Leveraging Technology and Trade For Economic Development
Leveraging Technology and Trade For Economic Development
Leveraging Technology and Trade For Economic Development
Original: English
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.
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ESCAP/CICTSTI/2018/L.1.
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.
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.
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.
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
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.
Table 1
Share in Asia’s manufactured goods exports against Asia’s total
manufactured exports
(Percentage)
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
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
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.
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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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.
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
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
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
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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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.
Table 2
Shifting of trade and industrial policies in selected economies in Asia
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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
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
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
Table 3
Coverage of policies related to technology and innovation in the
agreements of the World Trade Organization
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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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
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.
29
Rodrik, “Industrial policy”.
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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
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.
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
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
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.
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
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.
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
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.
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.
(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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