Guangdong Takes the Lead in Regulating E-commerce Transactions

As a result, in the PRC there have not been any rules regarding technical issues such as electronic signatures, electronic records and certification authority. If disputes are brought to court, a lack of the relevant rules creates considerable difficulties for judges, such as identifying parties to an electronic contract, determining a conclusion and the terms of an electronic contract, recognizing the admissibility of electronic evidence and applying contract law principles.

The Regulations

This piece of legislation is the first ever attempt in China to legislate on electronic transactions. It is evident that the drafter of the regulations looked for reference to similar legislation in other countries. In particular, to some extent the Regulations emulate the legal framework adopted in the Electronic Transactions Act of Singapore.

It is likely that similar legislation will be promulgated at the national or regional level in China in due course. The PRC government clearly values the development of e-commerce and the establishment of a legal framework therefor. In the Third Plenary Session of the 9th National People's Congress held in March 2000, the encouragement of electronic commerce was mentioned in Premier Zhu Rongji's Government Work Report. Furthermore, in the same session a proposal, "Appealing for Legislation on Electronic Commerce", was delivered as Proposal No.1 for discussion.²

As regional legislation, it is set out in Article 2 that the Regulations are applicable to electronic transactions within Guangdong province only. This is a standard clause, and is in line with the way that application provisions in regional legislation in China are drafted. However, we anticipate that there will be problems in identifying whether an electronic transaction takes place in Guangdong. Indeed, this is one of the hallmarks of electronic commerce: many transactions are entered into by parties in different provinces, or in different countries around the world. Article 2 plainly fails to address the fact that in electronic transactions elements such as places of business of the parties, place of payment and the place where a transaction actually occurs all become much more complicated. It would have been welcome if the Regulations laid down the factors to be considered in determining its application.

In e-commerce related legislation there are two practical objectives to be achieved. Firstly, confidence needs to be established that online communications and payments are secure so that there is a minimal risk of unlawful interception or fraud. Secondly, electronic contracts should be seen in legal and practical terms as the same as a written contract. The following commentary will discuss the Regulations' provisions on the technical elements ensuring such confidence and certainty. These elements include electronic signature, electronic record, electronic contract, certification authority and electronic transaction service provider.

Electronic Signatures and Records

The Regulations adopt a liberal approach in this aspect. Firstly, Article 3 encourages the use of a "safe electronic signature", which is defined in Article 6. If an electronic signature program can:

(a) ascertain the identity of the signer of the electronic signature;

(b) prove the uniqueness of the signer's electronic signature;

(c) prove that the content of the electronic record signed with that signature is unchanged; and

(d) meet other requirements set out by law or national regulations, the electronic signature in question is deemed a safe electronic signature.

Secondly, Article 8 recognizes that safe electronic signatures will be viewed as legally binding to the same effect as handwritten signatures. The conditions are that the parties to the contract have agreed on the procedure of use of those electronic signatures and the Article 6 matters can be proven. Finally, the concept of a "digital signature" or "cryptograph-based digital signature" is incorporated as one type of safe electronic signatures in Article 7.

The adopted rules in respect of electronic signatures are better than the legislation in some other jurisdictions in striking a balance between establishing reliability and predictability and preserving room for technological innovation.

The difference lies in the distinction between "electronic signature" and "digital signature". There is confusion between the two. "Electronic signature" refers to all different methods of electronically signing electronic documents. Examples of electronic signatures include, but are not limited to, a name simply typed at the end of an email message, a digitized image of a handwritten signature that is attached to an electronic document, a PIN by which one's identity is ascertained (commonly used in online banking) and a "digital signature".

A digital signature is only a specific type of electronic signature. It involves the use of public key cryptography to identify the signer. Some jurisdictions, such as Utah in the United States and Hong Kong, in their legislation only recognize digital signatures, presumably on the basis that the technology involved is the only kind mature enough to be used in electronic commerce. The dominant position of digital signatures in electronic contracts has generated a debate over the impact of rules requiring their use on the explosive development of e-commerce. Supporters argue that establishing reliability and predictability is the primary goal whereas critics contend that it forces the market to use a specific business model or specific technology and thus imposes a barrier to future technological innovation. In fact both establishing reliability and predictability, and maintaining flexibility for new technology, need to be accomplished. It therefore becomes a delicate balancing act.

The Regulations recognize the use of digital signatures and lay down the criteria for a "safe electronic signature", which is an encouraging attempt to strike a balance.

A "safe electronic record" as defined in Article 9 has the same legal effect as a written record. Recognition of safe electronic records is equally important. Both concepts together constitute the legal platform for more efficient electronic transactions without paper.

Electronic Contracts

Provisions in this chapter are basically in accordance with the Contract Law in respect of offer and acceptance. In addition, Article 11 expressly renders legal effect to electronic records automatically sent or replied by information systems set up by the parties or their agents. It follows that the principal will be liable for the electronic documents automatically sent or replied by information systems set up by him or his agents. For the first time in China, business completed by autonomous information systems without direct human intervention is also covered by agency law. Autonomy is a fundamental characteristic of the so-called "electronic agent", which distinguishes the autonomous information systems from others. The Regulations have adopted the approach taken by the aforementioned Model Law and the Electronic Transactions Act of Singapore, which both attribute the operations of an electronic agent to the person who initiates that electronic agent.

Certification Authority and Electronic Transaction Service Provider

The Regulations require compulsory qualification recognition and filing for the record. The Regulations also set out detailed conditions for qualification recognition, filing requirements, administration of the qualified institutes and the relevant responsibilities and civil or criminal liabilities. The certification authorities and electronic transaction service providers play important roles in ensuring the information security of electronic transactions. Good regulation of these parties is essential for the development of a reliable e-commerce market in China.

Conclusion

It is very encouraging to see the promulgation of the Regulations, which reflect the progressive thinking of the Guangdong authorities. They come as a something of a refreshing novelty for a legal system in which there have been too many examples of legislation that dictates restrictive standards and conditions. The negative effect of such standards and conditions is ultimately seen in the relevant sectors of the economy and the number and variety of disputes brought to the people's courts. We now have a piece of legislation, albeit with only regional application, which enables and fosters the development of the e-commerce industry in China. We look forward to the promulgation of national legislation that will build upon the Guangdong regulations and create a more solid legal basis for electronic transactions in China.

Endnotes

1 For a translation of the law, see China Law & Practice, May 1999, 13(4), pp. 19-82.

2 Under the procedures of the National People's Congress, once a proposal has been delivered to the congress for discussion it will be passed to the relevant ministries and included in their work schedule.

By Carson Wen, Siao, Wen and Leung, Hong Kong