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India-US digital trade is going through a bad patch. USTR Tai’s visit can begin fixing it

The next few months will test India-US commitments to a strategic partnership. Digital cooperation is a vital part of it.

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On 22 November 2021, Ambassador Katherine Tai will be on her maiden visit to India as the 19th United States Trade Representative. During her trip, she will hold talks with her Indian counterpart Piyush Goyal, the Minister for Trade and Commerce. Discussions on technology-related issues are expected to be a key part of the agenda. Talks between the two countries may also focus on digital trade—the fastest-growing segment of international commerce—that includes the exchange of goods and services. There are encouraging signs that a comprehensive look at the India-US bilateral trade relationship is on the horizon. Both sides have agreed to reinvigorate the Trade Policy Forum, which was established in 2009 after a pause of four years.

Despite the magnitude of digital trade flows, the countries have been unable to arrive at a common understanding on how to regulate businesses. Critical issues on which both countries differ include custom tariffs on electronic transmissions, safe harbours for Internet intermediaries, and data localisation.


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Customs duties on electronic transmissions 

Under the World Trade Organisation’s (WTO) Work Programme on E-Commerce, member countries—including India—have agreed not to impose customs duties on electronic transmissions. The duty will act as a tax on all digital goods provided by foreign players to Indian users and will apply only to the digitised delivery of services or products like e-books and music, and not to goods that are traded over the Internet and delivered in physical form.

However, in October this year, India’s Permanent Representative Brajendra Navnit in Geneva asked the WTO to revisit the moratorium on electronic transmissions. According to him, the international consensus not to levy custom tariffs disproportionately impacts developing countries; for instance, in terms of revenue foregone.

Furthermore, concerns have been raised by Indian trade negotiators on new technological developments such as 3D printing, which allows countries to transmit a variety of physical goods digitally. That is, technological advancements in 3D printing could potentially create an uneven playing field when importing a product in physical form and electronic (digital) format. Let’s take the footwear sector as an example. Importing footwear will attract a tariff of 35 per cent, while its digital file may not attract any duty. Meanwhile, the US has asked its trading partners to refrain from imposing such duties on goods that can be delivered digitally.

Indian and US trade negotiators will have to craft an out-of-the-box approach that can balance the need for the former to maintain its policy independence, whilst ensuring that digital trade remains tariff-free. As India’s leading innovators achieve significant efficiencies in areas such as health care, retail, and financial services, a tariff-free trade environment becomes essential for them to grow beyond local borders. In this context, both countries can consider creating a negative list, cataloguing products on which the moratorium is not applicable. This will allow countries like India to retain the right to impose duties on digital goods that were not envisaged to be governed, such as 3-D printed products.


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Safe harbours for Internet intermediaries

In the digital ecosystem, safe harbour provisions provide legal immunity to intermediaries such as cloud service providers, search engines, and social media companies for third parties who use their services. For instance, a social media company like the Koo App will not be liable for any defamatory content posted by its users. Intermediary liability regimes have historically underpinned the growth of Internet companies by recognising their diversity and allocating responsibility accordingly.

In February this year, the Ministry of Electronics and Information Technology (MeitY) notified new Rules to provide safe harbour to social media companies. The Rules, among other things, require prominent social media companies to appoint a Chief Compliance Officer (CCO). However, they can be held criminally liable for various offences such as breach of third-party information. Such a provision erodes the spirit of a safe harbour framework and can affect India’s ambition to engage with the USTR for a Free Trade Agreement (FTA).

Limiting the liability of online platforms for content that is not protected under Intellectual Property Regimes (IPR) is an increasingly important aspect of FTAs entered into by the US. Thus, India may need to re-examine the criminal liability that applies to CCOs. This may also provide a fillip to Indian businesses that have voiced their concerns on this aspect of the Rules, as it is a heavy compliance burden.


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Data localisation

U.S. and Indian businesses are increasingly depending on their ability to transfer data across borders. However, the rules governing such data flows vary among the two jurisdictions. Currently, India is at the advanced stages of developing a data protection law. The Joint Parliamentary Committee on the Personal Data Protection Bill, 2019 is expected to submit its report soon. Meanwhile, MeitY is looking to introduce the Bill during Parliament’s winter session. The 2019 version of the legislation mandates data localisation requirements for sensitive and critical data. Under the Bill, companies that collect data of Indian citizens are required to physically store and process it within India’s boundaries.

The USTR’s 2021 National Trade Estimate Report stated that India’s data localisation requirements would serve as significant barriers to digital trade between the countries.  Since the final shape of India’s data protection law is yet unclear, Indian and US businesses are beginning to grapple with the need for a bilateral FTA. Therefore, it becomes important for Indian negotiators and policymakers to adopt a nuanced position. This position could simultaneously recognise the inherently borderless nature of the Internet (thereby leading to an efficient allocation of resources), whilst preserving the efficacy of investigation processes and solving jurisdiction-related concerns. To this end, the state can explore modern executive data-sharing agreements like the US’ Clarifying Lawful Overseas Use of Data (CLOUD) Act.

The absence of India-US cooperation on setting rules for the road on digital trade is not a tenable approach for a truly ‘strategic partnership’ in the longer term. The next few months will test their commitments to a partnership of which digital cooperation is an inexorable part.  The USTR’s visit is a much-needed starting point in that direction, and a future digital trade deal between the two countries may also signal a much-needed global leadership on the new frontiers of trade and commerce.

Mohit Kalawatia works at Koan Advisory Group, a technology policy consulting firm. He tweets @MohitKalawatia. Views are personal.

This article is part of ThePrint-Koan Advisory series that analyses emerging policies, laws and regulations in India’s technology sector. Read all the articles here.

(Edited by Humra Laeeq)

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