China comes out against ambitious rules on e-commerce
Published in SUNS #8800 dated 21 November 2018

Geneva, 20 Nov (D. Ravi Kanth) - China has inveighed against binding provisions for free cross-border data flows, preventing data localization, and protection of source code among others, in the ongoing informal plurilateral discussions on e-commerce at the World Trade Organization, causing a setback for developing ambitious rules as demanded by the United States, Japan, Australia, and Singapore, trade envoys told SUNS.

During a meeting of the members of the plurilateral Joint Statement on Electronic Commerce Initiative on 31 October, China had delivered the strongest statement yet for "open, transparent, inclusive and pro-development" outcomes, "without imposing any preconditions on the participation of any member and without prejudice to members' positions in future discussion."

China, which did not initially join the plurilateral initiative on e-commerce when it was announced by the trade chiefs of the United States, Japan, Australia, and Singapore, along with other industrialized and several developing countries at the WTO's eleventh ministerial conference in Buenos Aires in December 2017, said "full account shall be given to the concerns and needs of developing members including those who have not joined the discussion, particularly the LDCs [least developed countries]."

China said it will work closely with countries that are outside the plurilateral initiative group.

China's strong statement has apparently resulted in the cancellation of a planned meeting of several trade ministers of the plurilateral group on e-commerce in January 2019 on the margins of the annual World Economic Forum meeting in Davos, Switzerland, said a trade envoy who asked not to be quoted.

More important, China told the plurilateral participants that "discussion shall focus on "trade-related aspects" of e-commerce as the 1998 Work Program so mandated."

"Let's stick to e-commerce without substituting its concept or generalizing its expanded scope," China said, in opposition to ongoing attempts by the US, Japan, Australia, Singapore, and Canada among others to incorporate rules from the failed Trans-Pacific Partnership (TPP) agreement.

Many developing countries led by India and South Africa have repeatedly maintained that the sanctity and integrity of any outcome on e-commerce will hinge on how members proceed according to the 1998 work program on e-commerce.

Clearly, China's latest position comes somewhat close to what a large number of developing countries are calling for as per the 1998 work program.

Significantly, China remained silent on a permanent moratorium against imposing customs duties on electronic transmissions.

It remains to be seen what China will say during the General Council meeting next week to discuss a proposal from India and South Africa that has called for re-examining the moratorium because of the fiscal burden it would impose on developing and poorest countries.

Further, China said that "members' right to regulate shall be fully respected and members' sensitivities be accommodated in scoping the discussion" at the plurilateral proceedings.

Without naming the US, Japan, Australia, and Canada, who want to discuss all regulatory issues at the plurilateral meetings, China said "any future disciplines that might be foreshadowed in the exploration, shall in no way prevent the WTO members from exercising their right to regulate and fulfilling legitimate public policy objectives".

Clearly, China is calling for policy space as "most developing countries are still at the lower end of the learning curve or just starting to formulate domestic regulatory frameworks on e-commerce."

"Therefore, their [developing countries'] policy space, the right to regulate and the right to develop need to be duly preserved," China emphasized.

China criticised the US and other developed countries that are calling for free cross-border data/information flows, saying that "there is no member that permits completely free flow, nor any member that absolutely prohibits such flow."

Hence, members may apply different regulatory systems due to various concerns and priorities, China said.

All countries, according to China, "are entitled to [implement] reasonable regulation in this regard, including allowing lawful and orderly free flow of information on the precondition of protecting privacy and public interests, as well as safeguarding national security and network security."

Against this backdrop, "any multilateral coordination of possible rules cannot neglect members' legal and institutional arrangements as such," China cautioned the proponents who are seeking ambitious rules.

China explained that it has witnessed phenomenal development in its e-commerce sector.

Given the explosive growth in its e-commerce involving an enormous amount of data "from more than 800 million Chinese citizens, representing one fifth of the global online population," China said it is imperative that there is a proper "regulation of such data, especially the cross-border data flow [which] is among the top priorities of regulators."

"At the same time, we are also aware of the need for justifiable flow of e-commerce data across borders in order for this business model to operate globally," China maintained.

"The Cyber Security Law of China stipulates that personal information and other important data gathered or generated by critical information infrastructure operators during operation in China shall be stored within the Chinese territory, and those [that] really need to be provided to overseas shall be subject to security assessment," China maintained.

Elaborating on the law, China said "the [Cyber Security] law ensures the lawful and orderly free flow of network information."

Besides, China said its "newly-publicized E-commerce Law also stipulates that the state safeguards the security of e-commerce transaction and customer information, encourages the development of utilization of e-commerce data and safeguards the lawful and orderly free flow of e-commerce data."

Without naming the US, which is calling for complete free data flows and prohibitions against localization of servers, China expressed serious doubts whether the WTO must develop rules on sensitive issues "for many members, developing or even developed."

"It is no coincidence that, according to the [WTO] Secretariat Note on E-Commerce in RTAs, only less than 5% of the notified RTAs with e-commerce related disciplines contain binding provisions on cross-border information flow, location of computing facilities, and source code," China said.

It argued that "very few RTAs that contain such rules are yet to stand the test of time when it comes to the enforcement of such rules."

Citing a Chinese saying - "highbrow songs find few to join in chorus" - China said "what we [WTO members] need now in this exploration work is indeed chorus," implying that the ambitious proposals by the US and its allies will not fly .

China urged members to "embrace a pragmatic ambition, and take forward the elements of wider convergence shown in the discussion."

In sharp contrast to the US proposal, China said that it wants rules on "E-signatures, E-authentication, E-contract, paperless trading, consumer protection, anti-spam, international regulatory cooperation, and facilitation of trade in goods enabled by the internet" among others.

"In our view, a multilateral framework would be optimum, or a widely participated MFN-based pro-multilateral framework that is flexible and inclusive enough to reflect everybody's interest could be an alternative," China said at the meeting.

Effectively, China struck a body blow to the aspirations of the e-commerce plurilateral sponsors, said trade envoys familiar with China's stand.