1 Introduction

40% of Internet users worldwide have purchased products or goods online via desktop, mobile, tablet or other devices.Footnote 1 This amounts to more than 1 billion online consumers and the number is projected to grow.Footnote 2 E-commerceFootnote 3 is a booming market for both China and the US.Footnote 4 In 2015, e-commerce represented 7.05% of China’s Gross Domestic Product (‘GDP’) and 3.32% of the US’ GDP.Footnote 5 China’s Internet penetration rate was only 51% in 2015, with significant growth potential,Footnote 6 thus China has a strong interest in influencing the development of international trade law for e-commerce. On 23 January 2017, the US withdrew from the Trans-Pacific Partnership (‘TPP’), a 12-country free trade agreement (‘FTA’) aiming to establish 21st century standards for international trade, including e-commerce, in the Asia-Pacific.Footnote 7 CNN, Bloomberg and the BBC predicted that China may fill the void left by the US to shape international trade law.Footnote 8

In this context, it is necessary to explore the development of international trade law for e-commerce in China and the US in the post-TPP era. However, there is little contemporary scholarship comparing Chinese and American cross-border e-commerce regulations,Footnote 9 and the future development of these laws. This article tries to fill in the gap by examining Chinese and American FTAs, especially the China-Australia FTA,Footnote 10 the China-South Korea FTA,Footnote 11 the US-Australia FTA,Footnote 12 the US-South Korea FTAFootnote 13 and the TPP.

This article argues in Sect. 2 that China and the US are both confronted with three legal challenges brought by booming international trade in e-commerce. This forms the comparative-law backdrop for outlining how Chinese and American FTAs can tackle these challenges. In Sect. 3, this article uses historical surveys of FTAs concluded by China and the US to find that there appears to be a convergent approach in addressing these challenges, which is to go beyond the World Trade Organization (‘WTO’) multilateral framework and adopt a chapter specialising in e-commerce in FTAs. Section 4 argues that, although there are substantive similarities, the contents of American and Chinese e-commerce chapters are diverging. Section 5 concludes that in the future the diverging trend between Chinese and American FTAs will continue in regulations for cross-border flow of information but may gradually diminish in other fields. However, the US withdrawing from the TPP may enable China to further influence international law-making for e-commerce. As a result, e-commerce regulations in the Asia-Pacific will develop in a polycentric pattern.

2 Common Challenges to China and the US

China and the US are both confronted with three legal challenges brought by international e-commerce: ambiguous classification of digital products, insufficient consumer and privacy protection, and weak protection of cross-border flow of information.

2.1 Ambiguous Classification of Digital Products

When the WTO was established, e-commerce was still in its infancy. The WTO divides trade into trade in goods, services, and intellectual property (‘IP’) and regulates them accordingly. Neither the General Agreement on Tariffs and Trade (‘GATT’) nor the General Agreement on Trade in Services (‘GATS’) defines ‘e-commerce’ or ‘digital products’, thus their classification is unclear.Footnote 14 Classification is complex because three modes of digital products exist. The first mode is essentially traditional goods, which are tangible and physical. Examples include computers, telecommunication equipment, semiconductors, semiconductor manufacturing and testing equipment, scientific instruments and their parts and accessories. The second mode of digital products have physical carriers but their monetary value derives mainly from encoded content, such as CDs, DVDs and software in physical support, while the value of the carrier is minimal. Nowadays 97% of the first and second mode of digital products is covered by the Information Technology Agreement (‘ITA’), a multilateral agreement under the WTO framework.Footnote 15 The ITA classifies the first and second modes of digital products as goods, to which custom duties and non-tariff barriers apply.Footnote 16 The ITA obliges member states to abolish all custom duties on covered products and components, aiming to eliminate non-tariff barriers in trade.Footnote 17 Both China and the US are member states to the ITA.Footnote 18 The expansion of the ITA in 2015 is a landmark achievement of the WTO negotiations,Footnote 19 but it does not regulate the third mode of digital products. The third mode has no physical carrier and is completely transmitted online.Footnote 20 The examples include e-books, downloaded or streamed movies, and the Apple Pay service. The monetary value of the products derives solely from their contents. Compared with the first two modes, the third mode is the most significant, due to its industrial usage in cloud computing, big data analytics, the Internet of Things, 3D printing, blockchain technology, etc. Regardless of their usage, digital products in this third mode are essentially cross-border flow of information (or in other words ‘data’). The ITA liberalises trade mainly by decreasing tariffs and non-tariff measures, which renders little protection to cross-border flow of information.

WTO case law classifies certain digital products delivered electronically as cross border supply under Article 1.2(a) of the GATS. In Mexico-Telecoms, the WTO panel defined certain public telecommunications services, including circuit switched data transmissions, fax and voice telephony, as cross border supply.Footnote 21 US-Gambling is concerned with a US measure that prohibited the cross-border supply of (Internet) gambling and betting services.Footnote 22 The Appellate Body (‘AB’) found that electronic gambling services (online or via telephone) fell within the scope of cross-border supply and thus the US measure violated the requirement of full market access in the gambling and betting sector mandated by the US Schedule of Specific Commitments (‘W/120’).Footnote 23 However, the AB ruled that the measure was provisionally justified under Article XIV(a) of GATS for the protection of ‘public morals’.Footnote 24 China-Audiovisual Products confirmed GATS could be applied to electronic publications, sound recordings and films for theatrical release and distribution.Footnote 25 Both the Panel and the AB held that China’s commitments on ‘sound recording distribution services’ in its W/120 extended to distribution of sound recordings through electronic means.Footnote 26 However, these cases do not resolve the classification issue in the WTO framework. Firstly, they are specific to certain digital products and member states. They are not binding on member states which are not parties to these cases. Secondly, neither the Panel nor the AB provides a general definition of digital products or develops a widely applicable rule for their classification in future cases. Thirdly and most importantly, W/120 adopts a positive-list approach, meaning foreign suppliers enjoy market access and national treatment only in the sectors listed in W/120.Footnote 27 Industries that are not listed are presumably not open to foreign suppliers.Footnote 28 Therefore, it is controversial whether new industries such as cloud computing are covered by W/120 or fall outside its coverage as part of the data-processing or value-added telecommunication sectors.

2.2 Insufficient Consumer and Personal Information Protection

The WTO focuses on market access of industries and non-discriminatory treatment of products, services and their providers, IP rights and the rights holders.Footnote 29 Underlying policies of trade liberalization promote comparative advantages of industries and manufacturers in member states, ultimately providing cheaper and better goods and services, guaranteeing lower risk of shortages and improving consumer welfare.Footnote 30 Although the WTO has labelling requirements and rules on sanitary and phytosanitary measures which address consumer concerns about product safety,Footnote 31 the protection of consumers’ personal information is an exception rather than an affirmative obligation in WTO law.Footnote 32 Article XIV(c)(i) and (ii) of GATS permits members to adopt measures preventing deceptive and fraudulent practices and protecting the privacy and confidentiality of individual records, on the condition that the measures are necessary to advance relevant public policy goals and their application is not arbitrary or unjustifiably discriminative.Footnote 33 These exceptions have not sparked much attention in the GATS negotiations or been examined in any WTO cases thus far.Footnote 34

Laws protecting personal information have traditionally been developed in relation to the physical territory of a country.Footnote 35 However the continued development of trade in digital products requires international cooperation and mutual recognition of the importance of protecting consumers and their personal information.Footnote 36 For example, South Korea collected rich big data about the Middle East Respiratory Syndrome (‘MERS’) during the outbreak in 2015.Footnote 37 The big data included personal information of patients (e.g. ages, travel history before infection and health records), their close contacts (e.g. family members, visitors and health-care workers) and their medication (e.g. medicine, treatment, operations and results).Footnote 38 The data helped to build a study map about MERS virus transmission and determine the most effective treatment in South Korea.Footnote 39 In combating MERS, the personal information of an individual patient was not helpful, but compiling the personal information of 675 patients and 218 health-care workers generated valuable big data.Footnote 40 MERS was first reported in Saudi Arabia in 2012 and spread to countries in and near the Arabian Peninsula before the South Korean outbreak.Footnote 41 The South Korean data collected could have helped the Arab countries combat MERS, however, differing regulations for the sharing of big data and personal information increased the legal uncertainties of the situation and hindered the sharing of the MERS data collected in South Korea with the Arab countries.

2.3 Weak Protection of Cross-border Flow of Information

The concept of free flow of information in the trade of digital products has not been clearly defined. A controversial issue is whether it overlaps with freedom of speech in human rights law. In 2016, the US added China’s Internet controls to its list of trade barriers.Footnote 42 This action apparently adds human rights implications to the free flow of information in the trade of digital products. The free flow of information and freedom of speech can be distinguished in three aspects.

Firstly, free flow of information in the trade of digital products derives from international conventions on cultural diversity and human rights, such as the UNESCO Convention on the Protection and Promotion of the Diversity of Cultural Expressions,Footnote 43 the International Covenant on Civil and Political Rights,Footnote 44 and the recent United Nations human rights reports.Footnote 45 Although these conventions empower people to freely seek, receive and impart information and ideas through any medium,Footnote 46 they lack a strong enforcement mechanism to ensure compliance.Footnote 47 Moreover, unlike freedom of speech, the free flow of information has a unique technological core, consisting of data technologies and services for the collection, processing or storage of data (e.g. cloud computing, big data, the Internet of Things).Footnote 48 These are the essential factors of making information flow in the new era of digitalisation.Footnote 49 Further, free flow of information extends beyond human-to-human and human-to-machine transmission of information to machine-to-machine information flow, which is generally not covered by freedom of speech.

Secondly, cross-border flow of information is related to, but not the same as, access to information. Access to information originates from the citizen-state relationship in a domestic context and its purpose is to prevent abuse of government power, for example, citizens should have right to access governmental information.Footnote 50 However, cross-border flow of information, as its name indicates, has a transnational nature.Footnote 51 In the international trade context, it advocates for Internet Service Providers (‘ISPs’) to have non-discriminated access to a foreign market.

Thirdly, free flow of information in the trade of digital products goes beyond the public law domain to involve private laws, such as contracts. For example, cross-border trade in digital products permits private entities to make agreements regarding digital authentication and signature.Footnote 52 Private contracting is a useful way to address the differences between domestic law on digital signature and authentication. Private parties may agree upon specific terms and conditions regarding signatures and authentication for cross-border e-commerce transactions.Footnote 53 Parties may mutually determine the appropriate authentication methods for that transaction, and have the opportunity to establish before judicial or administrative authorities that their transaction complies with any legal requirements with respect to authentication.Footnote 54 Party autonomy is also supported by the United Nations Commission on International Trade Law (‘UNCITRAL’) Model Law on E-commerce.Footnote 55 In addition, industrial self-regulation and industry-led development of e-commerce regulations are also indispensable for the development of trade in digital products. These are not contained in the concept of freedom of speech.

3 Converging Approaches

The US began incorporating e-commerce regulations into their FTAs before China. In 2001, the US-Jordan FTA was the first US FTA to include an e-commerce clause.Footnote 56 It requires member states to refrain from imposing customs duties and unnecessary barriers on electronic transmissions, including digitised products.Footnote 57 In 2004, the US concluded the US-Singapore and the US-Chile FTAs, which both designate an entire chapter to e-commerce regulation. Compared to the US-Jordan FTA, the US-Singapore and US-Chile FTAs impose a greater number of stronger obligations upon the party states. For example, they require non-discriminatory treatment for digital products and ban customs duties.Footnote 58 The 2005 US-Australia FTA further extends regulations to authentication and digital certificates,Footnote 59 and also provides best-effort clauses for online consumer protectionFootnote 60 and paperless trade administration.Footnote 61 The US-Australia FTA is the first to regulate consumer protection in its e-commerce chapter.Footnote 62 Its e-commerce regulations are adopted by the 2009 US-Peru FTA.Footnote 63 The 2012 US-South Korea FTA takes further steps, creating principles on access to and use of the Internet for e-commerce and cross-border information flow.Footnote 64 This is significant because it makes free flow of online information a highlight of the e-commerce chapter.

China only began to use FTAs to regulate e-commerce in 2006. The inaugural China-New Zealand FTA contains an Annex on the ‘Cooperation in the Field of Conformity Assessment in Relation to Electrical and Electronic Equipment’, which aims to reduce technical barriers to trade in electrical and electronic equipment. From 2006 to 2014, China concluded six FTAs, none of which have annexes, clauses or chapters devoted to e-commerce.Footnote 65 These FTAs follow WTO norms and regulate e-commerce through a W/120. The breakthrough came in 2015 with the China-Australia and China-South Korea FTAs, which both contain a chapter designated to e-commerce. China will likely continue to use its FTAs to regulate cross-border e-commerce. There are three main reasons that China may adopt the ‘chapter’ format to regulate e-commerce, particularly when negotiating with developed countries.

Firstly, international law-making for e-commerce is ongoingFootnote 66 and China wants to exert its influence. In 2016, China and Pakistan introduced a proposal to the WTO Council for Trade in Goods and suggested that discussions should focus on the promotion and facilitation of cross-border trade in goods enabled by the Internet.Footnote 67 They proposed that discussions should not lead to new market access commitments and ‘easy issues’ should receive priority to achieve ‘pragmatic progress’ at the 11th Ministerial Conference (‘MC11’) in December 2017. In March 2017, China and Pakistan co-sponsored another proposal on e-commerce to the WTO Committee on Trade and Development.Footnote 68 This proposal, again, emphasized ongoing discussions should primarily address the promotion and facilitation of cross-border trade in goods, payments and logistics services. However, although China and some other delegations want to realize some progress by MC11, others do not share this view and hope to continue the exploratory nature of the WTO e-commerce work programme.Footnote 69 Therefore, it is still early to predict whether MC11 can achieve ‘pragmatic progress’. Moreover, the Trade in Services Agreement (‘TiSA’), currently negotiated under the plurilateral system under the WTO, aims to cover trade in digital products. However, the TiSA negotiation is still at the early stage and China is not a party to the negotiation. Therefore, China needs an international legal framework beyond the WTO to avoid marginalization. FTAs serve this purpose.

Secondly, the robust overseas expansion of Chinese e-commerce companies encourages the Chinese government to incorporate e-commerce protection and promotion into its FTAs. National treatment and market access under the FTAs help maintain the e-commerce companies’ continuous development. Chinese e-commerce companies are burgeoning and some (e.g. Baidu, Alibaba, and Tencent) have become national pride.Footnote 70 For example, in 2016, retailers on the platform of Alibaba, made $17.79 billion worth of gross merchandise revenue on one day (Singles’ Day, November 11).Footnote 71 This completely eclipses the $2.74 billion and $3.07 billion generated online during the Black Friday and Cyber Monday sales respectively in the US in the same year.Footnote 72 Modern electronically transmitted digital products have challenged the categorises in the W/120, which may become a barrier for Chinese e-commerce companies to access foreign markets. For example, the computer-related services in the W/120 cover five categories: consultancy services related to the installation of computer hardware (841), software implementation services (842, with further five sub-categories), data processing services (843, with further four sub-categories), database services (844) and other services (845 and 849). WeChat, the Chinese smartphone and computer-based instant messaging software with texting, audio, video, payment, call, map and other functions, is considered more successful than Twitter and Facebook by many international IT commentators.Footnote 73 Does WeChat fall into software implementation services or data processing services? Or should it be categorised as telecommunication or financial services? Clarifying these questions benefits Chinese e-commerce companies.

Thirdly, compared with other formats, an e-commerce chapter in an FTA enables China and its contracting state party to make fully-fledged e-commerce regulations. The chapter approach is better because it avoids the classification difficulty and helps to establish a legal system for e-commerce independent from trade in goods, services and intellectual properties. Compared with chapters, annexes are often used for explanation and only touch upon regulations in a narrow field, and clauses may not establish a systematic e-commerce legal framework.

4 Diverging Contents

Although both China and the US resort to FTAs and adopt the ‘chapter’ format as a solution to the three challenges, the survey of the current FTAs concluded by the US and China shows that the substance of their solutions is diverging.

4.1 Classification of Digital Products and Their Treatment

US FTAs create a category separate from goods, services and IP for digital products and offers national treatment and most favoured nation (‘MFN’) treatment of products and their suppliers.Footnote 74 The TPP even narrows down the definition of digital products to those transmitted electronically.Footnote 75

In contrast, China’s FTAs neither define digital products nor contain provisions of national treatment and MFN treatment. This is because China’s FTAs only recently began to use the ‘chapter’ format to regulate e-commerce in 2015 and thus have not formed an affirmatory view on how to deal with classification and treatment of digital products. Moreover, most of the digital products sold by top Chinese e-commerce enterprises (e.g. Alibaba and JD) are those with physical carriers.Footnote 76 Therefore, Chinese law-makers may not feel the need to develop specific regulations for digital products transmitted electronically at this current stage.

4.1.1 Classification

In contrast to the WTO dichotomy of trade in goods and trade in services, the TPP creates a new category for digital products. It excludes digitally encoded contents, fixed on a carrier medium, from the scope of digital products.Footnote 77 This definition departs from previous FTAs concluded by the US, which do characterize contents fixed on a carrier medium digital products, as seen in Article 16.8.4 of the US-Australia FTA, Article 15.8 of the US-Peru FTA and Article 15.9 of the US-Korea FTA. In these FTAs, ‘carrier medium’ is defined as any existing or later developed physical object capable of storing a digital product, and from which a digital product can be perceived, reproduced, or communicated, directly or indirectly.Footnote 78 The physical object may be an optical medium, floppy disk, magnetic tape, etc.Footnote 79 The TPP excludes digital products fixed on carrier medium from its e-commerce chapter, which helps to classify digital products into a category independent from goods and services. This is because CDs, DVDs and other content-based products have physical carriers so they can be governed by regulations for trade in goods.

Although a digital product may be neither a good nor a service, it may be affected by investment or service measures. For example, services delivered or performed electronically are subject to regulations of the e-commerce chapter and other FTA chapters. The US-South Korea FTA provides that when regulations overlap, a state’s obligations under the e-commerce chapter are subject to regulations under the chapters on investment and cross-border trade in services or financial services.Footnote 80 Where there is conflict, the latter three chapters prevail.Footnote 81 The US-South Korea FTA has Annexes I, II and III listing non-conforming measures in the chapters on investment and cross-border trade in services or financial services, which also apply to e-commerce.Footnote 82 Therefore, obligations such as the non-discriminatory treatment of digital products, cross-border transfer of information by electronic means, and location of computing facilities are exempted when a non-conforming measure is maintained or adopted according to the three annexes.Footnote 83

Neither the China-Australia FTA nor the China-South Korea FTA defines e-commerce or digital products. The China-South Korea FTA defines ‘data message’ as information generated, sent, received or stored by electronic, optical or similar means.Footnote 84 However, this definition is given in the context of digital signatures.Footnote 85 The future of China’s FTAs may deviate from the dichotomy of goods and services under the WTO framework to create a separate category for digital products. Classification is a precondition for proper treatment to digital products. Without resolving classification issues, China cannot determine the proper treatment for digital products, which will hinder the development of Chinese e-commerce regulation.Footnote 86

4.1.2 Treatment

Non-discriminatory treatment is foundational to WTO law. However, WTO law does not offer national treatment and MFN treatment to digital products and their suppliers for two reasons. Firstly, MFN is a general obligation in GATT, but it only applies to products and not to product suppliers.Footnote 87 Therefore, if digital products were classified as goods, their suppliers could not enjoy the MFN treatment under WTO law. Secondly, if digital products were classified as services, whether the products and their suppliers could enjoy national treatment in a specific industrial sector depends on whether the sector is listed in the W/120. This is because the national treatment under the GATS is a specific commitment, rather than a general obligation.Footnote 88 Therefore, there is no guarantee that a certain digital product and its supplier can enjoy national treatment under the WTO.

Neither the China-South Korea nor the China-Australia FTA contain a non-discriminatory treatment clause in their e-commerce chapters. In sharp contrast, the e-commerce chapters in the US-South KoreaFootnote 89 and US-AustraliaFootnote 90 FTAs contain a non-discriminatory treatment clause.

Because both the US-Australia and US-South Korea FTAs cover digital products with a physical carrier or completely transmitted online, their non-discriminatory clauses apply to digital products stored or transmitted in the territories of both parties. The non-discriminatory treatment also applies to distributor of the other party.Footnote 91 However, the TPP does not extend national treatment to digital products stored or transmitted in the territory of the other party like it accords to digital products in a country’s own territory. This may be explained by the fact that the digital products referred to in the TPP have no physical carrier. Storage and transmission are closely related to physical carriers. For example, it is difficult to determine whether a movie downloaded by an Australian consumer from an American website crossed other countries’ servers in the process. However, if a movie is burned on a CD and imported from the US to Australia, it is easier to determine how many countries the CD crossed during transportation. Moreover, the TPP bans localization of computing facilities, making storage a less compelling reason to offer non-discriminatory treatment.

4.2 Consumer and Personal Information Protection

Protecting consumer confidence in e-commerce is as important as removing trade barriers.Footnote 92 Among the US FTAs,Footnote 93 the TPP designs the most comprehensive regime of consumer protection. It can be divided into three aspects: combatting fraudulent and deceptive commercial activities, minimising unsolicited commercial spams, and protecting personal information and privacy.Footnote 94

China’s FTAs also makes efforts to protect consumers. However, unlike the US, China emphasises technology neutrality in consumer protection. China also approaches personal information protection in a different way to the US. For example, the China-Australia FTA equalises personal information protection and online data protection,Footnote 95 while online data protection in the TPP focuses on free flow of information.Footnote 96

Although China’s FTAs do not regulate Internet fraud and commercial spams, these are rampant, urgent issues that damage Chinese consumers’ confidence in e-commerce.Footnote 97 Accordingly, the Chinese government has recently taken strong actions to punish Internet fraud and deter commercial spams.Footnote 98 A typical example is the newly amended Chinese Law on Protection of the Rights and Interests of Consumers in 2014 (‘China Consumer Protection Law’).Footnote 99 Under the Law, when consumers buy goods online, they have the right to return the goods within seven days of receipt without needing to give a reason.Footnote 100 This measure may deter fraudulent online retailers peddling low-quality products. The Law also requires online sellers provide consumers with information such as their business addresses, contact methods, the quality and quantity of goods or services, and prices or costs, the duration and manner of performance, safety precautions and risk warnings, after-sales service, and civil liability.Footnote 101 This requirement can help consumers seek legal remedies against online retailers engaging in fraudulent and deceptive commercial activities. Moreover, Chinese Administrative Measures for Online Trading and China Consumer Protection Law also ban commercial spam sent without consumers’ consent or after a clear refusal,Footnote 102 echoing a TPP requirement.Footnote 103 In China, consumers have recourse against commercial spam suppliers. They can bring tort claims if the spam suppliers illegally access their phone numbers or email addresses.Footnote 104 They can allege contractual breach if a telecommunication services provider promises to diminish commercial spams in a service contract but fails to do so. Consumer associations can also bring class actions on behalf of consumers against commercial spam suppliers or telecommunication companies.Footnote 105

Online personal information protection under the China-South Korea and China-Australia FTAs is similar to those in the US-South Korea and US-Australian FTAs, but is much weaker than that of the TPP.Footnote 106 The main reason for this is personal information protection involves behind-the-border measures but Chinese domestic law for personal information protection is still developing, so China has refrained from making any commitments in its FTAs. In China, laws concerning personal information protection are fragmented and most regulations are issued by ministries, rather than from the National People’s Congress (‘NPC’) and its Standing Committee. Although China does not have a comprehensive personal information protection regime, its domestic law has clearly gone beyond the personal information protection requirement in its FTAs. For example, the general requirement is that collection and use of personal information must comply with principles of legality, properness and necessity.Footnote 107 Consumers must be informed about the purpose, method and scope of the information collected and used.Footnote 108 If providing personal information is not a legal obligation, the collection of personal information must be dependent on consumers’ consent.Footnote 109 In 2009, the Standing Committee of the NPC criminalised the selling or providing of personal information about any citizen, obtained during the organ’s or entity’s performance of duties or provision of services, by a staff member of a state organ or an entity in a field such as finance, telecommunications, transportation, education or medical treatments.Footnote 110 In December 2016, the China Internet Security Law prohibited the collection of personal data without consent and the illegal transfer or sale of personal information to third parties by ISPs and other businesses.Footnote 111

Therefore, although China’s FTAs are still weak in protecting consumers and privacy, Chinese domestic law has demonstrated a converging trend with the US FTAs to provide better protection to consumers and their personal information.

4.3 Free Flow of Information

Regulations for free flow of information first appear in the US-Korea FTA and are further developed in the TPP.Footnote 112 China’s FTAs have never touched on the free flow of information. Chinese domestic law on the Internet aims to control information flow rather than protect netizens’ right to access online information.Footnote 113 China is concerned that commitments to free flow of information for e-commerce in the FTAs will ultimately make its Internet censorship a trade barrier. Although free flow of information in trade of digital products may not be the same as freedom of speech in human rights law, China worries that the former may potentially be extended to the latter.Footnote 114

4.3.1 Principles on Access to and Use of the Internet for E-commerce

Article 14.10 of the TPP provides principles on access to and use of the Internet for e-commerce: consumers should be able to benefit from choosing Internet services and applications freely, connecting their end-user devices to the Internet at will, and having open access to online information.Footnote 115 These principles first appear in the US-South Korea FTA and apply subject to domestic law of a member state.Footnote 116 However, unlike the US-South Korea FTA, the TPP holds these principles subject to undefined ‘applicable policies, laws and regulations’.Footnote 117 ‘Applicable policies, laws and regulations’ may include a member’s domestic policies, laws and regulations and international standards.Footnote 118 This means members may not justify deviation from these principles based on compliance with domestic law, but should be comply with international laws that encourage free flow of information. Notably, in June 2011, the UN Special Rapporteur on the Promotion and Protection of the Right to Freedom of Opinion and Expression declared that Internet access is a human right.Footnote 119 ‘Cutting off users from Internet access, regardless of the justification provided, including on the grounds of violating intellectual property rights law, to be disproportionate and thus a violation of article 19(3) of the International Covenant of Civil and Political Rights’.Footnote 120 Therefore, despite these principles still being best-effort endeavours even under the TPP, they are significant because of their potential human rights connotation. This is different from previous US FTAs.

China has never opened the industry of Internet access services to foreign investors in its FTAs. It maintains similar restrictions in related areas, such as value-added and basic telecommunications services.Footnote 121 Netizens in China cannot choose Internet access service suppliers freely. A recent breakthrough was the 2016 amendment to the Agreement on Trade in Services to the Mainland and Hong Kong/Macao Closer Economic Partnership Arrangement (‘CEPA’).Footnote 122 According to this amendment, service providers from Hong Kong and Macao may establish equity joint ventures or wholly-owned enterprises in mainland China to provide Internet access services (limited to the Internet access services provided for Internet users) and online data and transaction processing (limited to for-profit e-commerce).Footnote 123 No limit is set on the proportion of equity held by investors from Hong Kong and Macao in such enterprises.Footnote 124 However, opening the Internet access service supplier market in mainland China to investors from Hong Kong and Macao does not necessarily mean China will do the same with foreign investors, because Hong Kong and Macao are considered parts of China.

4.3.2 Cross-border Transfer of Electronic Information

Among US FTAs, the US-Korea FTA was the first to protect cross-border online information flow.Footnote 125 Article 14.11 of the TPP imposes a compulsory obligation on its members to enable a covered person to freely transfer information (including personal information) online and cross-border for the conduct of commerce.Footnote 126 It is very difficult for China to make such commitments because China practices sophisticated censorship on the Internet.Footnote 127 Its ‘Great Firewall’ filters all online content using different targets, such as Internet content providers, individual consumers, and contents on foreign websites.Footnote 128 China maintains its ban on Google, Facebook, Twitter, New York Times and many other websites despite the majority of their content having no relation to Chinese politics.Footnote 129 China is concerned that the commitments to cross-border transfer of electronic information in FTAs may become a Trojan Horse to current censorship, because this freedom has the potential to be extended to the ideological field and may promise rights to political dissidents.Footnote 130

Article 14.11.3 of the TPP explicitly provides that parties may deviate from free cross-border transfer of electronic information for a legitimate public policy purpose, on the condition that the restrictive measure is proportionate, not arbitrary or unjustifiably discriminatory, and does not function as a disguised restriction on trade.Footnote 131 This clause is more detailed than Article 15.8 of the US-Korea FTA, which provides that ‘…the Parties shall endeavour to refrain from imposing or maintaining unnecessary barriers to electronic information… [emphasis added]’. It is not clear what types of barriers are unnecessary.

Article 14.11.3 of the TPP is similar to Article XX of the GATT 1994 and Article XIV of the GATS (collectively ‘General Exceptions in the WTO’)Footnote 132 because they contain a two-tier test and similar terms.

Firstly, both articles recognise the right of members to adopt measures which would otherwise be inconsistent with their treaty obligations, provided that certain conditions are satisfied. This constitutes a two-tier test: the challenged measure must first fall within the scope of exceptions and then must satisfy the application requirements set out in the articles. This two-tier test has been adopted by several WTO cases, such as US-Gasoline, EC-Asbestos, and US-Shrimp.Footnote 133 Article 14.11.3 of the TPP also requires a two-tiered test. A TPP member must first prove that the non-conforming measure is adopted to protect public policy. Then it must demonstrate that its implementation will not lead to arbitrary or unjustifiable discrimination and it will not function as a disguised restriction on trade or impose restrictions on transfers of information greater than are required to achieve the objective. Notably, the structure of Article 14.11.3 of the TPP is the reversed form of Article XX of the GATT 1994. The former states the exception in its chapeau and the application requirement in its sub-paragraph; in contrast, the chapeau of the latter provides the application requirement, while its sub-paragraph indicates the exceptions. Although the two articles are structured differently, this should not impact the application of the two-tier test.

Secondly, Article 14.11.3 of the TPP and the General Exceptions in the WTO adopt several similar or even identical terms, such as public policy in the TPP and public morals or public order in the WTO, ‘arbitrary or unjustifiable discrimination’ and ‘disguised restriction’ on international trade.

The WTO has a body of rich jurisprudence concerning the meanings of these terms. In US-Gasoline, the AB held that ‘arbitrary or unjustifiable discrimination’ means the application of the non-conforming measure must result in discrimination and the discrimination must be arbitrary or unjustifiable in character.Footnote 134 In Brazil-Retreaded Tyres, the AB held that the cause or rationale of the discrimination is the focal point for analysing whether the application of a measure results in arbitrary or unjustifiable discrimination.Footnote 135 The effects of discrimination are not determinant. The AB also stated that arbitrary or unjustifiable discrimination exists when the reasons given for the discrimination were not rationally connected to the objective falling within the purview of a paragraph of Article XX, or go against that objective.Footnote 136 In US-Shrimp, the US banned the importation of shrimps or shrimp products except for those harvested under conditions that do not adversely affect sea turtles or in waters subject to the jurisdiction of a nation certified pursuant to US law. The AB held that the ban constituted ‘arbitrary’ and ‘unjustifiable’ discrimination because the US failed to engage the WTO members exporting shrimp to the US in serious negotiations with the objective of concluding bilateral or multilateral agreements to protect and conserve sea turtles.Footnote 137 Nevertheless, the requirement for serious negotiation did not require the successful conclusion of an agreement.Footnote 138 The ban lacked flexibility and failed to consider the different situations of various WTO members.Footnote 139

WTO jurisprudence has identified three criteria to determine whether a non-conforming measure is a ‘disguised restriction on international trade’. Firstly, whether the contested measure is published. In US-Gasoline, the AB held that a restriction in international trade that is concealed or unannounced constituted a ‘disguised restriction’.Footnote 140 Secondly, whether the application of a non-conforming measure is arbitrarily or unjustifiably discriminatory may be taken into account in determining the presence of a ‘disguised restriction on international trade’.Footnote 141 Thirdly, the ‘design, architecture and revealing structure’ of the measure must be examined to discern whether it is intended for protective application.Footnote 142

Notably, WTO jurisprudence has been criticised for enforcing trade rules without acknowledging human rights.Footnote 143 The typical examples are China-IP Rights Footnote 144 and China-Audiovisual Products.Footnote 145 China’s Internet censorship is equally applied to both domestic and foreign ISPs, so it may not violate the national treatment under the WTO.Footnote 146 Its censorship is openly published as law. For example, when an Internet information search service provider finds results which contain any information or applications prohibited by any Chinese law or regulation, it will cease the search, retain records and report to the State Internet Information Office or the local Internet information office in a timely manner.Footnote 147 Further, the market access obligation under China’s W/120 adopts a positive list. The limited commitments that China has made to Internet services significantly increase the difficulty of linking international trade law with human rights protection.Footnote 148

Nevertheless, China will wait to see how the exceptions in Article 14.11.3 of the TPP will be interpreted and whether the international commitment to cross-border transfer of electronic information can help remove domestic restrictions on freedom of speech.

4.3.3 Localisation of Computing Facilities

Banning localisation of computing facilities is a new clause and has never appeared in US FTAs other than the TPP. TPP members cannot require a covered person to use or locate local computing facilities as a precondition for doing business in its territory.Footnote 149 Banning localisation of computing facilities is a compulsory obligation for TPP members and also subject to the same exceptions as the cross-border transfer of electronic information.Footnote 150

Free cross-border transfer of electronic information focuses on preventing a government from keeping data outside of its border by measures such as censorship.Footnote 151 Industry and Internet advocates argue that localisation may pose a more serious threat to the Internet than censorship, because it ‘threatens the major new advances in information technology—not only cloud computing, but also the promise of big data and the Internet of Things’.Footnote 152

Recently, China has taken steps towards economy-wide requirement of data localisation.Footnote 153 For example, in China, a book, audiovisual, electronic, newspaper or periodical publisher who provides online publishing services must localise its servers and storage devices in China’s territory.Footnote 154 In 2013, the Standardisation Administration and the General Administration of Quality Supervision, Inspection, and Quarantine published new national standards that prohibit overseas transfers of data to any entity, absent express user consent, government permission or other explicit legal or regulatory permission. The 2016 China Internet Security Law also requires that personal information and important data collected by key telecommunication infrastructure operators or generated during their operations in China shall be stored in the China territory.Footnote 155 The underlying policies for data localisation are to ease security concerns, combat rampant identity theft and diminish illegal trade in personal data. According to a survey conducted by the European Centre for International Political Economy, localisation may decrease China’s GDP by 1.1% and reduce China’s exports by 1.7% due to loss of competitiveness, create $63 bn of welfare losses and lower the average month salary per worker by 13%.Footnote 156 However, localisation helps ensure data providers’ adherence to Chinese law and the government’s socialist values.Footnote 157 Chinese courts can exercise personal jurisdiction based on the location of the server.Footnote 158 For the Chinese government, these political and ideological values outweigh the economic costs of data localisation.

4.3.4 Internet Connection Charge Sharing

If foreign ISPs have no access to domestic Internet infrastructure, free cross-border flow of information is hard to achieve.Footnote 159 The TPP suggests to its member states to allow a supplier seeking Internet connection of a member to negotiate charge sharing with suppliers of other members on a commercial basis.Footnote 160 Notably, this is a best-effort clause. Annex IV (non-conforming measures for state-owned enterprises and designated monopolies) of the TPP does not apply to e-commerce.Footnote 161

However, in China, Internet connection services are run by wholly state-owned telecommunications service providers and are thus not open to foreign suppliers.Footnote 162 International communications services must be conducted through international communications gateways, the establishment of which must be approved by the Chinese Ministry of Information Industry.Footnote 163 No entity or individual may engage in international communications by any other means.Footnote 164 The country’s international network traffic comes in and leaves exclusively through three international Internet exits: Beijing (using Qingdao’s ocean optic fiber cable), Shanghai and Guangzhou (using Shantou’s ocean optic fiber cable).Footnote 165 Up to January 2015, there was a large population of netizens, approximately 649 million in China.Footnote 166 These factors create a veritable bottleneck for international Internet bandwidth, meaning the Internet connection charge is high while speed is low.Footnote 167 In this context, Chinese state-owned Internet connection service providers may not have incentives to negotiate on a commercial basis with foreign competitors.

4.3.5 ISP Safe Harbor

Free flow of information requires that international trade law provide secondary liability protection for ISPs. The WTO Agreement on Trade-Related Intellectual Property Rights (‘TRIPs’) does not touch upon this issue.Footnote 168 Starting from the US-Australia FTA, the intellectual property chapters of US FTAs contain provisions to limit liabilities of copyright infringement for ISPs.Footnote 169 This is the so-called ISP safe harbor.Footnote 170 These provisions require member states to provide legal incentives for ISPs to cooperate with copyright owners, to deter the unauthorised storage and transmission of copyrighted materials and limit remedies against ISPs for copyright infringements they do not control, initiate or direct, but that take place through systems or networks controlled or operated by them or on their behalf.Footnote 171 The condition is that the ISPs expeditiously remove or disable access to material residing on their networks or systems when they become aware of infringement.Footnote 172 This allows ISPs to develop vibrant information online while combating Internet copyright infringement.Footnote 173

The ISP safe harbor has counterparts in Chinese domestic law.Footnote 174 Article 36 of Chinese Tort Law provides that where an Internet user commits a tort using the Internet, the victim of the tort shall be entitled to notify the ISP to take such necessary measures as deletion, block or disconnection.Footnote 175 If, after being notified, the ISP fails to take necessary measures in a timely manner, it shall be jointly and severally liable for any additional harm to the Internet user.Footnote 176 This is like the safe harbor provisions in the US FTAs. An underlying reason for this similarity is, compared with other components of free flow of information, intellectual property protection has fewer human rights implications.

Potecting intellectual property rights helps enhance cross-border flow of information. However, it has different focuses compared with free flow of information in the trade of digital products. TRIPs, the Paris Convention for the Protection of Industrial Property,Footnote 177 the Berne Convention for the Protection of Literary and Artistic WorksFootnote 178 and other international intellectual property conventions ensure national treatment of domestic and foreign intellectual property rights and their holders.Footnote 179 However, they do not regulate market access, which is a major barrier for cross-border information flow.Footnote 180

5 Polycentric Direction

The TPP enhances e-commerce regulation by creating a separate category for digital products transmitted online, strengthens mandatory rules and behind-the-border measures in consumer protections, and increases the level of liberalization in free flow of information.Footnote 181 However, the US has withdrawn from the TPP. The US-South Korea and China-South Korea FTAs are the most recent FTAs concluded by each country. Table 1 is a summary of their differences and similarities.

Table 1 Comparison between the China-South Korea FTA and the US-South Korea FTA
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As best-efforts clauses do not impose compulsory obligations upon member states, the e-commerce chapters of the China-South Korea FTA and the US-South Korea FTA are not significantly different.

In the future, the e-commerce rules in China’s FTAs may have three features. Firstly, China’s FTAs with developed countries may define digital products as those transmitted online and provide national treatment and MFN treatment to products and their suppliers. These rules will assist China in circumventing the WTO law impasse and benefit Chinese Internet enterprises. However, meanwhile, China will continue actively enacting and implementing e-commerce rules under the WTO framework. Secondly, China’s FTAs may offer stronger consumer and privacy protection. These international commitments are supported by recent developments of Chinese domestic law discussed in Sect. 4.2. Thirdly, China will be very cautious to include free flow of information into FTAs due to its political concerns.

Even if the US continues to push free flow of information by its future bilateral FTAs, their influence may be less pressing upon China in the near future. Because the TPP has twelve member states in the Asia Pacific, covering 40% of the world GDP, it establishes a monocentric pattern. The impact of the TPP will be hard to displace through bilateral FTAs,Footnote 182 such as the proposed US-Japan FTA and the US-Vietnam FTA (Fig. 1).

Fig. 1
figure 1

(monocentric): The big circle refers to the TPP, which aims to set the 21st century standard for e-commerce laws. The small ones refer to other FTAs in Asia Pacific.

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China’s future FTAs, including the proposed Regional Economic Comprehensive Partnership (RECP),Footnote 183 may continue to avoid regulations of free flow of information and maintain the WTO approach to separate e-commerce and human rights. Bilateral FTAs concluded by the US may promote free flow of information, which has potential human rights implications. This digital divide may split the development of international trade law for e-commerce. In the post-TPP era period, the making of international trade law for e-commerce in the Asia-Pacific will occur in a polycentric pattern.Footnote 184 FTAs concluded by China and the US respectively may converge in terms of classification and treatment of digital products and protection of consumers and privacy. However, they may openly conflict on regulation of free flow of information (Fig. 2). In a polycentric pattern, systems of functionally overlapping international institutions may affect each other’s operations.Footnote 185 The different e-commerce regulation regime established by China, especially in the field of free flow of information, will compete with the US regime to attract participants, gain trading volume or develop new strategies.Footnote 186 The FTAs in the polycentric pattern are heterarchically ordered and none can impose their regulation upon the entire regime.Footnote 187

Fig. 2
figure 2

(polycentric): Post-TPP era. The circles represent coexisting FTAs in Asia Pacific without a single comprehensive dominant Agreement.

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In a few industries, privately-owned Chinese enterprises have actively advocated their voice in international rule-making. E-commerce is one example.Footnote 188 Jack Ma, Alibaba Group Executive Chairman and United Nations Assistant Secretary-General, is calling for the establishment of an Electronic World Trade Platform (‘eWTP’) to help small to medium-sized enterprises (‘SMEs’), developing countries and young people to enter the global market and join the global economy.Footnote 189 eWTP would link local, regional, national and international e-commerce Internet platforms.Footnote 190 It facilitates SMEs compliance with various government regulations on products, customs procedures and provides better access to logistics and financing.Footnote 191 According to Jack Ma, the eWTP is a logical and natural complement to the WTO but it is driven by businesses with support from governments.Footnote 192 Jack Ma has vigorously advocated for eWTP in Business 20 SME Development Taskforce,Footnote 193 the G20 and Boao Forum for Asia Annual Conference 2016.Footnote 194 The eWTP has been included in the G20 Leaders’ Communiqué published after the 2016 Hangzhou Summit.Footnote 195 Currently, the eWTP initiative lacks details so it is difficult to predict its potential. Nevertheless, e-commerce rules proposed by Chinese enterprises may possibly be commercially-oriented. The rules will protect consumer and privacy but will not touch upon free flow of information which may have human rights connotations. A similar approach seems to be adopted by Facebook. According to the New York Times, in 2016, Facebook quietly built software to censor news feeds in specific geographic areas to prepare the company for entry into China.Footnote 196 In a polycentric system, private entities develop informal lawFootnote 197 that impacts the development of international trade law for digital products. China is one of the largest and most lucrative markets for all e-commerce companies. Private entities are profit-making and may be publicly held. The market power may allow them to promote free flow of information while carving out human rights implications (Fig. 3).Footnote 198

Fig. 3
figure 3

(further polycentric): Joint rule-making by public and private bodies in post-TPP era. The big circles refer to FTAs. The small circles refer to e-commerce rules made by non-governmental bodies, such as NGOs and enterprises.

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As Professor William W. Burke-White argued, ‘new pluralism is emerging’.Footnote 199 In the polycentric pattern, the pluralism is not only of governments but also of non-governmental entities.Footnote 200 E-commerce rules supported by China and its enterprises may accept classification of digital products and provide better consumer and privacy protections, moving towards its American counterparts. However, they will be very cautious to incorporate rights for free flow of information, or alternatively they may support free flow of information devoid of any human rights implications. The abandonment of the TPP may give China an opportunity to reassert its pre-eminence in the development of international trade law for e-commerce.