Technology Transfersby Mark Wu

IntroductionTechnological innovation has always been a fundamental

element in achieving progress as well as in keeping pace with the

competition. For centuries, however, one needed to develop one’s

own technology; the only other option that existed was to attempt to

steal the technology from one’s competitors. With the Industrial

Revolution and in particular, the Information Revolution, difficulties in

conducting business over long distances were greatly eased to the

point where a new option became available: to purchase technology

through a commercial transaction. Technology thus became a

commodity that could be easily traded back and forth between

competitors in a market system just like any other good.

For the past few decades, firms have willingly bought and sold

technology, giving rise to the concept of a technology transfer. Most

nations have subsequently developed regulations on technology

transfers within their nation; however, the regulations of one nation

differ, sometimes greatly, when compared to those of others. As a

result, confusion often arises when international transfers of

technology are attempted, and because of the vast complexities

involved in each nation’s regulations, technology is still not easily

transferrable across international borders. From purely an economic

standpoint, this is extremely inefficient in that these regulations

tamper with the functions of the free market. Therefore, it makes

sense to synchronize these regulations internationally; however this

process is a lot easier said than done. It is this process of developing

an international code of conduct on technology transfers that we shall

consider under this topic area.

History of Technology TransfersWhile technological advancement has been around since the

beginning of time, the idea of being able to directly transfer

technology across international borders is still relatively new. Prior

to the Industrial Revolution, it took years and at times, decades or

centuries, for a new idea to be transmitted to a different region.

Perhaps the most prominent examples of international technology

transfers prior to the eighteenth century took place along the Silk

Road. From such commercial exchanges, the technological advances

made in China concerning the printing press, gunpowder, coal, and

other goods were transfered to the Europeans.

Technology transfers, as we think of it in a modern sense,

basically evolved as advances were made in international travel

during the Industrial Revolution. Most of these industrial

technologies were developed in Great Britain, and by the mid-

nineteenth century, there was little doubt that Britain had become the

most technologically-advanced nation in the world. The subsequent

industrial booms which took place in Germany and the United States

both resulted because they were able to gain information through

technology transfers about advances that had been developed in

Britain in areas such as railroads and industrial organization and

productivity.

In Asia, some informal technology transfers occurred as

interaction between Asians and the European imperialists increased.

The first mass-scale technology transfer in the Far East occurred in

the late nineteenth century when after the Meiji Restoration, Western

technology was transfered to Japan. Japan began a rapid

industrialization period whereby the 1930s, it had gained almost

equal footing with the Western powers in most fields. All this

however was shattered by World War II.

After the war, Japan rebuilt by using a combination of the

technological know-how they had gained prior to the war and

technology transferred from outside sources, mainly from the United

States. Through such transfers, the Japanese gained insights into the

technology necessary to compete in first, textile-related industries.

The next big wave of transfers concerned technology in the

automobile and electronics industry; here, Japan quickly incorporated

these ideas and developed industries of their own, which have now

become the preemminent in the world.

The newly-industrialized economies of East Asia also developed

rapidly as a result of technology transfers. While some claim that

during the colonial era, the NIEs gained some technology through

informal transfers from their colonial masters, the brunt of such

transfers has taken place after World War II. Again much of this

technology was acquired from the Americans (who in most instances

willingly supplied it to their allies) and from the Japanese, as their

nation quickly rebuilt itself. In the process of acquiring technology,

the NIEs took over the textile industry from the Japanese and today,

we see a continuation of this pattern as this technology is being

transferred once more, this time into Southeast Asia.

Today, the Pacific Rim is filled with instances of technology

being transferred across international borders. Textile technology is

being transferred into southern China, low-level electronic technology

is being transferred from the NIEs to places such as Malaysia and

Thailand, computer technology is being transferred from Japan to the

NIEs, and Japan and the U.S. exchange technology on areas such as

supercomputers and biotechnology.

The most highly-publicized incident regarding technology

transfers in recent years has been the U.S.-Japanese venture to build

the F- plane.

The possibility of technology transfers has quickened the pace

of international development in recent history. During the Industrial

Revolution, Britain, because it had to invent all its technology and

could not acquire it through transfers, grew at only 1.5% per year. By

contrast, it took Japan less than thirty years to rejoin the ranks of

industrialized nations, and in southern China, an area currently

receiving large numbers of technology transfers, growth now exceeds

over 10% per year.

The Nature of a Technology TransferHow does a technology transfer occur? Theoretically, it is no

different than any other business transaction. A supplier offers a

good (technology) on the market that a buyer desires to purchase.

They negotiate the price and other conditions involved in the

transaction, making sure that no regulatory laws are violated in their

deal. The supplier then provides the good to the purchaser under the

conditions that they have negotiated.

Practically, however, four main options are available to a

developer of technology who wishes to transfer it abroad. The first

means is to export the technology embedded within goods or services.

An example of such would be the transfer of military technology

through sales of fighter planes or transfer of computer hardware

technology through sales of computer parts.

A second option is for the supplier of technology to license the

technology. Under this option, the supplier can license the right of

access to the technology individually to each purchaser. Suppliers

tend to prefer this option to the first one, since the supplier can

separately negotiate each individual contract and design the contract

such that it fits the individual situation. The supplier is therefore free

to take into account any specific attributes of the relationship when

negotiating the contract. Host nations tend to usually endorse this

method of transfer as well. This is because once the licensing has

been approved and the transfer has occurred, the supplier is no

longer involved in the transaction and the host nation will be able to

fully control this technology without the foreign presence of the

supplier.

A third means of technology transfer is through transfering the

technology to a subsidiary in the host country that the supplier fully

owns. Technology transfers, of this fashion, are inherently linked to

the issue of foreign direct investment. A company, besides investing

capital in a foreign nation, would also be investing its technology. As

an example to illustrate this type of transfer, suppose Hitachi of Japan

decides to establish a subsidiary in Singapore in a foreign direct

investment. Hitachi then transfers its technology over to its

Singaporean subsidiary and in this manner, technology is supposedly

transferred between the two nations. This option, by far, allows the

supplier to retain the greatest control over the technology transfer

since the subsidiary is fully-owned by the supplier, who can

essentially dictate the conditions. But, it also can create problems. In

the case of our example above, since Hitachi can control both ends of

the operation, it is also free to control the degree of its technology

transferred from Japan to Singapore. They may be reluctant to fully

transfer its technology since it might not be in their long-term

interests for the Singaporeans to gain this technology or may not

transfer the technology to the degree that they had originally

announced. In fact, in this instance, Shizuhiko Ishikawa, secretary-

general of the Japanese Chamber of Commerce and Industry in

Singapore, concedes that the current rate of transfers is still “not so

good.”

Finally, technology can be transferred through a joint venture.

Under this method, a joint venture is established in which the supplier

and the purchaser are both partners and it is through this joint

venture that the technology is then transferred. An example of this

would be Volkswagen’s decision to establish a joint venture in China.

Volkwagen then supplies this joint venture, Shanghai Volkswagen

Limited, with advanced techniques and equipment from Germany on

low gas consumption, prompt steering and breaking reactions, and

other aspects of automative technology. On a positive note, this

option incorporates both some aspects of licensing (since the supplier

is licensing the technology to the purchaser through the joint venture)

as well as aspects of foreign direct investment (since the supplier still

continues to play a presence in the transfer through the joint

venture). However, this option results in higher costs than the others

since besides the usual costs involved in the technology transfer,

additional money must be spent on management of the joint venture

by the two partners. The other drawback is that this means of

technology transfer also seems to be slower. One study shows that on

the average, firms will wait only six years after a technology has been

developed before transfering it abroad to a fully-owned subsidiary

while it will wait an average of thirteen years before transfering it

through a joint venure.

The point here is not to debate which of these four methods is

better than the others, but rather to illustrate their differences. That

is to say that when considering technology transfers, we should not

think of them only as an aspect of foreign direct investment or in

terms of licensing, but both of these constitute the broad category of

a “technology transfer.”

In some ways, our theoretical illustration of a technology

transfer provided earlier is exactly just theoretical. In reality, a

market does not really exist solely with the intention to allow people

to buy or sell technology. Rather, arrangements on technology

transfer usually are included as part of the details that need to

formulated in an international business transaction. Rarely do people

enter into a transaction just to transfer technology; usually some

larger business interests are involved in which technology transfer

may be one of the many (and perhaps the main) interest.

Incentives in Engaging in TransfersWhy then would people want to engage in a technology

transfer? What interests are at stake? For the party acquiring the

technology, the transfer represents an opportunity to catch up with

the others. By gaining knowledge of the latest state-of-the-art

techniques, it is now able to compete on equal footing; without such

knowledge, its techniques and products would most likely be inferior

to those possessing such technology. Developing countries, in

particular, view technology acquisition as an essential component in

their quest to join the ranks of the developed world.

Suppliers are sometimes willing to provide the technology

simply because of the financial gains involved in the transfer.

Technology is an extremely valuable product in today’s world and

people are often willing to pay huge sums to gain access to knowledge

that they themselves do not know. In many instances, however, it is

not in the interests of the supplier to engage in a technology transfer.

By doing so, one is essentially revealing one’s secrets and potentially

losing an advantage that one once held over the party acquiring the

technology. However, in almost all instances, benefits from other

factors manage to outweigh the negative losses that the supplier will

suffer in terms of technological superiority. For example, Volkswagen

might not wish to share its automative technology with the Chinese.

However, the benefits that it would gain from having cheaper Chinese

labor and from gaining access to the potentially huge Chinese market

outweigh this reluctance to share its technology; it therefore

establishes this joint venture in which it provides the Chinese with

technology but feels it is gaining more than an adequate exchange in

return.

Regulatory Problems in TransfersBecause technology is such a valuable asset and because it

correlates closely with a nation’s development, nations have been

established a large number of laws regulating technology transfers so

as to insure that their own national interests are being met in such

transfers. To summarize this legislation for each nation would take

up much more space than this update allows; therefore I have

provided generalizations of these regulations under two general

groupings: those of the host country and those of the home country.

It is your responsibility to thoroughly research the regulations of your

nation regarding technology transfer and to provide the other

participants at the conference with a summary of the regulations of

your nation.

Legislation in the host country, or the country receiving the

technology, deals mainly with balancing two main factors. On the one

hand, it must provide some degree of legal protection for the rights to

the technology. By granting such rights, the host country grants

virtually monopolistic rights to the developer of the technology and

forces its own native firms to enter into bargain with the developer

and supplier at a competitive disadvantage. On the other hand, it

must also legislate to protect the interests of its own native

enterprises. The host country will choose to balance these two

factors in the best possible way so as to achieve its main objectives

which are typically as follows: (1) to attract new technology; (2) to

use and expand its own native production capabilities; (3) to employ

and instruct its own citizens in the new technology so as to further

future technological development; and (4) to try to close the

technological gap with other nations. Nations often choose to

exercise its regulatory influence through taxation policies. Nations

may charge a principal tax on technology transfers which often

results for a substantial portion of the transaction costs involved in

the transfer. Those nations seeking to encourage inbound transfers of

technology may reduce or withhold these taxes for a transfer. By

doing so, the cost of a technology transfer has been lowered and as a

result of these lowered costs, parties are more inclined to transfer

technology to the host country. Nations also may choose to regulate

questions over about control over a technology transfer. For example,

China mandates that in a joint venture technology transfer, the

chairman of the board of the joint venture must be Chinese while the

vice-chairman is to be named by the foreign partner. Measures such

as this are done so to ensure that its own citizens will be able to gain

some degree of free access to the technology and that the foreign

owners of the technology do not retain full control and refuse to

diverge any of it.

The other type of regulatory laws on technology transfers

involve those drafted by the home country, or the nation in which the

technology originates. One example of this is the United States’s

Export Administration Act. Under American legislation, in order to

export any non-military technology, one must have been granted a

general or validated license from the government. Nations that

export technology often use technology transfers as a tool of their

foreign policy and regulate that technology can be transfered only to

certain nations. Similarly, it may reprimand another nation by

regulating that no technology may be exported to it. For example,

upon discovering in June, 1991 that China had sent newly-developed

M-11 missiles to Pakistan, the United States banned all high-

technology transfers to China; these sanctions were only recently

lifted on 21 February. Oftentimes nations will also place constraints

on technology transfers in order to protect its own domestic markets

or on grounds of national security interests.

The problem is that each nation has its own unique set of laws

and its own perceptions of what the proper role of government

regulation of technology transfers ought to be. This, of course, leads

to international disputes on these regulations. For example, a nation

with more liberal regulations may find the high government

interference laws of another nation to be discriminatory and demand

that they be removed. The other nation may disagree and argue that

its heavy regulatory stance is necessary in order to protect its

developmental interests. Hundreds of these nitpicky disagreements

of government regulations such as these exist today, thereby

hampering the flow of technology transfers throughout the world.

Other ProblemsDisputes about international technology transfers however do

not concern solely government regulations. One of the major causes

of international problems in such transfers involves the issue of

industrial property rights. In most market economies today, there are

four general ways to protect one’s industrial property rights: patents,

copyrights, trademarks, and trade secrets. An industrial property

right essentially grants the possessor of the technology the exclusive

right to use that technology within a certain defined geographic area

for a certain length of time. Since the industrial property right makes

it illegal for others to imitate or use this technology for a certain

length of time, the possessor can publicly disclose its new innovation

and does not have to worry about conducting contractural protection

for its technology. This cuts down the costs of developing and

protecting technology significantly.

However, the problem lies in that some people claim that the

protection of industrial property rights is insufficient in certain

countries. Part of the problem might lie in the fact that in some

nations, the idea of industrial property rights is still a very new idea

and the government might still be adjusting in its enforcement

measures. China, for example, has only had laws concerning patents

and trademarks for the past twelve years (though some claim that on

paper, the Chinese laws appear better than those of the Americans).

But, the bigger problem lies in the accusation that the weak

enforcement of industrial property rights is an intentional oversight

on the part of some of these governments, so as to provide some of

their own native corporations an opportunity to imitate such

technology without much consequence. As a result, some people are

very reluctant to engage in technology transfers to certain parts of

the world out of fear that should their technology be transfered to

that country, it would be imitated throughout the country because of

inadequate protection of industrial property rights by the government

of that country. From the suppliers’ viewpoint, these concerns appear

very legitimate and it seems that such accused nations ought to adopt

more stringent protection measures. However, some of these

accused nations would counterargue that their measures are

adequate enough and that these accusations of improper protection

represent intentional bias and an excuse on the part of some of these

suppliers for withholding technology from their country.

Another problem concerns that of currency convertibility.

Corportations sometimes engage in technology transfers in certain

countries only to become frustrated in discovering that the financial

rewards of their transaction are limited because they have a difficult

time converting them back into other currencies on the international

market. This experience occurs most frequently in transactions

involving former Communist nations or underdeveloped nations. This

inability to convert local currency fairly to reflect its worth on the

international monetary market impedes technology transfers with

those nations.

Focus of the DebateAs you should have gathered by now, a large number of

problems exist concerning international technology transfers. You

are most likely familiar with some of them; if not, just take our word

that lots of little disputes like the one involving Japanese technology

transfers in Singapore (used in an example earlier) exist. The

problem is that each one of these needs to handled separately in a

treaty (re)negotiation, and that while some of these disputes may be

interesting to look at, there are just too many to handle in our

conference. Feel free to become familiar with some of them to use as

examples in our discussions; however, I wish to stress that our

discussion should not become bogged down over one specific incident.

In other words, we will not spend an entire afternoon just discussing

Japan and Singapore, as important or interesting as the issue might

seem.

The idea of treaty convergence represents one way of helping

resolve international problems in technology transfers, but this

process is just too lengthy and too extensive for us to emulate in a

four-day conference. Rather, we shall stress a second approach to

resolving such problems. This approach rests on the idea of a

unilateral convergence toward a universal norm on technology

transfers. In other words, problems could be greatly avoided if

nations could come to agreement on a certain general set of

expectations on technology transfers that could be applied as

standards to any transfers between these nations.

The United Nations Conference on Trade and Development

(UNCTAD) has taken the lead in attempting to draft an International

Code of Conduct on Transfer of Technology. Their first draft was

written in Geneva on October 16, 1978; each subsequent year, a

committee has met to try to resolve problems with the draft. Our

session will attempt to produce such an international code for

technology transfers between those nations involved in the HPAIR

conference. UNCTAD, however, has been less than successful in its

attempt to draft a code. Disputes still exist over thirteen years later

over phraseology and ideas in certain sections of the code. Therefore,

if UNCTAD and GATT have not been able to produce a code over the

course of thirteen years, there is no reason to expect that after four

days, the nations at the HPAIR conference will agree on a code.

However, our purpose is to attempt to draft one.

Since we will emulating UNCTAD to a large extent, it would be

ideal to provide each of you a copy of the draft Code of Conduct on

Transfer of Technology that UNCTAD has produced in an appendix to

this update. Unfortunately, copies of this draft code no longer

circulate. (The United Nations itself could not find a copy when I

stopped by in New York, and the only copy that I could find was on

microprint for which there are no machines available to make

reproductions in New England.) In this update, I have retyped certain

sections of this code for your reference; however, if any of you can

obtain copies, please let me know.

The UNCTAD draft Code of Conduct is intended to serve as a

model for your reference only, and the copy that we draft at the

HPAIR conference does not need to resemble it at all in content

(though it should somewhat resemble it in form). One important point

that you should keep in mind when reading contents of the UNCTAD

code is that it was drafted in 1978. At this time, there was still a

popular movement among underdeveloped and developing nations to

establish a New International Economic Order (NIEO). The idea of a

NIEO was profoundly influenced by radical dependecy theorists and

their critique of the structure of international capitalism. To

summarize their intentions in a very general fashion (which is in some

ways unfair since their rationale is extremely complex), they sought to

reshape the framework of the international capitalist system by

allowing increased Third World control of their own economies, giving

Third World nations an increased voice in international economic

regimes, and reducing the costs associated with development. This

influence of NIEO ideas is heavily reflected in the 1978 draft which I

have retyped in part and you should bear this in mind when reading it.

In general, while UNCTAD’s draft document has provided a good

framework for an international code, it has been criticized for being

too slanted in favor of developing nations. Some think that it is

unrealistic to think that the developed nations will adhere to what is

stated in the document; others also note that little in terms of

enforcement mechanisms is listed in the draft copy.

All this is to say that in the following sections concerning

specific issues in international technology transfers, when parts of the

UNCTAD draft code appear, you should read it with a critical eye.

The draft code is meant to serve only as a model; note the parts of it

which you disapprove of and would alter as well as those parts you

like and would want to incorporate in our code.

Focus of the DebateAny international code on technology transfers must address

certain questions which are discussed below. Each one of these

subsections does not necessarily represent a “problem,” but rather an

issue on which the conference participants must reach a consensus.

You ought to think about what your nation would seek to phrase each

one of these sections of the code.

In general, developed nations would place a high priority on

insuring that the technology that they develop is protected within

each nation and is not easily transferrable illegally. The emphasis

here is more on high regulatory measures. Developing nations on the

other hand, give highest priority to making sure that technology is

both accessible and easily transferrable at a low cost. NIEs are in the

trickiest position—they continue to be recipients of technology

transfers but also transfer technology themselves to developing

nations. Therefore, they are concerned with establishing a system

with good regulation but where these rules do not impede their

access to high technology.

Principles

Before beginning work on the content on any code, the first

thing that must be done is to see whether we will be able to establish

the principles behind the code, from which we will then seek to draft

a code.

The UNCTAD draft Code of Conduct was able to arrive at the

following preambulatory clauses stipulating their general beliefs on

the issue of a technology transfer.

Preamble 1

1. Recognizing the fundamental role of science and technology in the socioeconomic development of all countries and in particular, the acceleration of the development of developing countries;

2. Believing that technology is a part of the universal human heritage and that all countries have the right of access to technology, in order to improve the standards of living if their people;

Believing that the access of all countries of all countries, particularly developing countries, to technology on mutually acceptable and mutually advantageous terms should be facilitated;

4. Recognizing the need to facilitate an adequate transfer and development of technology so as to strengthen the scientific and technological capabilities of all countries, particularly the developing countries, and to cooperate with the developing countries in their own efforts in this field;

5. Desirious of promoting international scientific and technological cooperation in the interest of peace, security and national independence and for the benefit of all nations;

6. Striving to promote and increase of the international transfer of technology with an equal opportunity for all countries to participate irrespective of their social and economic system and of their level of economic development;

7. Recognizing the need for the developed countries to grant special treatment to the developing countries;

8. Drawing attention to the need of having an unrestricted improved flow of technological information and in particular of information on the availability of alternative technologies and for the selection of appropriate technologies suited to the specific needs of the developing countries;

Their document also included a chapter which stipulated the

objectives and principles of their document, parts of which I have

copied or paraphrased.

The Code of Conduct is based in the following objectives and principles:

Objectives

1. To establish general and equitable standards which should form the basis of the relationships among parties to transfer of tecnology transactions, taking into

consideration their legitimate interests, and giving due recognition to the special needs of developing countries for the fulfilment of their economic and social development objectives.

2. To encourage transfer of tecnology transactions, particularly those involving developing countries, under conditions where bargaining positions of the parties ot the transaction are balanced in such a way as to avoid abuses of a stronger position and thereby to achieve mutually acceptable agreements.

3. To faciliate and increase the international flow of tecnological information . . .

4. To faciliate and increase the international flow of proprietary and non-proprietary tecnology for strengthening the growth of the scienitific and technological capabilities of all countries, in particular the developing countries.

6. To faciliate the formulation, adoption and implementation of national policies, laws and regulations on the subject of transfer of technology by setting forth international norms.

Principles

1. The Code of Conduct is universally applicable in scope . . .

3. The separate responsibilities of parties to transfer of technology transactions, on the one hand, and those of governments when not acting as parties, on the other, should be clearly distinguished.

4. Mutual benefits should accrue to technology supplying and recipient parties in order to maintain and increase the international flow of tecnology.

6. Respect by parties and governments for appropriate protection of industrial property is necessary in order to provide incentives for research, invention, development, disclosure and transfer of technology.

7. Technology supplying parties when operating in a recipient country should respect the sovereignty and laws of that country.

8. Each technology transaction is an individual case and the transfer of technolgy is an on-going and sequential process. Flexibility in the technology transfer process is necessary and . . . should not be unduly restricted.

Among some of the general principles that you will have to

decide are:

• Is access to technological innovations a universal right that

should be available to all, as the drafters of the UNCTAD Code

believe, or is such access not a right but a privelege that one does not

have to possess? In other words, are we to place technology on the

same plane as food, clothing, and other human necessities or does it

belong more with other commodities such as electronic products or

timber?

• If you believe that technology is a universal right of mankind,

to what degree should governments and international regimes involve

themselves to make sure that they are distributed throughout? How

cheap and how easy should we make access to technology?

• Should developing countries be granted special treatment in

technology transfers or should all nations be treated essentially the

same? If we are to make categories about the economic conditions of

nations, how should these be drawn? Possible ideas are developed

and developing, a more extensive classification of developed, newly-

developed, developing, and underdeveloped, GATT categorizations, or

UNCTAD categorizations.

• What are the objectives in drafting such a code of conduct?

Is it only to facilitate technology transfers between nations? Or is it a

more radical idea of attempting to create a more equitable

distribution of technical information throughout?

In general, you must first decide how your nation and you

yourself feel about technology transfers as a principle before

proceeding.

Definitions and Scope of the Document

The second issue that we must address in drafting our code are

issues of the definitions involved in the code and the scope to which it

should apply. In other words, how are we to define a technology

transfer? Do we wish to limit ourselves to only certain types of

transfers? How do we define who is a supplier of technology and who

is an acquirer of technology? At first, it might seem rather obvious,

but if you examine the UNCTAD code, you shall see that such

definitions are not so easily arrived at. For example, you must decide

whether we should include only private corporations as a supplying or

acquiring party or whether these terms apply more broadly to include

governments and non-governmental organizations. Then again, we

must also decide how to deal with multinational corporations, regional

organizations, and international organizations and whether to include

them in our definition.

Finally, there is the question of how broadly this document

should apply? Should it apply to all technology transfers between the

nations at the HPAIR conference? Or should a more limited

application be adopted in which case some situations are exempted

from the standards established in the code of conduct?

Again, the UNCTAD draft code is provided below to provide you

with some possible ideas about both structure and content.

A. For the purposes of the Code of Conduct

1. An "international transfer of technology" occurs when technology of a proprietary or non-proprietary nature and/or rights related thereto is transfered across national boundaries from a supplying party to an acquiring party.

2. The term "party" means any person, both natural and juridicial, of public or private law, either individual or collective, including corporations, companies, partnerships, and other associations and organizations, whether owned, controlled or created by individuals, juridicial persons, Governments, regional or subregional organizations, or any combination thereof, when it engages in international transfer of technology.

3. The term "acquiring party" means the party which obtains a license, purchases, or otherwise acquires technology in a particular transfer of technology transaction.

4. The term "supplying party" means the party which licenses, sells, assigns or otherwise provides technology in a particular transfer of technology transaction.

5. The term "technology acquiring country" means the country where the technology provided by the supplying party is to be utilized.

B. Transfer of technology is the transfer of production, management or marketing technologiesby any means and does not extend to transactions involving only the sale of goods.

C. Transfer of technology transactions are transactions, arrangements or agreements between parties, irrespective of their legal form, which have as their purpose or as one of their purposes the licensing or assignment of industrial property rights, the sale of any other type of transfer of technical knowledge, and the supply of technical services.

D. The Code shall apply to such international transfer of technology transactions, which are entered into between parties who do not reside or are not established in the same country, and shall also apply to transfer of technology transactions between parties which are residents of or established in the same country if at least one party is a branch, subsidiart, affiliate or is otherwise controlled by a foreign entity or when it acts as an intermediary in the trnasfer of foreign owned technology.

National Regulatory PrinciplesThe heart of the document deals with standardizing government

regulation of technology transfers. This deals with the big question of what principles should be reflected in governmental regulations of technology transfers.

Among some of the questions that you will have to answer are:• To what extent should governments interfere in drafting

legislation about technology transfers?• What sort of general standards should be generally expected

about industrial property rights and their enforcement in each nation?• To what degree ought technology transfers be taxed? Should

there even be a universal standard for taxation policy among the HPAIR conference participants or should this matter be left for each individual nation to address as part of their fiscal and development policies?

• To what extent is a government allowed to protect the interests of its native corporations and citizens with regards to technology access and when is overstepping its bounds?

• To what extent should governments be allowed to regulate ownership in joint ventures of a technology transfer?

UNCTAD’s Chapter 3, reproduced in part below, deals with this issue:

Chapter 3. National Regulation of the Transfer of Technology Transaction

3.1. In exercising their right to adopt laws, regulations, and reules, and policies with respect to transfer of technology transactions, States may adopt such measures as evaluation, negotiation, registration and renegotiation of agreements and arrangements

involving transfer of technology transactions within the framework of applicable international law, treaties, and agreements.

3.2. In exercising this right States should act on the basis that:

A. These measures should:

1. Recognize that a close relationship exists between technology flows and the conditions under which such flows are admitted and treated;

2. Promote a mutually created beneficial and favorable economic and legal climate for the international transfer of technology.

4. Allow and encourage transfers of technology to be negotiated and to take place under mutually agreed, fair and reasonable terms and conditions;

5. Ensure effective protection of industrial property rights and other rights of parties involved in the transfer of technology.

Ensure an equitable balance between the needs of economic and social development, particularly of the developing countries, and the rights granted by industrial property;

6. Take into account the differing factors characterizing the transaction, such as local conditions, the nature of the technology and the scope of the undertaking.

3.3. States should apply the provisions of paras. 3.1 and 3.2 when adopting and implementing measures on finance and technical aspects of technology transactions and on organizational forms and mechanisms dealing with:

Financea. Currency regulations on foreign exchange payments and remittances;b. Conditions of domestic credit and financing facilities;c. Transferability of payments;d. Tax treatments;e. Pricing policies;

Technical aspectsf. Technology specifications and standards for the various components of the transaction;h. Use of local and imported components;

Organizational forms and mechanismsi. Regulation of the flow and effects of the transfer of technology;j. Terms and conditions and the duration of transfer of technology transactions;k. Loss of ownership and/or control of domestic acquiring enterprises;l. Regulation of foreign collaboration arrangements and agreements that could displace national enterprises from the domestic market;

Regulatory Situations

The crux of our debate will most likely center around the

following question: in what practices and arrangements involving

technology transfers should parties be prevented from engaging?

Why would agreement on this matter be so difficult? First off,

unlike the earlier parts of the document which incorporates mainly

carefully-crafted (but sometimes ambigious) phrases, this section of

the code of conduct designates specifically what constitutes a

violation of the code. It is much more likely that other countries will

notice and protest such violations when they are implicitly designated

as being illegal in an international document that the country

engaging in such a violation has signed. Also, nations that engage in

practices which are a violation of a “good” international technology

transfer principles will most likely attempt to keep such a practice off

the list by using a more crafty rationale.

Among some of the practices that the UNCTAD code proposes

to ban are the following:

Chapter 4. The Regulation of Practices and Arrangements Involving the Transfer of Technology

4.2. Parties involved in transfer of technology transactions shall not make use of the following practices and arrangements, whether written or not:

1. Restrictions after expiration of arrangementRestrictions on the use of the technology after the expiration or termination of the arrangement, or after the know-how has lost its secret character independently of the acquiring party.

2. Payments and other obligations after expiration of industrial property rightsRequiring payments or imposing other obligations for continuing use of industrial property rights which have been invalidated, cancelled, or have expired.

3. Grant back provisionsRequiring the acquiring party to transfer or grant back to the supplying party, or to any other enterprise designated by the supplying party, imporvements arising from the acquired technology, on an exclusive basis or without offsetting consideration or reciprocal obligations from the supplying party.

Listed below are other possible examples of unacceptable

practices regarding technology transfers that have been frequently

proposed in the past.

- Restricting the use of the technology after the agreement has

expired or after the technological know-how has lost its secrecy due

to situations unrelated to the acquiring party.

- Requiring payment or imposing other obligations for the

continued use of industrial property rights after those rights have

expired, been cancelled, or invalidated.

- Requiring grant-back provisions. The following example shows

such a situation: A transfers technology to B. B then makes

improvements either to the technology, or perhaps uses the

technology to make improvements in the industry. A then demands

that B transfer or "grant-back" to A these improvements.

-Restrictions which prevent the acquiring party from adapting

the imported technology to local conditions or to introduce

innovations in it.

- Restricting the acquiring party from undertaking research to

absorb and adapt the imported technology to local conditions.

- Requiring that certain trademarks be used by the acquiring

party.

- Requiring the acquiring party to use personnel designated by

the supplying party. One proposed exception to this situation is in

that this should be allowed during the time it takes to ensure the

efficient transmission of the technology and to

train local personnel on how to use it.

- Making limits upon the usage of technology after it has already

been imported.

- Requiring the acquiring party to accept additional technology,

inventions, goods, services, etc. that it does not want or restricting

the acquiring party's sources for obtaining technology, goods,

services, etc. as a condition to the technology transfer. This type of

agreement is known as a tying arrangement.

- Restricting the acquiring party from doing research in

connection with new products, processes, or equipment related to the

technology transfer.

- Restricting the acquiring party from entering into sales or

agreements related to similar or competing technologies.

- Use of quality controls by the supplying party, except perhaps

when the product bears a trademark.

- Price fixing, or requiring the acquiring party to charge a

certain price for certain transactions.

- Requiring the acquiring party to grant exclusive sales or

representation rights to the supplying party.

It is of course up to you to decide whether each one of these

ought to be deemed unacceptable and whether there are more

situations that you might wish to designate.

Other Provisions

There are of course other possible provisions that you might

wish to include in an International Code of Conduct. One such

possibility is a section dealing with specificities on special treatment

for developing nations (if you decide that there ought to be special

treatment). Another is a section dealing with means to settle disputes

over technology transfers, such as through arbitration or through

international courts. This decision is left up to you and your fellow

participants as to how comprehensive you might wish for the

document to be.

ConclusionTechnology transfers are playing an increasingly important role

in today’s world. Yet, internationally, there is still a general lack of

accepted standards as to how a technology transfer ought to be

conducted. The issues behind drafting such a code are extremely

complex, as the United Nations attempt over the past thirteen years

have shown. Your task is to come to the conference well-researched

in your nation’s principles and practices in technology transfers so

that we can attempt to arrive at common agreement about standards

concerning transfers between HPAIR conference participants.

Whether or not we are successful depends on your skills in

communicating and compromising.

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