Transcript BITs, RTAs and Non-Equity Modes (NEMs) and their impact on Transfer of Technology WTO Working Group on Trade and Transfer of Technology Geneva,

BITs, RTAs and Non-Equity Modes (NEMs)
and their impact on Transfer of Technology
WTO Working Group on Trade and Transfer of Technology
Geneva, 8 November 2012
Christoph
Spennemann
Legal Expert, IP Unit
UNCTAD
Overview
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The notion of NEMs of investment
The rationale behind NEMs
Determinants of NEMs – the role of BITs & RTAs
NEM and technology transfer
Policy recommendations
Sources:
– UNCTAD « World Investment Report 2011: Non-Equity Modes of
International Production and Development »
– UNCTAD-WHO-ICTSD: « Local Production of Pharmaceuticals
and Related Technology Transfer in Developing Countries »,
2011
NEMs of investment
• Contractual relationship between TNCs and partner firms
• Control over host-country business by means other than
equity holdings (as opposed to FDI)
• NEM types that are relevant for technology
– Licensing (intellectual property rights/IPRs)
– Franchising
– Contract manufacturing/services outsourcing
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Main areas: e.g. pharmaceuticals, automotive
components, IT services, electronics, etc.
Non-equity modalities: A middle ground
between FDI and trade
WIR2011 aims to bridge the gap in policy analysis
Figure IV.1, WIR11, p. 125.
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Estimated worldwide sales by type of NEM, 2010
(Trillions of dollars)
Figure IV.3, WIR11, p. 132.
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International licensing, which is not confined to any one industry, has grown
significantly in the past decades
(NEM-related licensing sales in billions of dollars)
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NEM advantages for TNCs…
• Low upfront capital expenditure needed
• Results in reduced risk exposure
• Greater flexibility in adapting to changes in business
cycle and demand
• Externalization of non-core activities
– Example: outsourcing of R&D and/or clinical trials in
pharmaceutical value chain to generic producers in
Argentina, India
… and local partners
• Sharing of benefits
• Better access to technology, skills, etc.
• Technological & productive capacity building
• Core pre-condition: absorption capacity !
Locational determinants
• Relevant for both FDI and NEMs (examples)
– Economic, political, social stability
– Infrastructure
• More relevant for FDI decisions
– Bilateral & international investment protection (BITs & IIAs)
– Investment promotion & incentives
• More relevant for NEM approaches
– Stable commercial & contract law
– Intellectual property protection (TRIPS, FTAs, RTAs)
– Upgrading of technological capacities of local partners
NEMs & technology transfer (TOT)
• NEMs can diffuse technology & skills to local partners
– NEMs are part of TNCs’ global value chains
– TOT to some extent desired by TNCs
• Example: pharmaceutical industry in Bangladesh acquired
initial capacity through licensing agreements with TNCs
• Extent of technology uptake depends on local absorptive capacities
– Example: TNCs left Colombia before skills were fully transferred
to local pharmaceutical industry
– Not all NEMs involve programs for training
– Importance of domestic skills building
Example: ELEA/Argentina
(producer of pharmaceuticals, biotech vaccines)
• Three sources of technology:
– (1) In-house R&D
– (2) Alliances with universities & research centers in
Argentina & Cuba
– (3) Licensing agreement with US firms Warner
Lambert/Pfizer
• Know-how for product formulation, not new product
development
• Blockbuster Lipitor ® only for distribution
• Transfer of plant & personnel
• Imposed standards for GMP & drug quality
NEMs & TOT – the role of IPRs
• IP protection may encourage investor to opt for NEMs (e.g. licensing
to local partner) rather than FDI
– Role of TRIPS, FTAs, RTAs for investor
– But only one element in investment consideration (example
Colombia/pharma)
• IPRs complicate use of reverse engineering and domestic capacity
building through informal means of TOT
– What is the importance of formal or informal means of TOT in a
country?
– Balanced implementation of TRIPS in developing countries:
flexibilities (patentability standards, research exception,
competition law & policy, etc)
– FTAs, RTAs and « TRIPS-Plus »
WIR 2011 recommendations: how to maximize
development benefits from NEMs
• Embedding NEM policies in overall development
strategies
• Building domestic productive capacity
• Facilitating and promoting NEMs
• Addressing negative effects (e.g. local partner remains
locked in basic technology)