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Context

Discussion surrounding the current status of technology trade between India and the United States.

Details

• Cooperation on technology emerged as a prominent talking point during Prime Minister Narendra Modi's U.S. state visit, yielding substantive outcomes.
• However, U.S. tech companies have flagged multiple policy hurdles in digital trade, highlighting concerns about India's protectionist posture.

Current Status of India-U.S. Technology Trade

• In FY2023, the U.S. became India's biggest overall trading partner with bilateral trade increasing by 7.65% to $128.55 billion in 2022-23.
• Digital or technology services did not emerge as one of the sectors at the forefront of bilateral trade.
• The U.S. ran a $27 billion deficit in trade in digital services with India in 2020, despite the strength of the U.S. digital services export sector and the enormous growth potential of India's online services market.
• The Initiative on Critical and Emerging Technology (iCET) was established, focusing on cooperation in areas such as artificial intelligence, quantum computing, semiconductors, and wireless telecommunication.
• The Semiconductor Supply Chain and Innovation Partnership, valued at $2.75 billion, was launched through a MoU signed between India and the U.S.
• Joint Task Forces on Open RAN network and research and development in 5G/6G technologies were established.
• Efforts are being made to advance future technologies such as AI and Quantum Computing, with the establishment of the Quantum Coordination Mechanism and a joint fund for the commercialization of AI.

Concerns of U.S. Tech Firms:

• The Computer & Communications Industry Association (CCIA), representing companies like Amazon, Google, Meta, Intel, and Yahoo, highlighted concerns regarding the U.S.-India economic relationship.
• The CCIA noted a significant imbalance and misalignment in the relationship, with India not reciprocating the market access and openness offered to Indian companies in the U.S.
• The Indian government has been accused of deploying protectionist industrial policies that favor domestic players, tilting the playing field away from U.S. digital service providers.
• The CCIA criticized India's guidelines on the sharing of geospatial data, accusing them of providing preferential treatment to Indian companies.
• Discontent was expressed over India's deviation from long standing democratic norms and values, leading to challenges for U.S. companies operating in India.
• Concerns about India's democratic values in comparison to shared values with the U.S. were also raised during Prime Minister Modi's state visit.

Taxation Measures Raised by CCIA

Equalisation Levy:

• India imposed a unilateral measure in 2016 to levy a 6% tax on specific services received by non-residents from residents in India.
• In 2020, the 'Equalisation Levy 2.0' was introduced, imposing a 2% tax on gross revenues received by non-resident e-commerce operators from the provision of e-commerce supply or service to Indian residents or non-resident companies with a permanent establishment in India.
• The levy led to double taxation, complexity in the taxation framework, and raised concerns about constitutional validity and compliance with international obligations.
• The government issued a clarification in 2021 to expand the scope of the levy to include the online sale of goods or provision of services.

Global Minimum Tax Deal:

• The CCIA argues that India unilaterally imposed the levies while 135 other countries await clarity on an Organisation for Economic Cooperation and Development (OECD) agreement to overhaul the global tax system.
• The OECD deal aims to remove digital services tax and similar measures and prevent the introduction of such measures in the future.

Concerns about India's IT Rules 2021

Compliance Burden:

• The IT Rules place compliance burden on social media intermediaries (SMIs) and platforms with five million registered users or more, affecting several U.S. firms.
• S. firms fall under the ambit of the rules, leading to compliance challenges.

Impractical Compliance Deadlines and Content Take-Down Protocols:

• Intermediaries are required to take down content within 24 hours upon receiving a government or court order, which is seen as impractical.
• SMIs are obligated to remove prohibited categories of content within 72 hours upon complaint, which raises concerns about free speech and censorship.

Appointment of Local Compliance Officer:

• Platforms are required to appoint a local compliance officer under the IT Rules.

Grievance Appellate Committees (GAC):

• The institution of GAC, consisting of three members, allows user complaints against decisions made by SMIs regarding content-related issues.
• GAC has the power to reverse decisions made by SMIs.

Compliance with Fake News Prevention:

• Platforms are required to make reasonable efforts to prevent the publication of content fact-checked as fake or false by the Press Information Bureau (PIB).

Criticisms of the New Draft of Data Protection Law

Ambiguities on Cross-Border Data Flows:

• The new draft of the Digital Personal Data Protection Bill still lacks clarity on cross-border data flows.
• Section 17 of the Act states that cross-border data flow will only be allowed to countries notified by the Indian government, but the basis and terms of such transfers are not mentioned.
• Industry experts raise concerns about potential blacklisting of countries not included in the notification, suggesting a need for proactive support of cross-border data flows.

Data Localisation Concerns:

• Data localisation refers to the requirement of storing data created within a country's borders within that country.
• Foreign tech companies find it convenient to store data outside India, raising concerns about data leaving Indian borders.
• The previous version of the Bill imposed data localisation requirements, but the new draft drops these provisions, leaving room for speculation on de facto localisation.

Concerns about the Draft Telecom Bill:

Expansive Regulatory Ambit:

• The draft Telecommunications Bill, 2022 expands the definition of "telecommunication services" to include internet-enabled services beyond traditional telephony and broadband services.
• The CCIA argues that this broad regulatory ambit may subject platforms to onerous obligations, such as licensing requirements, government access to data, encryption requirements, internet shutdowns, and seizure of infrastructure.

Impact on OTT Communication Services:

• The draft bill categorizes Over-the-top (OTT) communication services, including messaging platforms, under "telecommunication services."
• The CCIA highlights potential burdensome obligations, licensing requirements, and monetary obligations that could be imposed on the sector.

Other Policy Barriers to Digital Trade with India:

Proposed Digital Competition Act:

• The Parliamentary Committee on Finance proposed a "Digital Competition Act" to address anti-competitive practices by big tech companies.
• The CCIA raises concerns about estimated taxes targeting significant digital intermediaries, which appear to primarily affect U.S. tech companies.

Competition Commission of India's Fines on Google:

• The CCIA expresses discontent over fines imposed on Google by the Competition Commission of India for anti-competitive practices.
• It suggests that India may be using antitrust laws as a means of protectionist industrial policy.

PRACTICE QUESTION Q) Analyze the implications of the policy barriers on bilateral technology trade between India and the United States and suggest possible measures to address the concerns raised. (250 words)

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