On 13 December 2017, seventy-one members of the World Trade Organization (WTO) led by the USA, European Union (EU) and Japan issued a “Joint Statement on Electronic Commerce” at the 11th WTO Ministerial Conference in Buenos Aires, Argentina. In the Joint Statement, the members announced that they would “initiate exploratory work together toward future WTO negotiations on trade-related aspects of electronic commerce”. At the World Economic Forum on 25 January 2019, seventy-six WTO members issued another Joint Statement, which announced their intention to “commence WTO negotiations on trade-related aspects of electronic commerce”. The most notable new participant in the second Joint Statement is China, which has so far resisted the electronic commerce initiative.

Why was China reluctant to participate in the e-commerce negotiation at first? Why did it change position in 2019? What will be the main issues in the negotiation? What are the positions of China and how will its participation shape the negotiation? By answering these questions, this chapter provides a critical analysis of the data regulation of China, a world leader in the artificial intelligence (AI) and data-driven economy.

This chapter will proceed in four parts. Section I reviews the development of the Internet and e-commerce in China, as well as China’s experiences with e-commerce issues in the WTO and beyond, especially in free trade agreements (FTAs). Section II discusses the history of the e-commerce negotiations in the WTO, from the 1998 e-commerce Declaration and the Doha Declaration to the Joint Statement in 2017 and the launch of the plurilateral Joint Statement Initiative (JSI) negotiations in 2019, with China joining at the last minute. Section III analyses in detail China’s three submissions in the negotiations, as well as the most problematic issues for China. In Section IV, the chapter concludes with reflections on how the negotiations will unfold, especially how the main sticking points in China’s Internet and data regulatory regime could be addressed.

I China and E-commerce

“Across the Great Wall we can reach every corner of the world”. Such is the prescient message in the very first email from China, sent on 20 September 1987 by a group of researchers at the Institute for Computer Science of China’s State Commission of Machine Industry to the University of Karlsruhe in Germany.Footnote ¹ However, it was not until 20 April 1994 that the first connection to the international network was established by the China Education and Research Network, which marked the launch of the Internet in China.Footnote ²

Since then, the Chinese Internet has grown by leaps and bounds, despite occasional hiccups such as Google’s exit from China in 2009.Footnote ³ In 2013, China’s e-commerce volume exceeded 10 trillion RMB and it overtook the USA as the largest e-commerce market in the world.Footnote ⁴ Nowadays, Chinese e-commerce giants like Alibaba are among the biggest online retailers in the world and Chinese online shopping festivals such as the Singles Day (11.11) Sale have gained loyal followings all around the world.Footnote ⁵

Notwithstanding the phenomenal growth in the e-commerce sector, the Internet remains under tight regulation in China.Footnote ⁶ This started with hardware regulations in the early days of the Chinese Internet, which required that all internet connections must go through official gateways sanctioned by the Chinese government. Then the government moved to software regulation and started to require that software used for internet access must be sanctioned by the government. The latest iteration is content and data regulation, which culminated in the introduction of Cybersecurity Law in 2016, elevating internet regulation to a matter of national security.

Internationally, China has engaged with e-commerce regulation at both the multilateral and regional levels. In the WTO, China’s first encounter with data regulation started on the wrong foot as it concerned a sensitive area: China’s regulation of publications and audio-visual products.Footnote ⁷ In that case, the USA complained that China had failed to grant foreign firms the right to import and distribute publication and audio-visual products. One of the key issues in the case is whether China’s commitments on “sound recording distribution services” covers “electronic distribution of sound recordings” as alleged by the USA.Footnote ⁸ China disagreed with the US approach and argued instead that such electronic distribution “in fact corresponds to network music services”,Footnote ⁹ which only emerged in 2001 and were totally different in kind from the “sound recording distribution services”. According to China, the most fundamental difference between the two is that, unlike “traditional” sound recording distribution services, network music services “do not supply the users with sound recordings in physical form, but supply them with the right to use a musical content”.Footnote ¹⁰ In response, the USA cited the panel’s statement in US–GamblingFootnote ¹¹ that “the GATS [General Agreement on Trade in Services] does not limit the various technologically possible means of delivery under mode 1”, as well as the principle of “technological neutrality” mentioned in the Work Programme on Electronic Commerce – Progress Report to the General Council,Footnote ¹² and argued that electronic distribution is merely a means of delivery rather than a new type of service.Footnote ¹³ Furthermore, the USA argued that the term “distribution” encompasses not only the distribution of goods, but also distribution of services.Footnote ¹⁴ After a lengthy discussion canvassing the ordinary meaning, the context, the provisions of the GATS, the object and purpose and various supplementary means of interpretation, the panel concluded that the term “sound recording distribution services” does extend to distribution of sound recording through electronic means.Footnote ¹⁵ China appealed the panel’s findings, but they were upheld by the Appellate Body, which largely adopted the panel’s reasoning.Footnote ¹⁶

The case was also the first WTO case concerning China’s censorship regime. It is interesting to note, however, that the USA did not challenge the censorship regime per se.Footnote ¹⁷ Instead, the USA only challenged the alleged discrimination in the operation of the regime, where imported products were subject to more burdensome content review requirements.Footnote ¹⁸ Ironically, the USA even proposed, as the solution to the alleged discrimination, that the Chinese government itself should shoulder the sole responsibility for conducting content review, rather than outsourcing it to importing firms.Footnote ¹⁹

With such an unpleasant experience, China took a cautious approach on the inclusion of internet or data regulation in other forums, such as FTAs. While it has signed more than a dozen FTAs so far, most of them have not included provisions on such regulations. Until China signed the Regional Comprehensive Economic Partnership (RCEP) in November 2020, the only ones with included stand-alone chapters on e-commerce are the two FTAs China signed with Korea and Australia in 2015,Footnote ²⁰ the FTA signed with Mauritius and Cambodia in 2019 and in 2020, respectively, as well as the recently upgraded FTAs with ChileFootnote ²¹ and Singapore.Footnote ²² However, unlike the US FTAs, which often include provisions on free flow of data and bans on data localization requirements,Footnote ²³ these six pre-RCEP FTA chapters only address e-commerce-related issues such as a moratorium on customs duties on electronic transmission; electronic authentication and electronic signatures; protection of personal information in e-commerce; and paperless trading.Footnote ²⁴

Over the past five years, capitalizing on the enormous success of the Chinese e-commerce market, China has been pushing for wider adoption of its e-commerce model beyond its own shore. At the regional level, China has been building the electronic silk road, which provides online e-commerce platforms to facilitate both the exports of Chinese products abroad and the imports of foreign products into China.Footnote ²⁵ At the multilateral level, Alibaba, with the support of the Chinese government, has been aggressively promoting its Electronic World Trade Platform (eWTP) concept, which led to the launch of the “Enabling e-commerce” initiative along with the WTO and the World Economic Forum in late 2017.Footnote ²⁶ As discussed later in the chapter, these initiatives have also found their way into China’s e-commerce proposals in the JSI.

II China and the Joint Statement Initiative: Resistance and Acceptance

Recognizing the growing importance of e-commerce, WTO members adopted the Declaration on Global Electronic Commerce at the second Ministerial Conference in 1998.Footnote ²⁷ In addition to establishing a temporary moratorium on customs duties on digital transmission, the Declaration also calls on WTO members to “examine all trade-related issues relating to global electronic commerce”. Pursuant to the Declaration, the General Council adopted the Work Programme on Electronic Commerce,Footnote ²⁸ which divided up the work among several WTO bodies such as the Council for Trade in Services, the Council for Trade in Goods, the Council for Trade-Related Aspects of Intellectual Property Rights and the Committee on Trade and Development. While the division of work among the different bodies provided an opportunity for in-depth discussions on the impact of e-commerce in different areas, such a compartmentalized approach was not really conducive to the negotiations because of the inherent complexity of e-commerce, which does not fit neatly into the pigeonholes of goods, service and intellectual property rights. Thus, by July 1999, the bodies had reached an impasse in their respective discussions and the discussions were suspended.

As WTO members started to grasp the cross-cutting nature of e-commerce issues, the General Council decided on 8 May 2001 to have dedicated sessions to discussions cross-cutting issues in e-commerce, with the first held on 15 June 2001.Footnote ²⁹ Since then, a total of twelve dedicated session have been held, with the last one on 18 October 2016.Footnote ³⁰ However, other than agreeing to continue the moratorium on customs duties on electronic transmission periodically, these cross-cutting discussions have failed to produce substantive results and the members remain divided on even the most basic issues such as the mode of supply and classification of e-commerce. Indeed, the division among the members was so wide that no substantive discussion was held at the twelfth dedicated session because of the procedural concerns raised by some members.Footnote ³¹ Because of the opposition, discussions have only been held in informal, open-ended meetings convened by the General Council Chair since then and the process has basically stalled.

In view of the lack of progress under the formal Work Programme, the proponents of the e-commerce negotiation started to explore alternative ways to advance the negotiation. This was recognized by the Ministerial Declaration at the Nairobi Ministerial Conference in December 2015, which acknowledged that some members “believe new approaches are necessary to achieve meaningful outcomes in multilateral negotiations”.Footnote ³² The USA was even more explicit in its statement, with the then United States Trade Representative (USTR) Michael Froman declaring the Nairobi Ministerial would begin “the road to a new era for the WTO” and stating that “[a]s WTO members start work next year, they will be freed to consider new approaches to pressing unresolved issues and begin evaluating new issues for the organization to consider”.Footnote ³³

After Nairobi, e-commerce gained “renewed interest” among WTO members.Footnote ³⁴ On 1 July 2016, the first post-Nairobi submission was made by the USA. Likely in anticipation of the strong resistance from developing countries, the USA took a rather cautious approach and labelled its submission a “non-paper” that is “intended solely to contribute to constructive discussion among Members” rather than to advance “specific negotiating proposals”.Footnote ³⁵ While the non-paper repeatedly emphasizes that the USA has “no preconceived views on best approaches, or on whether negotiations on specific aspects of e-commerce should be pursued, and if so on what bases”,Footnote ³⁶ many of the examples raised in the paper reiterated the US proposals in the negotiations of the Trade in Services Agreement (TiSA) and Trans-Pacific Partnership Agreement (TPP) and brought into the WTO new issues such as free flow of data, bans on data localization and forced transfer of source code for the first time.Footnote ³⁷

The US submission spurred a new wave of activity from other members, with major players such as Japan, the EU, Brazil, Canada and Singapore all making submissions within the same month.Footnote ³⁸ The work intensified over the next sixteen months, and at the 11th Ministerial Conference held in December 2017 in Buenos Aires, seventy-one members led by three co-conveners – Australia, Japan and Singapore – launched a joint statement to “initiate exploratory work together toward future WTO negotiations” on e-commerce.Footnote ³⁹ Nine meetings were held in 2018, and the negotiations were finally launched by seventy-six members at the side-lines of the World Economic Forum Annual Meeting in Davos on 25 January 2019.Footnote ⁴⁰

Initially, China was quite reluctant to support the launch of e-commerce negotiations. In its first submission on e-commerce at the WTO, China tried to pre-empt the upcoming e-commerce negotiation in several ways.Footnote ⁴¹ First, reflecting its long-standing position that only goods-related e-commerce issues should be discussed, China proposed, at the outset, that the scope of e-commerce discussions should “focus on promotion and facilitation of cross-border trade in goods enabled by internet, together with services directly supporting such trade in goods, such as payment and logistics services”.Footnote ⁴² Second, China also indicated that it was not ready to negotiate new rules for e-commerce by stating that e-commerce discussions are “to clarify and to improve the application of existing multilateral trading rules”, which are normally understood not to include issues such as free flow of data, data localization, etc.Footnote ⁴³ Third, China also tried to prevent e-commerce negotiations from being used as a Trojan horse for “new market access commitments including tariff reductions”.Footnote ⁴⁴ By taking out new rules and new tariff concessions, the Chinese submission then spelt out the only issues China might be willing to consider: trade facilitation, transparency, digital certificates, electronic signatures, electronic authentication and consumer protection and privacy.Footnote ⁴⁵ The same elements were reiterated in China’s submission to the General Council and the three subsidiary councils on the General Agreement on Tariffs and Trade (GATT), GATS and Development in October 2017, which deemed these issues as “elements acceptable to Members”.Footnote ⁴⁶

Trying to steer the course on e-commerce negotiations at the Ministerial Conference, China even submitted a draft Ministerial Decision on Electronic Commerce, which suggested continuing the work under the Work Programme on Electronic Commerce in the General Council, while raising the possibility of reinvigorating the dedicated discussions on “elements acceptable to Members” such as “facilitating cross-border e-commerce; promoting paperless trading; transparency; as well as development and cooperation”.Footnote ⁴⁷ Most of the draft made its way into the final Ministerial Decision,Footnote ⁴⁸ prompting Chinese Ministry of Commerce (MOFCOM) Vice Minister Wang Shouwen to boast that “China has become a participant and even leader in rule-making”.Footnote ⁴⁹ However, by abandoning the consensus-based approach and launching the JSI via the plurilateral route, the USA and the other seventy members have turned China’s success into a pyrrhic victory.

In a way, the e-commerce Joint Statement caught China by surprise. For China, the most important issue at the 11th Ministerial Conference was investment facilitation, which China has been pushing for at the WTO since 2014 as the coordinator of the group on “friends of investment facilitation for development”.Footnote ⁵⁰ Designed to provide support for its Belt and Road Initiative, China successfully persuaded seventy WTO members to co-sponsor a Joint Statement on the issue.Footnote ⁵¹ While China was also interested in e-commerce, its main task at the 11th Ministerial Conference was to push the WTO and World Economic Forum to officially endorse the “Enabling e-commerce” initiative – the brainchild of the Alibaba-backed eWTP – a mission that was also accomplished.Footnote ⁵² In contrast, the e-commerce Joint Statement, as a US-led initiative, made China quite wary.

Thus, many observers were surprised by China’s “last-minute” decision to join the 2nd e-commerce Joint Statement on 25 January 2019.Footnote ⁵³ However, a careful reading of the events in 2018 still reveals many hints explaining China’s shift. After the 11th Ministerial, the sponsors of the e-commerce Joint Statement did not waste any time in getting to business and held nine meetings over the short span of one year. Such a frenzy of activities was unheard of in the WTO and proves that they are quite serious. Moreover, the key players in the e-commerce Joint Statement – the USA, the EU and Japan – kept referring to e-commerce in the three trilateral statements on WTO reform they issued in 2018.Footnote ⁵⁴ In the last one issued in September 2018, they further agreed to “intensify and accelerate this process” to achieve “the timely launch of negotiations of a high standard agreement with the participation of as many members as possible”. Three more trilateral statement were issued after 2018, with the latest one being issued on 14 January 2020.Footnote ⁵⁵ All these developments reminded China that the e-commerce Joint Statement parties are taking the issue very seriously and China could not just ignore it. Indeed, China learned its lesson the hard way when its attempt to join the TiSA negotiations was blocked by the USA, making it impossible for China to shape the rules on services trade, where e-commerce was a major issue.Footnote ⁵⁶ The first indication of the policy change can be detected when China released its position paper on WTO reform on 23 November 2018.Footnote ⁵⁷ While the position paper took the cautious approach and did not explicitly mention e-commerce, at the press conference held on the same day, Vice Minister Wang made a direct reference to e-commerce in response to a question from a journalist for examples on how to “keep the WTO rules relevant”, a key objective for China in WTO reform.Footnote ⁵⁸

After China joined the 2nd e-commerce Joint Statement on 25 January 2019, Chinese WTO Ambassador Dr Zhang Xiangchen also gave an official explanation for the shift in position.Footnote ⁵⁹ First, referring to the critical juncture the WTO was at, Zhang pointed to the special significance the launch of the e-commerce negotiation could have in reinvigorating the negotiation function of the WTO and boosting people’s confidence in the multilateral trading system and economic globalization. Second, Zhang also regarded China’s participation as a good opportunity for it to play an active role in the negotiations, especially in reflecting the participation of developing countries and designing a flexible framework to reflect the reasonable demands of different parties.

For long-time observers of China’s trade policy, such shifts in position are not unprecedented. For example, in the early stages of the Doha Round negotiations, China sided with developing countries. Before the Cancun Ministerial Conference in September 2003, China and sixteen other developing countries formed the “Core Group”, which resisted the push by the “Colorado Group” of developed countries to start negotiations on the Singapore issues including trade facilitation.Footnote ⁶⁰ However, when the General Council decided to start negotiations on trade facilitations on 1 August 2004, China became an active participant.Footnote ⁶¹ This makes sense because China, as one of the top exporters in the world, would benefit from more efficient and cheaper customs processes.Footnote ⁶² Like trade facilitation, China’s decision to join the e-commerce negotiations demonstrated once again its flexibility when it comes to specific trade issues and its willingness “to take up commitments commensurate with its level of development and economic capability”, as stated in its position paper on WTO reform.Footnote ⁶³

III The Chinese Proposals

From an initial group of seventy-six members in January 2019, the JSI has grown to include eighty-six members as of 1 April 2021, with Ecuador the newest participant. Together, they represent more than 90 per cent of global trade and over half of the WTO’s membership. In addition, the JSI also remains open for participation by non-members, which include Senegal, the LDC signatory of the Osaka Declaration on e-commerce, which has yet to join the JSI as a formal member.Footnote ⁶⁴

Before January 2019, the JSI was framed around four themes: (1) enabling digital trade/e-commerce; (2) openness and digital trade/e-commerce; (3) trust and digital trade/e-commerce; and (4) cross-cutting issues, including development, transparency and cooperation.Footnote ⁶⁵ During the exploratory discussions held in 2018, each theme was further divided into several sub-themes, resulting in thirteen sub-themes in total. Selected issues and topics were further identified under each sub-theme, resulting in over forty issues in total.Footnote ⁶⁶

Since January 2019, the group has moved on to the plurilateral negotiations phase and the themes were also expanded to include two new ones: (5) telecommunications; and (6) market access.Footnote ⁶⁷ The six themes were further divided into fifteen sub-themes and thirty-five selected issues/topics.Footnote ⁶⁸ In the negotiation process, China has emerged as one of the most active participants with four submissions out of a total of fifty-two substantive submissions so far.Footnote ⁶⁹ As China’s last submission is restricted and only has one page,Footnote ⁷⁰ this section will examine the first three submissions, which provide a detailed account of China’s position.

IV Across the Great Wall

Initially reluctant to join the JSI negotiation on e-commerce over concerns about it being a US plot, China has finally jumped on the JSI bandwagon at its launch in Davos in January 2019 and emerged as one of the most active participants. Such a policy shift is the result of China’s realization that it is important to enhance its rule-making power in e-commerce and cyberspace, as noted by President Xi in his speech at the 36th Collective Study Session of the Politburo.Footnote ⁸⁸

Despite being a world leader in e-commerce, or in China’s own words, “trade in goods facilitated by the internet”, China’s draconian approach to cybersecurity has made people question whether it would make a positive contribution to global e-commerce governance, with some even calling for “disqualifying” China from participation in the JSI negotiation.Footnote ⁸⁹ Indeed, as reviewed earlier in this chapter, while many of China’s detailed proposals, especially those on trade facilitation and consumer protection, seem rather innocuous or even benevolent as they do offer good lessons for developing countries eager to catch the e-commerce train, its proposals on security exception and content review do raise concerns on whether China would be willing to accept the main demands of the USA and other Western countries; that is, free flow of information across border; free and open internet; and prohibition of localization requirements, forced technology transfer and transfer of source code.Footnote ⁹⁰

However, all these considerations do not necessarily have to spell the end of China’s participation in the JSI, especially if one takes a closer look at the nuances of the contrasting positions between China and the West. Here I will illustrate the potential for compromises with a few key examples.

I Introduction: Could China Prevail as Architect of the Emerging Global Knowledge Infrastructure?

By 2020, there was no denying that the USA and China were engaged in a full-fledged trade war. A long, slow narrative arc that began with the rise of Japan, followed by South Korea, Taiwan, Hong Kong, Singapore and finally China as export-oriented economies with the support of the USA and other Western nations, appeared to be winding up for good. With the loss of this narrative, the likely future trajectory of global economic activity will become more difficult to predict. A nation’s progress from economic backwardness through late development or catch-up industrialization strategies to middle-income or beyond could be mapped out relatively easily. The foundation of comparative advantage appears to be shifting from Industrial Revolution business strategies to business strategies emerging from the crucible of “digital transformation,” but the winning formula for success in the new global information economy is not yet clear. The world trade system itself, so painstakingly assembled in the decades following World War II, appears to be unraveling, making it even harder for individual nations or enterprises to pinpoint future sources of global competitive advantage with any certainty.

Where some commentators might have seen an “Information Revolution” following the Industrial Revolution, others now believe they can discern a “Knowledge Revolution” gaining momentum. In 2003, the neoliberal international relations theorist Joseph Nye observed, “The current information revolution is based on rapid technological advances in computers, communications, and software that in turn have led to dramatic decreases in the cost of processing and transmitting information.”Footnote ³ A few years earlier, however, the so-called Father of Post-War Management ThinkingFootnote ⁴ Peter Drucker suggested the transformation was more radical than that:

Technological advances including advances in data science, artificial intelligence (AI), machine learning, cloud computing, the Internet of Things, mobile computing and social production are all fueling this Knowledge Revolution. The consulting firm Gartner has grouped these advances together and labeled the bundle a “nexus of forces” that is transforming the “infrastructure of civilization.”Footnote ⁶ While the economic rivalry between the USA and China is intensifying across many industries, it may be most intense in the struggle for control over the emerging global information architecture emerging out of this “Knowledge Revolution.”

In order to distinguish a Knowledge Revolution from an Information Revolution, it is first necessary to distinguish knowledge from information. Data is generally thought of as records of simple factual observations, while information is data that has been organized and combined within structures to create meaning, with knowledge arising when meaningful information is contextualized in a form that can be used to solve problems. Knowledge viewed from this perspective may be thought of as the “strategic competence” of being able to discern “what one needs to know and remember what one ought to remember” through the application of a sense-making framework.Footnote ⁷

On the question of whether a Western nation such as the USA or a non-Western rival such as the China would most likely prevail in the contest to lead the Knowledge Revolution now unfolding, the conventional wisdom among most Western observers seems to be that the odds are stacked in favor of the West. Western nations can claim to be the source of the Enlightenment’s Scientific Revolution as well as liberal institutions such as free markets, representative democracy and the rule of law. Far from being perceived as a hotbed of innovation and entrepreneurship with the capacity to rival the USA in the production of knowledge, China is frequently viewed in the West as “totalitarian,” which is the antithesis of a liberal society. In 2020, a conservative American think-tank asked, “Is China Totalitarian?” and answered in the affirmative:

In its World Report 2020, Human Rights Watch reached a similar conclusion.Footnote ⁹ Even more neutral commentators feel justified in making oblique references to China’s totalitarian character:

Given that authoritarianism generally refers to the harsh rule of a strong state that is not accountable to its citizens while totalitarianism generally refers to the use of political terror and an all-embracing ideology to politicize all aspects of life and subordinate all citizens to the state,Footnote ¹¹ China’s critics might more accurately characterize it as authoritarian rather than totalitarian.

Whichever nation can foster the greatest “strategic knowledge competence” among the largest number of its citizens is likely to emerge as the leader of the global Knowledge Revolution. Whether it is more accurate to characterize China today as totalitarian or merely authoritarian, few China watchers appear convinced China will be able to overtake the West in the production of knowledge. In 1945, Frederick von Hayek contrasted the kind of formal, scientific knowledge that technocrats could centralize and control with the decentralized, unorganized kind of “knowledge of particular circumstances of time and place” that technocrats cannot easily control but that individuals actually use to solve the concrete problems they face.Footnote ¹² Societies controlled by unaccountable elites might be able to surpass more democratic societies in the production of technocratic knowledge, but more democratic societies seem more likely to produce more of the kind of practical knowledge Hayek believed would translate into greater market competitiveness. For example, firms in China with more than fifty employees are required to have a Chinese Communist Party (CCP) representative, while companies with more than a hundred employees are required to have a CCP cell.Footnote ¹³ Individuals who know these representatives and cells are being used to monitor their words and conduct may curtail their efforts to produce “knowledge of particular circumstances” in order to reduce the risk they might suffer negative consequences for inadvertently violating some CCP norm. The use of highly pejorative terms such as totalitarian when less pejorative terms such as authoritarian might be more accurate suggests how deeply some of China’s Western critics are discounting the possibility that China might prevail over the West by cultivating greater “strategic knowledge competence” among its citizens.

Some other China watchers in the West, however, have detected evidence that the number of Chinese citizens and enterprises developing knowledge as a strategic competence may be growing rapidly. Taiwan-born entrepreneur and research scientist Lee Kai-Fu has described the emergence in China of many unique and highly forms of disruptive innovation that are enjoying phenomenal success in China and around the world.Footnote ¹⁴ For example, because digital entrepreneurs in China face the same threat of software piracy as foreign firms, they quickly learned that any competitive advantage gained on the basis of the kind of “pure play” Internet business model favored by Western technology entrepreneurs was unlikely to be sustainable. So they responded to local market conditions by developing the “online-to-offline” (O2O) business model in order to mitigate intellectual property piracy risks. The “O2O Revolution” in China is made up of firms that invest in physical assets such as delivery vehicles and staff such as drivers to provide more than a digital experience to their users, which in turn creates barriers to market entry. Management consultant Edward Tse highlights the resilience of many Chinese entrepreneurs in a legal environment for business that provides them with considerably less predictability than their Western counterparts enjoy.Footnote ¹⁵ Tse believes that China’s domestic disruptors such as Alibaba, Tencent, Xiaomi, Haier and Huawei often triumph over their foreign rivals not because they are sheltered by protectionist government policies, but because they are better than their foreign rivals at accelerating decision-making, increasing flexibility and continually updating products and capabilities. Political scientist Douglas Fuller has identified a “global hybrid” model of innovation that outperforms purely foreign or purely domestic firms by combining overseas Chinese management talent and foreign financial capital with responsiveness to domestic government policy and global market conditions.

This chapter will consider how nations’ pursuit of competitive advantage might unfold within the context of a global Knowledge Revolution, and how China might triumph in a contest among nations to foster the greatest “strategic knowledge competence” among the largest number of citizens. The victor in that contest would be well positioned to lead the design of the global knowledge infrastructure being produced by the “nexus of forces” of digital disruption. The competition between the USA and China to lead the design of the next great global knowledge infrastructure can be compared to the nineteenth-century “land rushes” the USA used to open land in the Oklahoma Territory to white settlement, and to the first great global knowledge economy “land rush” triggered by the commercialization of the Internet in the late 1990s. The vulnerability of the current international trade law regime to disruption by China’s efforts to disseminate its own legal and values culture through global networks and platforms is considered next, and placed within the context of China’s distinctively pluralist legal culture. The chapter concludes that it may not be in the self-interest of Western nations to discount too heavily the possibility that China might ultimately prevail in its efforts to preempt the USA from the role of lead designer of the next great global information infrastructure.

II A Knowledge Revolution May Trigger a Global Information Infrastructure Land Rush

Between 1889 and 1895 in what later became the state of Oklahoma, the US General Land Office carried out seven “land rushes” to allocate land to white settlers.Footnote ¹⁷ Settlers could claim lots of up to 160 acres of land and if they lived on the land and farmed it, they could acquire title to it after five years. For a variety of reasons, including endless litigation between “boomers” who claimed land after the official start of the land run and “sooners” who had snuck in before the official start, the process was never repeated in any other American territory following the settlement of Oklahoma. But the general idea of a “land rush” or “land run” remains seared into American cultural memory and provides an apt metaphor for the emerging superpower contest to lead the development of the next great global knowledge architecture.

The first great global knowledge infrastructure competition reminiscent of an Oklahoma land rush began in the early 1990s as network engineers began to reject the International Organization for Standardization (ISO) Open Systems Interconnection (OSI) model for a comprehensive global information architecture in favor of the much simpler TCP/IP (transmission control protocol/internet protocol) standard that defines the Internet.Footnote ¹⁸ The US Department of Defense’s Advanced Research Projects Agency (ARPA) had begun testing designs for a “packet-switched” network (i.e., not “circuit-switched” like a telephone network) in 1969. In 1972, the “International Network Working Group” (INWG) was launched by European and American research scientists and network engineers with the mission of developing a global data networking standard to complement global telephone networking standards. The efforts of ARPA and INWG to develop a standard for computer networks proceeded collaboratively for a few years, but bifurcated around 1976. European research scientists and network engineers then helped to launch a broad, collaborative, international effort that turned into the ISO OSI project, while the American research scientists and network engineers worked within ARPA and with support from the US Department of Defense. In 1983, the “Internet” was born when the US Department of Defense began requiring the use of the TCP/IP networking standard within the growing community of academic researchers and defense contractors it was funding. By the early 1990s, the OSI project got bogged down in the effort to build an international consensus in support of a comprehensive framework of standards while the more narrowly scoped TCP/IP project powered ahead with actual adoptions among a growing number of public and private sector users in the USA and around the world.

When the US National Science Foundation turned over maintenance of the “backbone” of the global data network defined by the TCP/IP standard to the private sector in 1995, its Acceptable Use Policy prohibiting commercial use of the Internet was officially terminated, and the global internet commerce “land rush” took off. Because American academics, businesses and government agencies already had a decade or more of experience working with the Internet on the day the Internet land rush started, they enjoyed an enormous competitive advantage over their foreign counterparts in countries whose academics, businesses and government agencies had been working on the OSI standards.

Once it was obvious that the American solution would prevail over the multilateral solution developed under the aegis of international standards bodies such as the ISO and the International Telecommunications Union (ITU), other nations have repeatedly, but so far unsuccessfully, attempted to wrest control over the Internet from the USA. When other Western nations began threatening in the 1990s to challenge US control of the Internet, the USA responded in 1998 by establishing the Internet Corporation of Assigned Names and Numbers (ICANN), a California nonprofit corporation, to act as a global, multistakeholder forum within which Internet governance issues could be resolved under the watchful eye of the USA. In 2003 and 2005, the United Nations organized the World Summit on the Information Society in an effort to address digital divide issues and promote inclusive global internet governance strategies. Many critics of the dominance of US interests in global internet governance demanded that authority over the Internet be turned over to the ITU to manage together with the global telephone system, a suggestion the USA flatly rejects whenever it is made. The US response to both summits was to reaffirm its commitment to letting the private sector lead the development of the global information architecture, to retain US control over the “root servers” that provide the foundation for the global domain name system, and to ignore criticism of its influence on governance matters.Footnote ¹⁹ Because the Internet was not designed to accommodate censorship, countries that do not welcome the influence of American values in their societies – including in Bahrain, China, Iran, Russia, Saudi Arabia, Syria, Turkey and the United Arab Emirates – have been forced to construct and operate their own filtering systems to block their citizens’ access to internet content they find objectionable.Footnote ²⁰

The Internet today remains a global network of networks that all make use of TCP/IP communications protocols for interoperability. Global support for the Internet notwithstanding, these controversies are due in part to the positive “network effects” consumers around the world enjoy from using it. A network may be defined as:

A network effect is one example of a market “externality” (i.e., a cost or benefit not reflected in a product’s price). A positive network effect arises when the value to a consumer of a network increases the more other consumers use the same network. The popularity of telephones, fax machines, personal computers and email is due in part to positive network effects.Footnote ²² Price competition among producers of interoperable goods and services that make up a network may benefit consumers if a network is defined by open standards rather than closed proprietary solutions.Footnote ²³

Economists studying networks and network effects coined the terms “first mover advantage” and “increasing returns to scale” to describe the distinctive features of competition carried out in markets defined by interoperability standards compared to competition in markets for natural resources or for agricultural or industrial products.Footnote ²⁴ Because individuals are often not motivated to join new networks until enough other users have joined to create positive network effects, the promoter of a new network often faces a “chicken and egg” problem of how to attract new users before a critical mass of users can be enrolled. The so-called first mover advantage arises once a network has been successfully launched, making its users reluctant to migrate to a new network until it is certain that all other users will also migrate. Users of an existing network may find themselves “locked in” to that network if promoters of a new network cannot persuade enough users to leave the existing network. One way to diminish the risk of lock-in to a single proprietary network service provider is to define networks with “open” interoperability standards. This permits many competing firms to participate in the operation of a network simultaneously without fragmenting the network and diminishing the positive network effects users enjoy while at the same time securing for users the benefits of competition among network service providers.

If the operator of a successful network can also launch a “two-sided market” (also known as a “multisided market” or a “multisided platform”) that runs on the network, this may amplify the market power of the operator.Footnote ²⁵ A simple model of a multisided platform is a two-sided market where the participation of two very different groups, each subject to very different terms and conditions, sustains the market. Traditional newspaper publishing is an example of a two-sided market with readers being one “side,” advertisers being the second “side” and the newspaper publisher acting as the “platform operator.” Traditional stock markets such as the New York Stock Exchange can also be thought of as a two-sided market, bringing together companies issuing securities and investors buying securities, with the issuers subsidizing access by investors. Multisided platforms may bring together three or more distinct groups: LinkedIn is a three-sided platform organizing different experiences for individuals, recruiters and advertisers, while Microsoft Windows operates as a three-sided platform for individuals, equipment manufacturers and third-party software developers.Footnote ²⁶ Google’s Android mobile ecosystem has many different sides including users, telephone manufacturers, third-party app developers, network carriers and advertisers.Footnote ²⁷

Although two-sided, or multisided, markets exist apart from ICT networks, many of the most successful global information economy enterprises – such as Google, Apple, Facebook, Amazon, Microsoft, Netflix, Airbnb, Uber, Salesforce, eBay, Twitter, Alibaba, Tencent, Baidu and Xiaomi – operate as digital platforms. In order for a multisided market to operate successfully, the platform operator must devise a pricing strategy that maximizes the commitment of both sides to the success of the platform. Newspapers traditionally charged advertisers high prices for access to readers, and used those advertising revenues to subsidize readers. A successful platform pricing strategy normally imposes high prices on the side that is most committed to the success of the platform and uses low or subsidized prices to attract less committed users.

While one way to think about digital platforms is as private marketplaces, they can also be thought of as private regulators or governance systems.Footnote ²⁸ Just as territorial sovereigns can tax citizens either for the benefit of the sovereign personally or to defray the cost of providing public goods to citizens, successful digital platform operators may charge one or more groups of users prices fixed high above their production costs either to provide a return to their investors or to subsidize the cost of providing the platform as a public good to members of a different group. This ability of very successful platform operators to charge high prices to some groups of users for long periods of time, combined with the dearth of European digital platforms, has incited European competition regulators to target them for heightened scrutiny and enforcement efforts.Footnote ²⁹

Up to this point, the public-facing efforts of governments to project their authority into the global internet have tended to focus on publishing information for citizens, and providing access to government-to-citizen or government-to-business services rather than trying to establish a public sector multisided platform. However, the economic logic of positive network effects and the capacity of multisided platforms to operate as self-sustaining governance mechanisms could just as easily serve public sector goals as private sector goals. A few countries such as Singapore have begun to operate sophisticated portals for government services that integrate a wide range of public sector services into an accessible dashboard that might one day evolve into a public sector multisided platform. The service today known as “National Trade Platform” (NTP) in Singapore was originally launched in 1989 with the goal of reducing barriers to cross-border trade. Singapore’s NTP may be among the most mature and successful “platforms” for the delivery of government services in the world, but even the NTP has not yet publicly embraced the “multisided platform” model to expand its reach.

One of the few positive developments to emerge from the generally disappointing conclusion of the World Trade Organization (WTO) Doha Round of negotiations was the Trade Facilitation Agreement (TFA) in 2017.Footnote ³⁰ With the TFA, WTO members commit to “the simplification, modernization, and harmonization of export and import processes.”Footnote ³¹ Because the primary focus of the WTO TFA is on narrow operational issues such as the creation of national “single window” trade facilitation systemsFootnote ³² rather than broader economic issues, it might inadvertently serve to accelerate the creation of global digital trade facilitation platforms. The term “single window” in this context might best be understood as referring to a portal or channel through which communications between public and private sector parties might flow more easily. The Singapore NTP trade portal is a good example of such a single window system: it provides importers and exporters with a single point of contact with Singapore regulators.

Once enough national single window systems are up and running, the focus of WTO members will eventually turn to the kind of interoperability issues involved in transforming national systems into a multisided global digital trade facilitation platform. Some WTO members may be able to shift their focus to these interoperability issues before others. In 2019, the Asia Pacific Economic Cooperation (APEC) Committee on Trade and Investment (CTI) benchmarked the efforts of APEC members to adopt interoperable single window systems.Footnote ³³ The APEC CTI found that Association of Southeast Asian Nations (ASEAN) members and Pacific Alliance members had achieved the highest level of its “capability maturity model” and so could support cross-border interoperability.

Some private sector efforts to launch true multisided trade facilitation platforms have also begun to gain some traction. In 2017, Alibaba and other stakeholders in China partnered with the government of Malaysia to launch the Electronic World Trade Platform (eWTP),Footnote ³⁴ and by 2020, Belgium, Ethiopia, Rwanda and Thailand as well as the Chinese cities of Hangzhou and Yi Wu were participants.Footnote ³⁵ In 2018, the Singapore information technology company vCargo Cloud announced the launch of its CamelONE trade facilitation platform.Footnote ³⁶ By 2020, the CamelONE trade facilitation platform was offering logistics and trade finance services through Singapore’s NTP with the support of the Monetary Authority of Singapore.

It has not yet become clear which nation or region will be in the best position to seize the “first mover advantage” in the new global knowledge economy land rush triggered by disruptive “nexus of forces” innovations. The USA is unlikely to be deposed as chief architect of the global knowledge architecture merely by the kind of efforts undertaken so far by individual enterprises such as China’s Alibaba or Singapore’s vCargo Cloud, or regional associations of emerging economies such as ASEAN or the Pacific Alliance to promote the interoperability of national single window projects. By contrast, it is possible the USA could be deposed by a concerted effort by China. The remaining sections of this chapter will examine different factors likely to contribute to the leadership of the global knowledge economy remaining under Western control or coming under China’s control.

III The Role of Artificial Intelligence in the New Legal Order of Uncertainty in World Trade Law

As the trade war between the USA and China erupted in 2018, one pessimistic commentator announced the death of the WTO.Footnote ⁴⁰ By 2020, the dire predicament of the WTO had become obvious to even casual observers.Footnote ⁴¹ In 2018, President Trump announced he would block the appointment of judges to the WTO Appellate Body, and by 2020 it could no longer accept any new appeals because there were no longer enough judges left to form new review panels.Footnote ⁴² As the WTO and the legal order it anchors are increasingly hobbled by the indifference or even hostility of some of the very world powers that were once its staunchest defenders, all participants in the world trade system now confront a new legal order of uncertainty. The emerging superpower contest between the USA and China to lead the development of the next great global knowledge architecture will likely be fought out within this terrain of legal uncertainty.

Although the WTO’s many detractors do not all agree on what is wrong with it, some of its shortcomings are alleged to include the way intellectual property rights are currently handled, the unequal allocation of costs and benefits of trade liberalization within national economies, and the apparent ability of a few countries such as China to extract disproportionate benefits under the current regime.Footnote ⁴³ (The perception that China is uniquely positioned to exploit the current world trade system is, of course, relatively recent, given that Chinese accession in 2001 was conditioned on its agreement to exceptionally onerous concessions.Footnote ⁴⁴) While some manifestations of the emerging global knowledge economy – such as intellectual property rights or telecommunications – may clearly be governed by the international law regime governing trade, others – such as data flows or the market power of digital platforms – are not. After the Doha Round ended in stalemate and the USA withdrew from negotiations on regional trade agreements such as the Trans-Pacific Partnership Agreement, it is unclear how the WTO system can address any of the most serious criticisms leveled against it or respond to new challenges such as AI.Footnote ⁴⁵

One commentator has suggested that any new order of international trade law shaped by China’s primacy in the global economy will likely retain many features of the old order:

Given the enormity of the differences between law in China and in Western nations, as China’s influence in shaping international trade law and legal institutions continues to increase, the result is nevertheless also likely to be increased legal uncertainty for Western nations.

Just as the current WTO regime has its strengths and weaknesses, an international trade law regime influenced by Chinese law and legal institutions would also have strengths and weaknesses, although the strengths of such a system might not be readily apparent to China’s detractors. This is in part because China has explicitly committed to the pursuit of “rule by law” rather than the “rule of law” as that term is understood among practitioners of public international law.Footnote ⁴⁷ The policies and procedures of the CCP can be understood as a source of law in China somewhat like customary law, although much more authoritative.Footnote ⁴⁸ As constitutional law expert Xu Xianming explained in 2017, “The Communist Party is simultaneously in the law, under the law and above the law.”Footnote ⁴⁹ The government of China, including its formal legal institutions, cannot serve as the ultimate repository of political power because the CCP enjoys a special status somewhat like “first among equals.”Footnote ⁵⁰ Within this hybrid “political-legal” order, the exercise of judicial power by the courts is protected from interference from other branches of government, social organizations or individuals, but not from the Party.Footnote ⁵¹

Compliance with law, whether international or municipal, may be seen as a function of the severity of the consequences for noncompliance combined with the probability of those negative consequences being meted out.Footnote ⁵² If China can succeed in projecting its regulatory culture into global arenas by influencing the design of the next great global knowledge architecture just as the USA did with the Internet, then distinctively Chinese mechanisms for monitoring compliance with law might come to assume a greater role in international trade law. Furthermore, China is in the midst of developing just such a distinctively Chinese framework for monitoring compliance with law: the China social credit system (CSCS).

Under the CSCS, PRC government agencies are permitted to share data on compliance by individuals, companies and social organizations with various laws and regulations, and can place the names of serious offenders and serial scofflaws on blacklists and subject them to various restrictions on their activities. The regulators using the CSCS to increase the effectiveness of their enforcement efforts include those dealing with taxation, the environment, transportation, food safety and foreign economic cooperation, as well as the execution of court judgments.Footnote ⁵³ While in 2018 some commentators were unable to detect a significant role for AI in the CSCS,Footnote ⁵⁴ subsequent commentators have concluded that AI already plays an important role in CSCS.Footnote ⁵⁵ Given the great success enjoyed by AI applications in credit evaluation in the West,Footnote ⁵⁶ and the centrality of AI generally in the Belt and Road Initiative (BRI) and China’s domestic economic development programs, it seems safe to assume that the role of AI within the CSCS will increase in the future.

Coverage of the CSCS in Western media often exaggerates its technological sophistication and the degree to which its different elements are integrated, resulting in intense criticism of what is presumed to be its profoundly dystopian nature.Footnote ⁵⁷ What goes by the name CSCS is not a single, monolithic organization but rather a collection of different policies and pilot programs designed to increase the negative consequences of not complying with legal obligations or well-established social norms as well as the positive consequences of conscientious compliance with law and important social norms.Footnote ⁵⁸ Viewed from this perspective, the CSCS can be understood as a collection of government interventions designed to correct some of the “social traps”Footnote ⁵⁹ that plague Chinese society today. Social traps in social domains are analogous to market failures in economic domains, and thus something that carefully targeted government intervention might remedy or at least neutralize.

China has already begun to extend the reach of the CSCS internationally within the BRI framework.Footnote ⁶⁰ If China succeeds in integrating AI into its legal institutions, whether through the expansion of the CSCS or otherwise, as well as in embedding its legal values in a global digital trade facilitation platform, Western nations may find the resulting new global order of international law not merely uncertain but alarming as well. Yet such an evolutionary development is consistent with Western notions of transnational law as contested, dynamic and provisional, continuously emerging partially formed from incomplete resolutions to conflicts arising within and across different legal domains.Footnote ⁶¹

Sociologists use the term “institutional isomorphism” to describe a process whereby different organizations come to resemble each other, and recognize coercive, normative or mimetic variations.Footnote ⁶² Coercive isomorphism compels conformity while normative isomorphism involves the dissemination of rules through the work of professionals. Mimetic isomorphism is produced by the voluntary copying of features of an institution that are perceived as beneficial. While China’s detractors may believe that Chinese legal institutions and values could never prevail over their Western counterparts except through coercion, normative and mimetic isomorphism may also contribute to reshaping international trade law into something closer to China’s idea of law. The work of global standard-setting organizations might contribute to the kind of normative and mimetic isomorphism that could expand the influence of Chinese legal values in international trade arenas. It should come as no surprise therefore that China has recently announced its intention to lead the development of global standards for disruptive “nexus of forces” innovations, including AI.Footnote ⁶³

Legal anthropologists have long recognized that treating law as a distinct and separate sphere apart from other human experience cannot produce an accurate account of legal processes. Legal anthropologists may begin their analysis by noting that legal institutions operate on multiple levels simultaneously and that a plurality of legal institutions interact with social structures outside the law in many different ways.Footnote ⁶⁴ These overlapping domains can be referred to individually as “semi-autonomous social fields”Footnote ⁶⁵ or collectively as “legal pluralism.”Footnote ⁶⁶ As Sally Falk Moore explained:

China’s legal system manifests many characteristics of legal pluralism. For example, in 2016, the CCP issued a “Guiding Opinion” declaring that all laws, regulations and public policies should be implemented in a manner that supported appropriate social values, and in 2018 it announced a plan to insure that the core values of socialism are fully incorporated into law.Footnote ⁶⁸ By blurring the boundary between law, politics and morality, China is turning away from the modern notion of morality as a negative domain of unconstrained individual choice and turning toward mobilizing plural sources of law to promote conformity to specific ideas about individual morality. Even if this pluralist model of law is not appealing to China’s critics in the West, it may be appealing to many of the nations in the Global South who wish to emulate China’s economic miracle and do not consider the Western notion of the rule of law a feasible goal for them to pursue.

While those Western knowledge workers most likely to find their working conditions transformed by the rapid expansion of AI are quick to decry the dangers it poses, more level-headed observers consider its potential social benefits together with its potential social costs.Footnote ⁶⁹ The intransigence with which many lawyers in Western nations have resisted dimensions of digital transformation accepted as routine or even necessary by other citizens of Western nations is noteworthy in this regard, and may reveal more about the epistemic culture of the legal profession in the West than the likely impact of AI on human labor.Footnote ⁷⁰ Given their resistance to using lesser forms of automation of knowledge work, it should come as no surprise that Western trained lawyers are strenuously resisting any move away from bespoke production and distribution of legal services.Footnote ⁷¹ By contrast, given China’s interest in transcending Western notions of the rule of law, it should come as no surprise that China is embracing the automation of legal services more enthusiastically than Western nations.Footnote ⁷² If China advances more quickly than the West in finding ways to automate the delivery of legal services, then the systems it develops might incorporate legal pluralist notions more fully than their Western analogs as a result of normative and mimetic isomorphism.

Leaders of nations in the Global South that have not yet embraced the modern Western ideal of rule of law might find attractive an international trade law regime that is both more compatible with their own pluralist legal systems and provides them increased access to global markets by means of a global digital trade facilitation platform. According to the World Bank, China has lifted 850 million of its citizens out of absolute poverty since Reform and Opening began in 1978.Footnote ⁷³ In 2016, in response to the question “Overall, are you satisfied or dissatisfied with the way things are going in our country today?” asked in a survey that the US Pew Research Group carries out annually in China, 86 percent of respondents reported being satisfied.Footnote ⁷⁴ If the nations of the Global South are offered the choice of participating in the conventional Western international trade law regime and a new Sinocentric international trade law regime based on legal pluralism and they conclude they face less risk of regime instability within the Chinese alternative, they might well find the Sinocentric alternative more appealing. If China can draw enough emerging economies into its sphere of influence through its BRI investments, access to CSCS surveillance technologies and more accommodating culture of legal pluralism, that might be enough to tip the balance in China’s favor in the competition to lead the design of the next great global information infrastructure.

IV Conclusion: Whoever Rules the Global Knowledge Infrastructure Rules the World?

As American baseball player, manager and cultural icon Yogi Berra observed, “It’s tough to make predictions, especially about the future.” With the next great global knowledge economy land rush just beginning, one of the few conclusions that can safely be drawn is that many Western observers appear to be discounting too severely the possibility of China’s ultimate success. If the ambition of China’s leaders to regain what they perceive as China’s rightful place at the vanguard of human civilizationFootnote ⁷⁶ can be realized more quickly by harnessing the Knowledge Revolution, then in light of the pragmatism China’s leaders have repeatedly shown since 1978, it is possible that China’s leaders will find a way to overcome any anxieties they may feel about AI and push forward. If China expands the scope of its CSCS initiative to its BRI partners in the Global South, and decides to pursue a first mover advantage by launching the first successful global digital trade facilitation platform, then its investments in AI would serve to reinforce its rise to superpower status.

Just as one of the principal foundations of the British Empire was Britain’s naval power, China may find a way to use superiority in AI as a foundation for its ascent to superpower primacy in the global economy. In 1960, J. C. R. Licklider foresaw the rise of human–computer symbiosis and suggested it should consist of humans setting the goals of technological innovation while machines carry out routine processes.Footnote ⁷⁷ If implementations of AI focus on complementing human labor rather than replacing it and the result is increased productivity, rising earnings and greater demand for labor,Footnote ⁷⁸ then the ability to secure a global competitive advantage in AI might help to decide which superpower emerges victorious from the current contest between the USA and China. And then it could be said that whoever governs the global knowledge infrastructure governs the global economy.

I Introduction

Technology stands to fundamentally change almost every aspect of human existence, with international trade and the international trade law system being no exception. There are two primary ways in which this change is taking place. The first is the capacity of technology to fuel the creation of new goods and services that can enter the global marketplace and be traded with greater speed and ease than their more physically embodied counterparts. The second is the possibility for technology to facilitate the regulation of international trade in ways that are more efficient, cost-effective, and inclusive.

While a considerable amount of attention is paid to this first change – how technology will impact the nature of what is traded – relatively little attention is paid to the way in which technology might change the modes and methods by which trade regulation is achieved. To the extent that future trade regulation has been considered, questions generally focus on how trade rules will change to adapt to technology, by modifying existing rules and including new disciplines.Footnote ¹ So far, there has been no examination of how a future World Trade Organization (WTO) might itself take advantage of technology to restructure how it manages trade and fulfils its mandate. That mandate includes serving as a facilitator of trade agreements and market access negotiations, a forum for resolution of trade disputes, and a watchdog for national trade policies.Footnote ²

Therefore, this chapter will examine current predictions about how the ‘Fourth Industrial Revolution’ will change the nature of trade, and then consider how trade regulation functions currently undertaken by organisations such as the WTO might be undertaken in future. To this end, in Section II the chapter first considers the emergence of a data-driven trade regime, brought about by emergent technologies, particularly artificial intelligence (AI), distributed ledger technologies (DLT, blockchain being a prime example), and the Internet of Things (IoT). In Section III, the chapter will consider how a data-driven trade law architecture might change the way in which the current WTO operates, focusing on issues such as dispute settlement, negotiations, notifications, and monitoring. Section IV concludes.

Before proceeding, it is necessary to stress that this chapter is fundamentally a ‘thought experiment’ – setting aside current technological limitations for consideration of what capacities are predicted to be available in future; setting aside political realities that limit consensus and structural change in favour of considering what could be possible if political will could be guaranteed; and – although it is an extremely important consideration – setting aside the question of the digital divide between well-resourced and less well-resourced states.Footnote ³ While absolutely acknowledging that these are important issues worthy of proper consideration – and that considerations of development deserve primacy in the trade system – they are outside the scope of the present chapter. With freedom from these limitations, it is possible to explore the transformative potential technology could have on a world trade law system for the future, allowing the possibility of future work ‘circling back’ to examine how all states can be supported to share in the potential benefits of both trade and technology.

II Changing Global Trade and the Fourth Industrial Revolution

The nature of trade has changed dramatically since the days of the General Agreement on Tariffs and Trade (GATT), and even since the creation of the WTO, with modern trade being characterised by an ever-increasing services sector and a very substantial increase in global supply chains, where components of goods, and their final assembly, are produced in multiple countries, and multiple cross-border transactions for a single final item are common.Footnote ⁴ The creation of global value chains was very much facilitated by improvements in technology, initially in transport and logistics, but accelerating dramatically with advances in information and communications technology (ICT).Footnote ⁵

In 2015, Klaus Schwab, founder of the World Economic Forum, coined the phrase ‘Fourth Industrial Revolution’ to describe the impact of data-driven technologies that will merge the boundaries between the physical and the digital, the artificial and the biological. Schwab sets out the way in which societies and their economies have been transformed by a successive wave of revolutions. These revolutions were, in order, the change from an agrarian to an industrial society, globalisation, the age of information, and then finally the upcoming Fourth Industrial Revolution. Its hallmark, according to Schwab, will be the seamless melding of technology into every facet of society, making it difficult to distinguish along traditional boundaries the beginning and end of ‘technology’, with progress taking place on a scale and at a pace not previously experienced.Footnote ⁶

There is broad consensus that AI, blockchain, the IoT, and 3D printing are the emerging innovations most capable of fundamentally changing the nature of international trade.Footnote ⁷ These technologies will create new or reconceptualised products that can be traded, such as autonomous vehicles, intelligent robots, and nanotechnology-containing products, along with a multitude of services that will come to dominate the global market. This ‘new wave’ of services and goods will raise fundamental questions for the content of the trade rules, for example the nature of the regulatory division between goods and services,Footnote ⁸ the adequacy of existing trade rules to protect new forms of intellectual property,Footnote ⁹ and questions of trade, privacy, and data protection.

As a result, WTO rules will need to be adapted to incorporate and address new types of products and services, to advance agreement on trade-related aspects of e-commerce, to address rights and obligations in relation to flow of data, and to review agreements such as the GATS to make it adequately technologically neutral.Footnote ¹⁰ Technological change has also caused new issues for dispute settlement, with the WTO noting that ‘[a]s international trade increasingly involves both digital products and digital methods of transmission and delivery, the WTO dispute settlement system has increasingly found itself tasked with resolving disputes related to aspects of the digital economy’.Footnote ¹¹ An example of the difficult questions that can arise without a clear legal framework for new technologies is EC – Computer Equipment, which required determination of whether products such as network cards fell within the European Communities’ tariff schedule for ‘automatic data-processing equipment’.Footnote ¹²

The following subsection A explores how technology will continue to challenge and change the international trade system generally, and more specifically in relation to transformational technologies such as AI. However, as this chapter argues, focusing just on how trade patterns will change, or even how the content of trade rules will change, is only part of the bigger picture. Attention also needs to be given to how trade organisations themselves can and must change to adapt to technology.

III Data-Driven Trade Law Architecture

As this chapter has explained, a data-driven world of trade is emerging, and emerging rapidly. Some impacts of these changes are clear, such as the changing nature of trade itself, intensification of the shift from trade in goods towards trade in services and intellectual property, and erosion of their definitional barriers, the need for data regulation that balances competing interests of rights and obligations, and new, complex questions about human rights and trade.Footnote ³⁴ For the WTO, these changes necessitate rethinking substantive trade rules and the creation of new rules, advancing its work programme on e-commerce,Footnote ³⁵ and working with other organisations such as the United Nations Commission on International Trade Law to ensure that suitable e-commerce regulations are in place. At the same time, states with a particular national interest in technology are advancing digital trade provisions on their own terms through bilateral and regional agreements.Footnote ³⁶

As indicated earlier, there is potential to use the same technologies that will transform trade and trade rules to transform the functions and operations of the WTO. At a time when many are critical of a lack of progress in multilateral trade fora, with some attributing aspects of the problem to the organisation and its mandate rather than the behaviour of its members, it becomes particularly important to consider what might be done better in an organisation.Footnote ³⁷

One part of the puzzle when exploring how the WTO might embrace the possibilities of transformative technologies is to consider where in the trade ecosystem key activities are taking place, and the challenge is how and on what terms an international organisation can engage. As the examples in this chapter have shown, projects such as Tradelens are driven by large, multinational corporations – in this case, IBM and Maersk – to create an open standard platform that has built a ‘trade ecosystem’, which in its own words is a ‘global network of interconnected shipping corridors [that] will link ports and terminals, authorities, ocean carriers, inland transportation, 3pls, shippers, and other actors’.Footnote ³⁸ While Tradelens already has government bodies as part of its ecosystem, it does not envisage an obvious role for the WTO. Similarly, Boston Consulting Group produced a comprehensive White Paper examining how ‘data field interactions’ could be optimised to harmonise the flow of information between participants in the trade process. Their mapping of ‘players’ included five different types of parties – corporates (importers and exporters); banks; facilitators such as insurers and freight forwarders; disruptors such as tech companies; and ‘governing bodies’, which they specify as including the importing and exporting customs services. This is a very telling ‘lens’ through which trade is analysed by the commercial sector – in addition to being transaction driven, international organisations do not feature strongly, let alone convey a clear sense of how the WTO fits in.Footnote ³⁹ While they identify the importance of standards and interconnection protocols, there is no clear sense of the regulatory role that the WTO and the international community as a whole plays now and could play in future. This type of analysis shows the importance of enhanced effort by the WTO to be involved in these types of conversations, and to consider its own initiatives to generate global platforms.

Therefore, the remainder of this chapter takes up the challenge of considering how the WTO might reconfigure its management of trade, providing an audit of a range of areas in which change – some radical, some less radical – could allow the WTO to better facilitate future trade. Below are ten ideas to illustrate the range of potential changes that could be possible (again, reminding readers of the ‘thought experiment’ provisos set out in the introduction to this chapter).

1. 1. Better negotiations – and fewer. The complexity of multilateral market access negotiations is due in part to the number of participants and the difficulty of modelling outcomes from different scenarios. AI is capable of producing sophisticated optimisation models to cross-reference market gains and suggest concessions that could be made by WTO members, modelling trade creation and trade deviation to optimise overall trade benefits.Footnote ⁴⁰ Data could be more easily correlated from different private and public sector sources to enhance its reliability, and better model the distributional effects of proposed changes. As member acceptance of use of algorithms increases, it would be possible for members to agree in advance to be bound by algorithmic determinations of market access, and for these to be automatically generated under the auspices of the WTO with automatic entry into effect. This stands to benefit smaller and more vulnerable states who are negatively impacted by the politicisation of the process.

2. 2. Better data on real-world compliance. The design of the WTO Dispute Settlement System requires a state to take on what is likely to be a grievance of one or more of its private corporate citizens. The political reality is that most failures to comply with WTO rules will not result in dispute unless the breach is substantial and systematic. However, this gives a very distorted picture of real levels of compliance with WTO law across the board – especially on applied tariff rates, quotas, sanitary and phytosanitary measures, and trade remedies. A data-driven trade organisation that is able to harness the ‘big data’ of international trade derived from business and government sources will gain a much richer picture of adherence to WTO rules, and the transparency will provide incentive for states to ensure more rigorous compliance.

3. 3. Automatic, dynamic, real-time measures. Data will become available more quickly, with a higher level of verifiability and specificity, which has the ability to change how subsidies and safeguard mechanisms are applied and maintained, and provide granular data that can help determine appropriate balances between market protection and market access. This could allow ‘real-time’ changes to market access when certain conditions are met, and automatic calibration of volumes within agreed ranges, without the direct involvement of member states. Traders and WTO members would have instant, accurate information on subsidies and safeguard mechanisms in operation at any time.

4. 4. More sophisticated technical assistance. Learning has long been a feature of the WTO’s outreach activities, but more recently initiatives such as Tradelab have taken advantage of their digital platform to connect developing country governments and non-government organisations with pro-bono advice services offered primarily by trained law students.Footnote ⁴¹ Technology such as chatbots is already available, and could be used to semi-automate technical advice services to help provide support for developing country officials in locating and interpreting trade law obligations.

5. 5. New outreach activities. The WTO has made an effort to extend its outreach activities to businesses, for example through its joint ‘small business champions’ programme with the International Chamber of Commerce,Footnote ⁴² the ‘ePing’ sanitary and phytosanitary and technical barriers to trade alert system,Footnote ⁴³ and trader-focused information pages.Footnote ⁴⁴ One of the great promises of technology is its potential to democratise law by narrowing the gap between experts and non-experts, facilitating self-help by making knowledge more broadly accessible. This has been a prominent feature of domestic legal systems,Footnote ⁴⁵ but the same logic applies to the international trade law environment as well. This can be made available globally and free, accessible via a mobile phone, and could help developing country exporters identify entry requirements for markets in which they wish to trade. End users could ask questions in natural language, and use question and answer formats to generate documentation to apply for permits and licences. This could reduce or eliminate the need for brokers in trade transactions, ensure better compliance, and generate efficiencies across the supply chain, as well as improving trader engagement with the WTO.

6. 6. Replacement of notification bureaucracy. Notification processes have been a key area of capacity building for the WTO, which notes that the process is burdensome precisely because it is both necessary and important.Footnote ⁴⁶ The notification system is still largely paper driven, with hundreds of notifications required.Footnote ⁴⁷ For example, the Agreement on Import Licensing Procedures obliges members to notify the WTO on the source of import licensing procedures and to lodge copies of those procedures, provide updates, and complete a detailed annual questionnaire. However, there are numerous shortcomings with the current process – the system is slow to document changes, administratively burdensome on states,Footnote ⁴⁸ and does almost nothing to communicate import licensing provisions to those that need to know – traders. WTO notification databases could be designed to dovetail with member governments’ blockchain and e-government initiatives, such as those of Dubai, to make this information mostly accessible without the bureaucracy of notification.

7. 7. Better management of contingent measures such as antidumping duties. Retaliatory antidumping is considered to be on the riseFootnote ⁴⁹ and directly undermines the trade system. Disputes such as the zeroing cases further illustrate the challenges of bringing reluctant states into compliance.Footnote ⁵⁰ Centralising control of antidumping duties through the WTO would be feasible through the use of smart contracts and AI. Integrity, transparency, and monitoring could be greatly improved by using a WTO portal for states to initiate antidumping actions. Traders and government would have access to data, but the system would use automated or supported rendering of margin calculations. If data suggested that a product was being dumped in a foreign market, based on trade and sales data, antidumping duties could be automatically attached by use of an algorithm, and antidumping duties remitted to states as part of a fully integrated trade transaction.

8. 8. Rethinking rules. One of the most exciting longer-term possibilities is to create trade measures that can be self-executing in the sense that they do not rely on states to apply or rescind them. For example, the WTO’s technology systems would have the capacity to monitor trade flows, prices, and other relevant data, and automatically activate safeguards such as import restrictions based on algorithms, for precisely the duration required to mitigate serious injury. Sunset clauses would operate automatically, and data would be collated from data from the government and private sector.

9. 9. Enhanced support for integrity, human rights, and sustainability. Sustainability data and other credentials can be attached to the blockchain providing information about a product or service, facilitating the communication of this information to consumers, allowing the management of pollution/carbon tax and credit schemes, and helping to minimise tax avoidance and financial fraud. Trade-based money laundering is a greatly increasing category of sophisticated financial crimes that uses physical shipments to launder money, disguising and moving the proceeds of crime on the pretence of legitimate trade in goods. It is considered one of the most difficult to identify, as it relies on techniques such as falsifying the invoiced value of goods, misrepresentation of the nature of goods or services, or misrepresented financial transactions.Footnote ⁵¹ While consumer demand and government interest may see these schemes evolve from the private sector, the WTO could take the lead or engage in a partnership to roll out a global programme.

10. 10. Small claims arbitration. Online filing and dispute resolution platforms have become an expected part of the justice landscape. It is increasingly commonplace to see the use of AI as part of document management and document review, and supported decision-making tools have been deployed, frequently controversially and poorly, to help judges assess complex phenomena such as the chance of recidivism.Footnote ⁵² The trade law environment contains a particularly large number of data-intensive decisions that lend themselves to supported decision-making technology. Certain types of disputes take ‘airtime’ but involve largely transactional parts of trade that currently take up a lot of time, resources, and political goodwill. With tariffs, antidumping, subsidies, safeguards, rules of origin, and customs valuation largely automated, and with the possibility of significantly streamlining the identification of some breaches of most favoured nation, sanitary and phytosanitary, and technical barriers to trade obligations, we may be able to devote remaining energies to the truly complex issues of the interaction between trade and human concerns such as human rights, public health, and sustainability. As technology advances, a small claims arbitration jurisdiction could be created to offer traders a single portal for resolution of these issues. Notwithstanding the significant challenges of creating algorithms that are transparent and just,Footnote ⁵³ arbitration could be undertaken by AI or by human arbitrators supported with smart databases.

IV Conclusion

It may seem like fanciful thinking to imagine a world in which all parties and stakeholders in an international transaction – traders, exporting government, importing government, and international organisations – automatically collate, verify, and apply relevant trade laws to a transaction without the need for much human intervention. However, the foundations for such a system already exist and are evolving rapidly. This chapter has sought to come to terms with the dramatic changes to trade presented by technology – to trade itself, to trade transactions, to trade rules, and to a reconceptualised role for an international trade organisation.

It is worth emphasising what was stated at the outset – that the challenges of equity and political engagement are real, and may seem insurmountable. To translate these ideas into reality would require political willpower that surely seems unrealistic at this time. However, given the speed with which private enterprise is creating platforms, change may come sooner than we expect, with governments able to see the advantages of efficiency that integrated systems can bring. In that sense, change is imminent regardless of the preferences of WTO members or the organisation itself.

Technology of the type outlined in this chapter presents a fork in the road for the WTO (or a future trade organisation) by recalibrating its relationship with member states and the types of action perceived by states as part of their sovereignty – such as the calculation of antidumping duties. It also has the potential to recalibrate the relationship of individuals with international law by offering more direct mechanisms for engagement and dispute resolution.

At the same time, much work is needed to better understand the range of technological changes that are possible, and to build nuanced and considered responses. This chapter has sought to provide a modest contribution to that effort.