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Data Localization and the National Treatment Obligation in International Investment Treaties

Published online by Cambridge University Press:  17 December 2021

Qianwen Zhang*
Affiliation:
Faculty of Public Affairs, Chengdu, China
Andrew Mitchell
Affiliation:
Faculty of Law, Melbourne, Australia
*
*Corresponding author: Email: cdzqw@hotmail.com

Abstract

Data localization hurts foreign investment and brings potential economic advantages to domestic corporations relative to foreign corporations. This leads to the argument that data localization violates the national treatment principle in international investment treaties. By applying the ‘three-step’ approach to assess the legality of data localization with respect to the national treatment principle, this article finds that the legality of data localization depends on certain circumstances, including the domestic catalogues of foreign investment, the definition of data localization in domestic legislation, and whether international investment treaties explicitly or implicitly incorporate data protection through exceptions for the protection of the state's essential security interests, public order, or public morals. China's acceleration of its legislation processes to regulate cross-border data transfer has significant implications for the negotiations and modifications of Chinese international investment treaties.

Type
Original Article
Copyright
Copyright © The Author(s), 2021. Published by Cambridge University Press

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Footnotes

This research is funded in part by the China Scholarship Council (201907005033). The authors would like to thank Neha Mishra, Theodore Samlidis, Caryn van Proctor, Hong Ding, Weihuan Zhou, Tanjina Sharmin, Congyan Cai, Jun Zhao, and Jiangyu Wang for their helpful comments on an earlier draft and Kevin Sebastian for his research assistance. Any errors or omissions are our own. The views expressed in this article are solely those of the authors and may not, under any circumstances, be regarded as representing an official position of the Government of the People's Republic of China.

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23 See e.g., Swedish Board of Commerce (2015) ‘No Transfer, No Production – A Report On Cross-Border Data Transfers,Global Value Chains and the Production of Goods’, European Commission, 28 April 2015, https://ec.europa.eu/futurium/en/system/files/ged/publ-no-transfer-no-production.pdf.

24 OECD (2019) Enhancing Access To and Sharing of Data Reconciling Risks and Benefits for Data Re-use Across Societies. Paris: OECD Publishing, 26 November 2019, www.oecd.org/going-digital/enhancing-access-to-and-sharing-of-data.pdf.

25 OECD (2015) Data-Driven Innovation: Big Data for Growth and Well-Being. Paris: OECD Publishing, https://read.oecd-ilibrary.org/science-and-technology/data-driven-innovation_9789264229358-en#page4.

26 Different analogies of data can be found at in Aaronson, S.A. (2018) ‘Data Is Different, and That's Why the World Needs a New Approach to Governing Cross-Border Data Flows’, CIGI Paper No. 197, Centre for International Governance and Innovation, p.6.

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29 Casalini, F. and J. López González (2019) ‘Trade and Cross-Border Data Flows’, OECD Trade Policy Papers, 220, 14, https://doi.org/10.1787/b2023a47-en.

30 See e.g., Swedish Board of Commerce (2015) ‘No Transfer, No Production – A Report on Cross-Border Data Transfers,Global Value Chains and the Production of Goods’, European Commission, 28 April 2015, https://ec.europa.eu/futurium/en/system/files/ged/publ-no-transfer-no-production.pdf.

31 OECD (2016) ‘Economic and Social Benefits of Internet Openness’, OECD Digital Economy Papers, 257, 29.

32 Gestrin, M.V. and J. Staudt (2018) ‘The Digital Economy, Multinational Enterprises and International Investment Policy’, OECD, 24 April 2018, www.oecd.org/investment/the-digital-economy-mnes-and-international-investment-policy.htm.

33 See Chander, A. and , U.P. (2015) ‘Data Nationalism’, Emory Law Journal 64(3), 722Google Scholar.

34 See Creach, M.A. (2019) ‘Assessing the Legality of Data-Localization Requirements: Before the Tribunals or at the Negotiating Table?’, Columbia FDI Perspectives, no. 254. See also Ramesh, V. (2018) ‘Data Protection Principles around the World: Do They Violate International Investment Law?’, Völkerrechtsblog, https://doi.org/10.17176/20181008-111554-0.

35 For example, Tuchtfeld, and Borchardt argue that the GDPR, though with data localizations requirements, do not violate international investment law, see Tuchtfeld, E. and L. Borchardt (2018) ‘Why International Investment Law Is Not Violated by the GDPR’, Völkerrechtsblog, https://doi.org/10.17176/20181106-100851-0.

36 A list of recent digital trade agreements say digital protectionism can be found at Aaronson, S.A. (2021) ‘The Difficult Past and Troubled Future of Digital Protectionism’, in I. Borchert and L. Alan Winters (eds.), Addressing Impediments to Digital Trade, London: CEPR Press, 153.

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38 See Panel Report, United States – Measures Affecting the Cross-Border Supply of Gambling and Betting Services (US–Gambling), WT/DS285/R, 10 November 2004, para. 6.287; Panel Report, China – Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products (China–Publications and Audiovisual Products), WT/DS363/R, 12 August 2009, para. 412.

39 Diebold, N.F. (2011) ‘Standards of Non-discrimination in International Economic Law’, International and Comparative Law Quarterly 60(4), 832, https://doi.org/10.1017/S0020589311000418.

40 Appellate Body Report, Japan – Taxes on Alcoholic Beverages (complaint by the European Communities) (1997), WTO Doc WT/DS8, 10, 11/AB/R, www.wto.org/english/tratop_e/dispu_e/cases_e/ds8_e.htm.

41 A typical national treatment clause in IIAs is to require the host state to accord foreign investors and their investments a treatment no less favorable than that which the host state accords, in like circumstances, to its own investors.

42 Frank, S.D. (2005) ‘The Legitimacy Crisis in Investment Treaty Arbitration: Privatizing Public International Law through Inconsistent Decisions’, Forhan Law Review (73), 1521–1522.

43 However, the WTO Appellate Body stopped functioning on 30 November 2020 because the United States has blocked the appointment of new judges to replace retiring ones.

44 In this concern, the EU proposed to design the Multilateral Investment Court which has an appeal tribunal, see http://trade.ec.europa.eu/doclib/press/index.cfm?id=1608.

45 Dolzer, R. (2005) ‘Symposium Co-organized by ICSID, OECD, & UNCTAD-Making the Most of International Investment Agreements: A Common Agenda 2. National Treatment: New Developments’, OECD, 12 December 2005, www.oecd.org/dataoecd/5/53/36055356.pdf. See Dolzer R. and M. Stevens (1995) Bilateral Investment Treaties. The Hague, Boston, London: Martinus Nijhoff Publishers.

46 United Parcel Service of America v. Government of Canada, NAFTA (UNCITRAL), Award on the Merits, 24 May 2007, at para. 83.

47 For more details of the ‘three-step’ approach, see Mitchell, A.D., D. Heaton, and C. Henckels (2016) Non-Discrimination and the Role of Regulatory Purpose in International Trade and Investment law. Cheltenham: Edward Elgar. For commentary on and elaboration of the NAFTA approach, see Weiler, T. (2004) ‘Prohibitions against Discrimination in NAFTA Chapter 11’, in T. Weiler (ed.), NAFTA Investment Law and Arbitration: Past Issues, Current Practice, Future Prospects. Ardsley: Transnational Publishers.

48 United Parcel Service of America v. Government of Canada, NAFTA (UNCITRAL), Award on the Merits, 24 May 2007.

49 Occidental Exploration & Prod. Co. v. Republic of Ecuador (2004), Case No. Un 3647 (London Court of International Arbitration), at para. 173.

50 See Pope & Talbot, Inc. v. Government of Canada, NAFTA (UNCITRAL), Award on the Merits of Phase 2, 10 April 2001, paras. 87–88.

51 See S.D. Myers v. The Government of Canada, UNCITRAL, NAFTA Partial Award, 13 November 2000, para. 251.

52 Olin Holdings Ltd v. Libya, ICC Case No. 20355/MCP, Final Award, 25 May 2018, para. 207.

53 See generally Mitchell, A.D., D. Heaton, and C. Henckels (2016) Non-Discrimination and the Role of Regulatory Purpose in International Trade and Investment law. Cheltenham: Edward Elgar.

54 United Parcel Service of America v. Government of Canada, NAFTA (UNCITRAL), Award on the Merits, 24 May 2007, at paras. 173–174.

55 United Parcel Service of America v. Government of Canada, NAFTA (UNCITRAL), Award on the Merits, 24 May 2007, at para. 175.

56 United Parcel Service of America v. Government of Canada, NAFTA (UNCITRAL), Award on the Merits, 24 May 2007, at paras. 173–181.

57 Hatch, S. (2015) ‘Bipartisan Congressional Trade Priorities and Accountability Act of 2015, Section 2(a)’, Reported by 11 May 2015, www.congress.gov/bill/114th-congress/senate-bill/995/text.

58 See Weiler, T. (2005) ‘Methanex Corp. v. USA.: Turning the Page on NAFTA Chapter Eleven?’, Journal of World Investment & Trade 6, 915. See also Newcombe, A. and L. Paradell (2009) Law and Practice of Investment Treaties: Standards of Treatment. Frederick: Kluwer Law International.

59 Consortium R.F.C.C v. Kingdom of Morocco (2003), ICSID Case No. ARB/00/6, at para. 75.

60 See Sabahi, B. (2008) ‘National Treatment – Is Discriminatory Intent Relevant?’, in G. Weiler (ed.), Investment Treaty Arbitration and International Law, Vol. 270. New York: JurisNet, LLC.

61 Marvin Feldman v. Mexico (2000), ICSID Case No. ARB (AF)88/1, at para. 169.

62 S.D. Myers, Inc. v. Canada (2002), 40 ILM 1408, NAFTA (UNCITRAL), at para. 252.

63 Marvin Roy Feldman Karpa v. United Mexican States, ICSID Case No. ARB(AF)/99/1, Award, 16 December 2002, para.170. Archer Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc. v. United Mexican States, ICSID Case No. ARB(AF)/04/5, Award, 21 November 2007, para. 205.

64 William Ralph Clayton, William Richard Clayton, Douglas Clayton, Daniel Clayton and Bilcon of Delaware INC v. Government of Canada, PCA Case No. 2009–04, Award on Jurisdiction and Liability, 17 March 2015, paras. 701–705.

65 Apotex Holdings Inc. and Apotex Inc. v. United States of America, ICSID Case No. ARB(AF)/12/1, Award, 25 August 2014, para. 8.21.

66 See Apotex Holdings Inc. and Apotex Inc. v. United States of America, ICSID Case No. ARB(AF)/12/1, Award, 25 August 2014, para. 8.21.

67 Marvin Roy Feldman Karpa v. United Mexican States, ICSID Case No. ARB(AF)/99/1, Award, 16 December 2002, para. 170. Pope & Talbot Inc. v. Government of Canada, UNCITRAL, Award on the Merits of Phase 2, 10 April 2001, para. 78.

68 Swedish Board of Commerce (2015) ‘No transfer,no production-a report on cross-border data transfers, global value chains and the production of goods’, European Commission, 28 April 2015. https://ec.europa.eu/futurium/en/system/files/ged/publ-no-transfer-no-production.pdf.

69 Guidelines for Nigerian Content Development Information and Communications Technology, National Information Technology Development Agency(NITDA) of Nigeria, Article12.1(4), Article 14.1(3), https://nitda.gov.ng/wp-content/uploads/2020/11/GNCFinale2211.pdf.

70 ‘Critical_Information_Infrastructure. A summary of Definitions of Critical Information Infrastructure’, https://publicwiki-01.fraunhofer.de/CIPedia/index.php/.

71 Dunn, M. (2005) ‘The Socio-Political Dimensions of Critical Information Infrastructure Protection’, International Journal of Critical Infrastructures 1(2/3): 259.

72 See Vandevelde, K.J. (2013) Rebalancing Through Exceptions’, Lewis & Clark Law Review 17, 451.

73 See e.g., Pope & Talbot, Inc. v. Government of Canada (2002), 41 ILM 1347, NAFTA (UNCITRAL), at para. 78.

74 Island of Palmas case (US. v. Netherlands), Reports of International Arbitral Awards, vol. 2, 1928, pp. 821, 838.

75 United Nations General Assembly, A/RES/S-6/3201, Declaration on the Establishment of a New International Economic Order, Article 4(e), www.un-documents.net/s6r3201.htm.

76 See United Nations General Assembly, A/RES/29/3281, Charter of Economic Rights and Duties of States, Article2(1), www.un-documents.net/a29r3281.htm.

77 Jennings, R. and A. Watts (eds.) (1992) Oppenheim's International Law. Harlow: Longman.

78 Trachtman, J. (1998) ‘Cyberspace, Sovereignty, Jurisdiction, and Modernism’, Indiana Journals of Global Legal Studies 5(2), 566.

79 Ibid.

80 Irion, K. (2012) ‘Government Cloud Computing and National Data Sovereignty’, Policy and Internet 4(3–4), 40–71, 41. A similar definition is adopted in De Filippi, P. and S. McCarthy (2012) ‘Cloud Computing: Centralization and Data Sovereignty’, European Journal for Law and Technology 3(2), 15.

81 Rainie, S.C., J.L. Schultz, E. Briggs et al. (2017) ‘Data as a Strategic Resource: Self-determination, Governance, and the Data Challenge for Indigenous Nations in the United States’, International Indigenous Policy Journal 8(2), 5–6.

82 See e.g., De Filippi, P. and McCarthy, S. (2012) ‘Cloud Computing: Centralization and Data Sovereignty’, European Journal of Law and Technology 3(2), 121Google Scholar; Rauhofer, J. (2013) ‘Protecting Their Own: Fundamental Rights Implications for EU Data Sovereignty in the Cloud’, University of Edinburgh School of Law Research Paper Series (28), 129Google Scholar.

83 See Grotius, H. (1901) De Jure Belli Ac Pacis, Libri Tres bk.II. Chapter I, para. XII, Cl.3.

84 See B. Ministère Du Redessement Productif [Ministry of Econ. Regeneration], ‘The New Face of Industry in France 51 (2013)’, www.entreprises.gouv.fr/files/files/directions_services/secteurs-professionnels/industrie/nfi/NFI-anglais.pdf.

85 Ferracane, M.F., H. Lee-Makiyama, and E. vander Marel (2018) ‘Digital Trade Restrictiveness Index’, European Center for International Political Economy 5, https://ecipe.org/dte/dte-report/.

86 Srinivasan, S. (2018) ‘The Emerging Trend of Data Localization’, The Columbia Science and Technology LR, http://stlr.org/2018/03/01/the-emerging-trend-of-data-localization/.

87 Blakley, B., E. McDermott, and D. Geer (2001) ‘Information Security Is Information of Risk Management’, Association for Computing Machinery Digital Library 97–104; Turner, E.C. and Dasgupta, S. (2003) ‘Privacy on the Web: An Examination of User Concerns, Technology, and Implications for Business Organizations and Individuals’, In Information Systems Management 20(1), 818CrossRefGoogle Scholar.

88 De Filippi, P. and McCarthy, S. (2012) ‘Cloud Computing: Centralization and Data Sovereignty’, European Journal for Law and Technology 3(2): 10Google Scholar.

89 Article 28.3 of CETA states that: ‘nothing in this Agreement shall be construed to prevent the adoption or enforcement by a Party of measures necessary: (c) to secure compliance with laws or regulations which are not inconsistent with the provisions of this Agreement including those relating to: (ii) the protection of the privacy of individuals in relation to the processing and dissemination of personal data and the protection of confidentiality of individual records and accounts’,

90 See Brower, C.N. and S.W. Schill (2009) ‘Is Arbitration a Treat to a Boon to the Legitimacy of International Investment Law?’, Chicago Journal of International Law 9, 483–489; Kingsbury, B. and S.W. Schill (2010) ‘Public Law Concepts to Balance Investors’ Rights with State Regulatory Actions in the Public Interest the Concept of Proportionality’, International Investment Law and Comparative Public Law 89–98; Kolo, A. (2007) ‘Investor Protection vs Host State Regulatory Autonomy during Economic Crisis: Treatment of Capital Transfers and Restrictions under Modern Investment Treaties’, Journal of World Investment & Trade 8(4), 485499Google Scholar.

91 UNCTAD (2016) World Investment Report 2016. New Y ork: United Nations.

92 A summary of some representative states with data localization legislations until 2021 can be viewed in Cory, N. and L. Dascoli (2021) ‘How Barriers to Cross-Border Data Flows Are Spreading Globally, What They Cost, and How to Address Them’, Appendix A, https://itif.org/publications/2021/07/19/how-barriers-cross-border-data-flows-are-spreading-globally-what-they-cost.

93 Bruke-White, W.W. and A. Von Staden (2008) ‘Investment Protection in Extraordinary Times: The Implication and Application of Non-Preclude Measures Provisions in Bilateral Investment Treaties’, Virginia Journal of International Law 48(2), 313.

94 Most US BITs include the protection of essential security in the NPM clauses, while German and BLEU BITs include ‘public order’ and ‘public morality’ objectives in their NPM clauses. See Bruke-White, W.W. and A. Von Staden (2008) ‘Investment Protection in Extraordinary Times: The Implication and Application of Non-Preclude Measures Provisions in Bilateral Investment Treaties’, Virginia Journal of International Law 48(2), 327, 333.

95 Healey, J. (2016) ‘The Cartwright Conjecture: The Deterrent Value and Escalatory Risk of Fearsome Cyber Capabilities’, SSRN, 15 June 2016, https://ssrn.com/abstract=2836206.

96 Selby, J. (2017) ‘Data Localization Laws: Trade Barriers or Legitimate Responses to Cybersecurity Risks, or Both?’, International Journal of Law and Information Technology 25(3), 232.

97 Panel Report, United States – Measures Affecting the Cross-Border Supply of Gambling and Betting Services, WT/DS285/R, 10 November 2004, para. 6.465.

98 See Appellate Body Reports on Korea–Various Measures on Beef, para. 176 and EC–Asbestos, para. 168.

99 Panel Report, United States – Measures Affecting the Cross-Border Supply of Gambling and Betting Services, WT/DS285/R, 10 November 2004, para. 6.469.

100 Panel Report, Brazil – Certain Measures Concerning Taxation and Charges, WT/DS472/R, WT/DS497/R, 30 August 2017, para. 7.568.

101 Panel Report, European Communities – Measures Prohibiting the Importation and Marketing of Seal Products, WT/DS401/R, 25 November 2013, para. 7.638.

102 Panel Report, China – Measures Affecting Trading Right s and Distribution Services for Certain Publications and Audiovisual Entertainment Products, WT/DS401/R, 25 November 2013, para. 7.767.

103 Weber, R.H. and R. Baisch (2018) ‘Revisiting the Public Moral/Order and the Security Exception under the Gats’, Asian Journal of WTO and International Health Law and Policy 13(2), 388.

104 Ibid., 381.

105 Mitchell, A.D., D. Heaton, and C. Henckels (2016) Non-Discrimination and the Role of Regulatory Purpose in International Trade and Investment law. Cheltenham: Edward Elgar.

106 In some international investment arbitration cases, the tribunals affirmed the findings in WTO/GATT reports for references. See, for example, S. D. Myers, Inc. v. Canada, NAFTA (UNCITRAL), Partial Award, 13 November 2002, paras. 244–246. Continental Casualty Co. v. Argentine Republic, ICSID Case No. ARB/03/9, Award, paras. 181, 223 (5 September 2008).

107 All the Chinese BITs are available at the official website of Ministry of Commerce of the People's Republic of China: Woguo Dui Wai Qianding Shuangbian Touzi Xieding Yilanbiao [The List of Sino-foreign Bilateral Investment Treaties, Department of Treaty and Law, Ministry of Commerce of the People's Republic of China], http://tfs.mofcom.gov.cn/article/Nocategory/201111/20111107819474.shtml

108 Discussions about whether data qualifies as an ‘investment’ in IIAs can be found at Horváth, E. and S. Klinkmüller (2019) ‘The Concept of ‘Investment’ in the Digital Economy: The Case of Social Media Companies’, Journal of World Investment & Trade 20, 608.

109 Anhui Jingmei v. Zhejiang Taobao, Hangzhou intermediate people's court of Zhejiang Province, (2018) 浙 01民终 7312 号, p. 12.

110 Article 42 of ICSID Convention provides that ‘In the absence of such agreement, the Tribunal shall apply the law of the Contracting State party to the dispute (including its rules on the conflict of laws) and such rules of international law as may be applicable.’

111 A typical definition of investment in Chinese BITs is that ‘the term ‘investment’ means every kind of asset invested by investors of one Contracting Party in accordance with the laws and regulations of the other Contracting party in the territory of the latter’, see e.g., 2000 China–Congo BIT, Article 1.

112 A calculation can be found at Zhang, Q. (2016) ‘Opening Pre-establishment National Treatment in International Investment Agreements: An Emerging ‘New Normal’ in China?’, Asian Journal of WTO & International Health Law and Policy 11(2), 442Google Scholar.

113 For more elaboration about three generations of Chinese international investment treaties, see Norah, G. and H.S. Wen (2009) Chinese Investment Treaties: Policy and Practice. New York: Oxford University Press. Cai, C. (2009) ‘China–US BIT Negotiations and the Future of Investment Treaty Regime: A Grand Bilateral Bargain with Multilateral Implications’, Journal of International Economic Law 12.

114 Joint US – China Economic Track Fact Sheet of the Fifth Meeting of the US–China Strategic and Economic Dialogue, US Department of Treasury, www.treasury.gov/press-center/press-releases/Pages/jl2010.aspx.

115 ‘Agreement between the Government of Canada and the Government of the People's Republic of China for the Promotion and Reciprocal Protection of Investments’, 2012, Article 33, UNCTAD, https://investmentpolicyhub.unctad.org/.

116 The official text of the Regulation on the Protection of Critical Information Infrastructure can be found at www.gov.cn/xinwen/2021-08/17/content_5631710.htm.

117 The State Council of China, The Regulation on the Protection of Critical Information Infrastructure, 2021, Article 8 and Article 9 www.gov.cn/zhengce/content/2021-08/17/content_5631671.htm.

118 The official text of China's Data Security Law can be found at www.npc.gov.cn/npc/c30834/202106/7c9af12f51334a73b56d7938f99a788a.shtml. And the official text of China's Personal Information Protection Law can be found at www.npc.gov.cn/npc/c30834/202108/a8c4e3672c74491a80b53a172bb753fe.shtml.

119 The use of general exception clauses in international investment treaties can raise complex issues regarding regulatory autonomy. See generally Mitchell, A.D., J. Munro, and T. Voon (2017) ‘Importing WTO General Exceptions into International Investment Agreements: Proportionality, Myths and Risks’, in L. Sachs, L. Johnson, and J. Coleman (eds.), Yearbook on International Investment Law & Policy 2017. New York: Oxford University Press, 305–355.

120 See more in Aaronson, S.A. and P. Leblond (2018) ‘Another Digital Divide: The Rise of Data Realms and its Implications for the WTO’, Journal of International Economic Law 21, 245–272.

121 The Wall Street Journal (2019) ‘US Trade Negotiators Take Aim at China's Cybersecurity Law’, 1 April 2019, www.wsj.com/articles/u-s-trade-negotiators-take-aim-at-chinas-cybersecurity-law-11553867916.

123 Early in 1973, the European Community called for the development of the European Community's advanced technology industries to prevent US corporations ‘from penetrating virtually every walk of life’. See the Commission of the European Communities (CEC). Community policy on data processing. Communication of the Commission to the Council. SEC (73) 4300 final, 21 November 1973, p.1.