The Office of the United States Trade Representative has released its 2019 National Trade Estimate Report on foreign trade barriers. Apart from comments on India’s stance and recent measures on various aspects of cross-border trade and domestic production, the chapter on Foreign Trade barriers takes issue with a number of Indian regulations and policy documents, including the e-commerce policy, RBI’s circular on payments data, the Personal Data Protection (PDP) Bill, and the draft Intermediary Guidelines. The specific chapter discussing Indian regulatory regime is available here.

The chapter on Indian policy states that there are excessive requirements of data localisation, and protectionist measures harming the interest of American companies offering services in India. Below is a summary of the points made in the Report with regard to India’s approach to tech and telecom policy.

Localisation

A running theme against localisation of data and making data available within India is present across the chapter covering Indian policy. This is in part attributable to the multiple legal instruments recently released by the Indian government endorsing such a policy.

  • RBI Payments Notification: The Report railed against measures to localise data across policies. The first one was the RBI notification directing all payments providers to maintain a copy of all transaction data within India. The report argued that this increases costs for US companies looking to expand into India:

“Requiring local storage of all payment information raises costs for payment service suppliers, and disadvantages foreign firms, which are more likely to be dependent on globally distributed data storage and information security systems. Furthermore, an only-in-India data storage requirement will hamper the ability of service suppliers to detect fraud and ensure the security of their networks.”

  • PDP Bill: The Report brought up the requirement under Section 40 of the PDP Bill to ensure a ‘serving copy’ of all personally identifiable data for all companies collecting and processing said data. It argues that “data localisation provisions would damage the digital economy without supporting privacy. Additionally, the bill would authorise immense fines and criminal penalties in response to data breaches.”
  • E-Com Policy: The Report opposed the e-commerce policy’s stance on data localisation requirements, pointing out the policy’s broad requirements to localise data. The Report also criticised the policy’s approach to encouraging domestic production of digital goods, mandatory source code disclosure, and ‘forced transfer of intellectual property’. It “strongly encouraged” India to “reconsider the most discriminatory and trade-distortive aspects” of the draft policy.

Criticism of ‘Protectionist’ Advantages

“Service suppliers are unable to buy dark fiber needed to build new networks, prohibited from purchasing dual-use equipment needed to run networks, and unable to own and manage a network to cross-connect data centers and connect directly to an Internet Exchange Point. These restrictions impact the ability of cloud services to effectively manage their own networks.”

  • Telecom License Fee: The Report expresses opposition to the licensing fee for telecom service providers, cited at  $500,000 for a specific license and $2.7million for a pan-service license. It also takes issue with the allocation of spectrum for a national telecom service provider, whilst conceding on bidding having occurred amongst private players.
  • Tax on foreign advertising platforms: The Report discusses India’s approach to digital taxation as resulting in double taxation, and lacking a provision to provide credit for tax paid in other jurisdictions.

“This levy has resulted in taxes on business income even when a foreign resident does not have a permanent establishment in India or when underlying activities are not carried out in India. The current structure of the equalization levy represents a shift from internationally accepted principles, which provide that digital taxation mechanisms should be developed on a multilateral basis in order to prevent double taxation.”

  • National Telecom M2M Roadmap (pdf): “The Roadmap also recommends that foreign subscriber identification modules (SIMs) be permitted in devices to be used in India only if they fulfill traceability criteria and that machines sold and manufactured in India should only be equipped with SIMs of Indian telecommunications providers. The Roadmap has not been implemented but continues to create uncertainty related to India’s policy environment for digital services.”
  • Intermediary Liability: The large burden placed on online intermediaries by the draft Intermediary Liability Amendment has been flagged, with the Report highlighting the requirement of platforms to become ‘proactive arbiters of unlawful content’. It warns against the employment of an overly-restrictive approach by the platforms.

“India’s 2011 Information Technology Rules have provided an insufficient shield for online intermediaries from liability for third-party user content: any citizen can complain that certain content is “disparaging” or “harmful,” and intermediaries must respond by removing that content within 36 hours. Draft regulations announced in late 2018 (the “Information Technology (Intermediary Guidelines) Rules 2018”), threaten to further worsen India’s intermediary liability protections.”

The Report also makes complaints against procedural difficulties faced in providing services in India, including the FDI regime, and preferential treatment of Indian satellites by DTH Indian services. Copyright enforcement in India is also cited as a major concern, with the Report attacking the compulsory licensing regime in Indian patent law.