By Vincent Wang
The Electronic Commerce Law of the People’s Republic of China (the “eComm Law”) was adopted on August 31st, 2018 and will take effect on January 1st, 2019. It was adopted after a fourth reading by the Standing Committee of the National People’s Congress (“NPC”), and solicitation of public opinion on a third draft.
The eComm Law focuses on establishing good market order, protecting consumers’ rights, promoting the healthy regulatory and business development to ensure sustainable flourishing of the eComm market in China.
Whether you are an eComm business player, a consumer, a service provider, or are in some other way connected with the eCommerce, these are the things you should know about the eComm Law:
eComm and Key eComm Players Defined
The eComm Law regulates the business of selling goods or providing service via the Internet or other information networks within the territory of China, but it explicit excludes the financial products and services and the online content services which are subject to special administrative permits (“Excluded Businesses”).
The eComm Law creates the concept of the eComm operators (“ECO”) which is composed of three groups of businesses: the eComm platform operators (“ECPO”), the merchants on eComm platforms (“Merchants”) and other ECOs selling products or providing services on their own websites or through other web services.
The first group, ECPO, is defined by the eComm Law as the entities that provide, in the eComm business, the online business space, transaction match-making, information distribution and other services to allow others to independently conduct business transactions. The second group, Merchants, speaks for themselves. The third group of the other ECOs refers to the ECOs that engage in eComm business on non-professional eComm platform, such as in social networks or through live broadcasting, etc.
In short, a party, whether an individual or entity, selling goods or provides services online will be an ECO unless such a party engages in the Excluded Businesses.
General Obligations on All ECOs
The eComm Law assumes that ECOs have more leverage in the business. It, therefore, imposes lots of obligations on the ECOs, particularly the ECPOs, trying to strike a balance of the rights and interests based upon the positions of the participants.
ECOs Registration and Taxation
From government regulatory perspective, the eComm Law generally divides ECOs into two categories: registration required ECOs and registration exempted ECOs.
By default, every ECO is a registration required ECO. Such ECOs must register before engaging in eComm business, must present to public its registration information online and must pay tax.
Registration exempted ECOs are (1) individuals selling self-produced agriculture products or home-made handicrafts, or those offering personal and skillful labor service, or those making occasional transactions in small amounts; or (2) other statutory registration exempted circumstances. Such ECOs need to present online to the public that they are registration exempted ECOs and need to conduct tax registration and pay taxes on transaction basis.
ECOs are required to issue tax invoices or sales/service vouchers for the eComm transactions they conducted.
In addition, ECOs are obligated to make public announcement on its portal page 30 days in advance before they plan to cease their eComm business.
Obligations to Protect Consumers Rights
Among all the obligations under the eComm Law for such a purpose, the following obligations targets the frequently made complaints on daily eComm practice:
- The eComm Law deems transaction history and users comments are part of the product/service information. Falsifying such information will harm the consumers right to know and is thus prohibited. This provision seems to deal with the complaints about “click farming” that is very pervasive in the eComm business;
- ECOs must meet the committed and agreed expectation of consumers on delivery and must bear all the risks and liabilities of product in transit in all circumstances, unless the consumers choose their own logistic service. This provision seems to address the complaints about the failure to meet the delivery expectation during the double 11 or other festival shopping events;
- ECOs must comply with the laws in collection and use of consumers information, must timely respond to legitimate consumers requests to inquire, correct and delete the customers information. This is consistent with the personal information protection established by the Cybersecurity Law;
- When ECOs provide search results at the request of a consumer, they should not only make recommendation in such results based upon their big data analysis of this consumer, but also the general results they would otherwise offer to anyone whom they have not done any big data analysis. This seems to address the complaints about betrayal of the reliance on the results by the customers;
- The eComm Law expressly disallows ECOs to make tie-in sale as a default choice, and distinct notice must be presented to the consumers for tie-in products and services. This is a legislative response to the complaints about unconscious transactions; and
- When ECOs are collecting deposit payment from the consumers, they should must announce the way and process to refund the deposit and should not impose any unreasonable conditions on deposit refund, and they should timely refund the deposit once the conditions are met and a consumer request is received.
Among the above obligations, violation of the last three is subject to the most severe penalty in the form of administrative fines up to RMB500,000.
Special Obligations on ECPOs
The eComm Law recognizes the advantageous position of the ECPOs in the eComm business operation and thus imposes upon the ECPOs not only the obligations for fair trade but also those with administrative nature. The consequences for violation of such obligations ECPOs are subject to heightened penalties and administrative measures. Therefore, ECPOs should be particularly wary about and comply with its obligations under the eComm Law.
Obligations with Administrative Nature
- ECPOs should collect, verify, record and timely update the ID information of the ECOs on its platform, and should share the ID information of the ECOs on its platform with the ECOs registration and tax authorities, and remind of those ECOs about their obligations for registration and taxation. Administrative liabilities, including administrative fines, will be imposed for failure to fulfill such obligations;
- ECPOs should timely report any violation by ECOs on its platform of safety requirement and permissibility requirements on products and services provided and should take proper measures. Otherwise, ECPOs may be jointly and severally liable with those ECOs for their violations, as well as administrative penalties up to RMB2,000,000 administrative fines; and
- ECPOs also should record and maintain the completeness, confidentiality and availability of the products/services information and transaction information for no less than 3 years or other longer time period if requested so by other laws and regulations. Failing to comply with such an obligation will be subject to administrative penalties.
Obligations for Fair Trade
The eComm Law requires the ECPOs have their platform service agreement and transaction rules in the principle of being publicly accessible, fair and transparent. Specifically,
- ECPOs must formulate its platform service agreement and transaction rules which should cover the platform entry and exist, quality control of the products/services, consumer protection, personal information protection and other areas;
- The platform service agreement and transaction rules or links to them must be placed on the distinct place on its portal page, ECPOs must ensure that such agreement and rules must be conveniently accessible and downloadable by users of the platform;
- Amendment drafts to such agreement and rules must be published on the portal page for public opinion, ECPOs must ensure that users can have sufficient time and opportunity to share their comments, and the finalized amendments must be published for 7 days before taking effective;
- Should any users refuse to accept the amendment, the ECPOs must offer exit to such users in accordance with the agreement and rules before the amendment taking effect; in addition, the ECPOs are not allowed to impose unreasonable restriction and conditions or take unreasonable charges.
Violation by ECPOs of such obligations regarding the platform user agreement and transaction rules will be subject to severe administrative penalties, up to RMB2, 000,000 administrative fines.
The eComm Law further requires the ECPOs make prominent distinction between self-operated eComm business and that operated by third parties on the platforms.
It also requires the ECPOs establish comprehensive credit rating systems, publicly announce the credit rating rules, provide the users with effective means to rate the products/services , and not delete rating comments posted by users.
To demonstrative the steadfast efforts to nail down the piracy issues over the eComm platform, the eComm Law spares 6 Sections to lay out the detailed anti-piracy related obligations. The violation of such obligations will be imposed upon administrative fines up to RMB2,000,000. Such provisions essentially establish a notice system that is similar to the take-down mechanism as part of the safe harbor practice for copyright protection.
Supplements to the eComm Business Contracting
To promote the eComm business, the eComm Law takes great efforts to facilitate the eComm related contracting process. The provisions on contracting process intent to provide convenience in operation of the law as follows:
- The eComm Law endorses the contract execution and performance through automatic information processing systems and assumes the proper contractual capacity of the parties to the eComm contracts;
- The eComm Law determines the product/service information, if meeting the statutory requirements for offers, as legitimate offers. eComm contracts will be concluded after submitting the order by the customers. In addition, the eComm Law disallow any ECO to sue boilerplate terms to disclaim the conclusion of an eComm contract after payment is made;
- As a tradeoff to the convenience, the ECOs should clearly, comprehensively and specifically inform the users the contracting process and notes and ensure that (1) users can conveniently and completely download and read the contracting rules and the eComm contracts they enter into, and (2) users will be given the opportunity to make changes before they submit the orders to conclude the eComm contracts; and
- Unless otherwise agreed to by the parties, delivery of the products will be determined at the time of (1) receipt of the goods if through courier service, or (2) when the subject matter enters into the receipt’s system if through online transmission. Delivery of the service will be deemed at the time specified in the service voucher.
The eComm Law further imposes additional requirements to electronic payment service providers, which is in addition to the People’s Bank of China regulatory requirements. Electronic payment service providers should be aware that:
(1) they should compensate the eComm users for losses if they fail to prove that their payment services meet the payment security regulatory requirements;
(2) they should give the users the opportunity to verify the transaction payment details before the users can send the payment instructions and should bear the losses for any payment instruction error unless they can prove the error is not caused by them;
(3) they should be able to provide timely confirmation of the payment to the users. Unauthorized payment should be the responsibilities of the electronic service providers, unless they can prove that it is caused by the user’s mistake; and
(4) If they fail to take immediately measures to prevent enlargement of the losses caused by the unauthorized payment upon discovery or notice, they should also be responsible for the enlarged losses.
China has the largest consumer eComm market of the world, which is continuing evolving in faster paces, with successes and issues. The eComm Law is the first of its own kind in this world, trying to establish a coordinated regulatory regime, healthy environment and convenience in operation for the further development of this industry. Yet it is too early to predict the outcome of the eComm Law, it is an applaudable brave exploitation. More will need to be seen in the enforcement of the eComm Law on its overlap with other laws, on the coordination of various governmental agencies following those laws, on the heightened obligation and liabilities of the ECPOs, and on the eventual reaction in development of the eComm business after the eComm Law.
The eComm Law is coming. Are you clear about what you should do, and are you ready for what you are supposed to do?
Disclaimer. This article does not represent legal advice of Global Law Office on the relevant issues. If you need legal advice or other expert advice, please seek assistance from professional legal counsel.