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 662, 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
Exportthe Swiss oriented
responses goods
Deteriorating
to 66-2
Vital needs Infrastruceducation, ture
health
terms of
trade
Private
Public
Production
__________
Procurement
Simple
capital
goods and
services
to serve
entreprenurial
activities
Energy
efficiency in
the brick
sector (Nepal)
Organic cotton
(Mali)
Cashew nuts,
fruits, cotton
(Mozambique)
Coffee, cashew
nuts (Tanzania)
Mango (Burkina)
Coffee (Zambia)
Reform of
health system
(Tanzania)
Malaria
research
(Tanzania)
Collège du Management de la Technologie – CDM
Chaire en Economie et Management de l'Innovation – CEMI
Water
management
(Burkina)
____________
Bridge and road
(Tanzania)
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)
Collège du Management de la Technologie – CDM
Chaire en Economie et Management de l'Innovation – CEMI