By RV Anuradha
Two controversial issues ended up putting a spanner on the Diwali deadline for the UK-India FTA—the depth of commitments on movement of natural persons and impediments to flow of data. Suella Braverman, in her first stint as the British as concerns that Indians tend to overstay their visas stirred up strong emotions on both sides. On the data issue, India’s requirements for data localisation are perceived by the UK as an impediment for cross-border data flows.
There are ways to address both issues effectively for meaningful FTA commitments. This is particularly important since both have significant implications for trade in services under the FTA, an area in which the Indian government has estimated an export target of $350 billion in the current fiscal.
Unlike the unidimensional method of merchandise trade, which occurs with goods crossing borders of the exporting country into the importing country, trade in services can occur through four modes of supply—
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*Mode 1, “cross-border supply of services: where an Indian service supplier supplies services through electronic means to the service consumer in the UK. The IT industry has been one of the biggest beneficiaries of this mode of supply.
*Mode 2, or “consumption abroad”, where a service consumer of UK (the importing country), visits the India to avail of services, for example, tourism and healthcare services.
*Mode 3, or “commercial presence”, is the most easily understood and measurable mode of trade in services, wherein an Indian services company invests in the UK.
*Mode 4 involves the temporary movement of Indian service professionals to the UK to supply services for a specified duration.
For Modes 1, 3 and 4, India has a positive balance of trade, and on Mode 2, both countries have similar exports. The two sticky issues, data localisation and visas, impact Mode 1 and Mode 4, respectively.
Let us consider data localisation. This refers to requirements for storage and/or processing of data within the territory of a country, which is what lies at the heart of any Mode 1 delivery of services, whether it be IT, financial, educational, or any other. The policy rationale for data localisation is that this would facilitate law enforcement, as well as enable harnessing the economic potential of any data. India’s data protection law, which was expected to clarify the extent of localisation, is likely to see the light of day only in 2023. The current legal mandate for local storage of data in India is only with respect to personal financial data (used by credit card companies). But India is unlikely to commit cross border data flows under any FTA when the domestic legal framework is yet to fully evolve.
However, data protection does not mean that there cannot be cross-border data flows for trade purposes. Take the example of the EU’s General Data Protection Regulation (GDPR), which sets a high level of protection for personal data. EU’s FTAs allow for transfer and storage of data to those countries which it has recognised as having a level of data protection adequate to its own. EU has recognised the data protection laws of Argentina, Canada, South Korea and the UK, among others, as “adequate”. For other countries, alternate pathways for data flows, including through contractual arrangements, is possible.
Given the close linkage between cross-border data flows and Mode 1, an area where both India and UK have an aggressive interest, both countries should consider an interim arrangement, which can be reviewed once India’s data protection law comes into force.
On the second issue of visas, Ms. Braverman’s skepticism of the FTA pertains to Mode 4, or the temporary presence of natural persons to provide services. Her concern is that the India-UK Migration and Mobility Partnership (MMP), entered into last year, had not worked well. This concern is misplaced and conflates two distinct concepts: Mode 4 under the FTA refers to the “temporary” presence of natural persons to deliver a service; it has nothing to do with mobility, employment and migration which is the domain of the MMP. In fact, the India-UK MMP specifically excludes trade in services through movement of natural persons, which it states will be part of the FTA commitments.
The services chapter of the India-UK FTA, as is the practice in FTAs, would likely exclude any entry into the employment market and permanent migration into the UK. In fact, the UK is well-positioned to enforce this distinction with its special category of visas titled the “Global Business Mobility Service Supplier route”, which is geared to service sectors where the UK has taken commitments under an FTA.
With a strong base of skilled professionals, India is well-positioned to further enhance its tactical advantages in Mode 4 under the proposed FTA. for this, dealing with Mode 4 as distinct from the MMP, is crucial.
Trade in services is central to any meaningful FTA. Clear and innovative solutions, both at the conceptual and at the level of drafting commitments, are needed to make it meaningful for both India and the UK.
The writer is Partner at Clarus Law Associates, New Delhi