The Office of United States Trade Representative has released a fact sheet, titled, 2019 National Trade Estimate: Key Barriers to Digital Trade. The fact sheet highlights the proliferation in fixed broadband connections globally from one million in 1998 to one billion in 2018, with nearly 4 billion people using the Internet worldwide. This increase in connections has been complemented by a growth in digitally-enabled trade, across industries, with enterprises leveraging digital services, supplying them across borders and streamlining operations to compete globally.
The fact sheet also highlights the advantages rendered to small businesses in the form of online platforms, data analytics and cloud computing, which enables them to keep their costs low and scale up quickly without costly investments in infrastructure, and hence, compete on a global level. Within this context, the barriers to digital trade, imposed by governments, threaten this ability of firms to function in a digital economy.
According to USTR, barriers that hamper cross-border flow of data and discriminate against foreign digital services are unnecessarily hurting local firms, by preventing them from leveraging the cross-border digital services and facilitating global competitiveness. The USTR aims to achieve strong and binding rules on digital trade across its negotiations. It hopes to use the U.S.-Mexico-Canada Agreement, which is the most comprehensive and advanced set of digital trade rules to be negotiated, as a template for similar rules, to meaningfully reduce digital trade barriers around the world.
In this fact sheet, the USTR has identified key barriers to digital trade. In China, it has raised objections to the restrictions on cross-border data flows and data localization requirements under the domestic cyber-security laws for routine transfers of information, including those that fall under the undefined category of “important.” Moreover, China has imposed restrictions on cloud computing that prohibit foreign companies from providing related services to customers in China, unless they partner with a local company and turn over to them their intellectual property, technological know-how and brands to enter the market. China also indulges in web filtering and currently blocks 10 of the top 30 global legitimate websitesand over 10,000 domains.
In the European Union, the USTR opposes the imposition of taxes on digital services and claims that these almost exclusively apply to American companies, thereby discriminating against U.S. suppliers in European markets. In 2018, the European Commission had proposed a directive to levy an interim tax on the revenues accrued from digital services (advertising, online market, data) even on companies that are not physically present in the EU. France, the UK, Spain, Italy and Austria are considering similar proposals.
In Indonesia, providers of “public services” are required to establish local data storage and disaster recovery centres, with a proposal to expand the data categories subject to the localization requirements. Indonesia is also considering multiple regulations on foreign providers to register with the government, designate permanent local representatives and prioritize local goods and services. In 2018, tariff lines were established for electronic transmission of digital products (apps, videos, music etc.). Although currently set at zero, this has questioned Indonesia’s WTO commitment of not imposing duties on electronic transmissions. Customs reporting requirements can disrupt existing trade, even in the absence of duties.
On the basis of a draft data protection law, Kenya’s data localization requirements would entail the local storage of personal data and prohibit/restrict the cross-border processing of certain “sensitive personal data.” According to USTR, this will hamper the development of the Kenyan digital economy and undermine data security, without providing any meaningful benefit to data privacy.
Korea has been identified as the only market worldwide that has imposed restrictions on the export of geo-location data. This hampers international suppliers with product services including traffic updates and navigation. Also, even though Korea will expand cloud computing opportunities, it will restrict cross-border use of cloud-computing for financial services.
In Nigeria, businesses are required to store all data concerning Nigerian citizens within the country as well as locally host all government data, unless they have been exempted officially. These requirements affect foreign businesses disproportionately since they globally distribute their data storage and processing.
According to Russian law, certain electronic data related to its citizens must be processed and stored in Russia. Failure in compliance has led to American companies/service providers and IP addresses being blocked. Saudi Arabia has created market access barriers for ICT services within its 2018 Cloud Computing Regulatory Framework (localisation of certain types of data, increased liability of internet service providers and regulatory imposition on cloud and other ICT service providers to install government filtering software).
In Turkey, there are multiple data localization requirements across laws. These include limitations upon transfers of personal data abroad, requirements to maintain information systems within Turkey and a 2018 notification that publicly traded companies must keep their primary and secondary information systems and data in Turkey.
In Vietnam, advertisers are required to contract with a local services supplier as a condition of placing advertisements on foreign websites targeting Vietnam. This is burdensome because online advertising market typically functions through automated and real-time auctions for ad space. Moreover, in 2018, Vietnam passed a cybersecurity law that required online service suppliers to store data and establish a local presence in Vietnam. Related regulations might be applied only under certain provisions, however, will still include a wide range of digital services.
The USTR has criticized India for the publication of numerous measures in 2018, which relate to the restriction of cross-border data flows and creation of onerous data localisation requirements. One such measure that was implemented requires the suppliers of payment services to store all information related to electronic payments by Indian citizens within India. The USTR views the drafts of the Personal Data Protection law and e-Commerce Policy as potentially undermining the digital economy as a major source of growth in India. These include proposals to regulate cross-border data flow, ban sharing of data of Indian users with businesses and third-party entities outside India, mandates to all e-commerce companies to store data domestically and provision of access to source codes and algorithms to the government.
The issues and concerns around data privacy and localisation has been gaining steam for a while now, given that countries seem to be racing towards personalization and growth within an integrated and connected global economy. While countries like the US are advocating for free flow of data across borders, others, like the European Union are keen to strictly protect and preserve the data of their citizens in a digital world, as encapsulated in the General Data Protection Rights.
India Outbound
April 9, 2019
source https://indiaoutbound.org/perceived-barriers-to-global-digital-trade-in-2019/
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