunder private control orunder thecontrol ofagovernment. When an
ESTisunder thecontrol ofagovernment, thegovernment isofcourse freetotransfer the
technology onconcessional terms. Even where IPRs inESTareprivately-owned, suchIPRs do
notstand inthewayofpublic financial assistance toenable theirvoluntary transfer on
concessional terms.
(b) Effects ofIPRs ontechnology transfer
19. Thepublic policy rationale forIPRsystems liesinstriking anappropriate balance between
theinterests ofproducers andusers oftechnology, which provides incentives forthegeneration of
newtechnology. Thismeans thatthere willbeinstances where theresult ofanIPRregime isthat
payment hastobemade tousetechnology thatwould otherwise beavailable atnoorlittlecost.
Thiswillbethecaseparticularly where technology iseasily copiable, including through reverse
engineering, without theassistance ofthose whodeveloped it.Where suchtechnology is
protected byIPRs, users willhavetoseekauthorization oftheIPRowner, usually inreturn fora
consideration, when intheabsence ofIPRprotection thetechnology could beusedevenagainst
thewilloftheperson whodeveloped it.Anexample ofsuchreadily copiable technology would
bevarious types ofcomputer software.
20. However, much technology isnotcapable ofbeing readily copied orreverse engineered
since itseffective userequires access tosecret know-how inthehands oftheenterprise which has
developed thetechnology. Inthese circumstances, transfer oftechnology requires cooperation
between thesource ofthetechnology andtheenterprise which wishes toreceive it,eveninthe
absence ofIPRprotection. Thelikelihood ofsuchtechnology being made available onreasonable
terms orbeing made available atallisgreater where adequate andeffective intellectual property
protection isprovided. Theenterprise thatisthesource ofthetechnology willbeconcerned that
thelegalregime inthehostcountry provides safeguards against thedissemination ofsecret know-
howbeyond theterms ofcontract intothehands ofthirdparties7,since suchknow-how, which
maybecritical foritscompetitive position worldwide, onlyremains protectable anywhere tothe
extent thatitremains secret. Intheabsence ofsuchguarantees theenterprise mayrefuse to
transfer itstechnology (oritsmost recent technology) oronlydosoonterms which discount the
risk(i.e.atahigher price). Bythesame token, anenterprise thatwishes toreceive technology
willbemore reluctant toenter intoacommitment topayroyalties fortheuseofthetechnology in
anenvironment where thelegalregime willnotprovide guarantees against itslocalcompetitors
gaining access tothesame technology forfree. Thus, intheabsence ofintellectual property
6SeeWT/CTE/W/8 formore details onthisaspect.
7Forexample through technical staffthathavebeentrained inthesecret know-how selling theinformation, ormoving and
making itavailable toacompetitor.WT/CTE/W/22
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protection, boththeenterprise which possesses thetechnology andtheenterprise which seeks it
maybemore reluctant toenter intoacontract foritstransfer.
21. Inaddition, there areother reasons whyafunctioning intellectual property regime will
facilitate transactions forthetransfer oftechnology.
(i) Thepossibility oftransferring anytechnology depends, interalia,oninformation about
thetechnology andaccess tothetechnology. Oneofthepurposes ofthepatent system isto
encourage inventors todisclose newtechnology rather thanattempt tokeepitsecret. The
requirement thatnewtechnology becomes partofthecommon poolofknowledge ofmankind has
twoimportant positive implications forthetechnology transfer process. First, incombination
withtheexception topatent rights foruseforexperimental purposes8,itensures thatthe
technology becomes immediately available asabasis forfurther technological development.
Secondly, itensures thatontheexpiry ofthepatent term, thetechnology fallsintothepublic
domain anditsuseisfreely available toall.
(ii) Thedisclosure requirement alsohasanumber ofimportant consequences forthetransfer
ofandaccess totechnology because theresulting information, which isstored andclassified in
patent documentation, isaccessible toanyone, including tothose incountries where apatent has
notbeensought, and"constitutes thesingle most valuable andcomprehensive source of
technology available intheworld today".9
(iii) Another advantage ofthepatent system isthat,because thetechnology thatmaybethe
subject ofatransfer agreement hasalready beendescribed inanofficially approved document, it
obviates theneedforaspecial detailed description inthetransfer agreement andthusreduces
transaction costs. Also, because thepatented technology hasbeenrecognized byapatent office as
technology which isnewandtrulyinventive, itgives security totherecipient thatthetechnology
thatisbeing transferred hasthese characteristics.
(iv) Intheabsence ofeffective protection forintellectual property, anenterprise which
possesses technology willbereluctant togivedetailed secret information about itstechnology to
anenterprise which isconsidering purchasing itbefore thatenterprise hascommitted itself topay
forit,since therecipient enterprise willnotneedtobuywhatithasalready beentold. Yetthe
enterprise which seeks thetechnology willnotbeprepared tomake acommitment topayforit
untilithasadequate information about thetechnology. Anenvironment protecting intellectual
property willfacilitate thenecessary exchanges ofinformation required fortheconclusion ofa
transfer oftechnology contract.
22. Another factor which should notbeunderrated isthepsychological importance ofIPR
protection bothfortransfers through licensing andforeign investment. Anumber ofempirical
surveys ofbusiness attitudes haveconfirmed this(seebelow).
23. Intheevent thatthere istension between theobjectives ofpromoting technological
innovation andthetransfer oftechnology, patent regimes include apossibility ofproviding
compulsory licensing (ornon-voluntary licensing) andcontrol ofanti-competitive practice under
specified circumstances.10
8See,forexample, Article 29.1oftheTRIPS Agreement.
9WIPO, Background Reading Material onIntellectual Property, WIPO, 1988.
10Formore detail onthismatter, seeWT/CTE/W/8.WT/CTE/W/22
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(c) Asimplified conceptual framework
24. Thediscussion above hashighlighted thevarious effects ofIPRs ontechnology transfer
andthattheeffects ofIPRs ontransfer oftechnology differs depending onwhether ornotitcan
becopied easily. Theconceptual framework inthissection, based ontheperspectives ofthe
supplier anduserofatechnology, shows thatthisdistinction (i.e.possibility ofeasily copying the
technology) iscrucial fordetermining theeffect ofIPRs ontechnology transfer. Thisframework
emphasises onlythemain likely effects ofIPRs ontechnology transfer indifferent situations.
25. AnIPRregime inanyterritory islikely toenhance thewillingness ofasupplier ofa
technology totransfer ittothatterritory. Thus, withanIPRregime inthehostcountry, the
supplier would bemore willing totransfer histechnology insituations (i)and(iii)mentioned in
Section Iabove, e.g.when there isforeign direct investment, jointventure ortechnology
licensing.11
26. Since technology transfer insituation (iii)depends onaninteraction between thesupplier
andtheuserofthetechnology, theresponse oftheuserofthetechnology isalsoimportant in
suchsituations. Those acquiring thetechnology through contracts withthetechnology supplier
would prefer tohavealarger market share byexcluding others from using thetechnology intheir
market, especially ifsome investment indevelopment work hastobemade toadopt the
technology tolocalconditions anditsresults could beeasily copied bycompetitors. Thus, in
situation (iii),theuserofthetechnology might alsobemore willing toacquire itifhecould
benefit from anIPRregime inthehostcountry, under which hecould enjoy anexclusive licence.
27. Ifitisnotpossible readily tocopyatechnology because ofaspects suchastechnical
complexity ortrade secrets, situation (ii)above, i.e.when technology canbecopied, would by
definition notbepossible irrespective ofwhether ornotatechnology issubject toapatent. Any
constraint ontheuserinthehostcountry acquiring thetechnology insuchasituation would not
beduetopatents because, evenwithout anypatents, theassent oftechnology owners would be
needed toobtain therelevant technology, i.e.wearesituation (iii)where technology transfer
would involve ajointventure orsome form oftechnology license. Insituation (iii),thehost
country enterprise using thetechnology islikely tobenefit ifsome form ofIPRprovides itwith
exclusive benefits ofusing thetechnology initshome market. Therefore, theuserofthe
technology maybemore willing toacquire thetechnology ifIPRs areprotected inthehost
country.
28. Theperspective oftheuserofatechnology isimportant alsoinsituations (ii)and(iv),
i.e.when atechnology canbeeasily copied orcanbeobtained bypurchasing machinery
off-the-shelf. Asignificant difference between these twosituations andothers isthatthe
perspective ofthesupplier ofthetechnology willnotberelevant inbothsituations (ii)and(iv).
However, these twosituations arethemselves different because theeffects ofIPRs willnotbethe
same inthem. IPRs areunlikely tobeimportant insituation (iv),andthemain considerations for
acquiring technology inthatsituation arelikely tobeinformation about thetechnology, itsprice,
andthecapability ofoperating itefficiently. Incontrast, patents assume animportant rolein
situation (ii),i.e.where thetechnology canbereadily copied inthehostcountry. Theeaseof
copying would imply thatthetechnology could beacquired atalower costthanifitwere subject
11Since there areanumber offactors which determine technology transfer, thiseffect ofIPRs might bedominated bytheeffects of
other factors. Forexample, iftheeconomic andpolitical situation inacountry isnotstable, foreign direct investment maynotbe
attracted whatever thenature oftheIPRregime. Thisaspect should bekeptinmind inallconsiderations oftheeffect ofIPRs on
technology transfer.WT/CTE/W/22
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toanIPRsuchasapatent. Theexistence ofapatent ontherelevant technology would imply the
needtonegotiate commercial conditions fortheuseofpatented technology.
29. Inthecaseofabusive anti-competitive practices orifaccess totechnologies needed to
meetsome important national orinternational objective isnotbeing provided onreasonable
commercial terms within areasonable period byIPRowners, itispossible toprovide access to
suchtechnologies under compulsory licensing. Theconditions mentioned inArticle 31ofthe
TRIPS Agreement become relevant inthatcontext. However, ifatechnology cannot beeasily
copied, thentheco-operation ofthetechnology supplier becomes essential foraproper transfer of
technology evenwithcompulsory licensing, i.e.without thesupport ofthetechnology supplier,
compulsory licensing would besufficient totransfer onlythose technologies which areeasyto
copy.
(d) Empirical evidence
30. There isnotmuch empirical evidence ontheeffect ofIPRs ontransfer ofEST,
particularly fordeveloping countries. Asummary ofthemain results oftheempirical literature
ontheeffect ofIPRs ontechnology transfer isgiven below.12Thissection firstprovides some
evidence ontheeffects ofIPRs onsupply oftechnology andthenaddresses thefactors relevant to
those demanding thetechnology, suchasinformation, access tofinance, andtechnological
capability.
31. Empirical evidence shows thatthere isnostrict relationship between thevolume ofdirect
foreign investment andIPRregime. Theamount offoreign direct investment depends much more
onthehostcountry 'seconomic andpolitical stability, andskillandinfrastructural base.
However, there issome evidence thatcompared todecisions affecting thevolume offoreign direct
investment, firms tendtoregard IPRs asmore important fordecisions regarding thetypeof
technology totransfer through suchinvestment. Increased technology flows ofknowledge-
intensive technologies aremore likely withIPRprotection inthehostcountry.
32. Furthermore, evidence from some developed countries shows thatforeign investors
consider IPRs inthehostcountry asanimportant element intheirdecision toinvest there, butthe
emphasis onIPRs varies forinvestments indifferent industries orindifferent types ofactivity.
IPRs areconsidered important forinvestment inresearch anddevelopment facilities, orin
manufacturing components andcomplete products, butnotforinvestment inactivities suchas
salesanddistribution, orrudimentary production andassembly facilities. Similarly, surveys of
firms intheUnited States haverevealed thatIPRs areregarded asanimportant determinant of
foreign investment inindustries suchaschemicals (including pharmaceuticals) andscientific
instruments, somewhat lessimportant forinvestment inelectrical equipment, metals and
12Forempirical evidence, seethefollowing studies andthereferences cited therein: D.J.Teece (1977), "Technology Transfer by
Multinational Firms: TheResource CostofTransferring Technological Know-How", TheEconomic Journal ,Volume 87,
pages 242-261; E.Mansfield, M.Schwartz andS.Wagner (1981), "Imitation Costs andPatents", TheEconomic Journal ,Volume 91,
pages 907-918; R.Levin, A.Klevorick, R.Nelson andS.Winter (1987), "Appropriating theReturns from Industrial R&D",
Brookings Papers onEconomic Activity ,Number 3;W.Siebeck, ed.(1990), Strengthening Protection ofIntellectual Property in
Developing Countries. ASurvey oftheLiterature ,World Bank Discussion Paper No.112,TheWorld Bank, Washington, D.C.;
United Nations Transnational Corporations andManagement Division (1993), Intellectual Property Rights andForeign Direct
Investment ,United Nations, NewYork; J.J.Nogues (1993), "Social Costs andBenefits ofIntroducing Patent Protection for
Pharmaceutical Drugs inDeveloping Countries", TheDeveloping Economies ,March, pages 24to53;E.Mansfield (1994), Intellectual
Property Protection, Foreign Direct Investment, andTechnology Transfer ,International Finance Corporation Discussion Paper Number
19,TheWorld Bank, Washington, D.C.; UNEP (1994), "Report ontheReview Under Paragraph 8ofArticle 5oftheMontreal
Protocol", UNEP/OzL.Pro/WG.1/11/4 ,dated 19December 1994; UNEP (1995), Study ontheFinancial Mechanism oftheMontreal
Protocol ,astudy byCOWIconsult andGoss Gilroy Inc., March 1995; UNCTAD (1995), Compendium ofDocuments andReports
Relating totheWork oftheUNCTAD AdHocWorking Group ontheInterrelationship Between Investment andTechnology Transfer ,
United Nations, NewYork andGeneva.WT/CTE/W/22
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machinery industries, andlittleemphasis isgiven toIPRs when investing incertain foodand
transportation industries.13
33. Aconsideration ofthisevidence suggests thatindustries which relyontechnological
complexity toprotect theirtechnologies tendtoemphasise patents much lessintheirinvestment
decisions. Patents areonlyoneform ofretaining exclusive control overthetechnology and
evidence suggests thatinanumber ofindustries, patents arerated asbeing lesseffective than
trade secrets andeffective salesandservice asamechanism forsecuring thereturn from R&D.14
There isalsosome evidence toshow thatseveral patented technologies could beimitated by
working around thepatent onthebasis of,interalia,theinformation disclosed inthepatent about
thetechnology.15
34. Fortechnologies required under theMontreal Protocol, ithasbeenfound thatthere was
noevidence ofimpediments intheinternational flowoftechnology, although inspecific cases it
wasdifficult toobtain production licenses foralternative substances.16Afewcases were found
where technology wasnotavailable duetotheunwillingness ofsome private sector technology
owners tosupply itbecause theywanted toavoid creating competition fortheirownproducts, and
insome cases thetechnology suppliers withheld theirtechnology forfearthattheirintellectual
property rights willnotbeprotected andtheirtechnologies willtherefore bereplicated without
permission inthecountries concerned.17
35. Information about theavailability oftechnologies andaccess tofinance havebeenshown
asveryimportant factors foracquiring technologies, especially byinvestors indeveloping
countries orbysmall scale firms. Forexample, factors citedbyseveral countries asimpediments
toacquiring technologies toimplement theMontreal Protocol included, interalia,lackof
information about alternative technologies, lackoffunding/capital forconversion toalternative
technologies andnon-availability ofalternative technologies. Inthecontext ofimplementation of
theMontreal Protocol, UNEP (1995) noted thatwithproject preparation gaining momentum inall
implementing agencies, aserious funding shortfall wasencountered forprojects planned tobe
submitted forapproval. Ontheother hand, factors citedasfacilitating thephase-out were,
interalia,availability ofcheaper substitutes, foreign ownership oflocalusers ofozone-depleting
substances, thepresence ofmultinational corporations, awareness programmes, andmultilateral
fundsupport.18
13Seeforexample Mansfield (1984), op.cit.,andLevin, et.al.(1987), op.cit.Also, evidence from Levin, et.al.(1987) shows
thatpatents andtrademarks areimportant forpharamceuticals, protection of"know-how" isimportant forthechemical industry, and
industrial design forthetextiles andclothing industry.
14Forexample, asample surveyed byLevin, et.al.(1987), op.cit.shows thefollowing average score given bythesample offirms
forjudging theeffectiveness ofdifferent means ofprotecting competitive advantage ofneworimproved processes andproducts, fora
scale ranging from 1(=noteffective) toseven (=veryeffective): patents toprevent duplication 3.52forprocesses and4.33for
products; patents tosecure royalty income 3.31forprocesses and3.75forproducts; secrecy 4.31forprocesses and3.57for
products; leadtime5.11forprocesses and5.41forproducts; moving quickly onthelearning curve 5.02forprocesses and5.09for
products; and,scale orservice efforts 4.55forprocesses and5.59forproducts.
15Mansfield (1981), op.cit.,found forhissample ofpatented innovations thatmore thanfouryears were required toimitate the
patented andprofitable innovations onlyinthecaseof15percentoftheinnovations.
16UNEP (1995), op.cit.Thisstudy alsonoted thatwhile some enterprises indicated thatlicense feefortechnology transfer were
highandthatproduction licenses foralternative substances were difficult toobtain, theStudy Team found noevidence ofsubstantive
impediments ininternational flowoftechnologies supported bytheMultilateral Fund.
17UNEP (1994), op.cit.
18UNEP (1994), op.cit.,notes thatitwasunclear whether thefactors mentioned byfirms were actually important orwhether they
were considered tobeofpotential importance.WT/CTE/W/22
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36. Firms haveobtained information about technologies inanumber ofways, including patent
disclosures19,licensing oftechnology, technical personnel, reverse engineering, employees of
innovating firms, publications ortechnical meetings, links withtechnology suppliers (including
through theforeign owners ofthefirm) andthrough information provided byforeign partners in
jointventures. Anumber ofenterprises indeveloping countries havereceived theirnew
technologies through jointventures withaforeign partner orbysimple procurement ofthenew
technology. There isconsiderable evidence thattheprocess ofidentifying, evaluating, selecting,
installing andmaintaining newtechnologies often requires significant resources andskills. This
hasmade itrelatively easier forlarge firms toacquire thenecessary technologies, andhasplaced
small scale firms atadisadvantage.20Moreover, sometimes theavailable technologies were too
large inscale forsmall enterprises insome countries touseitcost-effectively, andrequired
complicated resources orfacilities tooperate.21
III. CONCLUSIONS
37. Thefactors determining transfer ofESTareessentially thesame asthose determining
transfer oftechnology ingeneral. Technology transfer takes place inseveral ways including
foreign direct investment, jointventures, licensing oftechnologies, reverse engineering, andoff-
the-shelf purchase ofmachinery. Anumber offactors determine thetransfer oftechnology
through these different means, suchastheeconomic andpolitical stability ofthehostcountry, its
technological andinfrastructural facilities, information about thetechnology, access tofinance,
labour skills, andtheIPRregime. Empirical evidence shows thatanIPRregime creates a
psychological sense ofsecurity forthose transferring technologies. However, theroleofIPRs in
technology transfer varies across different activities andindustries. Alarge amount oftechnology
isnotsubject toIPRs, i.e.these technologies areinthepublic domain. Among thetechnologies
subject toIPRs, patents arenotthemost important form ofprotection inmany cases, especially
forthose technologies which arenoteasytoreplicate. Patents aremore important fortechnology
transfer inindustries whose technologies canbeeasily copied. Forother industries, trade secrecy
protection maybemore important.
38. Information about technologies, access tofinance, andtechnological capability are
important factors determining theacquisition oftechnologies. Disclosure under patents andlinks
withjointventure partners orforeign technology suppliers havebeenshown asimportant means
ofacquiring information about thetechnology.
39. Inanalysing theeffects ofIPRs ontechnology transfer, adistinction hasbeenmade
between technologies thatarereadily copiable, including through reverse engineering, and
technologies whose transfer requires access tosecret know-how which canonlybeobtained in
cooperation withthetechnology supplier. Intheformer case, IPRs mean thataccess, atleastfor
commercial purposes, totechnology thatcould otherwise beeasily replicated depends onthe
agreement oftheIPRowner, orifthatisnotforthcoming, onmeeting theconditions necessary for
obtaining acompulsory licence. Thepublic policy rationale forimposing ontheuseracostwhich
itwould nothavetobearintheabsence ofIPRprotection isthatofstriking abalance between the
19Forexample, thesample surveyed byLevin, et.al.(1987), op.cit.shows thefollowing score foreffectiveness ofdifferent
methods oflearning about newprocesses andproducts, forascale ranging from 1(=noteffective) toseven (=veryeffective):
licensing technology 4.58forprocesses and4.62forproducts; patent disclosures 3.88forprocesses and4.01forproducts;
publications ortechnical meetings 4.07forprocess and4.07forproducts; conversations withemployees ofinnovating firm3.64for
processes and3.64forproducts; hiring R&D employees from innovating firm4.02forprocesses and4.08forproducts; reverse
engineering ofproduct 4.07forprocesses and4.83forproducts; andindependent R&D 4.76forprocesses and5forproducts.
20Forsmaller firms, information about thetechnology, financial requirements andtechnological capability tendtobemore
important factors thanIPRs indetermining access totechnologies.
21UNEP (1994), op.cit.WT/CTE/W/22
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interests ofthecreators andusers ofintellectual property, thatprovides incentives forthe
generation ofnewtechnology. Inthelatter case, i.e.technology which isnoteasytocopyand
requires thecooperation ofthesupplier tobeproperly transferred, there arereasons thatsuggest
thatafunctioning IPRsystem willnotonlymake suppliers more willing tomake technology
available butalsothat,insome circumstances, eventhose demanding thetechnology might be
more willing toacquire thetechnology.