Even as India continues to insist upon retaining powers to restrict cross border flow of digital data to serve national security interests in the 'e-commerce' chapter of the proposed Regional Comprehensive Economic Partnership (RCEP) agreement, the country's negotiators may have already diluted that policy space at least for cross-border flow of digital financial data in another chapter under RCEP.
The 'Financial services' chapter, approved by all 16 negotiating countries, makes it clear that while there can be national laws related to transfer and processing of financial information, the signatory country shall not take measures that prevent transfer of information, including transfer of electronic data that is necessary for the conduct of ordinary business of a financial service provider or prevent processing of information necessary for the conduct of the ordinary business of a financial service supplier. The very fact that proposed agreement does not stipulate that the transfer has to be only amongst RCEP members may allow such financial service providers to transfer electronic data to any foreign country, thereby diluting India's consistent demand for data localisation and strict restriction on cross country data flows.
The RCEP 'Services' text requires the financial service provider to comply with domestic laws for regulatory and prudential reasons in relation to data management and storage and system maintenance, as well as to retain within its territory copies of records, as long as the country is not using these restrictions as a means of avoiding the country's commitment and obligations under RCEP agreement. In other words, any measure taken by national authorities to prevent cross border flow of financial digital data can be questioned if the partner country feels it is not for 'prudential' reasons. The clause and the possibility of challenges in a dispute resolution mechanism which will be formed as part of RCEP agreement may cause a chilling effect in the implementation and enactment of future regulations.
Interestingly, even as India has agreed to the 'services' agreement, it has not yet yielded to the demands in the 'e-commerce' chapter that is still being negotiated by participant countries.
The section in the 'e-commerce' chapter which covers "Cross-Border Transfer of Information by Electronic Means" also says every partner country can have its own regulatory requirements concerning the transfer of information by electronic means, but it cannot prevent cross border transfer of such information by electronic means as long as it is part of ordinary business activities. India had proposed massive amendments to this section as it maintained that it curtails the country's freedom to protect the electronic data generated within its geography.
In June 2019, India refused to be a signatory to a G20 framework agreement to promote cross border flow of digital data arguing it will prevent policy space for digital industrialisation in developing countries.
In spite of opposition from RSS affiliate Swadeshi Jagaran Manch (SJM), the government is moving ahead with negotiations and has finalised 21 chapters - including the chapter on financial services - out of the 25 chapters in the proposed Agreement. In addition to Electronic Commerce, chapters on Rules of Origin and Trade Remedies are the remaining ones.
When Commerce Minister Piyush Goyal begins the final negotiations with his counterparts from 15 other countries over the proposed RCEP agreement on October 11 at the 9th RCEP Intersessional Ministerial meeting at Bangkok in Thailand, the absence of synchronised approach towards negotiations on this deal is likely to cost India much.