USITC Reports Outlines Digital Trade Restrictions in Mainland China, Other Markets

There has been huge growth in global digital trade in recent years but some countries are adopting measures that slow or halt the adoption of digital technologies, according to a recent report from the U.S. International Trade Commission. This report, the first of three on digital trade that the USITC will issue between now and 2019, provides information on markets for digital products and services, examines the global adoption of digital technologies and the importance of data flows, and describes regulatory and policy measures in key foreign markets that may impede digital trade.

According to the report, global e-commerce grew from US$19.3 trillion in 2012 to US$27.7 trillion in 2016. Business-to-business transactions accounted for more than 86 percent of that total, and the global B2B industry is undergoing rapid transformation as businesses replace their legacy supply chain and distribution systems with modern cloud-based platforms. At the same time, business-to-consumer e-commerce is transforming the global retail sector, with new technologies such as digital payments, blockchain and digital signatures helping to make such transactions safer and more practical. Top B2C markets in 2015 were mainland China (US$767 billion) and the United States (US$595 billion).

However, U.S. industry representatives report that many types of regulatory and policy measures potentially impede digital trade, including the following.

• restrictions on foreign direct investment (e.g., limitations on foreign ownership, discriminatory licencing and taxation policies, and local content requirements) and other means of market access (e.g., measures affecting customs de minimis rules, electronic payment systems, technical standards and government procurement)

• limitations on cross-border data flows such as data localisation requirements, Internet blocking, censorship, cultural regulation of digital content and data privacy protections

• cybersecurity restrictions, particularly source code disclosure requirements and restrictions on cryptography in mainland China and other markets

• regulations on Internet service providers, including those intended to protect intellectual property rights

• rules determining liability for third-party content

• legal framework for, and enforcement of, intellectual property rights

Overall, the most cited policy measure impeding digital trade was data localisation, particularly given the importance of free-flowing data for digital trade. Content industry representatives reported that ineffective IPR enforcement affected them the most.

In the case of mainland China, the report asserts that Beijing blocks and filters Internet content using a highly advanced censorship apparatus that employs human censors as well as a sophisticated technical platform. A variety of techniques are reportedly used to censor content. In some instances, entire domain names or IP addresses are blocked, with messages about illegal content being displayed to users. Mainland China’s firewall also ostensibly employs “deep packet inspection” technologies to scan both content requests and delivered results for blacklisted keywords, with the detection of such words causing the connection to be severed. The report states that these techniques are less noticeable because they can block individual pages within an approved website and, therefore, appear to be a technical issue.

The report adds that other subtle means of censoring content include so-called domain name system poisoning, in which the firewall returns a request with a fake page or substitutes unrelated content, as well as “throttling,” or deliberately slowing the delivery of requested content. The firewall is also constantly evolving. In response to the use of personal virtual private networking, a service that encrypts traffic and reroutes it through a server outside the firewall, in 2015 mainland China began blocking popular VPN providers such as StrongVPN, Astrill and Golden Frog. In June 2017, mainland China’s federal government shut down over 60 news outlets and social media accounts that publish entertainment gossip using the newly implemented Cybersecurity Law as a justification for censorship.