Global Digital Governance Through International Rule-Making (I)

Introduction

On October 30, 2021, Chinese President Xi Jinping, in his speech at the G20 summit in Rome, emphasized that digital economy is an important frontier of scientific and technological innovation, and that China attaches great importance to international cooperation in building the digital economy.[1] President Xi also announced that China has decided to apply for accession into the Digital Economy Partnership Agreement ("DEPA"), and is ready to work with all parties to promote the healthy and orderly development of digital economy. On November 1, 2021, the Chinese Minister of Commerce Wang Wentao sent a letter to New Zealand, the depositary of DEPA, formally applying to join the agreement.[2]

Earlier, in his speech at the Asia-Pacific Economic Cooperation ("APEC") Economic Leaders' Meeting, President Xi Jinping had stated for the first time that China would actively consider joining the Comprehensive and Progressive Trans-Pacific Partnership Agreement ("CPTPP"). The CPTPP is an international agreement covering a wide range of economic and trade issues, including rules related to the digital economy, such as a designated chapter on e-commerce. In addition, the Regional Comprehensive Economic Partnership Agreement ("RCEP"), concluded between China and the 10 ASEAN countries, Australia, Japan, the Republic of Korea and New Zealand, currently the world's largest free trade agreement covering the largest population and aggregate economic volume, also includes a designated chapter on e-commerce and other rules related to the digital economy. It is evident from the trend of negotiation and conclusion of international trade agreements in recent years that countries are shaping the new pattern of digital economy governance through international agreements, and China is also actively participating in and promoting this process. At the same time, due to their varying levels of digital economy development and different policy orientations, countries also vary in their concerns and positions in the negotiation of international digital economy agreements. In this context, how to enhance participation and take the lead in the negotiation of international digital economy rules, so as to create a favorable regulatory environment on the international level for the development of China's digital economy as well as to facilitate the development of information technology, e-commerce and other related industries, raises important issues that the Chinese government and relevant enterprises urgently need to consider, study and explore in practice.

King & Wood Mallesons has long been engaged in the legal practice concerning international economic and trade rules and digital economy, and has accumulated in-depth legal knowledge, a broad international perspective and rich practical experience in these areas. Against the backdrop of the rapidly developing digital economy and negotiation of the relevant international rules, and drawing from our practical experience, we will introduce and analyze the current international rules on digital economy through a series of articles, and conduct a comparative study on the laws and regulations of China relating to areas including network, data, telecommunications and e-commerce. Through this series of articles, we seek to provide a comprehensive perspective integrating theory and practice, the domestic and the international rules, for the reference of the government and enterprises in the relevant industries. In this first article of the series, we will introduce the main issues and development process of digital economy governance in current international trade agreements, discuss China's participation in digital economy governance through international agreements, and analyze the opportunities that Chinese firms may seek in this emerging field.

Key Issues Related to the Digital Economy and Its Governance

"Digital economy" is a concept with rich connotations. It usually refers to a new form of economy with data resource as the key element, modern information network as the main vehicle, and the integrated application of information technology with the digitalization of production factors as important driving forces in promoting the combined values of fairness and efficiency. With the rapid development of information science and technology, the internet, cloud computing, artificial intelligence and other technologies have been widely used, and digital economy has become an important force of economic growth. In China, the added value of core industries of digital economy accounted for 7.8% of the GDP of 2020.[3] According to the statistics of the Internet Society of China, with the sustained and rapid growth of China's digital economy and the accelerated integration of information technology and real economy, the scale of China's digital economy has reached RMB 39.2 trillion by the end of 2020, ranking the second in the world in terms of aggregate value.[4]

With the rapid development of digital economy, networks and markets around the world have become interconnected despite significant differences in different countries, and the global governance of digital economy has increasingly attracted the attention of the international community. In this regard, the world's major economies have actively raised their priorities of digital economy governance through a number of platforms and channels, including the following:

E-commerce facilitation: including mutual recognition of e-signature and e-authentication technologies, e-payment services, paperless trading, and consumer protection;
Personal information protection: including the approaches, standards and mutual recognition channels of personal information protection, restrictions on cross-border flow of personal information, and the availability of relevant exceptions;
Treatment of digital products: including tariffs on cross-border data transmission and the non-discrimination treatment of digital products from different countries;
Cross-border data flow: including restrictions on cross-border data flow and the availability of relevant exceptions;
Location of computing facilities: including whether computing facilities used in a country are required to be located in that country, and the availability of relevant exceptions;
Cyber security protection: including the regulatory models and cross-border cooperation mechanisms for cyber security protection, etc.;
Cryptographic algorithm and source codes: including whether companies are required to provide the source codes or cryptographic algorithms of the software they sell, and whether specific cryptographic algorithms are required;
Other emerging issues including digital infrastructure, SME cooperation, and artificial intelligence.

Evolving Characteristics of International Rules for Digital Economy

Just as the fact that digital economy experienced rapid growth in recent years resembling the confluence of rivers into a vast ocean, the development of its international governance has also presented a multi-pronged process resembling the sailing of hundreds of ships on the wide and open sea. Based on the analysis of the current governance approaches, we may conclude that the evolution of the international rules on digital economy has the following characteristics.

1. Building common grounds through initiatives and reaching international agreements through negotiation

Since the starting of the 21st century, especially during the past decade, many major international forums and organizations have placed digital economy as an important topic on their agenda, issuing joint initiatives and statements on the basis of discussions and consultations. These fruitful results embody the overall consensus and vision of the participating countries in terms of digital economy governance. For example, the G20 is an informal dialogue mechanism among the 20 economies that account for the majority of the global economy, and many of its members are also leading the development of digital economy. Previous G20 meetings have discussed issues including digital taxation, artificial intelligence, digital infrastructure, consumer protection, e-commerce, and have produced several joint statements such as the G20 Digital Economy Development and Cooperation Initiative[5] and the G20 Ministerial Statement on Trade and Digital Economy.

G20 Digital Economy Development and Cooperation Initiative

The G20 Digital Economy Development and Cooperation Initiative, which was issued during the 2016 Hangzhou Summit, encourages G20 members to promote investment in information and communications technology (ICT), to facilitate cooperation in e-commerce, to enhance digital inclusiveness, and to support the development and use of international standards. The Initiative states that the G20 welcomes and encourages international organizations such as the United Nations to develop better metrics for issues including cross-border data flows and the Internet of Things, and encourages members to exchange experience on policy making and legislation, and share best practices.

Another major international cooperation mechanism in which China participates is the Asia-Pacific Economic Cooperation ("APEC"). Under APEC, a special digital economy steering group has been set up to organize discussions among the members on topics including digital infrastructure, data flows, and digital trade. Up till now, this steering group has reached outcomes such as the APEC Framework for Securing the Digital Economy[6] and the Statement to Implement APEC Policies on Trade and the Digital Economy.

The APEC Framework for Securing the Digital Economy

The APEC Framework for Securing the Digital Economy provides non-binding principles and strategic recommendation to inform member economies as they develop policy and regulatory frameworks to secure their digital economies, and their digital futures. The Framework encourages member economies to consider the four principles: awareness, responsibility, cooperation, and privacy. It also proposes seven implementation strategies, including digital security risk management, resilient critical information infrastructure, strengthen collaboration, and personal data security.

These initiatives and statements usually provide recommendations for members on the basis of summarizing experiences and building consensus, rather than laying down rules with binding force. Nevertheless, the relevant documents on digital economy concluded on the major international forums and organizations play an important role in shaping the discussion agenda and producing common visions, helping to promote consultations and negotiations on relevant topics among countries and regions participating in the digital economy and gradually develop the proposals and visions into international treaties with binding force.

Currently, the e-commerce negotiations launched under the World Trade Organization ("WTO") is the one with the largest number of participants in negotiating international rules in relation to the digital economy. In previous articles, we have introduced and analyzed the main topics in the WTO e-commerce negotiations and the positions of all parties involved. (Please visit: E-Commerce and Digital Trade -- Multilateral Rules Towards the 21st Century, Understand the Development Trend of International Rules in the New Economy -- Analysis of the Key Topics of the WTO E-Commerce Negotiations) In addition, as further described below, different countries and regions have negotiated and concluded international agreements on digital economy through other channels.

WTO E-Commerce Negotiations

At the 11th Ministerial Conference in December 2017, a group of 71 WTO members issued a Joint Statement on Electronic Commerce and declared to initiate exploratory work towards future negotiations on e-commerce. Subsequently, 76 WTO members jointly launched negotiations on e-commerce in January 2019. To date, there are 86 WTO members, including China, participating in the negotiations, accounting for over 90% of global trade. The e-commerce negotiations cover various topics, such as trade facilitation, digital products and information flows, localization of facilities, source codes, cryptographic products, and cyber security, etc. After major countries submitted their proposals on relevant topics, on December 7, 2020, the negotiating parties circulated a consolidated text for the present stage of the e-commerce negotiations. At present, there is still obvious divergence among the parties' opinions on the core topics, and it is still difficult to reach a consensus among parties.

2. Negotiations are ongoing at Multilateral, pluri-lateral, regional and bilateral settings

While the participation of a large number of members in the plurilateral e-commerce negotiations under the WTO demonstrate representativeness and inclusiveness, it also presents problems such as multiple positions, diverging opinions, difficulties in coordination, and slowness in progress. Therefore, with the rapid development of the digital economy, countries are also actively seeking "like-minded" partners in digital economic governance to negotiate and conclude regional and bilateral international agreements, striving to make breakthroughs and reach agreement on rules that meet their respective needs and conform to their own standards. According to statistics, at present, WTO members have notified 118 regional trade agreements that incorporate chapters on e-commerce.[7] For instance, the CPTPP mentioned at the beginning of this article, which incorporates broad and demanding rules on the digital economy such as a designated chapter on e-commerce, is an international agreement with high significance to the development of international rules on the digital economy.

Comprehensive and Progressive Agreement for Trans-Pacific Partnership

(CPTPP)

CPTPP is a regional free trade agreement setting out comparatively higher standards. It is developed from the Trans-Pacific Partnership Agreement (TPP) which was led by the United States. Following the withdrawal of the United States from the TPP, the original eleven parties to the TPP signed the CPTPP which basically incorporates the rules of TPP. On December 30, 2018, the CPTPP entered into force among the six signatories that first completed the domestic ratification process (i.e. Australia, Canada, Japan, Mexico, New Zealand, and Singapore), and subsequently for Vietnam and Peru. The CPTPP incorporates rules on the e-commerce in a designated chapter, in which it sets out rules on the data cross-border flow, localization of computing facilities, zero tariff on electronic transmission, and non-discriminatory treatment of digital products in addition to rules on the traditional topics such as trade facilitation, personal information protection, and consumer protection and etc. Currently, China has submitted a formal application for accession into the CPTPP.

3.From the e-commerce chapter incorporated in comprehensive trade agreements to specialized digital economy agreements

In addition to the aforementioned CPTPP and other comprehensive international agreements with designated chapters on e-commerce, international rule-making for the digital economy have also shown a trend of specialization in recent years, with an increasing number of agreements concluded between relevant countries and regions specifically addressing digital economy governance. The DEPA mentioned in the introduction of this article is a typical specific digital economy agreement.[8] In addition, at the bilateral level, agreements such as the UK-Singapore Digital Economy Agreement ("UKSDEA") signed earlier this year[9] and the U.S.-Japan Digital Trade Agreement also specifically address the issue of digital economy. This trend also indicates that digital economy governance is playing an increasingly important role in international trade and economic relations, and is highly valued and actively promoted by all countries.

Digital Economy Partnership Agreement (DEPA)

Signed by Singapore, Chile and New Zealand, DEPA is the world's first important rules specifically regulating digital economy. It consists of 16 modules, covering not only more commonly seen topics, such as trade facilitation, cross-border data flow, as well as the topics in the emerging fields of the digital economy, such as artificial intelligence and regulatory sandbox. As of now, besides China, Korea has also formally applied for joining the DEPA.

UK-Singapore Digital Economy Agreement (UKSDEA)

The UKSDEA is a specific digital economy agreement concluded between the UK and Singapore, updating the e-commerce chapter of the UK-Singapore Free Trade Agreement, and is now pending the completion of the ratification process in both countries before it enters into force. The Agreement covers a wide range of emerging digital economy topics such as cross-border transmission of data, cryptographic products, source code, artificial intelligence, financial technology, and digital identity.

Digital Economy Rules in International Agreements Concluded by China

As a country with a large digital economy, China also actively participated in and led the global governance of digital economy in recent years. So far, China has negotiated and signed several international economic and trade agreements containing designated chapters and relevant rules on e-commerce, including China-Australia Free Trade Agreement, China-Korea Free Trade Agreement, and China-Mauritius Free Trade Agreement, etc. These agreements provides for the rights and obligations of the parties in many realms of digital governance such as the regulatory framework for e-commerce, electronic authentication and digital certificates, online consumer protection, online data and personal information protection, paperless trading, and e-commerce cooperation, reflecting China's key concerns and basic approach in the aspect of international rules on digital economy.

Compared with the aforementioned bilateral agreements, the RCEP, signed by China on November 15, 2020 and effective on January 1, 2022, covers a greater range of cutting-edge topics in digital economy and e-commerce, such as the free cross-border flow of data subject to public policies and national security concerns, and not non-localization of computing facilities as a matter of principle. As reflected through the conclusion and entry into force of the RCEP, China has taken further important steps in exploring and experimenting in respect of making international rules for digital economy governance.

However, significant differences still remain between the rules of digital economy in the international economic and trade agreements already concluded by China and other international agreements that China plans to accede to, such as DEPA and CPTPP. Specifically, the rules on digital economy in the existing agreements concluded by China usually focus on the topics closely related to traditional trade in goods and services, such as e-commerce facilitation and consumer protection, rather than issues relating to "pure" digital economy, such as cross-border data flow, location of computing facilities, cryptographic products and source codes. To the extent that the issues such as the cross-border data flow and non-localization of computing facilities are addressed in certain agreements, such rules tend to only set out basic principles without stipulating enforceable rules, leaving significant room to the contracting parties' discretion.

As a result of these differences, during the process of accession to the CPTPP and DEPA, China may face greater challenges in aligning with the stricter disciplines in these agreements on the cross-border data flow, non-discriminatory treatment of digital products, localization of computing facilities, etc. Negotiators and policymakers need to balance security and efficiency, taking into account the interests of regulators, businesses and consumers, in order to achieve the objective of promoting the healthy and orderly development of the digital economy jointly with other countries.

Outlook and Suggestions

With the digital economy becoming an important component of the global economy and a new stimulus to growth, the need for international cooperation in governance has also become increasingly prominent. In this respect, major countries and regions participating in the digital economy are actively putting forward their own solutions to digital economy governance in the international arena, gradually forming a new interrelated and interwoven system of multiple rules and solutions. In recent years, apart from entering into a series of international economic and trade agreements that incorporate rules on the digital economy, China also decided to join the other digital economy-related agreements that cover a greater range of issues and provide for stricter discipline on digital economy, such as the DEPA and the CPTPP. Joining these high-level agreements will provide an opportunity for China to further improve its domestic legislation, expand market access, and free up data as a key production element in its economy. Meanwhile, it is also important for China to put forward its own proposals in the accession to these agreements which properly balance the relationship between the cross-border data flow, national regulation and data security, and actively participate in the development of multilateral, regional and bilateral rules. In addition, we also recommend that information technology, e-commerce and other business actors involved in the digital economy pay close attention to the progress of international rule-making, so as to better understand the changes in the domestic and international rules in advance, and stay well-prepared to seek new opportunities in the new regulatory environment.

向下滑动阅览

Footnotes：

[1] Please visit: http://www.gov.cn/xinwen/2021-10/30/content_5647892.htm。

[2] Please visit: http://www.mofcom.gov.cn/article/xwfb/xwbldhd/202111/20211103213288.shtml

[3] The "14th Five-Year" Development Plan for the Digital Economy, please visit: http://www.gov.cn/zhengce/content/2022-01/12/content_5667817.htm

[4] Report On China's Internet Development (2021), please visit the website of the Internet Society of China: https://www.isc.org.cn/article/40203.html

[5] Please visit the G20 China website: http://www.g20chn.org/hywj/dncgwj/201609/t20160920_3474.html

[6] Please visit: https://www.apec.org/publications/2019/11/apec-framework-for-securing-the-digital-economy

[7] Please visit: http://rtais.wto.org/UI/PublicSearchByCrResult.aspx , last visited on Aril. 26th, 2022.

[8] Please visit: https://www.mfat.govt.nz/mi/trade/free-trade-agreements/free-trade-agreements-in-force/digital-economy-partnership-agreement-depa/depa-text-and-resources/

[9] Please visit: https://www.mti.gov.sg/Improving-Trade/Digital-Economy-Agreements/UKSDEA

Authors

Xiao Jin

Partner

Dispute Resolution Group

xiaojin@cn.kwm.com

Areas of Practice：international trade, WTO dispute settlement, international investment arbitration, cross-border dispute settlement, Chinese regulatory compliance in the technology, media, entertainment & telecoms sectors

Mr. Xiao Jin has extensive practical experience in the field of international trade. In his international trade law practice, Mr. Xiao has acted for the Chinese government in more than 30 dispute settlement proceedings before the World Trade Organization. He also has rich experience in negotiating international trade and economic agreements and providing legal services to governments and companies in relation to the international investment arbitration. Mr. Xiao has also represented multinational companies from the U.S. and other countries responding to dozens of antidumping, countervailing, and safeguard proceedings, and has obtained outstanding results for his clients. Mr. Xiao also has extensive experience advising companies in the telecommunications, media and technology sector on a variety of PRC regulatory and compliance matters, including the establishment and operation of Internet-based businesses and services, digital content licensing and distribution, technology development, data transfer and storage, etc. Mr. Xiao has been awarded the title of "China Top 15 Rising Lawyers" (2014) by Asia Legal Business, and the honors of the Band 1 lawyer of Chambers Asia-Pacific (2014-2021), the "Leading Individuals" in Asia Pacific Region by Legal 500 (2013-2020) and Hall of Fame (2021), and etc.

Li Zhenghao

Partner

Dispute Resolution Group

lizhenghao@cn.kwm.com

Areas of Practice：regularly advises clients on general compliance and market access matters across a range of sectors with a focus on automobile, technology, media, entertainment & telecoms, WTO dispute settlement, international investment arbitration and commercial litigation

Ms. Su also has deep experience in advising companies in the automobile, telecommunications, media, entertainment and technology sector on a variety of PRC regulatory and compliance matters, including telecommunications licensing, commercial cryptography, payment services, consumer protection, cybersecurity and data protection, game operation, content regulation and etc. Ms. Su has extensive experience in the area of international legal affairs. Ms. Su has acted for the Chinese government in a number of dispute settlement proceedings before the World Trade Organization (WTO). She also regularly advises government agencies and companies on WTO-consistency issues with respect to PRC laws and policies. Ms. Su acted as legal advisor to the Ministry of Commerce of China in the Bilateral Investment Treaty negotiation between China and the United States from 2014 to 2016, and has experience in international investment arbitrations (including ICSID arbitrations).