India – Measures Affecting the Trade of Chinese Applications
On 29th June 2020, the Ministry of Information Technology released a notification which banned 59 Chinese mobile applications on the grounds of privacy and security threats.[1] This raises an important question- does the ban violate the provisions under the General Agreement on Trade in Services (‘GATS’)?
Hypothesizing a situation in which this measure is brought up to the panel in the World Trade Organization (WTO), an attempt shall be made to predict how the dispute plays out. This article will first address the commitments undertaken by India under the GATS and then move on to discuss the applicability of the general exceptions within the GATS framework.
1. Commitments under the GATS
Article XVI falls within Part III of the GATS, titled ‘Specific Commitments.[2] The provisions become applicable once the member state undertakes “specific commitments” for each sector of service. In doing so, they may choose the service sector and mode of supply they intend to liberalize. There are three main ways to assign commitments; (1) assigning ‘none’ would mean that Market Access requirements are fully applicable, (2) assigning ‘unbound’ would mean that the Market Access provision may be ignored and (3) stating the exempted measure, which would limit the deviation of market access commitments to that particular measure.[3]
The mobile applications which were banned fall mostly under the ambit of “data processing services”.[4] Within India’s Schedule of Commitments under the market access requirements, for the commercial presence of data processing services, there is no limitation imposed apart from the requirement to incorporate with a “foreign equity ceiling of 51%”.[5] This implies that India has undertaken full market access commitments and the provisions under Article XVI apply to India. Article XVI:2 of the GATS provides that limitations on the number of service suppliers (or services) in the form of numerical quotas would entail a violation of Article XVI of the GATS.
The current restriction may be seen as a restriction in the form of a numerical quota. India has essentially imposed a ‘’ restriction on the number of services, where ‘’ stands for the total number of Chinese ‘data processing services’ operating within India and ‘59’ represents the number of applications banned. Therefore, there has been a reduction in the total number of applications operating within India (by 59), and this may constitute a restriction in the form of a numerical quota.[6] Due to the congruence of these factors, it is highly probable that China may file for a dispute under Article XVI of the GATS.
We will now explore how India may bring up a defense to these claims by justifying the ban under the general exception principles within the GATS framework.
2 . General Exceptions (Article XIV)
The provisions under the GATS such as the ‘Most Favoured-Nation Treatment’, ‘Market Access’, and ‘National Treatment’ facilitate competition and enhance cross-border trade in services by combating discriminatory practices in international trade in services, but under certain circumstances, these provisions of non-discrimination may restrict legitimate policy objectives.[7] This is where Article XIV of the GATS comes in. It primarily serves as an instrument which the member states of the WTO may use to pursue policy objectives.[8]
The structure of Article XIV comprises of 2 parts. (1) There is an overarching introductory paragraph, called the chapeau, and (2) a sub-paragraph which details the measures which may be justified.
While interpreting Article XIV of the GATS, the Dispute Settlement Bodies of the WTO have relied on the two-tier test.[9] The two-tier test requires the measures to fall under the ambit of one of the subparagraphs of Article XIV, and then, the measure must pass the chapeau test. The subparagraphs explain the type of measures which may be justified. The chapeau is the introductory paragraph of the Article, which provides the overarching requirements to be met by a measure.
3. Cybersecurity/Privacy objective
The Ministry of Information technology has chosen to ban the applications due to privacy and security concerns. A measure of this sort may be justified under Article XIV(c) of the GATS enabling the members to take up trade-restrictive measures aimed at securing specific laws or regulations. The Indian government may choose to justify the ban under the “Section 69A of the Information Technology Act, 2000”.[10] Once the law is identified, it must be shown that this ban was indeed ‘necessary’ for the securement of the relevant law or regulation.
In interpreting the necessity of a measure under Article XIV(c) of the GATS, the panel in Argentina – Financials devised a test based on the jurisprudence built under a similar provision, Article XX of the General Agreement on Tariffs and Trade (‘GATT’). This is known as the ‘weighing and balancing’ test.[11] The juridical test requires the balance to tilt to the ‘necessary’ side for it to pass the test. On one side of this fictitious balance is the importance of the policy objective and the contribution of the measure to that objective. On the other side of the balance are the trade restrictiveness and the alternative measures which are less trade-restrictive.
To increase the ‘weight’ on the ‘necessary’ side, it must be noted that the importance of the objective is not solely determined by how the international community views an objective, it must also be shown that the member state imposing the measure finds the policy objective to be important. This implies that India must demonstrate that in the domestic sphere, it gives importance to privacy and security. Further, the ban on mobile applications must have a meaningful contribution to the objective, that is the protection of privacy and security.
To decrease the ‘weight’ on the ‘not necessary’ side, it must be demonstrated that measure is not trade-restrictive, and there were no reasonable alternatives available.
Therefore, India must prove the that ban on 59 Applications is necessary to secure the objectives mentioned in ‘Section 69A of the Information Technology Act, 2000’. Further, it must be proved that the ban is of minimal trade restrictiveness and reasonable alternatives were not available.
4 . Chapeau of Article XIV
Assuming that India can demonstrate that the measure satisfies the conditions of Article XIV(c), the measure will then have to pass the chapeau test. This test is of an extremely high standard designed to combat the misuse of provisions under Article XIV of the GATS.
The panel in Argentina – Financial used the findings in the GATT case, US-Shrimp to devise a chapeau test within the GATS framework.[12] The test lays down three prongs; (1) the application of measure should not be discriminatory, (2) the measure must not be arbitrary or unjustifiable and (3) the measure must not be a disguised restriction on trade.
Among the three prongs, India might find it challenging to prove that the ban is not arbitrary. Apps of Chinese origin (apart from the ones which were banned) have been in the spotlight due to their grave security concerns, but India has selectively banned 59 Applications.[13] Further, many apps and social media services from countries (other than China) have had privacy concerns.[14] Therefore, the panel may find that the ban on 59 apps may constitute an arbitrary measure.
However, the panel may determine the arbitrariness on an ‘app by app’ basis, taking into account the threat each of them may have on security and privacy. It is important to note that, an analysis showed that out of the 44 attempts to justify a trade-restrictive measure under the general exception provisions (Article XIV of the GATS and Article XX of the GATT), only one had passed the chapeau test.[15]
5 . Conclusion
India has undertaken the necessary commitments under Article XVI of the GATS, which implies that it is highly probable that China may argue along the lines of a restriction to market access in the form a quota. To combat this claim, the general exception principles may be used by India. It is imperative to demonstrate the necessity of the measure to satisfy the conditions under Article XIV(c). If India can satisfy the conditions of the first prong of the two-tier test, the justification of the chapeau will follow. It must be noted that the chapeau test is of an extremely high standard. Proportionally, however, the ban on 59 apps is insignificant when compared to the total trade between India and China. But, if the differences between the nations are not resolved, the trade between both the member states would suffer, and this may have global repercussions, tipping the equilibrium on which the multilateral trading system survives.
[1] “Government Bans 59 Mobile Apps Which Are Prejudicial to Sovereignty and Integrity of India, Defence of India, Security of State and Public Order” (Press Information Bureau) <https://pib.gov.in/PressReleseDetailm.aspx?PRID=1635206> accessed July 4, 2020
[2] Muller G, “Troubled Relationships under the GATS: Tensions between Market Access (Article XVI), National Treatment (Article XVII), and Domestic Regulation (Article VI): World Trade Review” (Cambridge Core February 16, 2017) <https://www.cambridge.org/core/journals/world-trade-review/article/troubled-relationships-under-the-gats-tensions-between-market-access-article-xvi-national-treatment-article-xvii-and-domestic-regulation-article-vi/DBAD207C698E9E787187EA237303A35B> accessed April 26, 2020
[3] ‘Guidelines for the Scheduling of Specific Commitments under the General Agreements on Trade in Services (GATS)’, adopted by the Council of Trade in Services on 23 March 2001, S/L/92, 28 March 2001.
[4] Crossby D, “Analysis of Data Localization Measures Under WTO Services Trade Rules and Commitments” (The E15 Initiative March 2016) <http://e15initiative.org/wp-content/uploads/2015/09/E15-Policy-Brief-Crosby-Final.pdf> accessed September 2019.
[5](GATS/SC/42)<https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S009-DP.aspx?language=E&CatalogueIdList=17946,29466,45355,37261,26014&CurrentCatalogueIdIndex=4&FullTextHash=&HasEnglishRecord=True&HasFrenchRecord=True&HasSpanishRecord=True> accessed July 4, 2020
[6] Wolfrum Rüdiger, Stoll P-T and Feinäugle Clemens, WTO, Trade in Services (Nijhoff 2009) 375.
[7] Cottier, Thomas and Delimatsis, Panagiotis and Diebold, Nicolas F., Article XIV GATS: General Exceptions (2008) in Wolfrum Rüdiger, Stoll P-T and Feinäugle Clemens, WTO, Trade in Services (Nijhoff 2009) 290.
[8] Ibid.
[9] United States – Measures Affecting the Cross-Border Supply of Gambling and Betting Services, ¶. 292, WT/DS285/AB/R (Adopted 20 April 2005) (referring to United States — Import Prohibition of Certain Shrimp and Shrimp Products ¶ 147, WT/DS58/AB/R, (Adopted 6 November 1998); and United States – Standards for Reformulated and Conventional Gasoline, pp. 20-21 and 25, WT/DS2/R,(Adopted 29 April 1996).
[10] “Government Bans 59 Mobile Apps Which Are Prejudicial to Sovereignty and Integrity of India, Defence of India, Security of State and Public Order” (Press Information Bureau) <https://pib.gov.in/PressReleseDetailm.aspx?PRID=1635206> accessed July 4, 2020.
[11] Panel Report, Argentina – Financial Services, para. 661. The panel referred to Appellate Body Reports,
US – Gambling, para. 304 and EC – Seal Products, paras. 5.169, and 5.214. See Panel Report, Argentina – Financial Services, paras. 7.558 to 7.660.
[12] Argentina – Measures Relating to Trade in Goods and Services, ¶ 7.746, WT/DS453/R (Adopted 9 May 2016) referring to, United States – Import Prohibition of Certain Shrimp and Shrimp Products ¶150, WT/DS58/AB/R (Adopted 6 November 1998)
[13] Martin A, “Huawei: The Company and the Security Risks Explained” (Sky News January 28, 2020) <https://news.sky.com/story/huawei-the-company-and-the-security-risks-explained-11620232> accessed July 4, 2020
[14] Wong JC, “The Cambridge Analytica Scandal Changed the World – but It Didn’t Change Facebook” (The GuardianMarch 18, 2019) <https://www.theguardian.com/technology/2019/mar/17/the-cambridge-analytica-scandal-changed-the-world-but-it-didnt-change-facebook> accessed July 6, 2020.
[15] “Only One of 44 Attempts to Use the WTO’s ‘General Exception’ to Only One of 44 Attempts to Use the GATT Article XX/GATS Article XIV ‘General Exception’ Has Ever Succeeded Has Ever Succeeded” (Public CitizenJune 7, 2019) <https://www.citizen.org/article/only-one-of-44-attempts-to-use-the-wtos-general-exception-to-only-one-of-44-attempts-to-use-the-gatt-article-xx-gats-article-xiv-general-exception-has-ever/> accessed July 4, 2020