Trade rules in e-commerce to benefit Indian industry

Negotiating trade rules in e-commerce to benefit the Indian industry

As the pandemic continues, digtialisation will play a key role in inclusive growth and recovery of the Indian economy. India should be at the forefront of global negotiations on e-commerce, particularly the Joint Statement Initiative that now has 86 member countries.

BY DR PRITAM BANNERJEE AND DR ARPITA MUKHERJEE

India’s digital economy is projected to be US$1 trillion by 2025, constituting around 18-23% of the GDP. Its e-commerce market was valued at US$ 38.5 billion by volume in 2017 and is estimated to reach US$ 165.5 billion by 2025.

NASSCOM data shows that the Indian technology-based industry has grown from US$ 191 billion in FY 2019-20 to US$ 194 billion in 2020-21. The sector employed around 4.47 million in FY 2020-21. India is the 3rd largest technology start-up hub in the world. In 2020-21, telecom, computer and information services accounted for nearly 50% of India’s services exports. Thus, India is at the centre-stage of the global digital and e-commerce revolution, and needs to harness its strength through policy reforms and negotiations in global platforms.

INTERNATIONAL ENGAGEMENT

India has been a proponent of liberalising Mode 4 (temporary movement of high-skilled professionals) and Mode 1 (crossborder trade) in the WTO and in its trade agreements. While India continues to maintain this position, as it concludes trade agreements with key partners like the UAE and Australia and fast tracks negotiations with partners like the UK and the EU, it is yet to take an active role in wider international discussions on e-commerce.

For example, India is not a part of the Joint Statement Initiative on e-commerce, which was launched by 71 WTO members at the 11th WTO Ministerial Conference in December 2017, and now has 86 members. India also did not sign on “sharing of data with a trust” during the Osaka Track of the Japanese G20 Presidency. The discussions in JSI are moving at a fast pace and participating countries have finalised the negotiating text on issues like e-signatures and authentication. By not participating, India may be at the receiving end, where it has missed the bus on contributing to the discussions.

There can be some genuine concerns for India to take a

defensive position. The country is yet to come up with a regulation governing data protection and privacy. Majority of Indian industry players exporting are General Data Protection Regulation (GDPR) compliant. Hence, the industry is ready and in fact requesting for a regulatory framework, that’s transparent and fair. At the same time, not all countries participating in JSI have their regulatory framework in place, so JSI will have to keep options for regulatory evolution with technology developments.

Based on UNCTAD research, India has submitted a communication to the WTO on the E-commerce Moratorium: Scope and Impact, along with South Africa, in March 2020 and received clarification on the scope. Regarding, continuation of the moratorium, and other issues discussed in JSI, the authors had in-depth meetings with technology companies, their associations and policy experts. The summary of the discussions is presented below.

MORATORIUM, DUTIES & TAXES

Some researchers would like the government to oppose the extension or permanency of moratorium on Customs duty for digitally delivered products and services in the WTO, as it will potentially lead to tariff loss, especially for developing countries.

However, JSI proposals include provisions allowing domestic taxation of such intangible digital products. For most developing countries, since most of the major providers of digital content and products are large MNCs, imposing domestic taxes would be akin to a tariff. OECD has already developed a robust framework for digital taxation to which India is a party.

For large developing countries, like India, that would like to retain policy space to promote local digital firms and development of local digital content, tax breaks or incentives for local digital content development, startup incentive funds, and incentives designed for specific digital products can also be used. Many of these instruments are being used by other countries to support growth of their digital economies.

Since over 50% of India’s services exports are IT/ITeS, and a significant share is delivered crossborder digitally, some measure of tariff-free market access would be critical. So a moratorium works in favour of the Indian IT/ITeS industry. India is also developing its export capabilities in areas like e-sports and online gaming. So it is in India’s interest to ensure that its exports are not adversely impacted by any decision taken in the interest of other developing countries, who may not be exporting digital products and services.

OVER 50% OF INDIA’S SERVICES EXPORTS ARE FROM IT/ITES, AND A SIGNIFICANT SHARE IS DELIVERED CROSS-BORDER DIGITALLY.

LEGAL FRAMEWORK

The JSI proposal requires members to mandatorily develop a legal framework based on the UNCITRAL Model Law on E-Commerce to govern e-commerce transactions, while ensuring that it doesn’t put unnecessary regulatory burden on e-commerce and electronic transactions.

There is concern that the mandatory requirement to develop a legal framework to govern e-commerce would put unnecessary burden on existing legal institutions of developing countries. In addition, the requirements to adhere to the UNICTRAL model law, would limit legal flexibilities available to regulators in developing countries in being able to adequately regulate big technology firms from markets such as the US, EU, and China.

Given that cross-border e-commerce is increasing, there is an urgent need to have laws based on internationally agreed upon principles governing these transactions. Unless India participates in the discussions, how can it raise its concerns? There is a need for detailed discussions with the industry and legal experts on the UNICTRAL model law. This law already includes fundamental principles that allow regulation of anti-competitive and monopolistic practices and provide leeway in developing national standards.

Using the UNICTRAL Model law as a guide, India and other developing countries can choose to define what legal principles are necessary and draft proposals to the JSI accordingly, prioritizing legal instruments and principles essential to ensure competitive safeguards. This can include an essential 5-year review mechanism; given the dynamic nature of technology, and new technological means that enable incumbents to create monopolies or impose unfair and anti-competitive practices.

E-SIGNATURE & CONTRACTS

JSI has proposals for rules for universal acceptability of electronic signatures, contracts, and invoices. Its proposals also want to push for universal acceptability of digital versions of all trade related documents, i.e., ensure that most documents submitted to Customs and other regulators for exports and imports are in electronic form. There are concerns that developing countries may lack the requisite financial resources, technology and adequately trained manpower for large scale mandatory adoption of these technologies, and that SMEs in developing countries would be disadvantaged.

However, given the ongoing pandemic, governments are fast adapting technologies and digital inclusion of SMEs is a priority for all governments, including India. In fact, India is a leader among developing countries in terms of

both electronic contracting and signature use, and, therefore, has all the more reason to proactively participate in this aspect of JSI negotiations. Countries lacking resources can be given more time for adoption (special and differential treatment as mandated under other WTO agreements).

This is an area where the JSI made significant progress. In a statement issue by co-conveners Japan, Australia and Singapore, on December 14, 2021, it was mentioned that the JSI has achieved good convergence in negotiating groups on eight articles, namely, online consumer protection; electronic signatures and authentication; unsolicited commercial electronic messages; open government data; electronic contracts; transparency; paperless trading; and open internet access.

All these will facilitate trade and are important for businesses and India needs to know and see what is agreed upon. For example, not all JSI proposals on electronic transactions may be easy to agree to. The Chinese proposal to grant full market access to foreign e-payment services and equal treatment on par with national firms is an overreach. Governments would have legitimate security and consumer protection concerns about safeguarding their citizens and firms. There are also complicated issues related to the jurisdictional ability of local regulators to hold a foreign e-payment firm accountable in case of wrongdoing. These concerns are shared by most countries, and India won’t be alone in rejecting them.

DATA FLOW AND LOCALISATION

While JSI proposals are strongly in favour of eliminating restrictions on cross-border transfer & offshore processing of data, and opposes data localization, there’s consensus on “data sharing with a trust”.

Large developing countries like India generate a lot of commercially profitable data. There is a fear that data generated in developing countries can be tapped by large digital players in industrialized countries for profit, while data generators in developing countries will get no benefit. This is an important concern that needs to be looked at.

The linkage between data localization leading to data centres being developed locally and that leading to competitiveness is highly spurious. What matters is who ‘owns’ the data, and can exploit it for economically profitable ends.

Without having firms that can manage the process of collecting and storing big data, and have the knowhow for applying algorithms and analytics, it would be impossible to leverage benefits of big data in industrial design and automation (industry 4.0), logistics management, product design & development, consumer targeting & marketing, or provide embedded digital products & services across manufactured products.

There is no doubt that a country like India can benefit with state-of-the art data processing facilities, and government needs access to data for governance and policymaking. However, the issue is of governments being able to access this data when needed, and ensuring that sensitive data is kept safe. Both these objectives can be achieved irrespective of where the data is stored.

In fact, most global MNCs have data centres in multiple locations. Malaysia, for instance, hosts many data centres, but apart from some revenues from data centre location, gains little economic advantage from the data across the world being hosted in these centres.

India has one of the world’s largest consumer markets including a large and growing middle-class that generates massive amounts of data. The allowed restrictions in JSI proposals on personal and sensitive geological or logistical data, again based on allowed restrictions on security aspects would create a natural case for locating data centres in India. This would not be true for most other developing countries.

India also has a large pool of technically skilled manpower and start-up/innovation eco-system that can analyse this data successfully. The combination of the two would make India an ideal location for developing data centres and associated analytics and related data centre services. If India can provide assured high-class digital infrastructure that is secure and reliable, economies of scale and average lower cost skilled manpower would make it the global location for data centres; a major source of revenue.

TO CONCLUDE

India is negotiating bilateral trade agreements and discussions in JSI are going to be reflected in these agreements. Existing bilaterals like the one with Japan are also up for review. It is better to be a part of a forum like JSI and play an active role to develop trade rules rather than to enter JSI at a later stage or agree to it through bilateral agreements. 2022 is important in JSI as discussions in key areas like data sharing and localisation and source code will be held. Discussions will also intensify on market access. India cannot afford to be outside such discussions.

At the same time, it is important to collect and collate robust data on e-commerce and digital trade in the country, identify export barriers, and understand the expectation and requirements of the industry. Interests of the Indian industry should be at the centre of India’s negotiating strategies – that will help achieve the goal of “Atmanirbhar Bharat” and also emerge the world’s 3rd largest economy by 2047.

Dr. Pritam Banerjee is Logistics Sector Specialist Consultant with the Asian Development Bank (ADB) and Dr Arpita Mukherjee is Professor at ICRIER. Article has been edited due to space constraints. To view the full column, visit tpci. in/indiabusinesstrade. Views expressed are personal.