Surpassing the Silence of the DSM: Discussion on the Digital Trade Dispute Resolution Path for China and the Global South Countries under the Paralysis of the WTO Appellate Body

Abstract

Since the appointment of new appellate judges by the World Trade Organization (WTO) was banned in 2019, the paralysis of the appellate body has seriously damaged the Dispute Settlement Mechanism (DSM), leaving a gap in resolving the escalating digital services trade disputes involving complex issues such as data flow and algorithm governance, and the existing WTO rules have failed to fully address these problems. Although MPIA offers a temporary alternative, its limited membership, uncertain executability, and untested applicability to new types of digital disputes make it inadequate. Meanwhile, the rising technological nationalism and fragmented regulations (such as the GDPR and the CLOUD Act) have exacerbated the global digital governance divide, marginalizing China and the countries in the Global South. This article analyzes the decline of DSM, highlighting the eroded rule predictability and legal fragmentation, and critically assesses the limitations of MPIA and the deficiencies of the traditional WTO framework in disputes such as data localization. A series of cases has revealed the trends of “pre-dispute governance” and unilateralism. In the face of this dual crisis, this article holds that China and the Global South must embark on a path of transformation from “system participants” to “system shapers,” rather than merely conforming. The strategies it explores include leveraging domestic regulations (such as data outbound security assessment), promoting regional cooperation (such as the mediation mechanism of RCEP), and advancing initiatives like the Global Data Security Initiative. This dual approach of maintaining “policy sovereignty” and establishing “compliance sovereignty” aims to ensure institutional autonomy, enhance rule-making capabilities, and establish a fairer, rule-based digital trade order in the context of DSM paralysis and regulatory fragmentation.