Event ReportsPublished on Aug 10, 2016
US and India should work together to set up principles for digital economy

India and the US, as two major IT economies, should join forces in order to establish principles for the digital economy which could be further brought into the global framework. This was the key message of Ambassador Robert Holleyman’s intervention during the discussion on India and Regional Mega-Trade Agreements, hosted by Observer Research Foundation, Delhi on July 25. The talk with Deputy US Trade Representative Holleyman and Mr. Shyam Saran, Chairman, Research and Information System for Developing Countries and a former Foreign Secretary was moderated by Dr. Samir Saran, Vice President, ORF.

Ambassador Holleyman began with a presentation of the Digital 2 Dozen, which sums up the US approach towards the digital economy. The policy is reflected in the Trans-Pacific Partnership Agreement signed between 12 Pacific Rim economies on  February 4, 2016. The Digital 2 Dozen contains provisions which essentially fall into three categories:

  • The first category includes rules which ensure that the internet remains an open, safe and effective channel for trade of digital goods and services. It stems from the US perception that consumers should be able to access online content and applications of their choice for all legitimate commercial purposes.
  • The second category contains rules designed to strengthen technology choice and competition by combating protectionist restrictions. It prevents countries from forcing companies to undergo duplicative local testing, to localise their computing services and build expensive data centres in every market they seek to serve or to transfer their technology, production processes or other proprietary information as a precondition for the market access. They also promote transparency by guaranteeing stakeholders participation when regulations or standard setting processes, that affect the digital economy, are being created.
  • The third category provides a series of provisions that protect intellectual property rights of digital innovators. It ensures competition on the level playing field when companies do business globally. These rules entail strong copyright protection and enforcement procedures that are embodied in the TRIPS standards, example, they require countries to establish certain criminal procedure and penalties to prevent trade secret theft.

The Digital Two Dozen, in the US view, guarantees that digital economy and the internet will remain central to innovation, growth and prosperity in the next twenty years, as they had in the recent past. It is intended to counter new barriers rising in the digital realm in various countries. The USTR works closely with its counterparts in the like-minded countries, including India, advocating for these high standards to be enshrined in their domestic legislation. Ambassador Holleyman stressed that India, as a global leader in IT sector, has a potential to set a framework that would be emulated by other countries around the world.

Taking the floor, Mr. Shyam Saran welcomed the growing cooperation between India and the US in the IT sector. He noted that due to diverging interests of both countries, broader economic and trade agenda has historically constituted a weaker component of an overall US-India partnership. Consequently, this positive interaction in the field of digital economy should, in the longer term, improve the economic angle of the bilateral relationship.

Referring to the Digital Two Dozen, Mr. Shyam Saran indicated that some of its elements may not be suitable for India. Primarily, India needs to ensure adequate flexibility to limit free flow of data on legitimate grounds, such as security, privacy, etc. However, taking into account the immense future potential of digital sector, he encouraged two countries to adopt a forward-looking approach which would allow to reconcile their interests and to benefit from this growth. A holistic approach to eliminating trade barriers is, thus, necessary to ensure that both partners can exploit their comparative advantages.

Commenting on the issue, moderator Dr. Samir Saran pointed that a strong push back against the Digital Two Dozen can be expected in the area of duties on the IT products and services. While the US advocates for eradication of levies in this sector, he recalled that India’s Central Board of Direct Taxes has recently proposed 6-8% tax on digital services, above one lakh Rupees transaction size. Unlike in industrialised economies, the majority of India’s GDP growth is predicted to be attributed to the digital economy. Consequently, the government will have to seek revenue in this particular sector in order to finance it growing public expenditure.

Dr. Samir Saran concluded that India should establish its own version of the Digital 2 Dozen policy in the near future. However, many of its points are likely to overlap with the US vision.

This report is prepared by Katarzyna Kaszubska, Fellow, Observer Research Foundation.

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