Easing the US-India divergence on data localisation

The article by Shashidhar KJ and Kashish Parpiani was published by Observer Research Foundation on July 22, 2019.

The Reserve Bank of India’s (RBI) finally clarified its position eight months after it issued the controversial April 2018 circular mandating the storage of all payment data of Indians in the country and allowing the central bank “unfettered access”. The circular particularly aimed at US-based companies such as Mastercard, Visa, American Express, PayPal, Facebook and Google, as they scrambled to comply. The clarification was a welcome relief for companies seeking guidance on how to comply, what kind of data needs to be stored in India, and if the payment companies needed to move their processing infrastructure. Note, the RBI has yet to issue a formal directive with these clarifications.

Meanwhile, media reports have indicated that Facebook-owned WhatsApp would obey the RBI norm as it looks to kick off its payments business. This runs counter to what Facebook CEO Mark Zuckerberg had told investors in April:

“You should expect that we won’t store sensitive data in countries where it might be improperly accessed because of weak rule of law or governments that can forcibly get access to your data.”

India is still debating passing a Personal Data Protection legislation, and as such, India doesn’t have any legal safeguards protecting users’ data.

This has revealed yet another faultline in the persisting trade issues between the US and India.

India is still debating passing a Personal Data Protection legislation, and as such, India doesn’t have any legal safeguards protecting users’ data.

Indian data rights vs. American IPR protectionism

New Delhi has started to assert its right over its citizens’ data as India’s footprint on the Internet increases. Moreover, without clear guidance from Personal Data Protection legislation, there has been a glut of policy prescriptions from sector regulators. The Centre for Internet and Society published a paper in which it chronicles 10 policy measures for both ‘soft’ and ‘hard’ data localisation across health, telecommunications, e-commerce, insurance and others. These measures range from storing copies of specific data, local content production requirements, or imposing conditions on cross-border data transfers that act as a localisation mandate.

This oversupply of policy prescriptions is leading to blurring of jurisdictions. Often, the policy measures given have many a slip between the cup and the lip. For example, one of the reasons for insisting on localisation is security, but even if companies localise data, there is no framework to access this data by the local security apparatus.

India’s policy thinking on the matter often begins with the idea: ‘data is the new oil.’ The thinking is that data generated by Indians should be viewed as a natural resource that must be protected by the state through localisation. This notion is problematic. Data, unlike oil, which is found in limited quantities, has different properties. Newer ideas of regulation must be thought of and that’s where Indian policy makers have not been accommodative.

Oversupply of policy prescriptions is leading to blurring of jurisdictions. Often, the policy measures given have many a slip between the cup and the lip.

A gripe that US-based companies mention is that there is a distinctive domestic tilt and that company representatives have turned away from consultations as they do not serve the “national interests.” This was best exemplified in October 2018 when a closed-door discussion between the RBI and the US-India Strategic Partnership Forum (USISPF representing the interests of US companies) broke downand the latter accused the RBI of having a bias. During the discussions, the RBI placed a lot of emphasis on the inputs from iSPIRT (Indian Software Product Industry Roundtable), an Indian think tank which has been advocating for data protectionism.

The aforementioned sentiment has been carried over to international summits. At the recently concluded G20 summit, India boycotted the Osaka Track on the digital economy as it felt that it would undermine multilateral consensus-based decisions on trade and deny policy space for digital industrialisation. The Osaka Track pushed hard for the creation of laws which would allow data flows between countries and the removal of data localisation.

India’s foreign secretary, Vijay Gokhale, mentioned that data is a new form of wealth and wanted latitude on domestic rule-making on data. And in the age of digital commerce, this may signify a broader trend of a developed-developing nations’ impasse. The tussle has now moved beyond the security angle with the United States enacting the Clarifying Lawful Overseas Use of Data (CLOUD) Act for security agencies to procure data stored in servers regardless of whether in the US or foreign soil. With monetisation now at the core of the dispute, the discussed divergences on data localisation tie into the US’ broader, long-standing issues pertaining to US-India bilateral trade.

Divergence on data localisation issue crosses path with trade tensions

The 2019 National Trade Estimate (NTE) by the Office of the United States Trade Representative (USTR) focuses on reducing “barriers to digital trade.” Taking a tone of American stewardship on open liberal market economics, it notes:

“When governments impose unnecessary barriers to cross-border data flows or discriminate against foreign digital services, local firms are often hurt the most, as they cannot take advantage of cross-border digital services that facilitate global competitiveness.”

At a time when the Trump administration has sought to re-calibrate America’s trade relationships via the adoption of punitive sanctions that run counter to the fundamentals of the liberal world order, the aforementioned American concern for the competitiveness of foreign nation’s local firms may seem like sardonic preaching.

President Trump’s ‘America First’ worldview in many ways upended conventional tenets of US foreign policy. But on some fronts, it has presented opportunities for marginal establishment agendas. For instance, Trump’s heightened focus on ties with Israel and the US’ Sunni allies in the Middle East, complements the realisation of neoconservatives’ penchant for regime change in Iran.

At a time when the Trump administration has sought to re-calibrate America’s trade relationships via the adoption of punitive sanctions that run counter to the fundamentals of the liberal world order, the aforementioned American concern for the competitiveness of foreign nation’s local firms may seem like sardonic preaching.

On Trump’s fixation with recalibrating US trade relationships on “fair and reciprocal” footing, the American trade establishment successfully addressed US’ belated concerns over absence of digital trade rules in case of the North American Free Trade Agreement (NAFTA) with Canada and Mexico. Similarly, the emerging divergences over data localisation with India are subsumed under the ongoing — albeit repeatedly stalled, US-India trade negotiations.

Hence, the NTE underscores India’s decision with regards to payment service suppliers to be part of trade barriers hampering digital commerce and US-India trade at-large.

Fixing the strained Carter mantra via compartmentalisation and consultation

India has approached trade talks from the standpoint of addressing the Trumpian aberration of the US pushing for reduction of its trade deficits with other countries. Whereas, USTR negotiators have approached negotiations with India with regards to, what they view as longstanding issues in bilateral trade, such as market access for dairy products and price caps on medical equipment.

In the past, those outstanding issues were downplayed in view of the promising long-term trajectory of US-India strategic ties. The same has come to be known as the understated dictum of the Carter mantra — named after former US Secretary of Defense Ashton Carter and architect of the US-India Defense Technology and Trade Initiative. The approach encompassed the US to focus on harnessing strategic ties and not let differences on other fronts like trade to crowd out minimal-yet-positive developments.

In recent times, that dictum has come under strain as trade tensions have resurfaced. Cases in-point being, the Trump administration’s recent revocation of India’s designation as a “beneficiary developing country” under its Generalised System of Preferences programme, and India’s imposition of retaliatory tariffs on 28 US products.

The US-India dynamic is graduating from the erstwhile top-heavy approach based on the personal relations developed between head of states, to an institutionalised format of consultative platforms on varied bureaucratic, legislative, military, and even public-private partnership levels.

Furthermore, ahead of Secretary of State Mike Pompeo’s visit to New Delhi last month, the Trump administration reportedly mulled capping the issuance of H1B visas to about 15 percent for any country that “does data localisation.” It bore ominous prospects for India’s $150 billion IT sector as 70 percent of the 85,000 H1B visas issued every year go to Indians. With regards to the broader trajectory of US-India ties, the report came to be seen as another blow to the Carter mantra’s prescription for compartmentalisation of issues from promising aspects of the bilateral relationship.

Both sides however, have attempted to temper tensions, and keep the Carter mantra in place with the continued focus on evolving strategic ties — with continued impetus on US-India defence trade and force interoperability agreements.

More importantly, there seems to be an overt attempt to reinstitute a sense of compartmentalisation. For instance, Secretary Pompeo, during his visit to New Delhi eased fears by denouncing reports about the US considering H1B visa caps. Whereas, India, too, has sought to institute a sense of compartmentalisation with Commerce Minister Piyush Goyal announcing that the contentious data protection issue will be kept out of the e-commerce policy draft, and will be dealt with by the IT ministry instead.

Lastly, the US-India dynamic is graduating from the erstwhile top-heavy approach based on the personal relations developed between head of states, to an institutionalised format of consultative platforms on varied bureaucratic, legislative, military, and even public-private partnership levels. Examples of which include, the US-India 2+2 consultative platform between foreign and defense portfolio chiefs, and the India-US Strategic Energy Partnership working groups between India’s Petroleum Minister and US Energy Secretary. The upcoming editions of these forums are set to be critical in addressing outstanding issues in the strategic realm, like India’s purchase of the Russian S-400 systems inviting the prospect of American CAATSA sanctions, and India’s push for a gas-based economy in light of reduced oil purchases from Iran following recent tensions between Washington and Tehran.

Similarly, on easing the hardening American and Indian stances on data localisation, in addition to compartmentalisation, a consultative approach must be explored. Towards that end, the India-US Commercial Dialogue and India-US CEO Forum could serve as appropriate starting points for a joint working group involving a diverse set of stakeholders from the public and private realm.