The development of artificial intelligence technology has brought core competitiveness to the nation while also presenting numerous governance challenges. Source code, as a critical component of AI software, has drawn widespread attention regarding its protection and regulation. However, in WTO E-Commerce Negotiations, parties have yet to reach consensus on the protection and regulation of software source code. Source code clauses in bilateral and regional economic and trade agreements exhibit fragmented characteristics, with disparities in source code regulation being particularly pronounced. In this context, WTO exception clauses have been explored as a potential solution to alleviate source code regulatory dilemmas. However, comparative analysis of their applied scope, stated objectives, and the “necessity test” reveals significant limitations in their applicability. Currently, China ranks among the world’s leaders in AI capabilities and market size, yet negotiations and formulation of source code clauses lag behind. China should transform these challenges into an opportunity to define its own source code clause development strategy. Building upon existing clauses, China could establish a three-tiered “protection-regulation-balance” framework for its source code clauses with Chinese characteristics. This approach would safeguard the intellectual property rights and trade secret attributes of software source code while better addressing national regulatory needs for software like AI. By applying the principle of proportionality to coordinate protection and regulation, China could foster consensus. This framework should be actively promoted in WTO E-Commerce Negotiations, and the formulation and upgrading of bilateral and regional economic and trade agreements.