In the context of bringing symmetry in the roles played by developed and developing countries in multilateral trade negotiations, it is often contended that the latter generally confine themselves to reacting to the agenda set by the former. Developing countries, it is argued, need to be more proactive. In the Doha Round, developing countries did raise a couple of issues for the first time. One of these proposals related to transfer of technology for which a working group was set up under the auspices of the General Council to examine ?the relationship between trade and transfer of technology, and of any possible recommendations on steps that might be taken within the mandate of the WTO to increase flows of technology to developing countries.?
Like other development issues in the Doha Round, very little work has been done so far within the framework of the working group. The problem arises because many policy mechanisms used by developed countries and newly industrialising countries to facilitate transfer, absorption and diffusion of technology in the process of their development, have already been eroded under the Trips and Trims agreements in the Uruguay Round.
Many developed countries of today have employed soft patent regimes in their period of under-development for absorbing the knowledge spillovers or by reverse engineering of known chemical and pharmaceuticals compounds. In India, too, substantial capability of cost effective processes has been developed under the Patents Act of 1970 that did not allow product patenting. However, thanks to Trips, that policy space for building local technological capability is no longer available to developing countries from 2005, although the least developed countries have 10 more years.
Far more seriously, perhaps, the Trims agreement has taken away some of the valuable policy space viz., the ability to impose requirements like local content regulations on incoming foreign investors to build local production bases and localisation of technology. Local content regulations have been extensively employed by most developed countries until recently? in particular, in the auto industry? to promote backward integration and localisation of production of value added. Italy imposed 75% local content on Mitsubishi Pajero, US had imposed 75% rule on Toyota Camry and UK 90% on Nissan Primera.
The form of such requirements by developed countries in the 90s was, however, changed in favour of trade policy measures that achieve objectives similar to those provisions but are consistent with the Trims provisions. These include rules of origin, screw-driver regulations, voluntary export restraints (VERs) and anti-dumping. The US employed VERs against Japanese car exports in 1981. Subseq-uently, the EU imposed VERs on Japanese exports of consumer electronics. EU countries have also extensively used the screw-driver regulations, which are, in effect, like local content regulations to deepen the local commitment of Japanese corporations in consumer goods industries. In the US, provisions of the Buy American Act have also been used for the same purpose.
Studies have shown that local content requirements have served to promote transfer and diffusion of technology in the auto industry, among others, by prompting vehicle assemblers to develop and up-grade the domestic vendor base. It is evident how the phased manufacturing programme (PMP), a local content requirement, imposed on Maruti-Suzuki venture helped in revolutionising India?s auto component industry. There are many such experiences around the world.
The other important channel of transfer of technology is the formation of joint ventures between foreign and local enterprises, which may help in absorption of knowledge brought in by the foreign partner. Again, many developed countries had regulations promoting formation of joint ventures among other conditions to promote transfer of technology. For instance, Japan imposed performance requirements at the time of approvals depending on contribution to technology development, exports or import substitution, competition to Japanese industry, 50% foreign ownership and required the president of the venture to be a Japanese.
In the light of this evidence, developing countries should use the window of opportunity provided by the Doha Mandate on Trade and Transfer of Technology to seek to retrieve some of the valuable policy space lost under the Trips and Trims agreements. In particular, they should seek to restore the flexibility to impose local content requirements when other mechanisms to ensure transfer of technology are not available. Developing countries could also take advantage of the mandated review of Trims that has not been paid serious attention so far, except for a paper by Brazil and India seeking flexibilities. The meeting of the WTO Committee on Trims held on July 12, 2005 ended without any progress.
Developing countries have done well to seek a WTO framework on transfer of technology in the Doha Round. However, unless they bring to the negotiating table credible proposals for facilitating the transfer of technology, it will end up without any concrete outcomes. Developing countries need to document the problems arising from Trims and Trips commitments and seek an operational and effective framework that provides them policy space to build local technological capabilities that are so critical for industrial development!
The writer is director-general, Research and Information System for Developing Countries (RIS). The views are personal
