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US Trade Representative cites Indian data localization, equalization levy in report

US Trade Representative Katherine Tai

In a report on global trade barriers in 2021, the Office of the United States Trade Representative (USTR) cited data localisation and the 2% equalisation levy in a section on India. The 23 page section is a snapshot of all trade barriers between India and the US, compiled largely with the inputs of the US’s diplomatic missions in the country. The report mostly covers developments in 2020, and the new Intermediary Rules are not covered; an earlier draft of the Rules is discussed, though.

Here are the key digital trade barriers cited by the report. All emphasis has been added by us.

  1. Localization of data a barrier to US companies: “India has recently proposed and promulgated a number of data localization requirements that would serve as significant barriers to digital trade between the United States and India,” the report said. “These requirements raise costs for service suppliers that store and process personal information outside India by forcing the construction or use of unnecessary, redundant local data centers. For smaller foreign firms that cannot afford redundant computing facilities within India, these requirements could serve as a total market access barrier.” (The report is referring to the data mirroring provision for sensitive personal data in the Personal Data Protection Bill, 2019, and the RBI’s guidelines in the same year requiring this for payments data.
  2. E-commerce policy problematic: “India is currently developing a new electronic commerce policy, early drafts of which have contemplated broad-based data localization requirements and restrictions on cross-border data flows, expanded grounds for forced transfer of business sensitive information, trade secret information, other intellectual property and proprietary source code, and preferential treatment for domestic digital products. The United States strongly encourages India to reconsider this draft policy and particularly the measures described above,” the report says. The policy mentioned by the report is likely this 2020 draft; another draft that was leaked in 2021 falls out of the ambit of the report, since the report only considers developments in 2020.
  3. Cloud providers face hurdles: “Service providers are unable to buy dark fiber needed to build new networks, are prohibited from purchasing dual-use equipment needed to run networks, and are unable to own and manage a network to cross-connect data centers and connect directly to an Internet Exchange Point,” the report complains. Read more here on cloud companies’ collective opposition to further regulations on their industry.
  4. Traceability could force companies to break privacy: The report discusses the (now notified) requirement on traceability by MEITY. “If enforced, this requirement could force service suppliers to undermine the privacy and security of their services, and potentially violate contractual terms and conditions related to data privacy and access to enterprise data,” the report says. The CEO of WhatsApp, which has been seen as a major target of the traceability provision in the Intermediary Rules, has indicated that the company is thinking of complying without affecting user privacy.
  5. 2% equalization levy singles out US cos: The USTR said that India’s 2% equalization levy on e-commerce transactions was loosely defined and discriminated against Indian companies. “The change was enacted without prior notification or opportunity for public comment. Technology firms have raised concerns that the definitions of “e-commerce operator” and “e-commerce supply or services” are broad in scope and are likely to cover many digital transactions, including the sale of data,” the report said. The USTR has proposed corrective tariffs on Indian exports to the US to neutralize the levy.

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