10:17 AM Feb 26, 1997

MORE RESEARCH NEEDED ON IPRS AND ESTS

Geneva 26 Feb (Chakravarthi Raghavan) -- The UN Conference on Trade and Development has suggested that the UN General Assembly encourage further programme of work focusing on transfer of environmentally sound technologies, internalization of producer costs and international commodity prices and other aspects of the trade-environment-sustainable development complex.

These views and recommendations are in a report by the UN Conference on Trade and Development on trade and environment issues, to the Commission on Sustainable Development (CSD) and for the forthcoming UN General Assembly Special Session on review of the implementation of Agenda 21 of the UNCED Rio Earth Summit.

The UNCTAD report focuses on some of the cross-cutting issues needing further analysis and in the context of the CSD's task of identifying the gaps in the programme of work undertaken in different international organizations and encouraging appropriate actions.

On the issue of access to and diffusion of environmental sound technologies and products (EST&Ps), set out in Chapter 2 of Agenda 21, UNCTAD suggests the need for further work on the relationship between IPRs and diffusion of ESTs, the provisions for technology transfer under Multilateral Environment Agreements (MEAs) and the potential contribution of publicly owned technologies as a source of ESTs for developing countries.

Advocates of stronger IPRs argue that this would stimulate innovation, encourage FDI flows and associate technology transfers and economic growth. On the other side of the argument is the view that atleast in the short-run, stronger IPR regimes may have the effect of raising the net costs of acquiring technologies, such as ESTs,and that in this regard small firms in developing countries lacking the financial resources of large corporations are likely to face the biggest constraints.

"However," says the report, "to date there is little conclusive evidence to support either argument, thus pointing to the need for more empirical work."

MEAs, particularly the Montreal Protocol, the Climate Change (FCCC) and the Biodiversity Convention (CBD) have provisions with respect to technology transfer, and encourage transfer of substitutes and related technologies to developing countries under fair and most favourable terms.

However, developing countries have expressed concern over the limited cases of technology transfer under the Montreal Protocol (for protection of the ozone layer) and have called for a reassessment of the technology transfer mechanisms.

Under the FCCC, developing countries have expressed concern over the lack of progress in discussions on technology transfer.

It may be useful to explore opportunities for disseminating technologies through FDI and for considering, within the framework of MEAs, for wider dissemination of publicly owned technologies.

Agenda 21, the report notes, has called for formulation of policies and programmes for effective transfer of environmentally sound technologies that are publicly owned or in the public domain.

While public domain technologies are not subject to IPRs, publicly owned technologies are the product of publicly financed research and development and may be protected by IPRs.

In some developed countries, government funded Research and Development (R & D) accounts for a large part of all national R & D activities.

A basic feature of such publicly owned technology is that governments or other public entities exercise control over its generation and diffusion, whereas generation and diffusion of privately owned technologies are driven by market forces.

Some developed countries conduct a wide range of technical assistance activities and joint scientific programmes in which technology is created and shared equally. These programmes have proved to be an effective vehicle for transfer of technical knowledge and technology to the developing countries and such programmes should be supported and disseminated both bilaterally and multilaterally.

But a number of questions require further analysis on the issue of implementation of mechanisms for accessing and disseminating publicly financed technologies to developing countries.

Firstly, it would be necessary to determine to what extent publicly financed technology could be classified as environmentally sound to meet priority demands of developing countries. This information is more tractable in the case of MEAs and warrants separate analysis.

There is also a need to outline the conditions under which such technologies could be successfully adopted in developing countries.

Also needed is identification of new and innovative mechanisms to determine the extent to which publicly financed technology could be disseminated to developing countries.

The report's analysis though does not address the problem of the neo-mercantalist approaches of governments of leading industrial countries -- which are trying to enhance and maximise the benefits and earnings (in goods and services) of their corporations, including through budget support, even when advocating 'free market and free trade ideologies'.

Many of their publicly funded R & D activities also relate to enhancing the 'competitivity' of their corporations and of the economy as a whole. And as part of their budget-cutting exercises, their parliamentary bodies want to get returns on such publicly generated technologies, whether directly to the state or indirectly through the benefits to the corporations.

In the area of international investment and sustainable development, the issues of concern relate to the incorporation of countries and regions that have not benefited from the FDI boom and the potential positive role TNCs could play in conjunction with governments in achieving global goals on emission standards, as well as the continued competition among developing countries for foreign capital.

While the early debate on relationship between FDI and environment largely focused on "dirty industry migration", more recent discussions have focused on technologies and management practices associated with FDI. One view is that TNCs tend to apply environmental standards and management practices of their home country, often going beyond local legal requirements. But the hypothesis is that trade liberalization and FDI can at times result in transfer of technologies and products that have become "obsolete" in their home countries because of increasingly stringent environment policies and regulations.

In the context of the Montreal Protocol, while the transfer of technologies using chloroflurocarbons (CFC) and CFCs through FDI, for the developing countries (Article 5 countries under the protocol) is consistent with differential compliance schedules, it could still undermine the global targets on reduction of CFCs.

Appropriate policies on the part of the host country, and responsible environment behaviour on the part of investors, should be encouraged.

But further work should focus on empirical studies on environmental practices associated with FDI, on designing policies and measures to promote transfer of environmentally sound technologies and environmentally sound practices through FDI, specially in the context of MEAs and identifying positive synergies between policies that promote trade liberalization, investment and environmental policies.

The report also notes that in regard to the special situation of small and medium enterprises (SMEs) visavis environmental policies, UNCTAD and UNIDO studies have shown that, depending on the industry concerned, capacity of the SMEs to invest in environmental improvements in developing countries is relatively limited.

This is particularly so where the environmental standards require large outlays for technological improvements.

In some cases, e.g. leather and textiles, environmental improvements would need to be phased in gradually or the industries would become unviable.

On the issue of internalization of environmental costs and resource scarcities and benefits in commodity producer prices, UNCTAD points out that an aspect of this is this is in export prices, and its implications.

On the one hand such reflection of costs in export prices influences behaviour of consumers towards more sustainable consumption patterns. And it can facilitate cost internalization at producer level, provided producers can get adequate remuneration from higher international prices.

Post-UNCED deliberations have shown this is an important, but complex issue. While there has been some theoretical discussion on various aspects, there are analytical and empirical gaps still on the assessment of effects of internalization on production costs, volumes and other socio-economic variables as well as on trade effects.

Preliminary conclusions that could be drawn from work done so far include:

* in developing countries, development objectives and priorities such as foreign exchange generation, equitable income distribution, employment creation, provision of basic human services, increasing competitiveness -- all have a bearing on the weight given in overall policy mix to environmental issues, implementation of internalization policies and selection and combination of internalization instruments;

* there is need for better understanding of relationship between internalization and competitiveness. If environmental resources are under-priced, the short-term of cost internalization would be rise in production costs which may reduce competitiveness at firm or sector levels. But it may increase competitiveness at national level by reducing input use and increasing efficiency; by reducing waste and pollution and lowering abatement and remedial costs; and by reducing resource depletion.

* the pace of internalization - how much and how fast - should only be carried out up to the level where incremental benefits warrant the incremental costs.

Full cost internalization will be rarely optimal and the chosen degree of internalization will vary from country to country and even within regions of the same country.

The optimal level cannot also be implemented overnight, since irreversible investments have been made and capital stock is in place under wrong price signals.

Sudden internalization is also likely to generate conflicts between environmental protection, need for structural change and narrowly understood sectoral competitiveness.

* unilateral internalization at producer's level could be beneficial, especially in the long run, but short-term costs and uncertainty about foreign exchange earnings, world commodity demand and socio-economic implications are formidable constraints.

Unilateral internalization of environmental costs in the commodity sector could be afforded by developing countries if such increased costs can be reflected in international commodity prices, and such increase in prices does not lead to reduced foreign exchange earnings.

Intergovernmental cooperation would hence be important to encourage internalization at producers level and to reflect producer prices in international commodity prices and/or providing finance for environmental sound processing methods.

UNCTAD suggests further work may be needed on internalization of environmental costs, in particular in commodity sector, including on:

* examination of successful experiences with internalization in the case of specific commodities,

* further sector-specific studies on identifying opportunities and constraints,

* round-tables and other arrangements for reflection of internalization costs in international commodity prices,

* promotion of trade in environmentally preferable products, and

* internalization of positive externalities which may result from enhanced environmental protection and in generating additional revenues for developing countries..

Such positive externalities may arise from natural eco-systems -- with their range of local, national and international benefits, including water-shed protection, revenues from eco-tourism and carbon sequestration.

But because of market failures, these do not often provide sufficient economic incentives, to the central government or local populations, for the preservation of primal forests, wetlands, coral reefs and other biologically diverse eco-systems.

The report also mentions UNCTAD's controversial biotrade initiative to improve capabilities of developing countries in emerging market for biological resources.

The biotrade initiative, among other things, would evaluate mechanisms, including national or local trust funds supported by compensation from biochemical prospecting activities, communal intellectual rights over information concerning uses of biodiversity components.

The emergence of an active biochemical prospecting market, the report argues, can provide an additional means of converting the potential future value of biodiversity into current incomes for those most responsible for, and most affected by, the preservation of biologically diverse eco-systems.

But simply creating a market for trade in biological material may not in itself generate significant conservation incentives or benefits for the host country.

It will require economic and market research, alternative contractual arrangements and guidelines on access to biological and genetic resources, promotion of incentive measures for benefit sharing, access to and transfer of technologies related to development of bioresource industries in developing countries.