The Technology Transfer Law in Egypt, Singapore and South Korea

free essayTechnology can be viewed as information essential for the achievement of certain production outcomes from a set of processes and inputs. As a process, technology transfer entails the adoption of knowledge from another party so that the recipient can apply this knowledge in a production process. The transfer may be achieved through market or non-market based frameworks (Dhar & Joseph, 2012). In practical, non-legal terms, transferring technology entails granting another party the right to use certain intellectual property (IP). Typically, the transfer of ‘usage right’ is normally for commercial purposes. Some of the market-based mechanisms include foreign direct investment (FDI), joint ventures, cross boarder movement of human capital and licensing (Nicholson, 2007). On the other hand, major non-market based mechanisms include imitation, test data and departure of employees who later reuse a technology in other entities. In the legal domain, technology transfer entails licensing various types of intellectual property rights (IPRs), including copyrights, expertise, patents, and patent application amongst others (Bouchoux, 2012). With the exception of computer software, the licensee permits to apply or re-transfer a technology in an agreed territory.

Impact of Technology Transfer on the Human Capital Formation

Typically, technology transfer translates into technical progress, which is labor deepening. As a country’s collective knowledge of new and innovative methods of production increases through technology transfer, the scope of technological progress changes. Moreover, innovation may lead to improved production efficiency. In the same line, some production techniques may become obsolete and culled out of the productivity function of a country. Technological progress implies that more output (less input) may be obtained with minimum resources, including human capital. Technology transfer tends to induce the development of the human resource infrastructure because the related R&D programs demand highly trained staff (Hayashi, et al., 2015). Technology transfer in the developing countries is an important means by which they achieve the transition to socioeconomic activities that heavily rely on skilled labor and advanced technologies. Consequently, technology transfer shapes the pattern of global human resource and its evolution (Edwards & Rees, 2011). The key impact of technology transfer on human capital in most technology recipients seems to be indirect. Once the individuals are employed in the subsidiaries of multinational enterprises (MNEs), human capital is improved through training. In this context, multinational corporations (MNCs) serve as technology licensors because most of them own relevant technologies. Such affiliates may also have a substantial positive influence on the enrichment of human capital in other entities with which they develop business connections.

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Investment in education infrastructure and other generic human resource development is of significance in the creation of an enabling environment for technology transfer and other FDI. A country’s ability to attract FDI and optimize human capital spillovers from multinational enterprises relies on the development of the certain acceptable level of literacy or educational attainment (UNESCO, 2014). Typically, the acceptable level differs among countries and other economic activities in the host country. As of consequence, labor augmentations across companies can further affect human capital formation as employees move to other companies or as they use the developed skills to start their firms. Therefore, it is apparent that the issue of the human capital formation is closely related to other, broader human resource development issues.

Value of Having Transfer of Technology (ToT Code) Law in a State

Technology is an important subject in the developing countries because it is one of the propellers of globalization. In addition, technology is an essential factor of the economic growth and development of both developing and developed countries (Nguyen, 2010). Further, it provides the means of improving the wellbeing of people globally. The technological gap between the developed countries and developing ones warrants the formulation of laws and regulations that induce balance and protect the interests of the developing countries. The gap is attributed to rapid technological advances in the rich industrialized countries and slow in the majority developing economies (Bosselmann, 2008; World Bank, 2008). As of consequence, most of the developing economies are largescale importers or imitators of technology. Most of the relevant technologies are properties of multinational corporations and can only be transferred through commercial agreements or technology transfer contracts. On the contrary, these organizations offer opportunities for the developing countries to benefit from technology transfer spillovers (Fattah, 2015). Despite providing numerous opportunities for technology transfer, there is the need to regulate their profit-oriented activities because they may deliberately refused to license and work, as well as charge excessive prices for their technologies in the developing countries. Such practices can hinder companies from the developing countries from acquiring technologies at affordable prices. Furthermore, uncontrolled capitalistic practices of multinational corporations could also frustrate the social and economic policies of the developing countries (Nguyen, 2010).

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As a response to the stiff competition in the global village, MNCs also tend to employ a hybrid of competitive strategies (Baroto, Abdullah, & Wan, 2012; Pearce & Robinson, 2012), might be unhealthy for technology consumers in the developing countries. Consequentially, the technological gap and market power of multinational corporations may adversely affect the welfare and economic efforts of the developing countries. In acknowledging the importance of technology and the need for controls, the United Nations facilitated the development of principles that give the developing states access to technology, and facilitation of the transfer of technology – the 1974 New international Economic Order (Nguyen, 2010). The transfer of technology (ToT) code was negotiated under the umbrella of the United Nations Conference on Trade and Development (UNCTAD) between 1970 and 1985 (Muchlinski, 2007). The laws on technology transfers in a country governs the transfers of technologies in that legal regime (state), from the state to another country and from abroad into the country. In that respect, they facilitate technology transfers by creating an attractive environment for R&D and FDI.

In agreement with Ang (2011), a presence of mature IPRs protection environment and increased R&D activities in a country tend to be beneficial to knowledge accumulation. The ToT Code considered relevant obligation within international intellectual property rights conventions and varied legitimate interest of the concerned parties, specifically technology holders. According to Fattah (2015), the most impactful channels of R&D spillovers include inward FDI (IFDI), outward FDI (OFDI), exports and imports. However, FDI are instruments that are more essential for technology transfer than trade. For example, Egypt’s domestic productivity within the context of industrial production between 2003 and 2008 was largely enhanced by R&D spillovers from over 16 countries (Fattah, 2015). The term ”R&D spillover” refers to the process by which other designers or originators learn from the research results of other research and development projects. In the same line, the acquired knowledge supports the productivity of the recipient without compensating for transfer.

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Technology laws are of great significance because they cover the rights and obligations of individuals and organizations engaged in the technology transfer taking into account their legal regimes. For that reason, they motivate both individuals and organizations from both industrialized and developing states to engage in technology transfer activities (Nguyen, 2010). Furthermore, these laws govern the competence of government agencies managing technology transfers. Most importantly, technology transfer laws often include measures designed to promote and encourage technology transfer. Regimes with credible policies and secure intellectual property rights increase the incentives of individuals and organizations to adopt those technologies that maximize profits (Bouchoux, 2012). Entities are likely to make insignificant adjustments and continue to apply obsolescent technologies in legal regimes that have unreliable policies and weak IPR protection as in the case of most developing countries. Furthermore, if the adjustment of technologies leaves entities vulnerable to expropriation, then the scope of technology transfer narrows down. In this discussion, the risk of expropriation is a quantification of the security of intellectual property rights. The underlying argument is that a strong legal framework in the domain of technology transfer facilitates the acquisition on new technologies and an innovation culture.

The significance of having technology transfer laws in a country is that they protect the legitimate interest of both locals and foreigners. The laws have a direct background on the research accomplished by international organizations, including the United Nations Industrial Development Organization (UNIDO), United Nations Conference on Trade and Development (UNCTAD) and the European Union (EU) (Dhar & Joseph, 2012; EU, 2010). The ToT Code forms the basis of various technology transfer laws (Muchlinski, 2007). Further, their backbone is also supported by the work of local and internal experts in the legal domain of technology transfer. On the legal perspective, technology laws in developing countries seem to be inspired by the need to protect patents, trademarks, foreign capital, and licenses. While laws in the developing countries are largely a result of imitation of laws applied in the developed ones, there have been country-based amendments meant to fit local circumstances. For this reasons, Egypt laws pertaining to technology transfer are out of harmony with international practice bases on party autonomy (Bonomi, Romano, Šarčević, & Volken, 2011). The underlying rationale as invoked in the negotiation of the ToT Code is that the governance of the importing state’s law is subject to its national laws and should achieve technological and economic development. Several instances of such a process are evident in their legislative history. For example, following the enactment of the Guidelines on the treatment of intellectual property rights under competition law in Singapore (Nguyen, 2010), technology transfer laws are aimed at promoting innovation and economic efficiency. In the light of the above assertion, the Egyptian legislature opted out of the party autonomy with respect to technology transfer arrangements, which as of 2011 were subject to strict regulations (Bonomi, Romano, Šarčević, & Volken, 2011). Pursuant to Article 73 of the Egyptian Competition Law (ECL), technology transfer entails a contract in which the supplier of the technology delivers a technology. The contract is also subject to other laws on trademarks. Evidently, technology transfer laws help the government to avert evasion and fraud. In addition, these laws protect the interest of the locals and national interests. Thus, it can be noted that the developing countries are becoming increasingly aware of the significance of intellectual property for national development. However, in some countries, the political will to address the importance of IP is not yet apparent. To establish an effective system of technology transfer laws, each legal regime must be aware of the interconnection between intellectual property and other domains of technology.

Benefits and Impacts of the Technology Transfer Law in Egypt, Singapore and South Korea

Technology meshes individuals and organizations with their physical and virtual environment in a convoluted socio-economic and political complex. In it, transfer and quality management determines the success or failure of an economy. Innovative technologies may have insignificant impact if not designed with the legal framework in mind. The legal framework governs the economic and social relations between the producers and the end users of the technology targets. In other words, the technology transfer laws make a country attractive to both local and foreign investors. One of the characteristics of the developed economies that makes them attractive for FDI that relates to the maturity of their legal environment. Therefore, Egypt, Singapore and South Korea continue to benefit from progress in technology transfer laws in various ways.

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Funding R&D and innovation due to an attractive technology transfer legal landscape proves that technology transfer is a driver of country’s economic growth and sustainable development (Bosselmann, 2008). For example, the 2007 European Union Research, Development and Innovation (RDI) program has supported Egypt’s transition to knowledge-based economy (EU, 2010). Central to the program is the development of an innovation culture and support of the progressive transition of Egypt from a low to a medium technology producer. According to the EU (2010), the funding translated into a rise in Egypt’s participation in the EU’s Framework Programme for Research (FP7) by 20% in 2010 compared to a 7% participation in 2007. In the pharmaceutical industry, technology transfer involves a number of channels that enhance the economic capabilities of firms or institutions receiving the technology (IFPMA, 2014).[1] Collectively, health R&D and transfer of technology help improve the health of people in the developing countries (Heshmati, Sohn, & Kim, 2007; Ganguli, Prickril, & Khanna, 2009). The rapid socioeconomic development of Asian economies, such as Taiwan, Singapore, South Korea and China, over the past few decades continues to necessitate the utilization of both external resources, including human capital and foreign capital. In the absence of these resources, particularly technological expertise, the scale of industrial and economic development could have still been very low (WIPO, 2007). These foreign capital resources have also taken the form of gram and technological aid. Of the listed countries, with exception of China, Singapore focused its attention on the use of FDI as the core external capital. Contrastingly, South Korea relies mainly on aid support and borrowing to support its national development agendas. These divergent paths shade lights on the variation in the scope of industrialization and economic development between South Korea and Singapore, with the latter being more developed than the former. In other words, the apparent technological deepening and innovation between Singapore and South Korea is attributed to the difference in the level of technological transfers – foreign direct investments.

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Technology transfer translates into knowledge accumulation. Singapore benefits from an improved education system due to the academic technology transfer innate in public-private partnerships (PPP). The government supports PPPs because they establish formidable R&D networks with the private sector (UNESCO, 2014). Egypt’s information society has improved because of the enabling regulatory and legal framework (Hussein & Khalifa, 2012). For instance, the issuance of communication laws within the context of liberalizing Egypt’s telecommunication sector and the adoption of progressive legal policies has fostered the growth of its ICT sector. Furthermore, Egypt’s telemedicine has progressed due to regulations and laws that guarantee the commitment to its adoption. Benefits innate in the Egyptian laws pertaining to technology transfer, with few exceptions, were only available for foreign investors engaged in joint ventures with local individuals or companies. Since the early 90s, Egypt encourages joint ventures, where projects must involve local participation. Through joint ventures, the developing countries can cushion the negative effect of liberalization on knowledge accumulation.

Barriers Facing Egypt, Singapore and South Korea to Keep Up with the Developed Countries

The acquisition of new technology is not as easy as procuring new product designs or machinery. It takes considerable effort to learn how to apply technologies to local circumstances while ensuring that the user protects intellectual property rights. In the same line, imitating technologies is costly, especially when the imitating country has less expertise than the country of origin. Maskus (2004) points that technology transfer through the movement of skilled personnel to the firms unrelated to their source is less flexible and more restrictive, thus raising the cost of transfer and adoption (Dhar and Joseph, 2012). Entities in the developing countries trying to imitate technology used by the developed ones through this movement tend to suffer from this form of a knowledge gap. Typically, the developing countries are synonymous to technology imitators, whereas the developed ones are tantamount to technology providers. Technology transfers from developed countries to developing economies and the factors influencing such transfers are increasingly gaining attention of development academics and economists. With countries, such as Egypt, aspiring to emulate the technological development of the advanced countries, the acquisition of technology from the developed countries assumes critical importance. As hinted above, the developing countries face a number of hurdles when trying to synchronize with the technological capabilities of the developed ones.

Institutional development. Some developing countries fail to keep up with the developed ones in the domain of technological advancement and laws governing technology transfer because their political, economic, technology and legal environments are at a different maturity level. Most of the developed countries are characterized by matured democracies (Bah, 2010), which translates into an attractive environment for trade, including FDI, and more specifically R&D. Despite the fact that R&D is not the principal mechanism that developing economies acquire technology, the impact is worth expounding for at least two reasons. The first reason is that the high expenditure on R&D in the developed countries, such as the United States, encourages technological deepening greater than other mechanisms that the developing one adopt in accessing technology – for example, through capital goods imports and FDI. The second one is that researches demonstrate the other vital approach that developing countries can improve technology transfer, through FDI is positively related to institutional quality.

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The quality of institutions and infrastructure in a country has a significant impact on technological deepening in such developing economies as Singapore, South Korea and Egypt. Firstly, the poor institutional quality has a negative impact on R&D expenditures in these countries. Since the rule of law and the risk of expropriation are correlated with expenditure on R&D, the unattractive legal environment in these countries hampers not only technology transfers, but also other forms of FDI. As a critical variable of institutional quality, it is essential to reduce the risk of expropriation and improve a country’s legal environment in order to improve expenditures on technology transfers and R&D. Lack of capacity and deficiency in legislation are internal obstacles (Nguyen, 2010). Developing countries face many challenges in formulating and implementing laws and policies pertaining to technology transfer and competition. Most developed countries have enacted and implemented guidelines pertaining to IPRs, but the majority of the developing ones are in the process. Capacity deficiencies include limited expertise in economic analyses and completion; lack of institutional independence in the enforcement of technology transfer laws; and scarce budgetary resources. To recap, developing countries are hampered by legal deficiency and limited capacity. It follows that they must improve their legal environment and lessen expropriation risks to improve R&D expenditures.

Low per capita income. Since return to investment in R&D often spread over a long period, entities in the developing countries need a significant duration to recover expenditures. If the funding entities are uncertain about the institutional environment in the developing countries, they avoid committing significant funds to R&D. Low financial development in the developing countries constrains technology transfer and knowledge accumulation. Research shows that financial development enhances the accumulation of knowledge or new ideas (Ang, 2011). However, the implementation of financial reforms policies – liberalization – has a negative correlation with knowledge accumulation. Egypt is an apt example of a complex combination of regulations and incentives. Even though not exclusively designed as a sole legal instrument for regulating technology transfer, Law 43 of 1974 – later revised in Law 32 of 1977 – forms the legal baseline for which entities in Egypt transfer technologies (Kaynak, 1996). Modified as part of President Sadat’s Open Door Policy, its central objective was to draw technology transfer and foreign investment[2]. The laws also targeted industrialized countries from the West. Within the same context, the laws were meant to aid the development of Egypt, as well as to channel FDI into the country’s privates sector.

In respect to incentives, the Egyptian government provided financial support, tax breaks, import, export regulations and guarantees concerning nationalization. States that confiscate intellectual property willingly are suspect of respecting rights innate in the ownership and transfer of technologies. Arguably, nationalization assurances could have anchored on the position that financial liberalization has a negative impact on technology transfer or knowledge accumulation (Ang, 2011). Other detrimental effects of financial liberalization in the developing countries include economic crises and unpredictability of their financial systems. For instance, the Asian financial crises altered the concentration of IFDI in the Association of Southeast Asian Nations (ASEAN) countries (Huay & Tan, 2007). In turn, the level of technology transfer was also affected because it is closely related to IFDI. Law 43 outlined the types of technology transfers and performances permitted. In agreement with Ang (2011), financial liberalization also repositions human capital from the technology sector to the financial system, hence retarding technological deepening in the developing countries. In response to the necessity of inward FDI, Singapore injected substantial and intensive funds into specific research projects, including water-related technologies and biomedicine, which have a significant impact on the country’s industry (Hayashi, et al., 2015).

Human capital. The educational ability and availability of human capital affects R&D expenditure and technological capabilities of a country. The limited human capital endowment in the developing countries affects their R&D in various ways. For instance, te developing countries with low levels of human capital have a comparative disadvantage in research and design. The underlying point is that R&D demands highly trained individuals, including engineers and scientists; thus, the resultant outsourcing of expatriates increased the cost of R&D. Further, significant activities of R&D are performed in higher institutions of learning. Singapore responded to its technology gap by formulating a national science and technology plan in 1991 (Hayashi, et al., 2015). The plan outlines the national direction towards the country’s future in science and technology activities, including R&D. Since then, the country human capital infrastructure that contributes to R&D has improved. At the center of its R&D policies, industry-based research has been conducted through collaboration among the government, industry and academia (WIPO, 2007). Consistent with Dunning’s IDP model, a country’s IFDI and OFDI are partially a function of its development level, and countries undergo different economic growth stages (Dunning & Lundan, 2008). Development and initial adoption of new technologies take place in the developed countries because R&D capabilities are mature and well supported. In addition, the highly skilled human capital in the developed countries also facilitates innovation.

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Government and defense expenditure. R&D expenditures are also affected in various ways by government expenditures. Since most of the government funds most of the research activities in higher institutions of learning, any divergent expenditure without a change in revenue is also likely to affect the amount allocated for research. Furthermore, research funded by the government might also induce increases spending by other stakeholders of the spillover are important. If there is a close relationship between the government’s total expenditure and the expenditure on R&D activities, then any changes in its revenue will affect the expenditure of R&D. For example, high taxes on foreign investors might make the business environment of a country unattractive to more investors, hence reducing government revenue and the amount allocated for R&D activities. For the developing countries that are increasingly focusing their expenditures on defense and wars, R&D funding is affected negatively, especially where there are no political will and commitment.

Some developing countries in Asia and Africa are marginal fabricators of new technologies. The input in the global research and development (R&D) effort is minimal and fails to induce significant technological innovation. Indeed, the R&D effort in the developing countries, particularly Africa and Asia, has made little contribution to both technological and economic development, but it is expected to make significant contribution in next decade. Much of the discourse on R&D in these countries has been underrated. Extensive expenditures on R&D are one of the ways through wich the developed countries have increased their technology depth over the developing ones. In Egypt, Singapore and South Korea, sound technology transfer and acquisition play a critical role in their development and increasingly receive attention from policy makers. In particular, these countries constantly enhance their legal, institutional and human capital capacities in technology transfer to reap reasonable benefits. The globalized system of technology transfer has a profound impact on the flows of technology.

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