Update on June 21, 2019: A US State Department spokesperson told MediaNama in an email on June 21 that the US ‘has no plans place caps on H-1B visas for nations that force foreign companies to store data locally’. The spokesperson further specified tha the review of the US workers visa programme —  called for by the Trump administration’s Buy American and Hire American Executive order in 2017 — ‘is not targeted at a specific country and is completely separate from our ongoing discussions with India about the importance of ensuring the free flow of data across borders’. MediaNama has asked the Department of State and the Department of Homeland Security for further clarification.

Story on June 20, 2019: The United States told India that it is considering 15% caps on H-1B work visas for nations that mandate data localisation, Reuters reported. This comes a few days after higher import tariffs on 29 American products were put into effect by India, and a few days ahead of Prime Minister Narendra Modi’s meeting with President Donald Trump on the side-lines of the G20 summit in Japan on June 28 and 29. Furthermore, US Secretary of State Mike Pompeo is scheduled to visit New Delhi ahead of the G20 summit.

Data localisation and the restrictions on cross-border data flows have been a key concern for US companies operating in India, especially payments companies like Visa and Mastercard; Mastercard, in fact, also said recently that around $350 million of its $1 billion investment in India is going to be spent on compliance with the Reserve Bank of India’s localisation mandate.

Indian workers are the biggest beneficiaries of H-1B visas, that are given to highly skilled foreign workers. Indians account for almost 75% of the 85,000 H-1B visas that are granted annually. Currently, there is no country-specific limit on granting H-1B visas.

This move is expected to hit India’s $150 billion IT sector, including Tata Consultancy Services (TCS), Infosys, and Wipro. Some people saw this move as another ‘potentially big blow to the US tech industry amid US-China economic battle’.

India pushed back on data localisation

MediaNama has reached out to the US Department of State and US Citizenship and Immigration Services (USCIS) to know if countries such as Germany, Australia, Nigeria and China, all which have data localisation policies in one form or another, will also be affected by this. Washington’s retaliation against New Delhi’s focus on data localisation comes just 10 days ahead of the G20 summit at Osaka, Japan, where Data Free Flow with Trust (DFFT) is expected to be a key issue.

Just two weeks ago, at the G20 trade ministers meeting in Japan, Indian Minister of Commerce and Industry Piyush Goyal reiterated the country’s stance against DFFT and called data a ‘sovereign asset’. In the meeting with foreign e-commerce companies, Goyal had gone as far as saying, in response to concerns that data localisation might impact investment, that even if we get a couple of billions dollars less in investment, it’s okay. “We need to look at things from a long-term perspective, and in India’s interest.”

Data localisation has emerged as a thorny issue between the Indian government, and American financial and technological firms. While New Delhi has been pushing for it, American companies, including Mastercard, Visa, and Amazon, have been aggressively lobbying against it. In addition to New Delhi’s focus on data localisation, India’s draft e-commerce policy that seeks to protect Indian e-commerce players has irked Washington. It prevents foreign retailers from selling goods online through their affiliated companies.

A trade war over data localisation?

This is the latest volley by US as it contests India’s ‘protectionist measures’. In March, USA refused to exempt India from higher import tariffs on Indian aluminium and steel. On March 4, US President Donald Trump announced USA’s intention to terminate India’s trade privileges as a  beneficiary developing country under the Generalised System of Preference (GSP) programme for lack of ‘equitable and reasonable access to its [Indian] markets’.

The GSP programme, introduced in 1976, aims to promote economic growth in developing countries by allowing duty free export of certain products from these nations to the US. India was the biggest beneficiary of the scheme with Indian exports valued at $5.6 billion entering American markets duty free. However, an Indian official told Reuters in march that the ‘actual benefit’ from the programme to the Indian economy was only $250 million a year.

To revoke a country’s status from the programme, the American government needs to give a 60-day notice period, which in this case ended on May 3. On May 30, Trump announced that USA would terminate India’s designation with effect from June 5, 2019. As a retaliatory measure, India announced higher import duties on 29 American goods — including walnuts, apples, pulses — that came into effect on June 16.

Note that in May, US Trade Secretary Wilbur Ross had highlighted concerns about data localisation, as a barrier to US companies operating in India, saying that it is a goal for the US to eliminate such barriers, which weaken data security and increase the cost of doing business (for US companies). Secretary Ross was speaking at Trade Winds Conference in New Delhi. Ross had highlighted that as per the latest figures from 2017, “India’s foreign direct investment into the United States totaled $13.1 billion. US FDI into India was more than $44 billion, so we are a substantial net investor here.”

MediaNama has reached out to Ministry of External Affairs for comment.

***Update (June 21, 2019 11:29 am): We have updated the article with response from the US Department of State. Originally published on June 20, 2019.