China will implement a new e-commerce law from January 1, 2019. The new law will expand legal protection for consumers and brand owners and arm the fight against the country’s reputation as a source of counterfeit products.
The timing is important as e-commerce sales accounted for 23.8% of all retail sales in China in 2017 and are expected to reach 33.6% by 2019. Like the country e-commerce market Growing at an astounding rate, so too is the need for tighter market oversight and regulation.
In response to this, the Standing Committee of the National People’s Congress (NPC) passed a new law on August 31 to improve the regulation of China’s booming e-commerce market. It was first reviewed in December 2016 and deliberated by the AFN in October 2017 and June 2018.
In this article, we highlight the main changes introduced in the new e-commerce law.
Types of e-commerce operators recognized by the new law
An important provision of the new law is the clarification of the types of businesses that will fall under its jurisdiction. The law on electronic commerce mainly applies to the following three types of operators:
- Platform Operators: Any legal person or unincorporated organization that provides space for digital commerce, transaction matching, information dissemination, and other services to facilitate parties in a commerce transaction electronic. An example is the Taobao shopping site owned by Alibaba.
- Platform Operators: Third party merchants who sell goods or provide services on e-commerce platforms. An example is a salesperson operating an online store on Taobao.
- Online sellers: other e-commerce players doing business through their own websites or through other online channels, such as social media apps.
A key element is the inclusion of non-traditional shopping channels (such as social media) as places for e-commerce, bringing popular apps like WeChat and Duoyin under the new legislation.
This inclusion is significant; in recent years, the number of microenterprises online on these channels has increased significantly. A micro-enterprise is a small store with no physical storefront, no business license or credit guarantee, and little assurance in terms of customer service.
By simply changing account information or deleting a contact, these businesses can escape their legal responsibility and disappear. Although the term “micro-business” is not a legal term, these types of businesses do exist and are one of the new forms of e-commerce in today’s mobile age.
Strong IP protections for e-commerce
E-commerce platforms must establish rules to protect intellectual property rights and, when notified of a violation, respond in a timely manner. Those who fail to do so face penalties of up to US $ 293,130.
To further strengthen intellectual property protection, retailers on e-commerce sites must also register with the State Administration of Industry and Commerce to obtain a business license.
By requiring registration, the law aims to make it more difficult for those who infringe intellectual property to avoid detection and punishment.
Regulation of unfair competition
Article 22 of the new legislation highlights the obligations of fair competition for all e-commerce operators, with particular emphasis on those occupying dominant positions in the market.
Operators enjoying market advantages through methods such as number of users and technological advantages are prohibited from abusing their position to exclude or restrict competition.
Article 35 further emphasizes fair competition by prohibiting platform operators from imposing unreasonable restrictions, conditions or charges on merchants.
Shared responsibility for platforms
E-commerce platforms will now be jointly responsible for selling counterfeit products on their site.
Previously, only individual traders were responsible when they were caught selling fakes.
Under the new law, platform operators must respond in a timely manner to reports of violations or face penalties of up to $ 30 million.
Consumer rights strengthened in the field of electronic commerce
Consumers will now benefit from enhanced legal protections under the new e-commerce law. Merchants must clearly disclose any clauses or packages they have placed on sales and cannot presume the consumer’s consent.
The new legislation will also protect consumers from fake reviews. The ban on fake reviews includes not only reviews written by hired agents, but also positive reviews written by customers in exchange for monetary rewards.
During the last years, e-commerce in China has grown at a rapid pace, but with little oversight. The new e-commerce law comes at the right time, as more and more consumers are turning to online platforms to make their purchases in the first place.
Strengthening this surveillance of e-commerce will lead to effective regulation of online activities and should improve protections for consumers and brand owners. In addition, the law will tackle the sale of counterfeits, thereby helping to rebuild China’s reputation as a source of counterfeit goods.
While this is certainly a step in the right direction, further improvements are possible. Some aspects of the law still need to be clarified. The provisions, such as the standard of proof required to initiate take-down procedures or the relevant legal liability of platform operators, are still unclear, leaving them open to abuse or misinterpretation.
Platform operators, merchants and brand owners should be made aware of regulatory changes that will come into effect next year and prepare for compliance.
For platform operators, due diligence is necessary to ensure that goods sold by third-party merchants on their platforms are in compliance with updated legal standards. For their part, merchants and brand owners should have a good understanding of the compliance standards and consumer and brand protections provided by the new law.