The Indian government is poised to introduce a code to help offshore firms working for European clients to comply with EU data protection rules, according to legal experts.

The move could see India establish its own Safe Harbour-type agreement. The voluntary Safe Harbour code helps US firms to comply with EU data protection regulations, which state that companies should not export personal data outside the EU area unless adequate controls are in place to guard information. US law provides less stringent safeguards.

Alex Hamilton, an associate in the technology transaction practice at law firm Latham & Watkins, said the National Association of Software and Service Companies is currently in talks with the Indian government about putting an agreement in place. This would help Indian firms to reassure European customers that their data has the same level of protection as data in the EU.

The news follows a warning last month from the UK information commissioner that UK businesses could face legal penalties if they fail to ensure that customer data at offshore facilities, such as call centres, is protected in accordance with the Data Protection Act.

Compliance with codes of practice could become a key element for the future of offshoring centres. "Regulatory bodies are taking a very close look at these data protection issues," said Phil Bishop, project director at outsourcing advisory specialist TPI. "They want to see what onshore firms are doing to demonstrate controls are in place when taking data offshore."

Other countries may also introduce codes to demonstrate compliance with the EU's rules. "We're expecting there to be a trend around the world of increases in Safe Harbours," said Hamilton. But he added that communication between governments was crucial to introducing such codes. "The process of implementing the US agreement was a bit fraught and it takes a long time generally," he said.

The US Safe Harbour scheme did not prove popular initially, and few companies signed up to comply. However, almost three years' since its introduction, there are now almost 500 companies on the register.

Hamilton attributed the growing take-up to US firms realising that Safe Harbour meant they only needed to sign up once and could then do business with multiple European firms, rather than needing to enter a separate contract with each new partner.