United Nations ESCAP/CICTSTI/2018/7

Economic and Social Council Distr.: General

20 June 2018

Original: English

Economic and Social Commission for Asia and the Pacific

Committee on Information and Communications Technology,
Science, Technology and Innovation
Second session
Bangkok, 29–31 August 2018
Item 4 (b) of the provisional agenda*
Policy issues for science, technology and innovation:
leveraging technology and trade for economic development

Leveraging technology and trade for economic development

Note by the secretariat

Summary
Technological progress and trade are inextricably linked. Global trade has
accelerated the spread of innovation and technology, and technological advances –
particularly in the areas of information and communication, transport, and electronic
commerce and payment – have spurred international trade.
Technology continues to reshape international trade today, affecting not only
what goods and services are traded but also the way in which they are traded.
Electronic commerce and paperless trade are just two examples of how technology is
changing the way in which trade has traditionally been conducted.
Trade, technology and industrial policies all affect the development of
particular sectors and industries, and therefore directly or indirectly influence
technological learning and progress. Historically, these policies have helped a few
countries in the region to catch up. While policies today still play an important role in
economic development and technological upgrading, certain measures that affect
trade by protecting domestic markets or promoting exports are prohibited or restricted
under multilateral trade agreements.
The Committee on Information and Communications Technology, Science,
Technology and Innovation is invited to reflect on the opportunities and challenges
related to the leveraging of technology and trade for economic development by
sharing experiences and lessons learned in these areas. Furthermore, the Committee
is invited to identify policy priorities and focus areas for regional cooperation to guide
the work of the secretariat.

_______________________
*
ESCAP/CICTSTI/2018/L.1.

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I. Introduction
1. Technology is a key factor that drives productivity growth and global
market competition and defines global value chains. Technological innovation
spawns new businesses and shapes the nature of international competition and
international trade.

2. For many developing countries, such technological dynamism brings

both opportunities and challenges. The Internet and smartphones have enabled
the dissemination of information at an unprecedented scale and pace. Today, it
is possible for firms and entrepreneurs to discover news or information about
the most advanced technologies directly online. New ways of doing business,
such as electronic commerce, enable individuals and small and medium-sized
enterprises to participate more easily in international trade.

3. On the other hand, technology gaps between countries that are leading
in the region and those that are lagging behind still exist or have been widening,
making it difficult for some countries to climb up the global value chains,
diversify exports and catch up with developed countries.

4. Policy intervention is critical in stimulating economic growth and

technological progress for the countries in the region. The examples of a few
Asia-Pacific countries having successfully caught up over the past several
decades – the so-called East Asian miracle1 – show that policy intervention can
effectively gear economic development.

5. The environment for policymaking, however, is different from several

decades ago. For example, free trade agreements impose restrictions on
implementing certain types of policy measures. Any industrial and technology
policy today needs to be compatible with trade rules. Furthermore, while the
rapid development of digital and frontier technologies provides new business
opportunities, many countries may find it difficult to keep the same pace in
making and adapting laws and regulations to address the issues related to these
technologies.

6. This document contains a review of the interplay and dynamism

between trade and technology. Production technologies largely define what
countries can produce and export. This process is dynamic because
technological learning and upgrading take place in all countries, thus reshaping
production and international trade. In this document, the emphasis is on issues
on policies related to industry, trade, and science, technology and innovation
in enhancing technological upgrading and innovation.

II. Production technology dictates what a country can

produce and export
A. Production technology largely decides the structure of trade and
global value chains

7. What a country produces or can produce is often defined by its

endowment of physical and human capital, labour and natural resources, along
with the overall quality of its institutions. For instance, mango grows in South-
East Asian countries, where the soil and tropical climate are favourable for its

1
World Bank, The East Asian Miracle: Economic Growth and Public Policy – Main
Report (Oxford University Press, New York, 1993).
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growth or a small island country may find it easier to develop tourism over
heavy industry.

8. When products such as textiles and clothing are produced by many

countries, cross-country differences in technology often explain the
international pattern of specialization and trade because technology can play a
vital role in the quality and costs of the final products. Technology gaps can
also influence the type of goods exported. More advanced countries typically
produce and export more technologically sophisticated goods. Technological
upgrading takes place in every country worldwide at different speeds.

9. The evolution of exports in Asia-Pacific countries provides evidence

for the above observations. Figure I shows that between 1990 and 2014,
medium-high- and high-technology manufactured exports from Asia-Pacific
countries on average increased from 24 to 34 per cent. During the same period,
medium-high- and high-technology manufactured exports from Japan
accounted for approximately 80 per cent of the country’s total manufactured
exports, while their share increased from 51 to 72 per cent in the Republic of
Korea and from 28 to 57 per cent in China.

Figure I
Share of medium-high- and high-technology manufactured exports in
total manufactured exports, Asia-Pacific countries, 1990–2014
(Percentage)

90

80

70

60

50

40

30

20

10

Asia-Pacific average Australia Japan

Republic of Korea New Zealand China
Bangladesh Nepal Cambodia

Source: Calculations by the Economic and Social Commission for Asia and the
Pacific (ESCAP) based on United Nations Industrial Development Organization
(UNIDO), “Medium and high-tech exports (% manufactured exports)”, Competitive
Industrial Performance database. Available at
https://data.worldbank.org/indicator/TX.MNF.TECH.ZS.UN (accessed 20 June 2018).
Note: UNIDO uses a taxonomy of industry groups by technological intensity:
(a) medium-high and high technology; (b) medium technology; and (c) low
technology. For more information, see
http://stat.unido.org/content/focus/classification-of-manufacturing-sectors-by-
technological-intensity-%2528isic-revision-
4%2529;jsessionid=F033873E486B87E001C2B35638A0793D.

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10. Figure I also shows that in the three least developed countries from the
region – Bangladesh, Cambodia and Nepal – the rate of medium-high- and
high-technology manufactured exports is generally low. However, in Nepal,
the share has substantially improved over time, having increased from 6 to 19
per cent between 1990 and 2014.2 Interestingly, in two advanced economies in
the region – Australia and New Zealand – there is a generally low rate of
medium-high- and high-technology manufactured exports. This can be
explained by natural endowment: the main exported goods from Australia and
New Zealand are minerals and agricultural products respectively, which both
belong to low-technology sectors.

11. The development of the manufacturing industry in China has had a

substantial impact on the trade structure. As shown in table 1, in 1996, China,
the Republic of Korea and Thailand exported the greatest percentage of low-
technology products in the region, while Japan exported 30 per cent of high-
technology products. By 2014, China exported the greatest percentage of high-
technology products in the region, with a market share of 43.7 per cent.

Table 1
Share in Asia’s manufactured goods exports against Asia’s total
manufactured exports
(Percentage)

High technology Medium-high technology Medium-low technology Low technology

1996 2000 2014 1996 2000 2014 1996 2000 2014 1996 2000 2014

China 5.9 9.4 43.7 6.3 10.1 36.5 10.8 14.9 34.6 21.2 26.3 55.4

Japan 30.0 25.5 7.7 52.8 49.8 23.6 27.6 24.7 11.1 5.4 5.1 2.0

Republic of Korea 7.3 10.7 9.4 9.9 9.7 14.4 15.4 16.2 15.1 7.6 6.7 2.4

India 0.4 0.3 1.7 1.1 1.2 3.6 1.9 2.5 9.6 6.0 6.7 9.4

Indonesia 0.9 1.4 0.5 0.9 1.4 1.7 2.6 3.0 1.8 6.1 5.9 5.2

Malaysia 9.4 9.7 4.7 2.2 2.1 2.4 3.5 3.6 4.2 4.5 3.4 3.2

Philippines 2.6 4.5 1.6 0.4 0.6 0.7 0.8 0.8 0.5 1.7 1.5 0.9

Thailand 3.8 3.6 2.7 2.1 3.0 5.2 2.5 3.2 3.6 6.5 5.5 4.3

Rest of Asia 39.8 35.0 28.0 24.3 22.2 11.8 35.1 31.1 19.5 41.0 39.1 17.1

Asia total 100 100 100 100 100 100 100 100 100 100 100 100

Source: Asian Development Bank, Asian Economic Integration Report 2015:

How Can Special Economic Zones Catalyze Economic Development? (Manila, 2015).

12. While the share of high-technology export goods is an important

indicator of a country’s technology capacity, there are two important points to
note. First, global value chains mean a country may actually assemble a high-
technology product and work on low-technology activities with low value

2
This may be explained by the fact that Nepal began implementing a structural
adjustment programme in the mid-1980s with the support of the International
Monetary Fund and the World Bank. For further details, see Prakash Kumar
Shrestha, “Structural changes and economic growth in Nepal”, 19 October 2010.
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added. In this case, the country may not really own the high technology,
although the final export product is counted in the high-technology exports of
a country, which adds little value to total exports. Second, a low-technology
product does not necessarily mean a low level of innovation. For example,
technology fusion3 – the combination of already existing technologies or
engineering and science disciplines into new hybrids that are greater than the
sum of their parts – can lead to innovation.4

13. In the future, new advanced technologies such as artificial intelligence

and robotics may further reshape international trade patterns. It is possible that
the flow of foreign direct investment may be reduced if foreign companies
build factories in their home countries. Similarly, reshoring may occur,
whereby foreign companies move their operations from developing countries
back to their home countries. Evidence in this respect is scarce, probably
because many new frontier technologies are still at the nascent stage of
development and have yet to achieve widespread application. Nevertheless, it
is important to monitor developments in this respect.

B. Trade can stimulate the diffusion of production technology

14. The international competition brought about by trade can have either
positive or negative impacts on technology development. Trade can exert a
market-pull effect on technology and innovation. In order to compete in the
international market, producers have to be competitive in at least one area, such
as low costs or high quality of products. A potential solution is through
technological upgrading. Often, this means that producers need to be
innovative or able to adopt appropriate technology. On the other hand, when
an economy is open to trade, foreign products may crowd local producers out
of the market. In some cases, import products may have a hugely adverse
impact on local industry such as manufacturing or infant industries. The
resulting deindustrialization may limit the opportunities of countries to
understand and develop technologies.

15. Global value chains can contribute to technology diffusion. The local
firms that participate in global value chains may directly receive the
technologies. Furthermore, participating in global value chains can generate
spillovers for other firms: there is always some leakage of technology or
people, and some of the benefits are also felt by other firms. Such spillovers
resulting from technology diffusion in the context of global value chains may
happen backwards or forwards. Backward spillovers occur if there is a
significant technology upgrading effect for suppliers when one of their clients
receives foreign investment: the recipient firm’s demand pattern changes,
perhaps focusing more on the high-standard merchandise required by its
foreign partner, and so the supplier needs to upgrade production to meet that
demand.

16. For some specific technologies, a country may have a choice as to

whether to develop its own or rely upon foreign technologies. Developing a
technology – whether globally new or relatively new to a particular country –
can be costly, time-consuming and risky. Hence, it may be more efficient for
developing countries to acquire available foreign technologies, especially if the

3
An example in mechatronics is Fanuc, a spin-off of Fujitsu that combined electronic
and mechanical technologies to make computer controls for machine tools and
industrial robots and become one of the most profitable companies in Japan. See
Fumio Kodama, “Technology fusion and the new R&D”, Harvard Business Review,
July–August 1992.
4
Lewis M. Branscomb, “Does America need a technology policy?”, Harvard Business
Review, March–April 1992.
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technologies are easy to diffuse and adopt. In this way, a technologically

underdeveloped country could catch up rapidly by absorbing the most
advanced technologies.

17. On the other hand, there are several issues associated with reliance on
foreign technologies. First, some foreign technologies are simply not for sale,
especially if a technology is decisive for the core competitiveness of a company
or a country. Second, in some cases, to maintain their competitiveness,
multinational corporations may actually provide developing countries with the
old generation of technologies. Third, in the case of technology import, the
local firms may not be provided with full information about the technologies,
therefore making any further innovation or adjustment difficult.

18. For a country or firm, reliance on foreign technology without its own
innovation means being a follower of technology, and leapfrogging is
prevented. Depending on the national strategy, if a country or firm aims to lead
technology internationally, indigenous innovation – based on its own research
and development capacity – is essential.

III. Technology underpins the evolution of international trade

A. Transport, information, communication and new technologies
stimulate international trade

19. Historically, the development of transport and information and

communications technology (ICT) has shaped trade. Today, over 80 per cent
of global trade by volume and more than 70 per cent of its value is carried on
board ships and handled by seaports worldwide.5 In this sense, the importance
of maritime transport for trade and development cannot be overemphasized.

20. Communication technologies such as the telephone and telegraph made

it faster to negotiate and conclude trade deals than using the traditional postal
service. Since the 1970s, electronic data interchange has been introduced to
facilitate business communication, using electronic means instead of paper.

21. Technology continues to shape trade procedures and state-of-the-art

technologies are being adopted. For instance, in the Republic of Korea, the
customs service has recently started a pilot project on blockchains for import
procedures.6

22. Digital technologies are rapidly changing what is tradable. Data are to
this century what oil was to the last: a driver of growth and change. Flows of
data have created new infrastructure, new businesses, new monopolies, new
politics and – crucially – new economics.7

23. Information technology is being used to enhance tourism services such

as travel bookings, planning of itineraries, marketing of destinations and
information-sharing. With the rapid development of the Internet, smartphones,
and fourth- and fifth-generation wireless systems, more media products, such
as films, videos, music and audio recordings, radio broadcasts and video
games, are becoming tradable. For example, the streaming company Netflix is

5
Review of Maritime Transport 2017 (United Nations publication,
Sales No. E.17.II.D.10).
6
Samburaj Das, “Korea Customs Service to pilot blockchain-based import customs
platform”, CCN, 6 June 2018.
7
The Economist, “Data is giving rise to a new economy”, 6 May 2017.
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reported to be one of the most valuable media companies in the world, with a
market value of $152.6 billion on 24 May 2018, and the company revealed that
its current membership level was 125 million subscribers at the end of first
quarter of 2018.8

B. Paperless trade and electronic commerce

24. Among numerous technologies that facilitate the conduct of

international trade, as discussed above, paperless trade facilitation and
electronic commerce are specifically reviewed here given their relevance to the
countries in the region.

1. Paperless trade facilitation

25. Paperless trade generally comprises the implementation of innovative

and technology-driven measures aimed at enabling trade using electronic
rather than paper-based data and documentation. Customs automation systems
and national single windows are widely cited examples of paperless trade. A
survey conducted by the secretariat on trade facilitation and paperless trade,
covering 44 countries in Asia and the Pacific, shows that electronic/automated
customs systems are available in most of the countries surveyed (41 of 44) and
have been fully implemented in more than half.9 Challenges remain for
implementing electronic single-window systems, which have been
implemented fully, partially or on a pilot basis in 23 countries, or more than
50 per cent of all the Asia-Pacific countries surveyed.

26. Cross-border paperless trade refers to trade in goods, including their

import, export and transit and related services, that takes place on the basis of
electronic communications, including the exchange of trade-related data and
documents in electronic form. The survey results show that there has been
limited electronic exchange of trade-related data among countries, and often
on a pilot basis only.

27. Achieving cross-border paperless trade across the region is expected to

be a long and difficult process, which cannot be achieved without close
collaboration between countries. To enhance cross-border paperless trade, on
19 May 2016, the Commission, at its seventy-second session, adopted the
Framework Agreement on Facilitation of Cross-border Paperless Trade in Asia
and the Pacific. Subsequently, five countries in the region – Armenia,
Bangladesh, Cambodia, China and the Islamic Republic of Iran – signed the
Framework Agreement in 2017, while Azerbaijan acceded to it in March 2018.
The secretariat estimated that full implementation of the Framework
Agreement would achieve estimated cuts in regional trade costs of 25 per cent
on average. Furthermore, estimates show that potential annual export gains
associated with moving from manual paper-based trade to paperless trade are
estimated to be $257 billion in the region.10

8
Tae Kim, “Netflix briefly tops Disney as the biggest pure media company in the
world by market value”, CNBC, 24 May 2018.
9
The survey was led by the secretariat, with the participation of all the regional
commissions and other partners. For detailed information, see
https://unnext.unescap.org/content/un-global-survey-trade-facilitation-and-paperless-
trade-implementation-2017.
10
Digital Trade Facilitation in Asia and the Pacific (United Nations Publication, Sales
No. E.18.II.F.10).
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2. Electronic commerce

28. E-commerce refers to the sale and purchase of goods and services
through electronic networks and the Internet. There are four main types of
e-commerce: business-to-business, business-to-consumer, consumer-to-
consumer and, to a lesser extent, business-to-Government.11

29. Available data show the importance of e-commerce for international

trade. The United Nations Conference on Trade and Development (UNCTAD)
estimates that the value of global e-commerce was $25 trillion in 2015,
compared with $16.1 trillion in 2013. The United States of America is by far
the largest market for e-commerce, with combined sales equalling more than
$7 trillion in 2015, while China has the largest business-to-consumer market
in the world. In China, e-commerce accounted for 18 per cent of its gross
domestic product.12

30. E-commerce can promote inclusive development. Compared with

traditional trade, e-commerce helps local businesses – especially micro- and
small enterprises – individual persons, women entrepreneurs and farmers to
reach a broader domestic or international market. E-commerce, in particular
cross-border e-commerce, may also bring competition to local markets. A
recent study points out that retail in general and e-commerce in particular are
thin-margin businesses.13 Adaptation to e-commerce is not automatic,
however, and traditional bricks-and-mortar retailers may struggle to cope with
the fierce competition that it brings.

31. Cross-border e-commerce brings new challenges to border agencies

such as customs in many countries. The functions of border agencies have
traditionally been designed to handle bulky cargo. E-commerce means the
cargo arrives in a large number of small parcels: in practice, it is almost
impossible to physically check every parcel, meaning that some illegal goods
may be shipped to a country in disguise.14 Second, the small parcels may
involve questions with regard to tax. In many countries, the de minimis rule
means that cargo can be exempted from tax if its value is under a threshold
requirement. In theory, traders can exploit this rule by shipping multiple
parcels instead of a single one to avoid tax. For instance, purchases from
foreign e-commerce vendors outside of Thailand are subject to 7 per cent value
added tax only if the value exceeds 1,500 baht, but some online operators
exploit the loophole by breaking up invoices into amounts below the threshold
to skirt the levy.15

11
Asia-Pacific Trade and Investment Report 2016: Recent Trends and Developments
(United Nations publication, Sales No. E.16.II.F.23).
12
UNCTAD, “Ministers to discuss opportunities and challenges of e-commerce with
Jack Ma, eBay, Jumia, Huawei, Etsy, PayPal, Vodafone and more”, 21 April 2017.
13
Sunil Gupta and Tanya Bijlani, “E-commerce in Asia: challenges and opportunities”,
Asia Business Insights (2012).
14
Michael Morantz, “The dark side of the digital economy: bad things come in small
packages”, OECD Insights, 18 May 2018.
15
Bangkok Post, “E-business tax primed for scrutiny”, 7 March 2018.
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IV. Formulating effective and coherent policies on trade,

industry and technology
A. Overview of policies

1. Trade policies

32. Trade policy measures affect imports and exports of goods, and come
in the form of changed tariff rates or other duties, quantitative restrictions
including bans, customs procedures, taxes and a whole array of other,
non-tariff, measures. Their prominent feature is the ability to discriminate
between different markets, products and services.

33. Historically, countries in the region have adopted different trade

policies, which fostered the development of particular sectors and the relevant
technologies in those sectors. As shown in table 2, these policies have evolved
over the past several decades, starting with import substitution, which has
evolved into export orientation. Export orientation normally begins with
assembly or original equipment manufacturing as well as light industries, and
over time the value added of exports increases. Often, export-oriented policies
ran parallel to import-substitution policies, as protection was removed only
gradually.

Table 2
Shifting of trade and industrial policies in selected economies in Asia

Indonesia 1948–1966: 1967–1973: 1974–1981: 1986 onward:

Economic Some trade Oil and commodity Gradual trade
nationalism; liberalization boom liberalization and
nationalization of export promotion
Dutch enterprises
Republic of Korea 1961–1973: 1973–1979: 1980–1990: 1990 onward:
Initial export Heavy and chemical Gradual trade Trade liberalization
take-off industry drive: liberalization and and high-technology
selective promotion move to less exports
selectivity

Malaysia 1950–1970: 1971–1985: 1986 onward:

Natural-resource- Import substitution Gradual trade
based exports and export promotion liberalization and
through export export promotion
processing zones

Taiwan Province 1953–1957: 1958–1972: 1973–1976: 1981 onward:

of China Import substitution Export promotion Industrial High-tech
consolidation industrialization
Thailand 1955–1970: 1971–1980: 1980 onward:
Natural-resource- Import substitution Trade liberalization
based exports and export promotion
Singapore 1959–1964: 1967–1973: 1973–1984: 1985 onward:
Labour-intensive Labour-intensive Upgrading export Export promotion of
import substitution export promotion structure high-tech and
services
Japan 1950–1958: 1959 onward: 1967 onward: Mid-1980s:
Import substitution Export-oriented trade Liberalization Deregulation
and foreign exchange

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Philippines 1950 onwards: 1967–1973: 1980s onward: 1990s onward:

Import substitution Continued import Liberalization Continued
substitution (political stability) liberalization
(strengthened
political stability)
Hong Kong, China 1950 onward: 1979 onward: 1990s onward:
Export orientation Improved institutional Upgraded support
(laissez-faire, support for industry for technology
education,
infrastructure and
institutional
support)
China 1965–1976: 1977–1978: 1980s onward: 1990s onward:
Defence/industry Plant import Coastline High-technology
(heavy liberalization infrastructure
industrialization) (light industries)

Source: Adapted from John Weiss, “Export growth and industrial policy: lessons
from the East Asian Miracle experience”, ADB Institute Discussion Paper, No. 26
(Tokyo, Asian Development Bank, 2005); and Industrial policy and the WTO (United
Nations publication, Sales No. E.00.II.D.26).

34. The 1980s saw a gradual trade liberalization. As of June 2018, 262
preferential trade agreements that had at least one member from the Asia-
Pacific region were in force, had been signed or were under negotiation.16
Despite this, various forms of trade protectionism still exist today. Measures
both to restrict and liberalize trade have been applied around the world,
including by the countries in the region. For example, between October 2015
and May 2017, 256 trade-restrictive measures were introduced at the global
level, 27 per cent of which by Asia-Pacific economies.17

2. Industrial policies

35. Industrial policy, in general, refers to any type of selective intervention

that attempts to alter the structure of production towards sectors that are
expected to offer better prospects for economic growth than would occur in the
absence of such intervention, in the market equilibrium.18 In a broad sense,
industrial policies do not have to be written down or publicized. Whenever a
Government consciously favours certain economic activities over others, it can
be treated as the implementation of industrial policy.19

36. Several countries in the region have adopted industrial policies to

achieve economic development. For instance, between the 1960s and 1980s,
the Republic of Korea maintained an outward-oriented, bottom-up and
integrated approach to industrial policy. The Government and chaebols20

16
See www.unescap.org/content/aptiad.
17
For further information, see Asia-Pacific Trade and Investment Report 2017:
Channelling Trade and Investment into Sustainable Development (United Nations
publication, Sales No. E.17.II.F.22).
18
Howard Pack and Kamal Saggi, “Is there a case for industrial policy? A critical
survey”, World Bank Research Observer, vol. 21, No. 2 (September 2006).
19
Dani Rodrik, “Industrial policy for the twenty-first century”, paper prepared for
UNIDO, Cambridge, Massachusetts, 2004.
20
A chaebol is a family-run conglomerate in the Republic of Korea. Such groups have
been at the heart of its rapid industrial development over many years and tower over
almost every area of business. For further information, see
http://lexicon.ft.com/Term?term=chaebol.
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systematically studied what had to be done to fill the missing links in the
domestic value chain and move up the quality ladder, through technology
acquisition, human resources development and construction of optimal-scale
plants aimed for the global market. As the capacity of the private sector
increased and sector-targeting became a more difficult proposition, the
Republic of Korea shifted to a more sector-neutral approach, which provided
support for industry rationalization and research and development regardless
of sector.21

37. Evolution of the industrial revolution can also be observed in China.

The National Medium- and Long-term Programme for Science and
Technology Development (2006–2020) identifies 402 core technologies,
ranging from pharmaceuticals to integrated circuits, for prioritized
development.22 Today, arguably, the most important industrial policy in China
is the Made in China 2025 plan, and the implementation of subsequent
supportive policy measures, which are focused on indigenous innovation and
upgrading of manufacturing capabilities.23

3. Science, technology and innovation policies

38. National science, technology and innovation policies serve several

functions. First, they articulate the Government’s vision regarding the
contribution of science, technology and innovation to the country’s social and
economic development. Second, they set priorities for public investment in
science, technology and innovation and identify the focus of government
reforms. Third, the development of these strategies can engage stakeholders
ranging from the research community, funding agencies, business and civil
society to regional and local governments in policymaking and
implementation. In some cases, national strategies outline the specific policy
instruments to be used to meet a set of goals or objectives. In others, they serve
as visionary guideposts for various stakeholders.24

39. In Thailand, the conceptual framework of the National Science,

Technology and Innovation Policy and Plan 2012–2021 identifies challenging
issues impacting the development of science, technology and innovation to
better serve the needs of the economy and society of Thailand throughout the
next decade.25

4. Policies today are often bound by international trade rules

40. Evidence shows that policies related to industry, trade and science,
technology and innovation have been widely used in practice, not only by
countries in the region, but also by traditionally advanced economies. For
instance, a study shows that discrimination across sectors, against foreign
commercial interests and between domestic firms have been important features
of policy choice by large economies such as Brazil, China, the European
Union, Japan, the Republic of Korea, the Russian Federation and the United

21
Joseph E. Stiglitz, Justin Yifu Lin and Célestin Monga, “The rejuvenation of
industrial policy”, Policy Research Working Paper, No. 6628 (Washington, D.C.,
World Bank, 2013).
22
Reggie Lai and Lingling Deng, “China’s industrial policy and its implications for
foreign manufacturers”, American Chamber of Commerce in Shanghai, 9 November
2017.
23
See http://english.gov.cn/2016special/madeinchina2025.
24
Organization for Economic Cooperation and Development, “National strategies for
STI”, OECD Science, Technology and Innovation Outlook 2016 (Paris, 2016).
25
See www.sti.or.th/encontent.php?content_type=3.
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States of America since the beginning of the global financial crisis in 2007,
although resort to them by these countries differed.26

41. In an era of free trade, policy measures widely used three or four
decades ago may not be valid according to international trade rules. Under the
framework of free trade agreements (multilateral, regional and bilateral), some
selective interventions that affect trade by protecting domestic markets or
promoting exports are prohibited or restricted under multilateral trade
agreements signed under the auspices of the World Trade Organization
(WTO). Among them are restrictions on the use of export subsidies, prohibition
of performance requirements such as domestic content requirements, and limits
on the use of quantitative restrictions on imports. There are, however,
(temporary) exceptions to the above rules, such as special and differential
treatment, that allow developing countries to retain or use some policy
instruments whose use would otherwise be forbidden or restricted.27

42. Of the 53 member States of the Economic and Social Commission for
Asia and the Pacific (ESCAP), 40 are WTO members and five are in the
process of accession to WTO, meaning that 85 per cent of ESCAP member
States are or will be subject to WTO trade disciplines.28

43. Technology transfer and innovation are covered by several WTO

agreements, such as those on subsidies, intellectual property, services and
technical barriers to trade, as shown in table 3.

Table 3
Coverage of policies related to technology and innovation in the
agreements of the World Trade Organization

Policy/measure Relevant WTO agreement

Domestic support and incentives Agreement on Subsidies and Countervailing Measures

for research and development Agreement on Agriculture
(for example, subsidies)
Protection and enforcement of Agreement on Trade-Related Aspects of Intellectual
intellectual property rights Property Rights
Commercialization of publicly Agreement on Trade-Related Aspects of Intellectual
funded research Property Rights
Transfer of technology and General Agreement on Trade in Services
know-how Agreement on Trade-Related Investment Measures
Agreement on Trade-Related Aspects of Intellectual
Property Rights

26
Vinod K. Aggarwal and Simon J. Evenett, “Industrial policy choice during the crisis
era”, Oxford Review of Economic Policy, vol. 28, No. 2 (July 2012).
27
Economic Development in Africa Report 2014: Catalysing Investment for
Transformative Growth in Africa. (United Nations publication, Sales No.
E.14.II.D.2).
28
See
www.unescap.org/sites/default/files/ESCAP%20members%20and%20associate%20
members%20and%20status%20of%20their%20membership%20in%20WTO-
1%20May%202017.pdf.
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Policy/measure Relevant WTO agreement

Government procurement General Agreement on Tariffs and Trade
Agreement on Trade-Related Investment Measures
Agreement on Government Procurement
Technical standards General Agreement on Tariffs and Trade
Agreement on Technical Barriers to Trade
Agreement on the Application of Sanitary and
Phytosanitary Measures
Competition policy Agreement on Trade-Related Aspects of Intellectual
Property Rights
Agreement on Trade-Related Investment Measures
Policy/regulatory frameworks Aid for Trade initiative
and general infrastructure

Source: John M. Curtis, Trade and Innovation: Policy Options for a New
Innovation Landscape (Geneva, International Centre for Trade and Sustainable
Development and World Economic Forum, 2016).

B. Policy priorities

44. Developing countries may have the most to gain from applying some
level of industrial policy appropriate to their strategic development and
science, technology and innovation policy aspirations. This is because
development involves structural transformation and diversification processes
which create rather than exploit existing comparative advantage.29

45. Countries in the region differ in terms of economic structure, national

and financial resources and access to international market, among other
differences. A one-size-fits-all development strategy is probably unrealistic.
Notwithstanding the differences, the following recommendations may be
regarded as common denominators.

1. Aligning all policies with national strategy

46. Despite the importance of policies related to industry, trade and science,
technology and innovation, policymakers should never lose sight of the fact
that these policies should be designed and implemented within a much broader
framework of national strategy. Policy should be geared towards supporting
the country in acquiring, absorbing and upgrading technologies, enhancing
productivity and moving up the ladder of global value chains, rather than
answering rent-seeking lobbies.

47. Historically, several countries in the region have successfully adopted

policies to achieve technological upgrading and economic development. As
shown in table 2, the industrial and trade policies adopted by 10 economies in
the region between the 1950s and the 1990s were geared to support and spur
technological learning and upgrading and support a national strategic plan of
economic development. The export of primary products was vitally important
for the economies in the table in the 1960s. Between the 1960s and the 1980s,
exports of textiles, clothing and footwear from these economies were initially
important and subsequently declined in relative terms. In the 1980s, several of
these economies substantially increased their exports of more capital- and

29
Rodrik, “Industrial policy”.
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technology-intensive goods, such as electrical machinery, chemicals and

pharmaceuticals, and computer and communications equipment. Some of these
goods embodied advanced, international best-practice technology. In the
1990s, several more countries moved to more technologically-intensive
sectors, such as computers and communications equipment. These two
categories accounted for 24 per cent of total non-oil exports in Malaysia and
for 14 per cent in Thailand in 1994.30

48. Today, countries in the region continue to adopt policies to achieve a

national strategy. In the Philippines, the Comprehensive National Industrial
Strategy aims to link and integrate manufacturing, agriculture and services,
address supply-chain gaps and deepen industry participation in global value
chains. Strategic action includes, among others, innovation and research and
development activities and green industries.31

49. One strategy is to develop more generic technologies which have the
potential to bring benefits to multiple sectors. For instance, according to the
Fifth Science and Technology Basic Plan of Japan, the Government will further
promote the development of technology for the Internet of things, big data
analytics, high-speed processing devices, artificial intelligence, networking,
edge computing and cybersecurity, which are seen as the fundamental
technologies necessary to build the service platform for a so-called super-smart
society. The Government will also promote the development of such
technologies as those related to robotics, sensors and human interface, which
are seen as the fundamental technologies that are the country’s strengths and
which form the core of new value creation.32

50. Alternatively, the adoption of advanced technologies may start with a

small group of firms, sectors or geographic areas, taking possible scalability
and wide technology diffusion into consideration. This strategy may be
particularly suitable for small economies with limited financial and human
resources to adopt technologies for all sectors. Even for relatively large
economies, this strategy enables the country to go through a process of learning
and, probably, trial and error. An example in this respect is the strategy in
Indonesia of using frontier technology for productivity enhancement, in five
main sectors in particular: food and beverage, textiles and clothing,
automotive, electronics and chemical.33

2. Enhancing institutional cooperation

51. Different policies are formulated by different ministries and

departments. Trade policies are most likely formulated by the ministry in
charge of trade and commerce, industrial policies by the ministry of industry
and enterprise, and science, technology and innovation by the ministry of

30
Weiss, “Export growth and industrial policy”.
31
For further information, see http://industry.gov.ph/comprehensive-national-
industrial-strategy.
32
See
www.tillvaxtanalys.se/download/18.36a7c6515478fc61a479ce2/1463050071286/Jap
ans%20fem%C3%A5rsplan.pdf.
33
Bambang Brodjonegoro, Minister of National Development Planning and Head of
the National Development Planning Agency of Indonesia, “Tapping technology
advancement to achieving SDGs”, presentation to the Commission at its seventy-
fourth session, Bangkok, 16 May 2018. Available at
www.unescap.org/commission/74/files/16may-am-Mr_Bambang_Brodjonegoro-
ppt.pdf.
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science and education. As such, policies covering technology and innovation
may be fragmented.

52. To ensure that the policies are consistent and mutually strengthening, it
is essential to establish a coordinating mechanism between policymakers and
representatives of funding agencies, education and industry, in an effort to
synchronize institutional action to better match the strategy related to science,
technology and innovation and development. This institutional arrangement
also requires awareness of trade policies and communication and capacity-
building in relation to them. For instance, if the policies on science, technology
and innovation are prepared by the ministry of science, its staff may not be
aware of the trade rules on technology transfer. Support from the ministry in
charge of trade and commerce is therefore essential.

53. Countries in the region have adopted different approaches in

institutional cooperation. In Singapore, the innovation ecosystem comprises
various ministries and research and development funding bodies and
performers. At the top is the Research, Innovation and Enterprise Council,
chaired by the Prime Minister, which oversees the long-term strategy to
transform Singapore into a knowledge-based society, with strong capabilities
in research and technology. The Council is supported by the National Research
Foundation Board, which is responsible for the formulation of five-year plans
and policies to grow the country’s research capability, support economic
growth and meet future national challenges.34

54. The Malaysian Industry-Government Group for High Technology was

established on 22 February 1993 as the technology think tank under the
purview of the Prime Minister’s Department. It is governed by a board of
directors and helmed through the joint chairmanship of a prominent private
sector personality and the Science Advisor to the Prime Minister. The Group
emphasizes market intelligence initiatives using foresight practices and
methodology to identify technology and business opportunities. It is built on
the strength of public-private partnership with members representing both local
and international organizations.35

3. Paying equal attention to technology commercialization and research

and development

55. Traditional thinking of innovation as a linear process from research and

development, scientific breakthrough and intervention to commercialization of
technologies explains why countries often support higher education and
research and development. However, since the early 1980s, the theory of the
national innovation system has increasingly gained recognition. It includes the
argument that innovation often takes place in enterprises and firms;
transformation from a breakthrough in a laboratory to commercial viability is
rarely automatic, and innovation can also be unpredictable. Therefore, to
effectively encourage innovation, a country should facilitate the development
of a national environment that is conducive to innovation.36

56. While developing a national innovation system may be a long-term

goal, policies can always be guided to support firms and enterprises to
innovate. Figure II shows four groups of firms according to their awareness of
and absorptive capacity for technology and their desire to innovate. At the

34
See www.nrf.gov.sg/about-nrf/rie-ecosystem.
35
For further information, see www.might.org.my/about-us.
36
Chris Freeman, “The ‘national system of innovation’ in historical perspective”,
Cambridge Journal of Economics, vol. 19, No. 1 (February 1995).
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lowest level are firms with no capacity for technological change and that do
not feel any need for change.

Figure II
Classification of firms by their technological capability and motivation to change

High Type 4 firms:

High absorptive capacity

Awareness of Type 3 firms:

where and how Know what but not
to innovate always where and how

Type 2 firms:
Know they do not know,
but do not know what

Type 1 firms:
Do not know that
they do not know

Awareness of the
Low
need to innovate
High

Source: Based on World Bank, “Part A: firm-level innovation in the Korean

economy”, in Korea: Technology, Skills and Internet Services in Korea –Moving
Towards a Knowledge-based Economy (Washington, D.C., 2003). Available at
https://openknowledge.worldbank.org/bitstream/handle/10986/14615/multi0page.pdf?s
equence=1.
Note: The study, published in 2003, focused on firms in the Republic of Korea.
However, the discussion is still relevant to many firms in developing countries in the
region.

57. Policies in this case should focus on moving firms up the ladder by
addressing two dimensions, as shown in figure II. First, through policies, firms
should be encouraged to improve their capacity to absorb technologies. In
particular, policies related to trade and foreign direct investment may help
firms gain access to foreign technology. Second, policies should be used to
improve the internal motivation of firms to change. Through the policies, an
environment needs to be created that is conducive to “healthy” market
competition, so that firms and entrepreneurs will then choose to innovate and
absorb appropriate technologies based on their reading of their markets.

58. In Singapore, innovation and enterprise, academic research and

manpower are identified as three cross-cutting programmes to achieve its
Research, Innovation and Enterprise 2020 Plan.37 In Kazakhstan, innovation
and technology have been fostered in the Technology Commercialization

37
See www.nrf.gov.sg/rie2020.
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Project, which is being implemented by the Ministry of Education and Science
of Kazakhstan and assisted by the World Bank.38

4. Embracing digital trade and the information economy

59. As discussed in sections II and III, the rapid development of

technology, especially ICT, has constantly changed the dynamism between
technology and trade. Electronic commerce is an important example of such
reliance on trade, transforming the way in which traditional trade is conducted
and stimulating trade growth.

60. Domestic policies need to address the new business opportunities and
potential challenges of electronic commerce and digital trade. On the one hand,
policies must support micro- and small enterprises, individuals and rural
smallholders in participating in electronic commerce so that they can access
larger domestic and international markets, thereby promoting inclusive
development. On the other hand, policies must also address the adverse effects.
For example, the competition created by e-commerce may put substantial
pressure on traditional bricks-and-mortar small-scale retailers and local
suppliers (such as local producers and vendors), and in some cases may force
them out of the market. Policies must be introduced to address the challenges
of job losses due to the digital economy.

61. At the regional level, collaboration among countries provides another

dimension of exploring the benefits of technology. For instance, the
Framework Agreement on Facilitation of Cross-border Paperless Trade in Asia
and the Pacific, as mentioned earlier, features modules on capacity-building
and technical assistance, which enable all countries in the region, including the
least developed countries, to benefit from cross-border paperless trade.

62. In a broader sense, the rapid development of ICT and penetration of the
Internet mean that most, if not all, countries in the region are moving towards
digital trade or an information economy, although the pace in this process
differs. Among multidimensional issues to be addressed through policies,
personal data protection has been one of the most important topics for
discussion. The entry into application of the General Data Protection
Regulation in May 2018, which constitutes a single set of data protection rules
for all companies operating in the European Union, certainly has profound
implications for policymaking in the region.39

5. Playing by the trade rules

63. Developing countries operate today in a global policy environment that

is very different to that of two or three decades ago. In particular, there has
been a tendency to limit national economic policies through multilateral,
regional or bilateral agreements, imposing restrictions on the ability of
developing countries to introduce certain types of policies related to industry,
trade and science, technology and innovation. For instance, export subsidies
may not be a valid policy measure under a free trade agreement.

64. Accordingly, whenever policies related to industry, trade and science,

technology and innovation are developed and implemented, it is important to

38
World Bank, “Technology commercialization for an innovative economy in
Kazakhstan”, 23 January 2014.
39
For further information, see https://ec.europa.eu/commission/priorities/justice-and-
fundamental-rights/data-protection/2018-reform-eu-data-protection-rules_en.
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ensure that these policies are compatible with any trade agreements to which a
country is party.

65. On the other hand, the least developed countries should explore the
potential opportunities brought about by international trade agreements. For
instance, article 66 (2) of the Agreement on Trade-related Aspects of
Intellectual Property Rights states that developed country members should
provide incentives to enterprises and institutions in their territories for the
purpose of promoting and encouraging technology transfer to least-developed
country members in order to enable them to create a sound and viable
technological base.40

V. Conclusion
66. In 1955, Nobel laureate Arthur Lewis pointed out that no country had
made economic progress without positive stimulus from intelligent
Governments.41 His statement has been echoed by the fact that over the past
several decades, a number of countries in the region – such as China, Japan
and the Republic of Korea – have successfully adopted policies related to
industry, trade and science, technology and innovation in the process of
catching up with other countries.

67. Today, Governments and policymakers still have an important role to

play in the process of economic development. In an era of free trade and
international competition, technological upgrading and innovation constitute
an essential ladder for developing countries in the region to develop their
economies and climb up the global value chains. Relying purely on the market
will probably lock developing countries, especially the least developed
countries, into their areas of comparative advantage, such as labour-intensive
and low-technology industries, and exacerbate their marginalization in the
international market.

68. A holistic policy approach needs to be adopted by the countries in the

region to address the challenges of economic development and technological
upgrading. Government policies should aim to create an enabling environment
so that the market encourages innovation. This enabling environment should
also facilitate collaboration between multiple stakeholders – such as
universities, research institutions, firms and enterprises, international
companies and multinational corporations – for the purposes of innovation.

69. Countries in the region need to be proactive in adopting new digital

technologies such as big data and e-commerce. While debates on the pros and
cons of these technologies will continue, in reality there is no turning back;
these technologies continue to penetrate every country. Indeed, countries in the
region should take advantage of the new opportunities for business and trade
that are generated by these technologies. On the other hand, the diffusion of
these technologies imposes new challenges on rules and regulations. Some
emerging issues, such as personal data protection, are receiving profound
attention internationally, especially in the light of the entry into application of
the General Data Protection Regulation in May 2018. Countries in the region
need to make or adjust policies to cope with the new challenges related to areas

40
See Legal Instruments Embodying the Results of the Uruguay Round of Multilateral
Trade Negotiations, done at Marrakesh on 15 April 1994 (GATT secretariat
publication, Sales No. GATT/1994–7).
41
W. Arthur Lewis, The Theory of Economic Growth (London, Allen and Unwin,
1955).
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such as cross-border data flow, intellectual property, privacy and
cybersecurity.

VI. Issues for the consideration by the Committee

70. Innovation growth can be path-dependent, and solutions for enhancing
innovation can vary from country to country. Nevertheless, as discussed in the
present document, there are also common issues related to trade and
technology in the region. Successful experiences and lessons learned in
leveraging technology and trade for development should be shared among
countries in the region. In this connection, the Committee on Information and
Communications Technology, Science, Technology and Innovation may wish
to debate the following questions, ideally by reflecting on the experiences of
member States:

(a) What are the drivers of technological change and the catch-up
process in developing countries?
(b) How can developing countries successfully build up their own
modern industries through indigenous innovation and foreign technologies?
(c) How can developing countries take advantage of digital trade and
the digital economy?
(d) What policy interventions in the areas of trade, industry and
science, technology and innovation have proved effective in achieving their
goals?

71. The Committee may wish to discuss other issues contained in the
present document. Furthermore, the Committee may wish to provide guidance
to the secretariat on research topics that it should undertake and on other types
of support, such as technical assistance or capacity-building, that it should
provide.

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