u.s. policy on high-tech transfer to the...
TRANSCRIPT
CHAPTER II
U.S. POLICY ON HIGH-TECH TRANSFER
TO THE DEVELOPING COUNTRIES
U.S. technology transfer in foreign policy affairs, today is significant not
only in terms of its military strategic value but also increasingly in terms of its
commercial and social value(that is, its relationship to international economic
competitiveness and to national development).
In viewing the post-war U.S. technology transfer policies, there is a need
to address to two broad questions:
1. What were the issues and objectives that had guided U.S. policies
towards the international transfer of U.S. technology?
2. Related to the first question, what were the mechanisms and institutions
by which U.S. technology had been transferred and managed in post
war foreign affairs? And, are there discernible shifts in these mechanisms
in current developments, suggesting some re-distribution of influence
among U.S. groups (actors) in making of technology transfer policy?
In examining these questions, there is a need to take not of the fact that,
in the post-war period, the outflow and evaluation of U.S. technology across
national boundaries had taken place in three separate and largely unrelated
policy contexts.
67
I
1. The strategic-military context: emphasising the role of U.S. technology
in maintaining a qualitative strategic superiority over communist and
other adversaries.
2. In the foreign assistance context: involving the use of U.S technology to
influence domestic and foreign policy conditions in friendly and natural
countries.
3. The private industrial context: reflecting, in large part, the transfer of
technology within the integrated organisational structure of the
multinational company, but also including significant transfers between
independent enterprises (as, for example, industrial relations with
Japan).
Policy in these different contexts had not been consistent. Nor has it
been formulated by same actors. 1
In the first context, U.S policy had been largely restive and hazily
influenced by high level governmental agencies. In the second context, policy
reflects a mix of restrictive (conditional) and liberal (humanitarian)
considerations and public and private organizations. And, in the third context,
policy has been largely liberal and formulated chiefly in the board rooms of
private multinational ceruparics.
Samreel !'J.Baw-Zakay, Technology Transfer Model (Rand Publications, California, Santa Monica, n.d.}, p.509.
68
International Technology and the Role of US
America's role in international markets for high technology products has
been dominated for quite some time by highly unrealistic expectations. These
expectations were formed in the years immediately following World War II,
when a whole generation of Americas grew up surrounded by tangible evidence
of their country's across-the-board technological superiority. For 20 years or so,
following the Second World War, and for reasons closely connected with the
uneven incidence of ·that war and its aftermath, American technological
leadership was one of the prime facts of international life. The years from 1945
to the mid or late-1960s were, without doubt, the age of American
technological hegemony. 2
Due primarily to the war-time devastation, the other member states of
the Organisation for Economic Cooperation and Development (OECD)
lagged far behind the US in technology. Soon, however, with US assistance to
these nations through the Marshall Plan, they rapidly recovered from the
wreckage of war with fast paced technological upgradation.
However, as long as there was a substantial gap between the terms of
technology of the United States and the other advanced industrial countries,
possibility continued of rapid technological change through the transfer and
adoption of the more sophisticated and productive American technology.
2 Nathan Rosenberg, Inside the Black Box: Technology and Economics, (Cambridge: Cambridge Univ. Press, 1982), p.280.
69
Thus, throughout the 1950s and 1960s and with varying degrees of
effectiveness, the. other OECD countries played a successful game of
technological catch-up. A combination of high rates of capital formation, on
the average far higher than in the United States, plus the importation and
exploitation of more advanced American technologies, helped progressive to
lower American technological leadership in relation to Europe and Japan.3 That
was the scenario in the 1970s and 1980s.
Now, in the early 1990s America's earlier exclusive pre-eminence m
numerous technological domains has been left behind. A good deal of
convergence in the economic environment of a sizable number of countries is
taking place. In contrast to American technological hegemony there have now
emerged politic.tl entities such as Japan and Western Europe, which are equally
technologically competent.
Technology Transfer: A historical Perspective
Transfer of technology is not just a recent phenomenon, but has existed
throughout recorded history. Abundant archaeological evidence convincingly
demonstrates that such transfers were an important aspect of pre-historic
societies as well. Francis Bacon observed, almost 400 years ago, that three great
mechanical inventions - printing, gunpowder and the compass had changed the
whole face and state of things throughout the world; the first in literature, the
second in warfare, the third in navigation.4
What Bacon did not observe was
3
4
Andrew Pierre, Jed., A High Technology Gap? (New York: Council of foreign Relations, 1987), p.S.
Francis Bacon, The New Organon (Indianapolis: Bobbs Merrill1960), p.118.
70
that none of these inventions, which so changed the course of human history,
had originated in Europe, although it was from that continent that they first
began to exercise their worldwide effects. Rather, each of these inventions
represented successful instances of technological transfer, probably from China. 5
But it was really British technology, in the last quarter of the eighteenth
century after the Industrial Revolution, that provided the basis for industrial
development first to Western Europe and later to the United States. New
power sources, new modes of transportation and new techniques of metallurgy
and machine-making, when organized and administered, brought immense
improvement in productivity that transformed the lives of all participants.6
A number of highly renowned and fascinating persons participated in
easing the process of transfer of technology to America. ' Latrobe' helped
establish the professions of architecture and engineering in America;7
' Eli
Whitney', acknowledged as the father of American technology", was a
technological hero whose best invention was the cotton gin;8
James Buchanan
Eads, who as an engineer, devoted his services to the task of finding ways to
organize and develop the potentialities of modern technology'9 Thomas Edison
of course flourished at the same time when the United States emerged as a
5
6
8
9
N, Rosenberg, "The International Transfer of Industrial Technology: Past and Present", in North-South Technology Transfer (Paris: OECD, 1982), p.25.
ibid.
W Carroll Pursell, Jr., (ed.), Technology in America, (Mass, MIT, 1981), p.35.
ibid., p.45.
ibid., p.80.
71
great technological natton. This simultaneity was not altogether new, for
Edison drew upon the sustaining environment and at the same time, helped
create it.10
Many others helped in technological innovations and transfers, e.g.,
Alexander Graham Bell, the foremost in communication.11
Above all, it is a fact
that in the US, transfer of technology took place in dose association with the
pattern of European migration and settlement, first to the US and then to
other nations. 12
Taxonomy of Technological Transfer
Technology, as a particular form of resource endowment, has been
variously defined. Baranson, in a study on the transfer of industrial
technology, 13 finds technology's "the knowledge set of processing and/or
fabricating techniques required to produce industrial materials, components
and end products". Typically it includes "data on equipment requirements,
detailed processing sheets, standards and specifications for raw materials or
industriales, quality control procedures and other related technical
. fi . 14 m ormanon.
10
11
12
13
14
ibid., p.47.
ibid., p.105.
ibid., n.S. p.27.
J.Baranson, International Transfers of Industrial Technology by U.S. Firms and their Implications for US Economy (Washington D.C: Developing Wor1d Industry and Technology, 1976), p.143.
ibid.
72
The simplest, yet all embracing definitions include those of Root, "the
body of knowledge that is applicable to the production of goods and the
creation of new goods" and of Jones. "The way in which resources are
converted into commodities."
Teece15 argues for ~ distinction between technology embodied in
physical terms, e.g., capital goods, blueprints, technical specifications and that
which takes the form of information which is necessary for the utilization of
this hardware. He identifies such unembodied knowledge as "methods of
organization and operation, quality control, and various other manufacturing
d II J6 proce ures .
The extent to which human as well as physical capital should be
considered as a form of technology has never been completely resolved in the
literature. The dividing line between the two is difficult to draw, if for no other
reason than that today's physical capital embodies the innovatory skills and
application of yesterday's human capital. A similar distinction was used by
UNCT AD in guidelines for the study of the transfer of technology to
developing countries. To quote:17
Technology is an essential input to production, and as such it is bought
and sold in the world market as a ' commodity' embodied in one of the
following forms:
15
16
17
D.J. Teece, The Multinational Corporation and the Resource Cost of International Resource Transfer, (Cambridge: Ballinger, 1977), p.91.
ibid., p.36.
UNCTAD, TD/8/AC, 11/9 December 1972.
73
i) In capital goods and sometimes intermediary goods which are bought
and sold. in markets, particularly in connection with investment
decisions;
ii) In human labour, usually qualified and sometimes highly qualified and
specialized ·manpower, with capacity to make correct use of the
equipmems and techniques and to master the problem solving and
information producing apparati;
iii) In information, whether of a technical or of a commercial nature, which
is provided in markets, or kept secret as part of monopolistic practices.
A final area of debate has been the distinction between technology and
technological capacity, viz., technology as a flow of knowledge and technology
as a stock of knowledge. IM
It is possible, so it is argued, that technology may be transferred from
one country to another without there being a change in technological capacity
for either country. This may be true if one thinks of technological capacity as
the ability to generate new technology and of technology as an input for a
particular type of production process. But the dividing lines is rarely a hard and
fast one, if for no other reason than that the learning process, associated with
acquiring the new technology, may help advance the capacity of the recipient to
create future technology. 19 The Japanese case would be a classic example.20
18 Fransman and King, (eds.), Technological Capability in the Third Wor1d, (London: Mecmillan, 1984), p.9.
19 ibid.
74
Transfer of research and development (R&D) capabilities does tend to
add to a country's stock of innovatory capacity, more than a transfer of
production or marketing technology. To some countries, like India, the ability
to generate new technology is one of the most important criteria by which
imported technology is evaluated.
Motivations ofTechno-Transfers: U.S. Techno-Transfer Process.
Here it is pertinent to identify the issues (motivations and rationales for
technology transfer) and actors (mechanisms) involved in the U.S. technology
c 21 trans1er process.
1. Military-Strategic: Use or value (positive or negative) of technology
transfer for the development, manufacture, or deployment of military
weaponry and forces. There are two ways in which a technology transfer
may contribute to military-strategic capabilities:
20
21
22
(a) direcrly enhance military capabilities,
(b) improve civilian capabilities and release resources to mcrease
military expenditures, or help to off set adverse civilian effects of
existing military expenditures. 22
Hearing Before the subcommittee on Technology and competitiveness. Acceleration of US Technology utilization and commercialization. 102nd Congress, first session (Washington D.C.), 7 May 1991, no.28. pp.35-38.
H.R. Nau, Technology Transfer and U.S. Foreign Policy (Praeger Publishers, New York-1976), p.11.
ibid.
75
2. Foreign Policy/Diplomacy: Use or value of technology transfer for
exercising influence in the international arena. From this perspective the
transfer of technology not only had an effect on military-strategic
capabilities, it may also effect politico-diplomatic intentions. It may also
enhance the prestige, leadership, and image of the country initiating the
transfer. In short, technology is not just an instrument of power, that is,
coercive force, it is also an instrument of influence or psychological
force. Frequently, these uses of technology in foreign affairs are
incompatible. For instance, the decision to deny a technology export to
a recipient country because of its capability or power enhancing potential
may also deny to the source country, the diplomatic or influence -
enhancing potential of the export. 23
This conflict has been particularly
noticeable in U.S. politics towards the export of atomic energy
technology. Such exports being restricted, on the one hand, for fear of
their power-enhancing effects (that is, proliferation) and promoted, on
the other, to enhance U.S. prestige and influence in world affairs (rhar
. c ) 24 1s, atom 10r peace .
3. Economic-Commercial: Use or value of technology transfer for profit or
"al . 25 commerCI gam.
23 ibid.
24 ibid., n.21, p.12.
25 ibid.
76
4. Social Environmental: Use or value of technology transfer for "quality of
life", that is an evaluation of transfer not just in terms of commercial
gains and losses but in border social and environmental terms.26
5. Administrative-Institutional: Use or value of technology transfer to
affect organisational or bureaucratic interests within the U.S. Just as
Technology transfer may be used as an instrument of influence in the
international arena, it may also be used as an instrument of influence
among agencies within the United States. For example, some elements
in Congress may use the technology transfer issue to pursue a power
struggle with the executive or, in the case of individual presidential
aspirants in Congress, to effect their image and influence in the political
system as a whole. 27
Here, the term "national security" as an motivating factor in technology
transfer is deliberately avoided. The concept of national security is not
irrelevant, but it is a vague, umbrella concept which is used interchangeably by
all of the disputants in the technology transfer debate. National security, refers
to a composite judgement by a panicular group (or individual) of the relative
imponance of the different purposes or perspectives for evaluating technology
transfer.
26 ibid.
27 ibid.
77
Military-strategic
Table I
Motivations of Technology Transfer
use or value of technology transfer for the development, manufacture, or deployment of military capabilities, i.e., weaponry and forces;
a) directly enhance military capabilities.
b) improve civilian capabilities and release resources to military outlays or to off-set adverse civilian effects of existing mili
Foreign policy-diplomatic Use or value of technology transfer for influencing intentions (as compared with ca ilities) in the international arena.
Economic-Commercial Use or value of technology transfer for profit or commercial n.
Social-environmental Use or value of technology transfer for improving the "quality of life", i.e., consequences for equity and ecology (as
with commercial · Administrative- Use or value of technology transfer to advance Institutional organisational or bureaucratic interests within
U.S. domestic "'""-.. m
Source: H.R. Nau, Technology Transfer and U.S. Foreign Policy (Praeger Publishers, New York 1976), p.l2.
There are various groups or actors involved in the technology transfer,
but here the focus in primarily on U.S. actors. This study is an attempt to
assess the technology transfer issues essentially from the point of view of U.S.
interests, which may include foreign interests or the interests of the
international system as a whole.28
Forms and Modalities of Transfer
The choice of method of transfer is dependent upon the type of
technology and industry, governmental regulatory restraints, the size of the
market, the sophistication of the user of the technology, and the costs and
benefits to the supplier and user. 29
Technology transfer is generally a voluntary act by the technology owner
and can take place through various mechanisms.30
There are mainly two forms of transfers and transferees" commercial and
non:-commercial. The former largely comprise firms, although individuals
might perform this role. Non-commercial institutions include the United
States Government itself, international agencies (UNCT AD, World Bank) and
non-profit making private institutions, eg .. , charities.31
28
29
30
31
ibid., n.21, p.12.
JH. Dunning, "Mar1<et power of the Firms and International Transfer of Technology", International Journal of Industrial organisation (Amsterdam, 1983), p.337.
ibid.
JH, Dunning, "Towards a Taxonomy of Technological Transfer and Possible Impacts on OECD countries", in OECD North/South Technology Transfer (Paris, 1982), p.13.
7Q
Secondly, there are three main forms of transferring technology from the
US to India and other developing countries:
i) gifts:
ii) contracted technology; and
iii) non-contracted technolog/2
Gifts, e.g., may take the form of inter-government assistance or
donations from private charities. Contractual arrangements range from turnkey
projects, predominantly intended to expon and stan up a manufacturing
operation (e.g., the Togliatti plant set up by Fiat in Russia)33 through
management contracts, franchising, leasing arrangements, co-production and
complementation agreements to straightforward licensing. There is some
evidence to suggest that the contractual form of resource transfer is increasing
in importance, relative to that of direct equity investment.H Developing
countries tend to prefer this form believing that it retains decision-taking
within indigenous firms; in addition, most contracts are time limited and can
be re-negotiated.-1 ~ New varieties of contractual ventures, some involving
consonia of both private and public institutions, are evolving all the time. Yet
32
33
34
35
ibid.
ibid., n.S, p.13.
JH. Dunning, "Market power of the Firms and International Transfer of Technology", International Journal of Industrial organisation (Amsterdam, 1983), p.337.
ibid., n.21.
80
Streeten and Lall make the point that foreign direct investments benefit the
technology transferor on.36
Terms ofTransfer
Terms of transfer vary not only between different types of technology in
the US but are Jlso influenced by both country and organization/modality
factors. The first item of the terms of transfer is the payment charged for the
technology and the conditions attached to its provision.37 The payment may
vary from zero or near-free to a monopoly price, depending on the type of
technology being marketed and the underlying supply and purchasing
conditions. The price itself may take different forms, e.g., a contracted lump
sum payment, a royalty based on the value of sales of the product in which the
technology is embodied, an administrative and service fee, or a combination of
the three.3R In the case of technology supplied within a MNE, part of the
reward may take the form of profits and dividends, or of gains resulting from
intra-company transfer pricing.
The conditions attached to the supply of technology (which may be
imposed by the supplying or purchasing firms or by governments, (in this case
36
37
38
R.P., Streeten and S., Lall, "UNCTAD on Foreign Direct Investment in Developing Countries", TD/8/C3 (vi) Mise, 6. 1973.
Samuel Rosenblatt, Timothy Stanley, ''Technology Transfer in Practice: The Role of the MNC in Rosenblatt",( ed.), Technology and Economic Development: A Realistic Perspective (Colorado: Westview 1979), pp.124-129.
ibid.
81
US of supplying or purchasing countries) may range from none to a complex
set of controls or restrictions on:
i) the use made of it;
ii) the markets to which the products it helps to produce may be
sold; and
iii) the sourcing of inputs, both to produce the product in question
and others manufactured by the transferee.39
Conditions may also embrace cross licensing agreements and other
knowledge-sharing facilities. Both the price and the conditions of sale for any
g1ven quantum of knowledge may vary considerably with the
organisation/modality of transfer.
Within the terms of transfer, the implication is clear that persons
working in the receiving nations acquire knowledge from those in the donor
nation (in this case USA) or that knowledgeable persons from the donor
nations migrate to and work in the receiving nation even if temporarily. 40
39
40
Interview with Mr. David Schlecty, Department of Commerce, Washington, D.C., 13 Oct, 1993.
Graham, E.M., "The Terms of Transfer of Technology to the Developing Nations: A Survey of the Major Issues" in (ed.), vol., H.R. Nau, Technology and U.S. Foreign Policy (New Yor1<, Praegar, 1976), p.SS.
82
Technology transfer can be achieved through numerous channels, apan
from those mentioned earlier. These are: 41
1. One nation might send students or apprentices to other nations to
acquire useful knowledge and skills;
2. Citizens of a panicular nation might learn from the technical literature
published by other nations;
3. Corporations based in one nation might create operating subsidiaries in
other nations through foreign direct investment and transfer useful
knowledge to them by various means. and
4. Citizens of one nation might acquire technology through licensing
contracts or outright purchase, in effect paying the proprietors of the
technology to teach it to them.
To a great extent, the transfer of high technology from US to India takes
place through two channels-direct investment and inter-firm licensing.42
The post-war American experience with technology transfer had been in
the strategic policy sector (a) - military, (b) foreign assistance, and (c) private
industrial relations.43
41
42
43
UNCTAD, ''The Transfer of Technology", Journal of World Trade Law, London, SeptOct. 1970, pp. 708-9.
Interview with Mr. John E.Simmons, Office of South Asia, Department of Commerce, Washington D.C., 28 September 1993.
Rutherford M.Poats, Technology for Developing Nations (Washington, D.C., The brooking institution 1975) p.19.
83
As ' Daniel Greenbel}'' has wntten, "The utility of sc1ence and
technology in the economic crisis of the early New Deal was never clear cut.
But in mid 40's with the radar just beginning to play a critical and dramatic
role in the aerial battles over Britain, there was no difficulty in demonstrating
that science and technology were indispensable ingredients of modern warfare.44
The subsequent mobilisation of science and technology under the office of
Science Research and Development (OSRD), confirmed the importance of
technology in militai}'-Struggle policy. It did not, however, spark an immediate
awareness of technology's role in more general diplomatic, commercial, or
social areas. After the war, proposals were made for a National Science
Foundation, which would direct the application of science and technology to
civilian areas, such as national health, creation of new jobs, and betterment of
the national standard of living. Despite the efforts, science and technology
continued to serve primarily milital}' needs, funded mostly by the Navy and
the newly created Atomic Energy Commission (AEC).45 By contrast, Korean
war stimulated another massive increase of funding for weapons development.
It is also relevant to note that National Security Council (NSC) 68 of 1950
recommended rearmament programme with deficit financing.
Given the focus on milital}' uses of technology, attitudes toward the
transfer of technology in this period were dominated by the requirement of
secrecy. In atomic energy, even wartime collaboration with allies was
44
45
Daniel S. Greenberg, The Politics of Pure Science, (New York: The New American Library, 1967), p.76.
Robert Gilpin, American Scientists and Nuclear Weapons Policy (Princeton, Princeton University Press, 1965) p.128.
84
discontinued in 1940, AEC slapped stringent controls on handling of all
atomic energy technology.
Wth the end of II world war United States starred, developing a more
comprehensive policy towards the protection of technology on national security
grounds. The Expon Control Act of 1949 provided the first multiple - year
authorisation for expon controls. The Act granted authorisation to the US
administration to restrict the expons, on the U.S. national security grounds. In
addition, it authorised to use the expon controls to funher the foreign policy of
the United States and protect the domestic economy from the excessive drain
of scarce materials and the inflationary impact of foreign demand. 46
The intent
of this Act was to impose sweeping controls on expons of strategic materials
and technology to communist countries and other adversaries Unilateral
controls were to be backed-up by NATO administration. The Coordinating
Committee for Multilateral Expon Controls (COCOM), established in 1949.
In addition, in 1951, the Mutual Defence Assistance Control Act (Battle Act)
provided authority to cut off U.S. military and economic assistance to any
transhipping or re-exponing controlled products to communist countries.
Treasury regulations in 1953 issued under the trading with the Enemy Act of
1917 extended the same controls to U.S. citizens and corporations residing
abroad, even if the goods were of alien origin. Finally, the Mutual Security Act
of 1954 authorised the State Department, to control expon of arms,
ammunition, implements of war and related technical data.
46 U.S. Deptt of Commerce, "Bureau of East West Trade", Export Administration Report, on U.S. Export Controls to the president and the congress by the Domestic and International Business Administration (1974).
85
The effect of these multiple regulations was to cast a restrictive net
around U.S., strategic technology to prevent the export of a perceived U.S.
technological advantage. 47
In the post-war period, the United States had relied on a technological
or qualitative superiority in weapons to offset a perceived Soviet advantage in
conventional and ·quantitative forces. Thus, technology, or, more precisely, a
technological gap in the U.S. favour weighs crucially, it is thought, in the
deterrence balance. The development of new technology must be continuously
promoted and the diffusion of existing technology to adversary countries
prevented or, at least delayed.
U.S. Foreign Assistance Programmes and Technology Transfer
The value of technology as an instrument of policy was not immediately
recognized after the World War. Even, the inauguration of marshall plan in
1948, reflected the first major use of American economic assistance for foreign
policy proposes in peace-time. This technical assistance or productivity
programmes were only minor supplements to production efforts based
primarily on larger inputs of capital and labour. Technology assistance activities
under the Marshall Plan amounts to 1.5 percent of the U.S. $12 to $13 billion
of total U.S. aid.4N
47
48
Howard Margolis, Notes on Technical Advice on Political Issues, (Arlington, Virginia: Institutes for Defence Analyses, April 1972), p.128.
Harry Bayard Price, The Marshall Plan and its Meaning (Ithaca: Cornell University Press, 1955) p.39.
!!6
Foreign aid to less developed third world countries, jr was bdie:ved, that
the need was for. extensive technical assistance and relatively sma1U (jpantity of
material aid. President Truman noted, this need of foreign aliSii:s::;:ance was
promotional and has not much limitations on U.S. capital resowr:es;. This is
because of the understanding of the value of technology as a U.S. ffo:rce:gn policy
asset.
Cost as factor in the technology transfer: US policy toward~ cltr.Veloping
countries and India.
The question is whether the cost of imported technolo,gy too hiigllu to the
developing countries?
This question rests on what the benefits of the import are rcd:;lttir.ve to irs
pnce. A lower price is justifiable when the opportunity cost of t:ramsfer of
technology to developing countries and in particular India is substarn t:Olliy lower
than the opportunity cost of utilizing it in US.49 In a private markc:rt ~':'Stem, a
positive return from the creative effort depends upon the innovator.':s ;a.JJility to
charge a price more than the marginal resource cost of usage for the: wts.::: of the
technology. At first glance, this appears to justify a high price for tecfumology
transfer. At the san1e time it makes a good case for the less advancedl n;a.:cions to
insist upon playing according to a different set of rules. so
49
50
HG, Johnson, "The Efficiency and Welfare Implications of the lntemationai•C~ration", in Char1es Kindleberger, (ed.), The International Corporation (Cambridge!: W~tltr press, 1970), p.37.
Gerald Meier, Emerging from Poverty, (New York: OUP, 1984), p.161.
K7
In lowering prices of technology to developing nations, the marginal
social opportunity cost to the industrialized nations is minimal. This is because
the same degree of revenue derived by of industrial nations from technology
sold to developing nations. Hence the inference that developing nations might
be entitled to a free rider" status, with the receipt of a asset (in this case,
technology) at a price less than its full social cost holds valid. 51
Compared to the total market, however, the market for industrial
technology in developing nations is not particularly small. For the US., for
example, receipts from developing nations accounted for more than 18 per cent
of total fees and royalties in 1976. For the same year, this percentage was more
than 19 per cent for Germany, almost 23 percent for France, almost 28 per
cent for the United Kingdom and more than 51 per cent for Japan.52
It must
be remembered that due to national differences in the definition of what
constitutes fees and royalties, these figures are not strictly comparable. Figures
include fees and royalties for the use of trademarks, which arguably are not
payments for technology. 53
Analysts have made numerous efforts to measure the cost of imported
technology to developing nations. These efforts have almost universally been
frustrated by problems of measurement. The only direct data available on
51
52
53
Raymond Vernon, Storm Over the Multinationals (New York: Vail Ballore, 1977), p.40.
CV. Vaitsos. "Foreign Investment and Productive Knowledge" in GF Erb, and V Kallab, (eds.), Beyond Dependency (New York: Overseas Development Council, 1975), p.52.
Thomas C Creel, Drew M Wintringham "Patent systems and their role in the Technological Advance of Developing Nations "in Portfolio" International Economic Perspectives, vol. 12, no.1 (Washington D.C., USA, 1988) p.256-257.
88
payments for technology by developing nations are those for fees and royalties.
As has been noted, fees and royalties, paid at arm's length trans~ctions might
not accurately reflect the true cost of the technology to the buyer. This is
because restrictions serve to raise the price of the transaction and because the
figures reflect prices paid for trade marks as well as for technology. Several
studies suggest that the use of restrictive covenants in contracts between seller
in the industrialised nations and buyers in developing nations are very
widespread.54
For this reason, it is often claimed that published accounts of
arm's length royalties and fees paid by developing nations are systematically
biased, and do not help ih understanding the true cost of the imported
technology. In the case of royalties and fees paid by subsidiaries of
multinational firms in developing nations. it is even less clear whether these
figures represent anything close to the true cost of intra-firm technology
transfer. 55 The supposition of most spokesmen of developing nation is that
these figures also underrate the true cost.
It is less than startling that spokesman for multinational corporations do
not accept these views. In a worldwide survey of corporate executives
conducted in 1975, the conference Board (a US based organization) uncovered
a strong sentiment that prices charged for technology transfer tend to be high
in nominal terms but not in excess of the opportunity costs of the corporation
making the transfer. 56
54
55
56
ibid.
Raymond Vernon, Stann Over the Multinationals (New York: Vail Ballore, 1977) p.1 0.
White Paper on Technology Transfer and the Developing Countries", Chamber of Commerce of the United States, (Washington D.C.) Oct. 1976.
89
In calculating costs of imported technology to developing nations, the
indirect costs cannot be ignored. According to the survey, prices are high
because of rising costs to the corporation for maintaining research and
development efforts, the cost associated with serving licenses, and "special risks"
associated with the transfer of technology to developing nation. 57
Indirect costs have to be taken into account in calculating the costs of
imported technology to developing nations. "Dimitri Germidis and Christine
Bracher have summarized the results of nine studies of technology transfer
contracts between industrialized and developing nations to analyse the impact
of restrictive covenants on the effective price of technology transfer". The vast
majority of the 3,632 contracts they examined contained restrictive covenants
of one sort of another and also the costs of these covenants to the purchasing
nations were found to be indeterminable.5s
In the Indian case, taking the number of sample contracts as 1,051,
there were 154 i.e. in clauses (15%) and 455 export restrictions (48%) which
really make for very restricted covenants on technology transfer from
industrialized nations to India. The innovating rents are high initially for new
technologies and contracts become complex.59
57 ibid.
58 D. Gennidis, (ed.), Transfer of Technology by multinational Corporations, vol.1, (Paris: OECD Development Centre, 1977}, vol.1., p.62.
59 ibid.
90
Because the economic characteristics of both the supply of and the
demand for a technology can change over time, the determinants of the price of
technology transferred internationally vary.60
Technology transfer can just not
be quantified. 61
Therefore, one must conclude that the question of whether the costs of
imported technology to developing nations are too high, is clouded by a lack of
even an approximate estimate of their true magnitude. But whatever the actual
price for technology transfer might be, spokesmen of developing nations by and
large contend that a lower price is justified on grounds of fairness. 62
Dynamic Considerations of the Price of Technology
On the supply side, empirical work by Raymond Vernon and others on
the "life cycle" of new product innovations bears note.63 Early in the life cycle of
a new product, the technology is likely to be closely held by the innovating
firm. This firm is able to extract a monopolistic rent from its use or sale.
Generally, if demand for a new product were to be price inelastic and the
technology were to be unique and difficult to imitate, the rents would be
high.64
Vernon argues that "the initial demand for unique technologies will
60
61
62
63
64
ibid., n.SS.
KE, Boulding, "The Economics of Knowledge and the Knowledge of Economics", American Economics Review, (Nashville) 56, 1971, p.1 0.
OECD North- South Technological Transfer (Paris, 1982}, p.64.
Raymond, Vernon, Sovereignty at Bay (NewYor1<; Basic Books, 1971}, ch.3, p.65-77.
G.Helliner "International Technology Issues: Southern Needs and Northern Responses", in J Bhagwati, (ed.), The New International Economic Order: The North South Debate (Cambridge, Mass MIT Press, 1977}, p.310.
91
come from affluent buyers who are pnce insensitive and, therefore, lt will
. d db . I . II 65 m ee e pnce me asnc .
The high rents extracted by an innovating firm, however, provide an
incentive for new suppliers to try to enter the markets. If the technology is
difficult to imitate or is well protected by patents, new entry by such firms will
be forestalled for a certain period of time. 66
But no technology is so complex
that its imitation can be indefinitely postponed. Either the patent protection
expires or it is legally circumvented by a number of means. Thus, the presence
of high rent will inevitably in4uce competing firms to develop technologies that
are substitutes for the original innovation. Sooner or later, as these firms enter
the market place, the rents accruing to the innovating firm will be driven down.
The same scenario holds good in relations between multinational firms and
India as well as US firms in relation to Indian firms.
The net result of the dynamic factors affecting supply of and demand for
technology is that two opposing tendencies confront developing nations in
search of industrialization. First, on the supply side, is that the price of any
particular technology, is over time, i.e. likely to decline and its availability, in
terms of numbers of alternative sources of supply, to increase. 67
The second, on
the demand side, is that as a nation's industrial base grows, the composition of
technologies sought after is likely to shift from competitively-priced, mature
65
66
67
ibid., n.62, p.26.
Richard SE Ckaus, Appropriate Technologies for Developing Countries (Washington D.C., National Academy of Sciences, 1977), p.73.
ibid., pp.76-78.
92
technologies towards monopolistically-priced newer ones.68
For rapidly
industrializing nations, the second tendency runs more quickly than the first, so
that as the internal technological capabilities grow, the bill for imported
technology grows even faster.
This leads to a paradoxical situation: developing nations those were very
fond of industrializing rapidly and expand their own technological base are
likely to become increasingly dependent upon monopolistic foreign sources of
technology for continued economic growth. And ultimately, even if a,
agrowing nation builds its own capability to develop new technology, this
dependency will diminish, but not necessarily disappear.69
Qapan is an example)
Indeed, all of the industrialized nations of the West, including the FRG and
the US are dependent upon one another for the development of new
technology.
However, due to the existing technological complexities with in the
developed countries, the developing countries may experience increased
tendencies of dependence, on developed countries, this is due to their
technological incapabilities. Such relationship between US and India seem to
be the scenario of the future.70
68 ibid., n.58, p.64.
69 ibid.
70 ibid.
93
Efforts by Indian Government to Regulate the Terms of Technology
Transfer
Despite viability of a relationship of inter-defensive in technological and
economic cooperation particularly between US and India, it has to be admitted
that foreign investment in India (therefore also the technology transferred). h~.
been abysmal. US investments in India total a mere 600 million dollars in
1991-92.71 In 1989, private foreign investment in India was of the order of 170
million US dollars.72 While in the same year in China, it was 2.3 billion US
dollars73 (even in the year ofthe Tiananmen Square massacre in 1989 when
western powers had attempted to reduce the flow of foreign investment into
China). Foreign investment in much smaller countries in South East Asia was
several times larger than in India. In 1989 foreign investments in Thailand,
Indonesia and Malaysia were 1.10 billion, 700 million, and 650 million US
dollars respectively. It will take time and effort for India to reach the same level
f . fl 74 o mvestment ows.
Further, if one observes investment flows in the world, one sees that
MNCs do not account for more than 30 or 40 per cent of international equity
investment and they are really specialized in quite a small number of industries,
such as automobiles, oil, non-ferrous metals and so on. In all other industries it
71 PN Dhar. Industrial Policy: A Panel Discussion, (New Delhi: Vikas, 1990), p.26.
72 ibid.
73 ibid.
74 ibid.
is really the small and medium firms that predominate; and the reason they
invest is because they are specialists. It is these specialist firms that are most
reluctant to come to India, because they feel that in order to exploit the full
potential of their technology and skill they need to have management control.75
The Indian industrial policy of 1991, and subsequently 1992, have tried
to give more control to the investing firms. The Industrial Policy of 199176
declared that even though the Government of India would continue to follow
the policy of self-reliance, there would be greater emphasis on building up
Indian ability to pay for impons through its own foreign exchange earnings.
The government was also committed to the development and utilization of
indigenous capabilities in technology and manufacturing as well as their
upgradation to world standards.
The Government of India also expressed its desire to pursue a sound
policy framework encompassmg encouragement of entrepreneurship,
development of indigenous technology through investment in research and
development, bringing in technology, dismantling the regulatory system,
development of the capital market and increasing competmveness for the
benefit of the common man.
Funher, foreign investment and technological collaboration was to be
welcomed to obtain advanced technology, increase expons and to expand the
75 ibid., n.62, pp.63-9.
76 Announced by Ministry of Industry, Government of India, on 24 July, 1991 (New Delhi: FICCI, 1991), MIMEO.
95
::non base. Interestingly, the government profiles a picture of open
o:mpetitiveness as regards manufacturing, except in case of strategic or military
c:.nsiderations.
Industrial licensing is to be abolished, except m the case of specific
izdustries for security and strategic reasons, social reasons, environment and
a.-rides of elitist consumption.77 In such cases, compulsory licensing provisions
would continue.
Where transfer costs are concerned, the expected remuneration must be
..<r least equal to the costs incurred in making the transfer, without even
~onsidering the cost of the technology itself. But contrary to what the patent
:heory implies, even the transfer of data does not take place at no cost.n
Sometime, it is even costlier.79 High technology transfer is an indicator of cause
or effect of a strong politico-economic-strategic relationship. Thus high
cechnology transfer and economic and political relations between the US and
India are interdependent. Each has implications for the other. It is important ro
note also that the distinction between economic and military significance has
been difficult to apply in the high technology area.80
77
79
so
Notification issued by Ministry of Industry, Dept. of Industrial Development (No.1 0 (43}/91.-LP).
D.M., Lamberton, (ed.), Economics and Information and Knowledge (Harmondsworth: Pengwin, 1971}, p.225.
OJ, Teece, The Multinational Corporation and the Resources Cost of International Technology Transfer, (Cambridge: Ballinger, 1976), p.36.
A. Clarl< Asa & John F. Lilley, (ed.), Defence Technology (New Yorl<: Praegar, 1989), p.76.
96
Point Four Programme
In 1949, President Truman announced his point Four Programme of
technical assistance to the developing countries. By this time communist's were
in complete control of mainland China and the U.S. foreign policy was being
geared to meet the perceived communist challenge, particularly in Asia.
While the Point Four Programme was generally couched m
humanitarian terms, the U.S. administration made little attempt to hide the
political and economic objectives of the United States behind the move. A
memorandum prepared in the state Department by Ben Hardy, an ex
newspaper journalist from Georgia, suggested some ' bold new initiatives' for
President's inaugural speech in january. That explained the political objectives
that could be achieved by U.S. policy of technical assistance to the developing
countries. The memo was appropriately entitled" Use of U.S. technologal
Resources as a weapon in the Struggle with International Communism". It said
that "the U.S. has an excellent instrument at hand which with bold imaginative
adaptation could be fashioned into a potent weapon in the present struggle
(against communism) .... "81
By extending technical assistance to the developing
countries the U.S. could be making full and affirmative use of one of the
resource in which it was richest, and the Soviet Union the poorest.s2
Since the point Four Programme was mainly based on this memo, it is
clear that its primary objectives was political. This programme of technical
81
82
Memorandum. 15 December, 1948, Point Four file, GF, Truman papers, Hanry S. Truman Library.
ibid.
97
assistance sought to "take full advantage of the almost universal yearning for
better conditions 'of life throughout the world ... and harness their enthusiasm
for social and economic progress to the democratic campaign to repulse
C . 1183 ommumsm ...
That the move was mainly political was also borne out by the fact that
very little planning had gone into the actual plan of technical assistance. As the
memo itself admitted "ordinarily the announcement of a policy of this kind
would be preceded by prolonged and detailed planning. In this case, however,
circumstances appear to have forced the issue, and to call urgently for
consideration of a bold decision to reverse the usual order of things". 84
Gradually, however, the economic objectives of the United States in the
Point Four Programme also became apparent. There was some hint of the
economic benefit that could accrue to the US as a result of the new programme
even earlier. For instance, in July 1949, in his message to the US Congress,
President Truman had declared that "with many countries of the under
developed areas of the world, we have long had ties of trade and commerce. In
any instances today we need to produce of their labour and their resources. If
the productivity and the purchasing power of these countries are expanded, our
industry and agriculture will benefit". 85
But the economic rationale becan1e
83
84
85
Memorandum, no.13.
ibid.
Technical Assistance, Final Report of the Committee on Foreign Relations, 85th Congress, 1st Session (Washington 1957) p.1 03.
98
much clearer after the Point Four Programme was authorised by the Congress
in June 1949.
The vital 1mporrance of this programme to American farmers was
stressed by the Secretary of Agriculture Breannan in September 1949. In his
testimony before the House Foreign Affairs Committee, Brennan explained
that "The United States is geared to a high level of productio1_1, both farm and
industry, and we need sound markets overseas in order to stay in that gear". N6
The resource crunch which followed the outbreak of Korean war gave
even greater emphasis to the idea of technical assistance. In the reorganisation
of U.S. aid programmes, however, defence needs overshadowed civilian and
developmental uses of American technology. it was not until the Korean War
that civilian technology emerged as a central element in U.S. foreign policy
initiatives. The first such initiative was the Atoms for Peace plan announced by
President Eisenhower at the United nations in December 1953. The nuclear
initiative was followed by the Appolo effort to beat the Russians in space and
land the first man on the moon. Significantly by the end of the 1950s civilian
as well as military technology had become the new index of world power. The
same trend continued in 1960s, 1970s and 80s.
Today, technology serves multiple purposes in U.S. foreign policy and
diplomacy which include:
1. enhancing overaJI prestige and leadership in world community.
86 Washington Post, (Washington, D.C.}, 29 September, 1949.
99
2. maintaining open lines of transportation, commumcanons and
economic exchanges around the globe.
3. expressing an American version of humanitarianism and noblesse oblige.
From Strategic to Economic Issues:
The trend emerged with respect to issues or perspectives for evaluating
U.S. technology transfer when there was an expansion from exclusive military
perspectives to broader economic and social perspectives. 87
This trend marks a broadening of perspective from the exclusive military
strategic point of view, which prevailed immediately after World War II to the
much broader economic-commercial and in an incipient way, social
environmental point of view that has been existing today. In the middle and
late 1950s it began to acquire a broader foreign policy significance, being
valued as symbol of American leadership and prestige, as well as substantive
contributor to military systems. In foreign assistance progran1mes, technology
could be used to win friends and influence adversaries in ways that might
maximise a favourable world order and make unnecessary the recourse to
advanced military weaponing88
by the recipient country.
In the 1960s, the economic costs and benefits of using technology
transfer for foreign policy purposes began to be perceived. This trend continued
87
&8
James P.Grant, "Development: One End of Trickee Down" Foreign Policy (New York), no.12 (Fall 1973), p.43-65.
Irving Kristol, "American Diplomacy", The New York Magazine, 24 November, 1978.
)()()
even m 1980s. The dominance of military - strategic concerns permitted
American political leaders to throw a blanket of national security around most
economic issues, including technology transfer. This helped America to remain
as leader, throughout the post-world war period, in the technological field.
Nevertheless in 1980s, competitiveness and technological lead ofUS was losing
in global context. US could not retain technological lead and competitiveness
based on military based R&D. Specially the dual-technology like computers,
and other advance technological based goods on electronic, fine optics,
cerminic, the US no longer provide the lead. Japan and Europe is fast emerging
competitors in these fields. Hence, US had to enhance a new technology
transfer policy to contain the technology gap and losing competitiveness.
THE EMERGENCE OF THE CURRENT CONTROL REGIME
In the year since World War II, the United States has emphasised
technology exploitation over sheer manpower in its military forces and in order
to preserve its technological edge. It has sought to keep Western military
technology out of the hands of the Soviet Union and Warsaw Pact Countries.~·~
In 1949, the United States established the Coordinating commission of
Multilateral Export Controls (COCOM) whose members include Japan and
16 members of NATO; Australia, Belgium, Canada, Denmark, France,
Germany, Greece, Italy, Spain, Luxembourg, Netherlands, Norway, Portugal,
Turkey, U.K. and the United States, except Iceland. It is a devise to limit the
89 David Abshire, Preventing World War Ill: A Realistic Ground Strategy (Harper & Row, New York), 1988 pp.59.
101
amount of military technology that could be acquired by non-allied nations.
Cocom continues to be the primary organization for controlling allied
technology exports to Communist nations.
By the mid-1970s, the civilian sector had begun to gain primacy over
the military sector in generating new technology with military applications
especially in Computers.90
Such dual-use technology (this term refers to
technology with both commercial and military applications) changed the way
the U.S. and West needed to think about preserving its technological edge.
Computes, for example, were developed primarily by private Corporations,
were not considered military hardware perse, and therefore were not covered
originally by Cocom regulations. 91 Establishing the criteria for militarily
sensitive Technologies become increasingly difficult and friction developed ;L'>
the civilian sector chafed under export controls imposed in the interest of
national security. Moreover, new technology developed by corporations, often
multinational; posed the difficult, practical problem of restricting technolob'Y
that would not under any one government's jurisdiction. There is no doubt
that such technology needed some form of protection dual-use technology w;L'i
sought aggressively by legitimate and other means by the Soviet Union and its
allies. n
90
91
92
ibid., p.96.
Gary Sertich, Controlling East-West Trade and Technology Transfer (Duke University Press, Georgia, 1988), pp.93.
Abshire, n.89, p.68.
102
In 1976 a Department of Defence Task force issued a landmark report
on the problem. Entitled "An Analysis of Export Control Technology" and
nicknamed the Report after its Chairman J Fred Bucy of Taxas Instruments,
the report encapsulated the findings and recommendations of the Defence
Science Board Task Force on the Export of U.S. Technology. It recommended
a reorientation of U.S. efforts away from the protection of hardware to the
denial to Communist countries of manufacturing techniques.
The export Administration Act of 1979 drew heavily on the findings of
Bucy Report in attempting to cope with the problem of dual-use technology.
The act restricted not only technology that might strengthen Soviet Military
power, !t also restricted technology that might strengthen the entire soviet
industrial base and energy infrastructure.9j
The Reagan administration took an extremely firm line on limiting
Soviet access to military significant technology and the policy that developed
under the leadership of then assistant secretary of defence Richard Perle, and
Stephen Bryen, deputy under secretary of defence for technology security, was
well known for its restrictiveness and combativeness vis-a-vis less watchful allies
of the United States and anti-control advocates in the U.S. Department of
Commerce (DOC).'14
The legacy of this-mixed historical record is an export control system
with multiple components that often confuse and sometimes conflict with one
93
94
Bertsch, n.91, p.128.
Sherry C. Rice , "Technology Management as an Alliance Issue: A Review of Literature" The Washington Quarter1y (Washington, D.C.) Winter 1990), pp.221.
103
another. Lists of critical technologies conflict with one another. List of critical
technologies have been created by various parts of the U.S.95 government and
other entities. There are several: a Cocom list which is agreed upon by all
CoCom partners; (the list is secret, never published); a much broader
Commodity Control List (CCL) maintained by the U.S. Department of
Commerce for dual-use technologies and that the United States would like to
its CoCom allies to adopt.96
The Military Critical Technologies List (MCTL)
maintained by the U.S. Department of Defence (DOD); and the Munitions
Control List, that is administered by the U.S. Department of State. The
Iv1CTL and the State Department lists contain weapons and weapon systems
exclusively so they are not in dispute. The other lists are the subject of heated
debate. The DoD usually recommends adding the CCL while the rest of
CoCom would prefer to see it shortened. Generally, the allies balk at U.S.
recommendations to lengthen what they consider an already too long CoCom
list of controlled technologies.''7
However in the present situation, with the demise of Soviet Union and
the joining of Russia into NATO's security system, the real purpose for which
' COCOM' c.1me into existence has some what ceased to exist. Rather we can
say that, in the changed circumstances, COCOM is undergoing a phase of
transition with redifined new perspecitives. 9 ~
95
96
97
98
ibid., n.98.
ibid.
Rice, n.94, p.223.
Arvind Kumar, "Post Cold War Dual use Technology Transfer Order: Policy Implications for India," Streategic Analysis, January 1992, p.1189.
10-l
Thus, the COCOM list of controlled technology has become
ineffective. Also, the provisions through which China has been provided the
necessary assistance towards technology transfer has further contributed
towards undermining the role of COCO!v1 and also its list of controlled
h 1 . 99 tee no og1es.
Another protectionist measure appeared in the field of trade related to
technology export had been during Regan era; Omribus Trade and
competitiveness Act in 1988. The U.S. Congress enacted this act in order to
promote "Free and fair trade". But, in contradiction to this vety intention
behind this act, it turned out to be protectionist in the process as it inserted
clauses like "super 301" and "Special 301" in it, to bullying its trade partners.
Super 30 1, is a section adopted from (US) Trade Act of 197 4, which was an
instrument of unfair international trade practices.100
This Act allows U.S president to make reciprocity a basic criteria for
trade relations with other countries. Under this Act, an executive order has
come out which is posing more threat than the Super 201. This order says that
the U.S. should have no scientific cooperation with any country, that does not
provide adequate patent protection to the American Industty.1111
99
100
101
ibid.
Sandhya Sharma, "Technology Transfer and Foreign Policy", Mainstream, 10 October, 1992, p.18.
ibid., p.18.
105
The General Agreement on Trade and Tariffs (GATT), a multilateral
institution to regulate international trade and tariffs, sometimes seems to be an
instrument in the hands of U.S. Clauses like; trade-related intellectual property
rights (TRIP), and trade-related investment measures (TRIIv1) in the GATT, ...
seems serving the U.S. Interests. GATT reiated Uruguay round of talks
facilities the developed countries for bullying the economically poor, third
ld 102
wor .
Following are the major forms of controls that exiStS m the wro relating to the technology transfer:-
1) Trade related investment measures- (TRIMS)
After the decline of Cold War, the developiing countries realising the
fact that they have to liberalise in trade in investment so as to develop a practice
which they never had done before. On the other the developed countries
demand more liberalisation. Thus, the clash of interest continued. Even in the
World Trade Organisation (WfO) which is very recent in origin, the
performance of the developing COUntries at the Wf0 negotiatiOllS, the
situation does not looks to be very promising is their favour.
The thrust area was, the performance requirement on the Trans
National Company in the developing country. Thus on the one hand
102 Surendra J. Patel, "GATI as Instrument of Re-Colonisation", Mainstream, 22 February, 1992, p.S.
106
economic interest of the TNC are at stake on the other socio-economic
development of the developing countries.103
If we look, back, then, US being one of the developed countries, took
the issue to GAIT'S Uruguay round in 1986 due to its economic
compulsions. It was alwaays interested in the establishment of an international
investment regime with rules and principles that will restrict and limit host
country policies and laws in relation with foreign investment. It was infact a
covert hegemonic design by the U.S. since the developing countries were
opposed to it, US couldn't get much of a success at GA TT.104
The developing
countries were always in favour of putting regulations on investment rights
such as export fixed percentage of production. They also countered restrictive
Business practices (RBPs) ofTNCs i.e.to produce and purchase from the local
sources. 10~ In order to succeed outside GATT U.S. uses its bilateral aid or
multilateral aid diplomacy to get the developing countries shafter this stand on
TRIMS. It may be added that, towards this effect U.S. has gained substantial
amount of success.
AT GATT, in tabling its proposals, the US has tried to relate them to
individual GATT articles and provisions. Under local content requirements, it
has tried to attack several production and sales arrangements, trade-balancing,
103
104
105
R. Rajkumar, Seminar Paper "Uruguay Round of Multilateral Trade Negotiations in the (ed.), V.Ramchandriah", GATT Accord: lndias Strategic Respond, (Commonwealth Publishers, New Delhi, 1994). p.258.
ibid.
Neela Mukherge, "Multilateral Investment Agreement and Poor Countries", EPW, 23 November, 1996, p.3045-46.
lfl7
equity shares, technology commercialisation practices, vanous licencing
arrangements. Argument has been that such requirements, directly or
indirectly, can limit imported products being sold or used in a country and
hence it is trade-restrictive and distortive. 106
US has also sought to attack production and sales requirements which
restrict the abilir-; of other countries to export to a host country of specific
foreign investmnet. Thus they are trade distortive.
While some of the US demands could be calimed to relate to existing
GAIT articles, others (such as those relating to equity holdings, remittance
practices or licensing provisions) are very difficult to relate to the GAIT
provisions or said to be directly trade-related.107
AT WfO, in fact US, Japan and EEC want to use the multilateral
negotiations as a starting point for putting into place an international
investment regime with rules and principles that will restrict and limit host
country policies and laws in relations with foreign investors and technology
suppliers.
The World Trade Organization agreement the mallis of TRIMs has
been widely negotiated yet, the solution in its true binding nature is not yet
reached.
106
107
Chakravarty Rag van, Recolonisation. GAIT the Uruguaway Round and the Third World, (Third World Network, Malaysia, 1990).
ibid.
108
For Example, the issue of Multilateral Agreement on Investment (l\.1AI)
has been widely debated at WTO. Basically MAI has been the OECD main
proposal at WTO. OECD wants the proposal for a sooner consideration than
being stated for future negotiations. 10 ~ The urgency behind this move of
OECD is the result of the market complexities it is facing between both home
and host countries i.e. - (investors and recipient dichotomy).109
Although the issue of foreign direct in investment, particularly rhe rights
of foreign investors in the host countries, has been put on the WTO agenda by
the Uruguay Round Agreement on Trade Related Aspects of Investment
Measures (TRIMs), its scope of applicability has generally b~en considered as
limited by the advanced industrialised countries.110
According to the agreement on TRIMs, countries must desist from
imposing trade restricting measures that prevent foreign investors from
functioning efficiently in their host countries. But it is argued rhat this manner
of interpreting the trade related investment measures is ambiguous. Restrictions
on the extent of foreign ownership in enterprises imposed by several host
countries have been the most important issue on which considerable differences
of interpretation exist.111
108
109
110
111
Editorial, EPW, 21 December, 1996, p.3275.
ibid.
Biswajit Dhar, "Hijacking of WTO Ministerial Conference", EPW, 25 Janllary, 1997, p.154.
ibid.
109
Thus, while the host countries have tended to v1ew restrictions on
ownership as not constituting TRIMs, the home countries have held otherwise.
These contentious issues should have normally come up for consideration
during the review of TRIMs which is scheduled for the year 2000, but with the
initiative on MAI making progress the Uruguay Round agreement on
investment is likely to be upstaged soon.112
Countries resisting the inclusion of MAI in the WfO agenda have been
wary of the implications of the three underlying principles of proposed foreign
investment regime. Firstly, the right to establish enterprises, secondly, national
treatment in both the pre-and post-establishment phase and Finally
enforcement of commitments made to foreign investors are seen as measures
which would ensure that national governments have practically no control over '
foreign enterprises. What lends substance to this view is that the MAl is
proposed as framework providing rights to foreign investors while listing no
obligations that can be imposed by the host countries. This feature of MAl
should make it stand out as a multilateral agreement which does not even
remotely provide for a balance of rights and obligations.1u
The implications of the MAl could be far reaching: irs impact could be
particularly significant for the future of the multilateral trading system in which
it is proposed to be lodged. Transnational Corporations (TNCs), it has been
estimated, control directly or indirectly two-thirds of the global trade in goods
and services, and if this magnitude of trade is under unbridled control of these
112 ibid., (Biswajit Dhar, EPW, 25 January, 1997), p.154.
113 ibid.
110
conglomerates, nation states may have precious little to negonate with in
multilateral negotiations. And organisation like the WTO would be rendered 114
passe.
Also, at the recently concluded Singapore round of WTO negotiations,
the issue of MAI has put the developing countries including India at a
defeating position. \Vhere, the issue of investment was included for discussion
within the frame work of WTO. The Singapore115 meeting agreed through
consensus to establish two working groups, one on the relationship between
trade and investment and the other to study the interaction between trade and
competitive practices, in order to identify any areas that may merit further
consideration in the WTO framework. 116 Since the OECD, negotiations on
Iv1AI and \X!TO very one sided recent report on this matter, which is in U.S.
favour of pushing through a consensus on the unwilling nations through its
policy of stick and carrot, makes the position of India and developing countries
very much defeating. Also, as the issue is very much on the agenda of WTO
ministerial meeting planned for Geneva 1998. 117
2) Missile Technology Control Regime (MTCR)
Firstly, MTCR dosn't fall under WTO mechanism, rather it is a
together separate category of control regime. The MTCR attempts to
114 ibid.
115 ibid. (Editorial EPW. 21 December, 1996), p.3275
116 ibid.
117 ibid.
Ill
unilaterally control the spread of ballistic missiles and related technologies.
Items banned for export including rockets and rocket engines, advanced
composite materials, advance guidance system, computer such as inertial
guidance system, laser system, digital analog hybrid computers etc.118
The implementation of these MTCR regulations through its domestic
law, the National Defence Authorisation Act (NDDA) of 1990, resulted in the
US imposing a two year trade sanction in 1992 on the ISRO and Glavkosmos.
And recently on BHEL, IIS in 1997. The sanctions here against the agreement
to transfer cryogenic engine technology to ISRO on the grounds that this
civilian launch vehicle technology had potential application in ballistic
. '1 119 miSSI es.
The MTCR is plagued by problem of the Internaitonallegitimacy since
1t lacks the support of a central validating treaty. The cartel places no
resmcnons on vertical missile proliferation, provides for no mutuality of
obligations between the missile and non-mnissile states. Above all, it
conspicusouly discriminates against thrid world civilian space programmes. At
this juncture, the MTCR Threshold Countries should collectively seek
. c h w c . 120 cooperation rrom t e estern ountnes.
118
119
120
Chandrashekhar S., "Missile Technology Control Regime and the Third World: Are thereAitematives", Strategic Digest, August, 1991, p.31.
Chellancy Brahma, "An Indian Critique of U.S. Export Controls", Orbis 38(3) Summer, 1994.
Clar1<e Magnus, "Ballistic Missiles in the Third World and the Proliferation of Defence Technology", Anns Control, September, 1989.
112
3) Patent
The Wfo round of negotitions, has taken the Provisions of Patent very
seriously, owing to the issues put forth by U.S. and its allies (G7 countries).
This concerns a patent jointly taken out by a foreigner and a national with a
view to local exploitation of an invention, when the foreigner owns a patent
valid in another country and the classic patent does not exist in the country
concerned. This is to ensure that the technology transferred to contract would
protect the joint enterprises concerned for the national explication of new
inventions.121
In Indo-US technological transfer, the US trade official s have
warned India of retaliation under the Special 301 provisions unless it changes its
patent laws, especially in the area of pharmaceutical.122
Under the Revisioin of the Paris Convention, the patentee is obliged to
work the patent, that is, to use the patent for commercial exploitation in the
patent granting country, but importation of the patented product was never
considered as working of the patent. Also to stop the abuse of the patent right
from the non-working of the patent, the patent granting authority was given
the power to license the patent to anyone who was willing to work it. This
provision ensured a balance between rights and obligations of the patentee
(UNCTAD 1988a). However, the spirit of the new WTO provision is to rule
out compulsory licensing, and it has introduced importation as working of the
121
122
A.Jason Mirabits, ''Technology Transfer of Patent/Data Rights in the commercial Sector: A Primer" in Portfolio: International Economic Perspectives, Vol.12 no.1 (Washington D.C. U.S. Govt, 1988) p.252.
Times of India, (New Delhi), 12 December, 1991.
113
patent. It states, "patents shall be available and patent rights enjoyable without
discrimination as to the place of the innovation, the field of technology and
whether products are imported or locally produced". 123
Technological development and technology transfer are possible only if
the patent is worked in the patent granting country. Using patent as an import
monopoly will certainly have an adverse impact in indusrrialisation and
innovation in these countries foreign patentee are not generally interested in
working all the patents in the developing countries. 124
This increases the
number of' sleeping patents'. One of the makes contentions of the developing
countries at wro negotiations towards this issue was "that, the countries get
deprived of the benefit of these patents" .125 Also they said, grant of parent
monopoly will work against flows of foreing investment and technology, and
also restrict thier technological advance through imitation and adaptation. 126
The developed countries negotiating stand at WfO considers the
compulsory licensing as trade distorting, the developing countries use this as a
guard to avoid abuse of patenting and monopoly. In fact, trade based approach
123
124
125
126
Tarun Kabiraj, "Intellectual Property Rights, TRIPs and Technology Transfer", EPW, 19 November, 1994, p.2993.
Bifani, P. (1990): ''The New Mercantilism and the International Appropriation of Technology" in Technology, Trade Policy and the Uruguay Round. Proceedings of the Round Table on Technology and Trade Policy. UNCTAD/ITP/23, United Nations, New York, 1990, p.145-86.
D.M. Nachane, "Intellectual Property rights in the Uruguay Round>: An Indian Perspective", EPW, 4 February, 1995, p.258.
ibid.
11-J
means that all the countries regard imports as working. 127 This is a major and
fundamental departure from the existing patent system. It is important to keep
in mind that the overwhelming majority of patents in the world are taken out
in the G-7 countries and now G-8 countries, most of the effective patents are
held by the transnational firms of those countries and US is one of them.
4. Intellectual Property Rights (IPR)
Intellectual Property Rights mainly protect the technological trade
interests of the transferor of technology. It is an extension of patents. The
WfO negotiations ar confronted with the issues of IPR which has assumed
significant proportion owing to the North and South differences.
But before we proceed further, it is pertinent to consider the following
issues of IPR on the' electronic Revolutions'.
The ' electronics revolution' has called mto question some of the
traditional approaches to IPRs and their protection. The pace of diffusion in
electronics is quire rapid, imitation is often costless and difficult to prove and
duplication via reverse-engineering can be relatively easy (semi-conductors
being a particularly striking example).128
Thus technological leakage (both
domestic and transnational) IS common and hence, affected interests in
industrialised countries have been quite active in lobbying for stronger
protection. Largely as a result of the pressure exerted by the film and recording
127
128
ibid., (farun Kabiraj, "Intellectual Property Rights", EPW, 19 November, 1994, p.299).
ibid., (D.M. Nachane, EPW, 4 January, 1995), p.258.
115
.ll.l'--1.'-l,J\,.J.' Lt.U '1''1'-.a..a -....., \....&...&.- --.a.o..a.t'-"'""""" , ....... _..,_..,._._ ~.o.'-"4- ...,._...,.,. •• _ .. _./ ••·--...... -,~ ---- --
Copyright Law was amended in 1976 to broaden the coverage of copyright to
include music, films, choreography, computer programmes, spreadsheets, etc.129
Since the period of protection under the US Copyright Law is 50 years
plus the life of the author, the protection afforded is, in fact substantial and
fears have been expressed about the adverse impacts of such legislations on the
diffusion of ideas in an area of rapid growth possibilities. In the field of semi
conductors, the protection was similarly strengthened VIa the US
Semiconductor Chip Protection Act of 1984 whereby semi conductor
topography was accorded protection for 10 years.130
Thus, the US made special 301 an instrument to enhance the
administration's ability to assess market access, and effectiveness of protection
of intellectual property rights by US partners.131
This is within the jurisdiction
of the Omnibus Trade and Competitiveness Act of 1988. And those that were
named on the "priority watch list" were China, India, and Thailand, Following
investigations concluded within six months action was to be taken. India
gained a reprieve but is still being watched.132
TRIPs was a contentious issue right from the commencement of the
round, with the developing countries unwilling to discuss the issue under
129 ibid.
130 ibid.
131 Economic News, (New Delhi}, June, 1991.
132 Time of India, (New Delhi}, 29 May, 1993.
116
GAIT. According to them, the proper forums for discussing it were the world
Intellectual Property Organisation (WIPO) and the United Nations
Commission on Trade and Development {UNCTAD), which had been
dealing with it. 133
The developing countreis stood their ground in the negotiations till the
mid-term review at Montreal in Deember 1989. But after this, as the
negotiation progressed their was a weakining of a coalition of the developing
countries.134
At WfO the concern of the developing countries centred on three • U5 mam areas:
• the cost of putting on place elaborate domestic mechanism for protecting
and enforcing IPRs.
• barriers that strengthened intellectual property protection may place in the
way of technology transfer, which is crucial to their development.
• increased cost to consumers and industry of tougher intellectual property
protection, nor simply for branded luxury goods, but for essential products
like medicine and fertilizers.
133
134
135
Benko, R.P., Protecting lntellecual Property Rights: American Enterprise Institute, (Washington, D.C., 1987).
ibid.
Raghavan, Chakravarty, Recolonization: GA TI the Uruguay Round and the Third World (Penang Malaysia: Third World Network, 1990, p.26-28.
117
In the area of intellectual property, the negotiating objectives ofthe US at
wro 136 are:
a) to seek enactment and effective enforcement by foreign countries of laws
which recognise and adequately protect IP.
b) establish GAIT obligations137
c)
136
137
138
i) to implement adequate substantive standards based on standards
in existing international agreements that provide adequate
protection in n~tionallaws.
ii) establish effective procedures to enforce, both internally and at
the border, the standards and
iii) to implement effective dispute settlement procedures that
improve existing GAIT procedures, and WfO.
• I 'iS to supplement and strengthen standards in existing IP conventions·
administered by other international organisations, including their
expansion to cover new and emerging technologiesand elimination of
discriminatory or unreasonable exceptions or pre-conditions to
protection.
ibid, (Chakravarty, Raghvan, Recolonization: GATT, Third Wor1d Network, 1990), p.35-38.
ibid., (O.M. Nachana, EPW, 4 January, 1995, p.257).
ibid.
118
From the preceding framework, it is easier to understand US policies
and precepts towards high-tech transfer to India. Until 1985, two-thirds of
India's defence technological cooperation was with the Soviet Union and much
of [he rest with Western Europe. Indo-US technological dialogue between
1986 and 1989 involved, among other things, the transfer of three main items:
advanced aero engines for the development of a light combat aircraft (LCA);
satellite and booster rocket technology for India's space programme; and
supercomputers for weather forecasting. All three items were at the forefront of
US defence and civilian technology.
At the recently concluded WfO ministerial meet at Singapore, U.S.
prime objectives of "push through an agreement on information technology
which it had already managed to establish in the APEC a month earlier was
fulfilled. 139
In fact, pushing through this information Technology On Agreement,
which will eliminate tariffs on products such as semiconductors, telecom
equipment, computers and computer equipment and software products, was a
significant achievement for the US, especially as it meant opening up the largest
and most protected market for such goods, the European Union.140
This
agreement was formally endorsed by 28 countries representing 85 per cent of
global trade in such products, and especially by Asian exporters who account
for a major share of this trade. Items of Indian export interest were not
139 ibid., (Editorial, EPW, 21 December, 1996), p.3275.
140 ibid.
119
included in the pact, being judged insufficiently important globally, and the
Indian delegation therefore could not be part of this agreement.141
The next round of WfO ministerial meeting planned for Geneva in
1998, would wind up the remaining left over provisions towards these issues of
. r: . h I 142 mrormanon tee no ogy.
Conclusion
The end of World War II and decolonisation shaped the logic of
technology denial to the South (Third World). The mechanism of East-West
technology controls are based on two predominating perceptions which
influence the U.S. policy making process. First, the Cold War and the Truman
Doctrine assumed that the communist nations were natural adversaries of the
free marker economies of the West. Since all Warsaw Pact countries were
Communist, and technology was freely shared amongst them, which included
diverting hi-tech (dual use technologies) from commercial to military
applications. It became a national security interest of the U.S. and its allies to
impede the East's technological progress for reducing their threat potential.
Second, not only were politico-economic advantages derived from the North
South technology gap, but it was perceived that most of the countries in the
South, particularly the non-aligned were more favourably disposed towards the
socialist bloc. Consequently, it was perceived that those recipients would be
141 ibid.
142 ibid.
120
easy channels for diversion of technology to the East, (in this regard, the
perception of India as a likely conduct of Western technologies to the Soviets
gained currency to serve both these perceptions).
The United States followed more or less the same principles in
transferring its hi-technology towards third world countries, as it followed in
case of Communist countries. Here it would be relevant to analyse the policies
and mechanisms for U.S. hi-technology transfer in detail.
The foundations of U.S.'s export Controls policy is the Export Control
Act of 1945. In 1969 and 1972 it was succeeded by the Export Administration
Act (EAA), which was again amended by the Reagan administration in 1985.
The Act holds control over exports of commodities/technologies as demanded
by considerations of (A) national security (b) foreign policy, and (c) short
domestic supply implemented by means of the Export Administration
Regulation 9EAR) covering the export of all "dual-use" (high-Technology)
products, it is exercised by the Office of the Export Administration (OEA) of
the Department of commerce (DOC which evaluates applications of the U.S.
firms for export licenses.
The EAR, through Its Control Commodity List (CCL), provides
specific instructions on types of licenses to use and types of commodity,
technologies (including computer software), and technical data under control.
The CCL describes commodities and areas of possible use of each commodity
and identifies the country groups to which these controls apply. The export
control regime has divided nations into six groups (P,Q T.V.WY, and Z).
India is placed in Group V, to which the west European countries also belong.
121
Main characteristic of this group is that, the case-by-case policy is applied in
technology transfer. 143
In the field of computers specifically, the EAR imposes control on
computers by specifying limits on the performance of computer which can be
exported under the distribution licenses granted by the OEA. These controls
also apply to any device, apparatus, accessory that upgrades computers beyond
the limits. The importing country in no case should be directly or indirectly
engaged in nuclear weapon development programmes.
The EAA authorises the DOC to control not only material goods but by
any information that can be used, or adopted for use, in the design,
production, manipulation, utilisation or reconstruction of articles and
materials, featuring on the CCL.
The second arm of control is the Arms Export Control Act (AEA) of
1976, out of which flow the International Traffic in Arms Regulations (IT A.R)
of 1959. The responsibilities for its administration lies with the State
Department which controls the export of defence articles and defence services
by oral, visual or documentary means to foreign nationals of 22 items in the
"United States Munitions List" .144
From the mid-1970's, rapid militarisation and arms expenditure growth
perpetuated a new regulation of technology exports. A report of the DOD,
143
144
Country Groups, Export Licensing General Policy and Related lnfonnation, Supplement, no.1 to Part 370, page.1.
R.Ramachandran, "Mov: The missing Under-standing", Frontline (Madras), 24 August-8 September, 1985, pp.46-50.
122
Defence Science Board (DSB), introduced in 1976 massive revtston of
regulations. It assented that the technological leakage to the East was making
the U.S. lose its technological and economic lead over its adversaries. It
recommended that the export control system should not only become stricter
in controlling the flow of hardware, but also be extended to technical data. This
recommendation was added to the EAA in 1979. out of this emerged a list of
Military Critical Technologies List (MCTL) which also become a component
ofCCL.145
The DSB Task Force also proposed a four-tier regulation
a. no control over basic research,
b. Commercially applicable research should be subject to EAR
c. dual-use research should be regulated by the IT AR, and
d. exclusively military usable VHSIC projects should be classified. A
new supplementary list, a ' non-secret' military significant
Emerging Technologies Awareness List (METAL) covenng
military-front technologies also became operative.
However, many items on these lists are seen to be substantially or even
primarily civilian application technologies. All export applications to
Department of Commerce are forwarded to the DOD as well as the State
Department. Their evaluation is based on MCTL and possibly also on the
expertise provided by think-tanks such as the Rand Corporation.
145 Rainer Rilling, "The Arms Build-up and Freedom of Science in the USA", Part 2, Scientific Wor1d, (Washington) vol.30, no.3, 1986, pp.15-19.
123
•
Lastly, two other controls also got activated; Nuclear non-proliferation
Controls as dictated by Nuclear Non-Proliferation Act (19 78). The second,
the multilateral control through CoCom, which is aimed at achieving uniform
export controls. As discussed earlier, CoCom play an important role in U.S.
technology transfer.
To concretise the effect of its control measures on technology exports,
the U.S. evolved a standardised method of ensuring against non-authorised use
and spread from the countries to which it supplies sensitive technologies in the
form of General Security Organization and Military Information Agreement
(GSOMIA). This agreement demands inspection of military facilities using
such technologies, the use and maintenance of the system only by trusted
personnel with high security clearance. Inaccessibility to foreign nationals, and
amendments of export laws inhabiting removal of any material from. the
supplied system. GSOMIA has become a standard agreement that the U.S. has
with 70 or so countries and companies on classified items requiring special
protection that is required from any purchaser. It readily facilities military to
military pacts of the technology transfer.
Expending regulation of technology exports based on criticality have
begun to enlarge the scope and ambit of regulations to cover not only high
technology hardware, but also to related information and collaboration and
participation of foreign scientists. The definition of scientific and technical
information is so comprehensive that even the presentation of unclassified
material at scientific conferences could be interpreted as export.
l2.t