Collège du Management de la Technologie – CDM Chaire en Economie et Management de l'Innovation – CEMI Technology Transfers toward LDCs need more incentives: does article 66-2 succeed? Pr. D.Foray Prepared for the IP group meeting 7 december ICTSD

Collège du Management de la Technologie – CDM Chaire en Economie et Management de l'Innovation – CEMI 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

Collège du Management de la Technologie – CDM Chaire en Economie et Management de l'Innovation – CEMI 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

Collège du Management de la Technologie – CDM Chaire en Economie et Management de l'Innovation – CEMI The case of PPPs to support R&D 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; what’s going on? Companies recognize the value of R&D 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

Collège du Management de la Technologie – CDM Chaire en Economie et Management de l'Innovation – CEMI LDC’s 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!)

Collège du Management de la Technologie – CDM Chaire en Economie et Management de l'Innovation – CEMI 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

Collège du Management de la Technologie – CDM Chaire en Economie et Management de l'Innovation – CEMI What do the country reports show? Interesting (but not quantitative) information on the kind of areas TTs are targeted to Let’s have a look at the Swiss report on the implementation of article 66- 2, WTO, 1st October 2007 Warning!

Collège du Management de la Technologie – CDM Chaire en Economie et Management de l'Innovation – CEMI 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

Collège du Management de la Technologie – CDM Chaire en Economie et Management de l'Innovation – CEMI Mapping the Swiss responses to 66-2 Export- oriented goods Deteriorating terms of trade Vital needs education, health Infrastruc- ture Simple capital goods and services to serve entreprenurial activities Private Organic cotton (Mali) Cashew nuts, fruits, cotton (Mozambique) Coffee, cashew nuts (Tanzania) Mango (Burkina) Coffee (Zambia) Energy efficiency in the brick sector (Nepal) Public Production __________ Procurement Reform of health system (Tanzania) Malaria research (Tanzania) Water management (Burkina) ____________ Bridge and road (Tanzania)

Collège du Management de la Technologie – CDM Chaire en Economie et Management de l'Innovation – CEMI 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

Collège du Management de la Technologie – CDM Chaire en Economie et Management de l'Innovation – CEMI 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

Collège du Management de la Technologie – CDM Chaire en Economie et Management de l'Innovation – CEMI 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

Collège du Management de la Technologie – CDM Chaire en Economie et Management de l'Innovation – CEMI 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

Collège du Management de la Technologie – CDM Chaire en Economie et Management de l'Innovation – CEMI 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!

Collège du Management de la Technologie – CDM Chaire en Economie et Management de l'Innovation – CEMI 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

Collège du Management de la Technologie – CDM Chaire en Economie et Management de l'Innovation – CEMI Suggestion Developing a typology of TTs areas that developed countries should use to write their reports

Collège du Management de la Technologie – CDM Chaire en Economie et Management de l'Innovation – CEMI 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

Collège du Management de la Technologie – CDM Chaire en Economie et Management de l'Innovation – CEMI

Collège du Management de la Technologie – CDM Chaire en Economie et Management de l'Innovation – CEMI 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)