‘Forced’ localisation presents trade barriers with India, says US Congressional report

Amiti Sen New Delhi | Updated on January 11, 2021

The new Biden administration’s priority on bilateral trade issues remains uncertain

The US is continuing to press India to address its “forced” localisation practices, including data storage, domestic testing requirements and domestic content, which it views as presenting barriers to trade with India, according to a recent US Congressional report.

“Adding to US concerns are India’s restrictive localisation rules for certain financial data flows, which affect companies such as Visa and MasterCard,” the report by independent Congressional Research Service (CRS), which serves the US Congress by providing research and analysis contributing to national legislature, said.

India maintains that its policies on data localisation and domestic testing requirements did not flout multilateral rules and were put in place for protecting data against misuse and ensuring consumer protection.

President-elect Joe Biden has expressed interest in cooperating with Indian Prime Minister Narendra Modi on global challenges, but it is uncertain what priority the new administration will place on bilateral trade issues, the report said. “Some analysts expect that US-India trade relations may be less strained, but Congress and the new administration will continue to seek resolution to ongoing trade frictions in the bilateral relationship,” the report added.

India’s view

India will continue to explain the rationale behind the country’s domestic policies focussing on adherence to global trade rules to US government officials when the Joe Biden administration takes over, an official tracking the matter told BusinessLine.

“Indian officials have in the past explained that Reserve Bank of India’s requirement of storage of payments system data in the country was in the interests of users, so that their data can be protected and also the integrity of the payments system can be safeguarded,” the official said.

On the issue of domestic testing requirements being increasingly adopted by India for a number of items, the official said that these were not discriminatory as it was applicable for all players, both domestic or foreign, and was important to ensure quality and safety of the items.

Moreover, India has been providing various relaxations in its domestic sourcing policies, including in single-brand retail, as has been pointed out in the CRS report, the official said.

“India has moved to ease some local sourcing rules for single-brand retailers, which would affect companies such as Apple,” the CRS observed in its report.

‘Addressing trade frictions’

Under the Trump Administration, the US and India held concerted negotiations to address trade frictions, the report observed. “A potential trade deal could include partial restoration by the US’s GSP (generalised system of preferences) benefits in exchange for certain market access commitments, according to press accounts. Yet, the long expected limited trade deal has not materialised to date,” the report pointed out.

In general, India has relatively high average tariff rates, especially in agriculture. The US and several other countries requested to join various WTO dispute consultations against India related to its technology tariffs, also questioning its compliance with the WTO Information Technology Agreement (ITA), the report added.

Retorting to an observation made in the report about India’s deal to purchase the Russian-made S-400 air defence system possibly triggering US sanctions, the Ministry of External Affairs last week said India followed an independent foreign policy.

Published on January 11, 2021

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