Research On The Necessity Test Of Domestic Regulation In Digital Trade

The increasing number of trade in goods and services is enabled by the development of the Internet and digital technologies,and is evolving into digital trade that could be provided by electronic means.International trade agreements such as WTO agreements,although have made great achievements in eliminating such barriers as discriminatory treatments and market access,their defects in regulating nondiscriminatory domestic regulations in the fields of digital trade become the main factors limiting the further liberalization of digital trade.Therefore,recent trade agreements such as Comprehensive and Progressive Agreement for Trans-Pacific Partnership(CPTPP),United States-Mexico-Canada Agreement(USMCA),Digital Economy Partnership Agreement(DEPA)and Regional Comprehensive Economic Partnership Agreement(RCEP)that aim to achieve a new balance between free trade and the right to regulate,initiated digital trade chapters to regulate contracting Parties’domestic regulation in the field of digital trade,and introduced necessity test in the rules of domestic electronic transactions framework,personal information protection,cross-border data flows and source code.The principle of proportionality in a country’s constitution and administrative law,and WTO agreements and its jurisprudence are important theoretical foundations in studying the frontier theories and application issues about the necessity test of domestic regulation in the field of digital trade.Through the explanation and clarification by the WTO Dispute Settlement Body(DSB)about the necessity test in different cases in the past few years,WTO jurisprudence of necessity test achieved greater consistency and legal certainty.Firstly,although weighing and balancing test is introduced in the general exceptions,the nature of necessity test in these exceptions is still the least trade restrictive test(corresponding to the principle of necessity in the principle of proportionality in a country’s constitution and administrative law).The DSB that insisting to arrange necessity test according to the importance of the interests or values protected by the disputed goals aims to respect the defending Party’s right to regulate or to prevent the defending Party from abusing the general exceptions to derogate other WTO members’ rights.Such discretion is legal if it doesn’t violate the provisions contained in the WTO agreements and Understanding on Rules and Procedures Governing the Settlement of Disputes(DSU).Second,when reviewing the necessity of disputed measures pursuant to article 20 of General Agreement on Tariffs and Trade(GATT),article 14 of General Agreement on Trade in Services(GATS),article 2.2 of Agreement on Technical Barriers to Trade(TBT),the DSB inclines to divide the necessity test into preliminary-conclusion phase and final-conclusion phase,and will review such components as the trade restrictiveness and the contribution to the achievement of the objective of the disputed measures."to avoid any unnecessary regulatory burden on electronic transaction" test in the rules of domestic regulation,"any restriction on......are necessary and proportionate to......”test in the rules of personal data protection,and "does not impose restrictions on......greater than are required/necessary to achieve the objective" test in the legitimate public policy objective exceptions contained in the digital trade chapter of such new-generation trade agreements as CPTPP and USMCA are the frontier theoretic issues when studying necessity test of domestic regulation in the field of digital trade.This dissertation,after using WTO jurisprudence of necessity test and Vienna Convention on the Law of Treaties(VCLT)’s treaty interpretation rules,arrived at the following conclusions.Firstly,there is no relation between the phrases "avoiding unnecessary regulatory burden" and "not be more trade restrictive than necessary",because burdensome domestic regulation would not inevitably impose restrictions on international trade,and vice versa.The legal standard of "to avoid any unnecessary regulatory burden on electronic transaction" test should be determined according to various factors such as the textual structures of the treaties and contracting Parties’ intentions.Secondly,"any restriction on......are necessary and proportionate to......" test in the rules of personal data protection of USMCA may be introduced to restrict some countries or regions like EU that are less tolerant to risks to establish high-level personal data protection regimes,so as to eliminate foresaid regimes’ negative impacts on the U.S.giant digital enterprises.Thirdly,it’s uncertain whether the legitimate public policy objective exceptions contained in the rules of cross border data flows like CPTPP that use the phrase "does not impose restrictions on......greater than are required to......" instead of "......greater than are necessary to..."aim not to apply necessity test or aim to apply stricter or looser necessity test.Therefore,the contracting Parties or negotiators should clarify the meaning of "required".In addition,the defending Party’s discretion to determine the necessity of the restrictions on the cross border data flows or data localization measures authorized by RCEP-style legitimate public policy exceptions covers the discretion to determine the necessity of the legitimacy of objectives,provided that such discretion accords with the two-tier good faith test.Any restrictions on cross border data flows by a country’s domestic regulation may violate the country’s traditional obligations such as market access,non-discrimination treatments,services domestic regulation under its international trade agreements,and may also violate other obligations like free cross border data flows and prohibition of data localization in the digital trade chapters.In such circumstances,the country could defend the legality of its disputed measures under the essential security exceptions,general exceptions or legitimate public policy objective exceptions.This dissertation found that,the main barrier for a country taking data localization measures to safeguard its national security is that the relevant domestic regulation may not accord with specific situations contained in the essential security exceptions.In comparison,a country has more possibility to successfully defend itself pursuant to general exceptions or legitimate public policy objective exceptions,because the risk-based approach,relevant standards and best practices,and cross border privacy rules(CBPRs)may not be considered as reasonably available measures to alternate data localization measures.A country that requires a software owner to transfer or allow access to its source code or algorithms(hereinafter referred to as "source code measures")may violate the rules of source code contained in the international trade agreements concluded by this country.In such a case,the country can only defend the legality of its source code measures pursuant to the exceptions specified in the rules of source code or generally applicable exceptions like national security exceptions or general exceptions.This dissertation found that,the country also has low possibility to successfully defend itself pursuant to the national security exceptions,because the source code measures may not accord with none of the requirements in these exceptions.In addition,whether a country taking source code measures could successfully defend itself pursuant to the exceptions to secure compliance with laws or regulations shall be discussed in different circumstances:comparing with the source code measures taken to secure compliance with indigenous innovation policy,in deciding whether alternative measures such as increasing R&D inputs and introducing foreign technical talents could be considered as reasonably available measures,such factors as defending party’s scientific research ability,the level of economic development and finance should be taken into consideration in a specific case;comparing with the source code measures taken to ensure the compliance with cyber security laws or regulations,the essence to determine the equivalence of the riskbased approach is to determine the country’s expected level of cyber security protection,while other factors such as the country’s encryption technologies and its overall legal environments should also be taken into consideration.China,according to the international trade agreements concluded by it,is obliged to promote further liberalization of digital trade.Therefore,domestic regulations in the field of digital trade taken by it may violate such obligations as market access,nondiscrimination treatments,not imposing unnecessary burdensome regulation on electronic commerce,promoting the free cross border data flows.In such circumstances,China could only defend the foresaid measures’ necessity or legality pursuant to national security exceptions,general exceptions or legitimate public policy objective exceptions.According to the obligations taken and specific commitments made by China under international trade agreements,this dissertation arrived at the following conclusions.Firstly,China’s enterprise registration regimes and some obligations imposed on ecommerce platform operators may fail to pass the "to avoid any unnecessary regulatory burden on electronic transaction" test.Secondly,some data localization measures and source code measures may not meet the requirements in the essential security exceptions.Thirdly,since China hasn’t established robust regimes of requiring personnel of state organs to keep secret the information they acquired in the enforcement actions or judicial proceedings,its source code measures may be considered as making less contribution to achieve the specific objective,therefore have less possibility to be considered as necessary pursuant to the exceptions to secure compliance of law and regulations.This dissertation suggests that,in order to respond to those challenges,China could make negative lists according to its specific commitments to services trade,develop regulatory impact assessments to assess the necessity of domestic regulation in the field of digital trade,and take advantages of international regulatory cooperation to export China’s scheme about digital trade.