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Explained: G7’s new digital trade deal and why India is wary of it

India has been rooting for data localisation, curbing the flow of data to overseas destinations; the G7 proposal directly contradicts that

A Group of Seven (G7) meeting held last week arrived at a consensus on a joint set of principles governing cross-border data use and digital trade. The agreement, it was claimed, would end protectionism and liberalise billions of dollars of global trade. The G7 Digital Trade Principles, however, are not immediately acceptable to several nations, particularly emerging economies such as India.

G7 is a grouping of some of the world’s most advanced economies — Canada, France, Germany, Italy, Japan, the UK and the US. A closer look at what their new trade deal proposes throws light on what the non-rich economies find objectionable, and under what circumstances it might finder greater acceptance.

Cross-border data barriers

“We oppose digital protectionism and authoritarianism and today we have adopted the G7 Digital Trade Principles that will guide the G7′s approach to digital trade,” said a communique published by Britain on October 22. Anne-Marie Trevelyan, the UK’s Secretary of State for International Trade, had hosted the G7 meeting of trade ministers in London last week.

Also read: Key takeaways from IMF’s World Economic Outlook

A Reuters report said the deal seeks to set out a “middle ground between the highly regulated data protection regimes of European countries and the more open approach of the US”. “Electronic transmissions, including the transmitted content, should be free of customs duties, in accordance with the WTO Moratorium on Customs Duties on Electronic Transmissions. We support a permanent prohibition of such duties,” said a joint statement by the G7 trade ministers.

It is expected that the moratorium will ensure free and trusted flow of data, provide safeguards for workers, consumers and businesses, improve digital trading systems, and establish fair and inclusive global governance.

The G7’s contention is that differing rules over the use of customer data are currently creating significant trade barriers, particularly for SMEs (small and medium enterprises). The new uniform global rules will bring down the barriers, it is claimed.

Call for greater clarity

India, for a while now, has been rooting for data localisation — curbing the flow of data related to Indian users to overseas destinations, by storing and processing the data within its shores. The new G7 proposal is in direct contradiction to India’s current stance.

India, South Africa and other developing nations are opposed to the proposed permanent prohibition of customs duties on electronic transmission. The topic is likely to crop up at the World Trade Organization’s (WTO) ministerial next month.

For now, New Delhi wants greater clarity on the scope of the proposed moratorium. “We have been seeking clarity on the scope of the moratorium without which it is difficult for us to advise our political leadership on the issue,” the government had said earlier this month.

India’s argument is that the moratorium could have substantial impact on revenue, policy and industrialisation. While the developing economies would bear the brunt of the impact, the benefit would mostly accrue to rich countries, it says.

Further, says India, a moratorium on customs duties on e-transmissions as proposed by the G7 should help develop e-commerce worldwide. The G7 should be able to display direct links between the moratorium and e-commerce development, it further argues.

“We advocate an evidence based, data-backed decision on this subject. This will also help us understand how the growth of this sector depends on the extension of the moratorium and how will it be affected if the moratorium is not renewed,” it has said.

Data encryption norms

On data encryption again, India’s stance does not align with that of the G7. The rich nations’ bloc said businesses should not be forced to provide encryption keys. It may be recalled that earlier this year, India had been engaged in a legal tussle with WhatsApp, the instant messaging platform of Facebook, over government access to encryption keys.

“Businesses should not be required or coerced to transfer technology or provide access to source code or encryption keys as a condition of market access. At the same time, governments must retain sufficient flexibility to pursue legitimate regulatory goals, including health and safety,” said the G7 communique.

How far India is able to challenge clauses in the Digital Trade Principles, and to what extent it is able to take other emerging nations along, will hold the key to the success of the G7’s new initiative.

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