Draft law seeks to regulate China’s e-commerce market

The latest draft law on e-commerce, which further clarifies responsibilities of e-commerce operators and seeks to protect consumer rights, was submitted at a six-day bimonthly session of the National People’s Congress (NPC) Standing Committee for second reading following consultation on 31 October. The first draft was read by the top legislature in December 2016.

The bill classifies e-commerce operators into three entities: “those doing business on their own websites, e-commerce platform operators, and stores on e-commerce platforms.”

According to the draft, e-commerce vendors should be registered with the industry and commerce administrations, except for those who sell homegrown farm produce or handmade products and others who by law do not need to be registered.

Vendors should not infringe consumers’ rights by posting false advertisements, fabricating transaction information or user comments, and they should deliver products and services as promised and bear the risk and liabilities of transportation. Consumers should also be informed of how to cancel their accounts without unreasonable conditions.

When e-commerce platform operators offer search services for consumers, they may display the results according to indicators such as price, sales volume and credit but the results of ‘paid listings’ should be clearly labelled as advertisements.

Platform operators are also required to respond to intellectual property right (IPR) violation. They must cancel, block, disconnect or close transactions of vendors who violate IPRs when they are aware of or should be aware of the offences. Operators that do not take necessary action will bear joint liability.

The bill also paid great attention to dispute settlement. It requires e-commerce operators to establish convenient and efficient channels to handle complaints. During disputes with consumers, they must provide original transaction information to the court, arbitration authority or other mediation agencies. They will be punished for faking, destroying, tampering with or refusing to hand in such information.

Foreign retailers will not be permitted to participate directly in online sales in China. All online sales will be limited to Chinese-owned entities that hold a commercial Internet Content Provider (ICP) licence. Foreign-owned operators of e-commerce platforms will also be excluded from operating in the Chinese market. Sales of foreign products will be obliged to come into China through Chinese-owned or controlled platforms.

The draft provisions focus on ensuring that cross-border sales comply with Chinese law, that only approved products are imported into China and that all taxes and duties on those products get paid by funnelling all cross-border e-commerce through a limited number of processing centres, which will be under the control of a single e-commerce sales platform.

These centres, which will operate on the lines of the China (Hangzhou) Cross-Border E-Commerce Processing Pilot Area, will be responsible for handling all procedures related to e-commerce: foreign purchase, shipping to China, import into China, product approval, inspection and quarantine, payment of duties and taxes, and warehousing and distribution.

China has the world’s largest e-commerce market with online retail sales reaching nearly CNY 5.2 trillion (USD 755.3 billion) in 2016, a year-on-year increase of 26.2%, and – as seen in the article Another Booming Singles Day – it is still accelerating fast.

However there is also a darker side of e-commerce in China in respect of the sale of counterfeit products and violations of intellectual property rights and consumer rights. Last year Alibaba’s massive consumer-to-consumer website, Taobao, was returned to the United States Trade Representative (USTR) office’s 2016 blacklist of ‘notorious marketplaces’. Another issue that may be driving the changes is that many vendors do not pay tax.

Our belief is that this proposed regulation will be a good thing if it helps to get counterfeit products off the market and creates a more level playing field for all. Of course it remains to be seen when this regulation will be implemented.


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