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The twin act of balancing trade and data governance across borders

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At the recently held Sydney Dialogue 2021 on ‘Emerging and Critical Cyber Technologies’, India highlighted the need to develop international co-operation on standards and norms surrounding data governance and cross-border data flow. This remark comes on the heels of the unanimous adoption of the draft report of the Joint Committee on the Protection of the Personal Data Bill, 2019 by the Lok Sabha. The draft report has further proposed provisions on data localization norms to be followed by both, local and foreign entities. India is no stranger to data localization measures. In 2018, the Reserve Bank of India issued a Circular on the ‘Storage of Payment System Data’, essentially mandating payment system operators to store all the data relating to payment systems only in India. Such data localization norms not only restrict the free flow of data across borders but also warrant the storing and processing of data within the territorial limits of the country.

THE ECONOMIC COSTS AND TRADE IMPLICATIONS OF DATA LOCALIZATION

The cost of stringent implementation of data localization norms comes at a high price as it drastically affects the economy of the country reducing volume of trade and negatively impacting industries that rely heavily on data. As per the Information Technology and Innovation Report 2021, statistics reveal that restrictive cross border data flow decreases gross trade output by 7 %, reduces productivity by 2.9 % and inflates downstream prices by 1.5 % over a period of five years. Moreover, forced data localization norms push domestic companies to pay 30 to 60% more for their computing needs as demonstrated in a study conducted by the Leviathan Security Group. However, countries adopting such norms rationalize their necessity for safeguarding data privacy and cybersecurity. With the internet gaining prominence as a key enabler in facilitating international trade in the global digital economy, norms that barricade cross-border flow of data (such as data localization) also hinder trade and therefore qualify as trade barriers, warranting scrutiny under international trade law.

LEGALITY OF DATA LOCALIZATION UNDER GATS

The extant rules and jurisprudence on international trade law does not explicitly address data localization norms. However, the core principles of the General Agreement on Trade in Services (“GATS”) under the World Trade Organization (“WTO”) framework provides a pertinent case in point to treat data localization norms as a barrier to trade. Under Article I (2) of the GATS, trade in services includes “supply of a service from the territory of one Member into the territory of any other Member”. Since there is an absence of any requirement related to transfer of physical commodities, the foregoing definition of supply of service encapsulates trade in digital services. Inherently, cross-border supply of digital services involves the cross-border flow of data.

(i) Market Access Commitments and National Treatment under GATS

The normative legal principle provided under Article VI of GATS delineates the requirement for Members to administer trade in services in a reasonable, objective and impartial manner. Further, Article XVI (Market Access Commitments) and Article XVII (National Treatment) of GATS mandates Members “to not impose limitations on the number of service suppliers, total number of service operations or the total quantity of service output” and must ensure that “each Member shall accord to services and service suppliers of any other Member, treatment no less favorable than that it accords to its own like services and service suppliers.” In the context of market access commitments, Mitchell and Hepburn argue that the US Gambling case, which held “prohibition on the remote supply of gambling and betting services online is effectively a zero quota in breach of GATS arts XVI:2(a) and (c)”, could apply to data transfers. By virtue of this, prohibition on the transfer of any categories of data, as long as they correspond to the sectors in which the Member has given market access commitments shall be in violation of GATS. Similarly for national treatment under GATS, the introduction of data localization norms shall lead to the advancement and competitive presence of domestic service suppliers. Inevitably, this shall cost foreign service suppliers to pay a higher price for local infrastructure expenses, according to them less favorable treatment over domestic suppliers. Data localization norms when implemented against the foregoing core principles of GATS indicates the likelihood presence of the violation of free and fair cross- border supply of trade.

(ii) General and Security Exceptions under GATS

The legality of cross-border data restrictions under the GATS framework can possibly be construed to be valid if viewed through the lens of the general and security exceptions. Article XIV (General Exceptions) permits the Member to derogate from its obligations under certain circumstances such as public order, privacy of an individual, safety and prevention of fraudulent or deceptive trade practices. Neha Mishra opines that an evolved interpretation of these exceptions would encompass within their ambit different facets of digital privacy and cybersecurity. For instance, if informed consent of the data principal is to be compulsorily obtained then such a measure could be justified in furtherance of protecting individual privacy and shall therefore extend to domestic legislations pertaining to privacy in the virtual context.

The WTO jurisprudence stipulates a ‘weighing and balancing test’ to justify a Member’s deviation from its obligations. The test entails assessment of three factors – (1) significance of the measure in achieving the stated aim (public order or public policy); (2) the restrictive impact of the measure in the context of international trade and commerce and (3) identification of the least restrictive trade measure. Thus, a data localization measure would have to fulfill the test to avail the benefit of the exception. However, inconsistent applicability of data transfer restrictions by a Member under the ambit of Article XIV of GATS shall be treated as unjustifiable.

Another exception that could be availed of is Article XIV bis (Security Exception), the applicability of which provides that nothing under GATS shall be construed “to prevent any Member from taking any action which it considers necessary for the protection of its essential security interests” or “to prevent any Member from taking any action in pursuance of its obligations under the United Nations Charter for the maintenance of international peace and security.” Essential security interests under the exception are couched in broad language which allows room for wide interpretation. The exception is further underpinned by usage of the wording ‘action which it considers necessary’, however, its implementation shall only be limited to the grounds specified under Article XIV bis (1)(b). The circumstances under Article XIV bis (1)(b) of GATS, primarily ‘war or other emergency in international relations’ is nonetheless likely to be stretched for the purpose of advocating data localization norms. Members invoking general and security exceptions under GATS must abide by the principle of pacta sund servanda articulated under Article 26 of the Vienna Convention on the Law of Treaties as the principle is integral towards the interpretation of WTO Agreements.

The Way Forward: Establishing Congruity between International Trade Law and Data Governance

The digital economy is directly related to data protection due to the trade of goods and services, besides the ubiquitous nature of cross border data flow necessitates eliminating the conflict of territorial laws of data protection. In our opinion, regulating data and the internet entails the adoption of a ‘polycentric’ approach. Segura Serrano argues that data regulation requires a mixed approach of prescriptive laws and self-regulatory codes, given the role played by the private sector. Against this backdrop, the WTO should embrace guidance from multi-lateral institutions while formulating a framework for data regulation. For instance, under the General Agreement on Tariffs and Trade (“GATT”), the structure pertaining to currency exchange and valuation was formulated in consultation with the International Monetary Fund. Additionally, as suggested by Mira Burri, the WTO law should incorporate ‘horizontal obligations’ for fostering free flow of data across borders for conducting business activities and forbid strict data localisation. As correctly pointed out by Neha Mishra, data flow restrictions create a non-tariff trade barrier resulting in restrictive trade flow across borders.

The role of the WTO to respond and formulate a comprehensive trade policy in a data-driven economy poses acute importance in light of the on-going negotiations based on the ‘Joint Initiative on E-commerce.’ Members of the foregoing initiative have emphasised the need to acknowledge cross-border flow of data as a critical element to eliminate digital divide. Furthermore, in the wake of the Covid-19 pandemic, harbouring digital inclusion is a proven ‘urgent necessity’ to encourage participation of smaller players in the global digital economy. The imperative twin critical objective of balancing trade with data governance is crucial to foster the growth of digital economies in the era of globalisation. While countries push for data localisation in a bid to govern data, little is known if such policy measures are actually effective in ensuring privacy and cybersecurity.

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Policy & Politics

INDIA TO ADD 50 FRESH UNICORNS IN 2022: STUDY

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In India more than 50 startups have the potential of entering the unicorn club in 2022 as showcased in a new study. This will take the total tally of India to well over 100 startup unicorns(those well valued over $1 billion each). The year 2022 has shaped up nicely to become a matrix and a petri-dish of startups and with each success the chances of others joining them becomes well over-precedent. The growth of startups can be attributed to various national economic policies and the ease of doing business norms. The shopping capabilities and buying parameters of the people also has to do a lot with this, the report by a consultancy firm suggested.

Amit Nawka, partner(deals and startup leader) in PwC India, which conducted the study said that, “ We can say that the base of these companies in growth stage and late-stage deals have improved have improved significantly in the calendar year 2021, depicting a stronger base of companies having the potential to reach the unicorn status. With market sentiments favourably inclined towards startups, and the large base of scaled startup companies at the end of CY21, we expect the startup’ unicorn tally to go well beyond 100 by the end of 2022.” Over $10 billion was invested in the Indian startup ecosystem in the October-December quarter alone, according to the report.

81 is the total number of startups in India as of now with a total valuation of 4274 billion. Of these 44 unicorns with a total valuation of $89 billion were born last year, shows data from Invest India, the national investment promotion agency. The PwC report shows that in the fourth quarter, startup funding crossed the $10 billion mark.

If we talk about categorisation, Fintech startups raised nearly four times more funds last year as compared to the previous year. Edtech followed closely with a growth of 86% compared to $2.2 billion raised in 2020. Software as a service came in a close third. Growth and late-stage deals comprised around 85% of the total funding. Among the most persistent and active investors were Sequoia Capital, Accel and Tiger Global. A December 2021 report by the Hurun Research Institute had mentioned that India is the third largest home for unicorns globally but trails the US and China by a wide margin.

Bengaluru and the Nation Capital Region witnessed nearly three-fourth of the total funding by venture capital and private equity funds, the report said. In its list of 50 potential unicorns it placed companies like Khatabook, Whatfix, Practo, Ninjacart, Inshorts, Pepperfry as among the candidates because of their history of having raised over USD 100 million to date.

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Policy & Politics

Effect of high rated fuel on country’s economy

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High fuel taxes combined with a recovery in international crude oil rates has affected millions of people, slowing down the recovery of the country. The price of petrol and diesel hits a new record everyday. In Mumbai, petrol can be bought at Rs 109.98 per litre and diesel costs Rs 94.14 for one litre as on 18th January.

Experts have warned that rising fuel rates could severely derail India’s economy, which is already under pressure due to the impact of the second Covid-19 wave. High petrol and diesel prices have not only impacted vehicle owners, but also people who do not own a car. Rising fuel prices have resulted in a sharp rise in retail inflation, making a host of essential commodities and services costlier for citizens.

Elevated tax levels are playing a major role in the current record high prices in India. The central government had last year increased levies on petrol by Rs 14 per litre and on diesel by Rs 16 per litre to shore up revenues as the pandemic forced a sharp slowdown in the economic activity. Central and state taxes currently account for about 53.5 per cent of the pump price of petrol and about 47.6 per cent of the pump price of diesel in Mumbai

The rising crude oil prices, and the higher taxation impact, have also contributed to the prices of petrol and diesel regularly setting new record highs across the country in 2021. Petrol in nation’s capital is priced at Rs 95.41 per litre while diesel in the national capital is retailing at Rs 86.67 per litre. India has seen a faster recovery in the consumption of petrol than of diesel after pandemic-related restrictions with petrol consumption up 9 per cent in September compared to the year ago period but diesel consumption remaining 6.5 per cent below 2020 levels. Diesel accounts for about 38 per cent of petroleum product consumption in India and is a key fuel used in industry and agriculture.

India has long pushed for Middle eastern countries to remove the Asian premium that Asian countries have to pay for crude oil as key oil producers set higher prices for India than for the US and European countries. Despite a 40 cent per barrel cut in the official selling price of light crude to Asia, Saudi Arabia is still charging a $1.30 premium on the benchmark price for light crude sold to India compared to a $2.4 discount on the benchmark price for European customers.

Experts have noted that countries like India do not have much bargaining power in the current market scenario where supply is lower than demand and that India’s bargaining power may be reduced further if we try to further diversify crude oil procurement. Also, the level of output and pricing benchmarks are decided by cartels such as OPEC.

So, Experts believe that the government should cut excise duty to some extent as it will provide some relief to customers and lead to higher sales and revenues which will accelerate the economy. But economic recovery will become tricky if the government continues to ignore rising fuel prices. If the commodity becomes too expensive, it would see a sharp decline in revenue.

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India-born top the list of founders among US unicorns: Study

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It is not only in India but in the US too that Indian founders are creating unicorns.

A study by Professor of Finance at Stanford University’s Graduate School of Business, Ilya A. Strebulaev researched that 90 out of 1,078 founders and entrepreneurs across 500 US unicorns were born in India which signalled a significant presence of Indian-Americans in the country’s startup and tech economy. He tweeted that, “Over four out of ten unicorn founders are first gen immigrants”. Indian born founders were followed by the ones from Israel and Canada with 52 and 42 founders respectively.

Some of the Indian origin founders of prominent unicorns include: Rohan Seth of Clubhouse, Baiju Bhatt of Robinhood, Dheeraj Pandey, Mohit Aron, Ajeet Singh of Nutanix, Apoorv Mehta of Instacart, Aayush Phumbhra of Chegg, among many others.

The research undertaken by Strebulaev is ripe at the time when India based technology want to return back home. Indian immigrants in the US are increasingly leaving their American dream behind because of visa issues and also because of the allure of a thriving startup culture in the home country. America has had a history of extremely successful Indian-origin entrepreneurs including Kanwal Rekhi, Pramod Haque, Sanjay Malhotra among others. India born executives are not only fueling the startups of the US but they are the executives of the most powerful tech giants.

U.S based Kaufman Foundation 33.2% of the co-founders of technology and engineering founded by immigrants in the US were Indians. Kaufman Foundation found out that Indian immigrant contribution in tech and startup industry was the only one that increased, all other immigrant contributions saw a decline. Another finding showed that 33 of the top 50 AI companies have at least one first generation immigrant founder. And 53 of the 125 founders are first generation immigrants. India and Israel were the largest senders of immigrant AI founders followed by the UK, China and Portugal.

India has a vibrant and an ever growing startup ecosystem. A recent report by venture capital fund Orios Venture Partners said Indian startups raised $42 Billion in 2021 up from $11.5 Billion in the previous year. The newly minted unicorns include ShareChat, Cred, Meesho, Moglix, MPL, Grofers(now blinkit), upGrad, Mamaearth, Acko, Spinny and others. India with 90 unicorns is the third largest unicorn hub behind the US(487) and China(301) and ahead of the UK(39). According to the report Flipkart was the most valuable unicorn($37.6 Billion).

India has seen four decacorns(companies with a valuation of USD 10 billion and above) so far- Flipkart, Paytm, BYJU’s and Oyo Rooms. While Bengaluru was the ‘Unicorn Hub’ with 18 unicorns emerging from the city in 2021 and 35 in all. It also happens to be the seventh largest unicorn city in the world.

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Policy & Politics

KARNATAKA’S ROLE IN BUILDING A $5 TRILLION ECONOMY WILL BE SIGNIFICANTLY LARGER, CHIEF MINISTER BOMMAI

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Karnataka is expected to play a significant part in the economy of the country in the future. The state is home to 13,000 of the country’s 54,000 startups. The Karnataka government has taken a number of steps to stimulate the formation of new businesses. The government is providing guidance and scientific support, according to Chief Minister Basavaraj Bommai.

In an online message on the occasion of ‘National Startup Day’ on Sunday, the Chief Minister stated that the notion of a New Karnataka for a New India would be realized. In accordance with the Prime Minister’s wishes, the state has commemorated Startup Day in a meaningful way. The state government will give a major boost to startups, innovation, scientific thinking, and entrepreneurship in the coming days, he added. “Thanks to the Prime Minister’s long-term goal, the number of startups, which was once about 500, has already surpassed 54,000.” He has given a tremendous boost to innovation and entrepreneurs by establishing a forum to assist them and free them from government limitations. “On behalf of the state’s youth, the Prime Minister has been the inspiration for the biggest development of startups in the state,” Bommai added, thanking the Prime Minister.

Bengaluru is home to around 180 science and research institutions in a variety of sectors.

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‘WEALTH OF 10 RICHEST INDIANS ENOUGH TO FUND HIGHER EDUCATION OF CHILDREN’

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DA hike

According to a new study, it has been found that the wealth of the 10 richest Indians is enough to fund school and higher education of children for over two decades (approx. 25 years). When most of the country was gripped by the Covid-19 pandemic, the combined fortunes of the Indian billionaires more than doubled during this period. The superrich count in the country has now shot up to 142, rising by 39 per cent.

The annual wealth inequality survey reported presented by Oxfam India at the Davos Agenda Summit of the World Economic Forum (WEF) said that an additional one per cent tax on the richest 10 per cent can provide nearly 17.7 lakh extra oxygen cylinders to the country. None of us can forget how there was a huge rush for oxygen cylinders and insurance claims during the second wave that struck last year.

On the other hand, a similar wealth tax on the 98 most-affluent families can finance Ayushman Bharat – world’s largest health insurance scheme, for more than seven years.

The report further finds that 142 Indian billionaires together own a wealth of $719 billion (over Rs 53 lakh crore). The richest 98 amongst them have the same wealth ($657 billion or nearly Rs 49 lakh crore) as the poorest 55.5 crore populace who are placed in the bottom 40 per cent.

It was found that if all of the top 10 richest Indians go on to spend $1 million every day, then it will take them 84 years to do away with their current wealth.

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Exports target of US$650 bn within the current financial year achievable: Piyush Goyal

‘$400 Bn target of Merchandise exports is within sight and the Services sector should strive for $250 Bn exports.’

Tarun Nangia

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Piyush Goyal

The Minister of Commerce and Industry, Consumer Affairs, Food and Public Distribution and Textiles, Piyush Goyaltoday said the exports target of USD 650 Billion within the current financial year is achievable. Chairing a Review Meeting of all major Export Promotion Councils (EPCs), Goyal said the $400 Bn target of Merchandise exports is within sight and the Services sector should strive for $250 Bnexports.

Expressing his satisfaction that India achieved $300 BnMerchandise exports in the first nine months of the current FY (April-Dec, 2022), Goyal assured the EPCs that his Ministry will do whatever it takes in handholding the EPCs and resolving their issues to attain even higher export targets in the next FY.

Shri Goyal said we can set a much higher goods exports target in the current last quarter of this FY. “In December alone we touched $37 Bn goods exports despite the Omicron fear factor weighing high. This month, in 15 days till January 15th, we have reached $16 Bn.”

oyal said the Prime Minister Shri Narendra Modi has himself set the pace by setting “transformational results” and not “incremental growth”.

The Commerce & Industry Minister urged the EPCs and entrepreneurs to avail of the Government’s initiatives towards Ease of Doing Business such as obtaining clearances through the National Single Window System. He assured the Industry representatives to pursue their demands during the various FTA negotiations.

Speaking of the government’s efforts to improve the ease of living and the ease of doing business, Goyal said that more than 25,000 compliances have been reduced.

“In December alone we touched $37 Bn goods exports despite the Omicron fear factor weighing high” – Piyush Goyal

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