​China's new e-commerce law: A step in the right direction

Staff members pack the express packages at JD's warehouse in the pilot free trade zone in north China's Tianjin Municipality, April 28, 2017. [Photo / Xinhua]

E-commerce has grown rapidly around the globe, especially in China, which boasts the world's largest e-commerce market, currently worth over US$1 trillion. Therefore, it is important that China takes steps to protect this market, and ensure it has a regulatory framework in place that will promote its continued development.

In recent years, there has been growing concern over the need to provide better and more efficient regulation of e-commerce. This includes the need to address issues of counterfeit goods, consumer fraud, privacy, intellectual property (IP) theft, tax evasion and promotion of competition and consumer protection. On January 1,2019, China's new e-commerce law took effect.

The new law builds upon earlier reforms of China's legal system. One important feature of the new law is the requirement that online businesses must register their business and acquire all necessary licenses regulating particular activities, such as sale of therapeutic drugs. The framework of the new law is comprehensive. Individual chapters cover: e-contracts and e-payments; guarantees for e-commerce transactions; data protection and promotion of consumer protection, fair competition and mechanisms for dispute resolution; cross-border commerce; and the provision of substantial civil and criminal penalties.

E-commerce operators must also meet their tax obligations and are now required to issue a tax invoice (fapiao). The legislation also strengthens intellectual property protection and addresses the problem of manufacturing and sale of counterfeit goods. For example, the new law holds liable both the counterfeiters, as well as e-commerce operators who fail to "take necessary measures" to prevent and stop sellers in violation of intellectual property rights . Under the new law, operators can be fined up to RMB 2 million ($292000) in serious cases of intellectual property infringement.

Platform operators are also prohibited from imposing unreasonable restrictions, conditions or fees on merchants. In addition, these operators must keep transaction records, as well information of products and services provided, for at least three years.

The new law further fosters consumer protection and competition by requiring the e-commerce operator to disclose accurate product/service information and to avoid engaging in misleading and deceptive practices. E-commerce platforms will also have to establish a system to post consumer comments and introduce other measures to ensure accurate information. For example: prohibiting misleading promotions, fake reviews and other attempts to manipulate the market.

The new law further enhances China's regime of privacy protection. China's Cyber Security Lawcame into effect on June 1, 2017 and dealt with personal data protection, privacy and personal data protection. The new e-commerce law compliments this by also placing restrictions on abuses of consumer profiling, such as forcing consumers to "opt-out" of particular services.

The new e-commerce law enhances the protection of consumers, as merchants must provide greater disclosures, more transparency, and greater monitoring of fraudulent practices. By reducing counterfeit goods, consumers will have greater trust in the system. Legitimate product manufacturers and designers will also be encouraged to join China's online environment, knowing that they will be protected against the counterfeiting of their designs and theft of intellectual property. This includes more foreign participation which will both expand choice to Chinese consumers and work to address complaints that China has been too soft on IP protection.

In order for all the new law's goals to be achieved, all stakeholders will have to lift their game. E-commerce platform providers will have to be more diligent in regulating the information, content and conduct on their platforms. Businesses will have to engage in significant compliance program development, training and implementation to ensure their systems are compliant with the new regime.

One concern is the impact of the new law on small businesses which have fewer resources to implement the site development, training and business model adaptations required to be compliant in the new regime. The new law also creates a higher cost of entry which may dissuade some small players from entering the e-commerce market.

Government agencies will have to implement the rules and administrative procedures that provide the details for implementation. For example, many questions remain about how all of this will be implemented, especially in regard to foreign entities that seek to enter the Chinese e-commerce market.

Consumer interest groups, standards bodies, industry organizations, citizen action groups and others will have to be prepared to play their part in using the new legislation to better protect consumers, challenge bad actors and redress consumer grievances. The new law encourages self-regulation, the establishment and strengthening of industry and network codes of conduct. It notes the need for major e-commerce entities to promote business guides and encourage fair competition and greater trust among all stakeholders.

The law has for centuries struggled with and always limped behind advances in technology. The world of e-commerce and the underling technological advancements, especially in areas such as artificial intelligence (AI), will require that laws, regulations, standards and other administrative machinery be continually revised and adapted to new realities.

Finally, e-commerce will account for an ever increasing share of China's foreign trade. The new e-commerce law raises the standard of commercial conduct in cyberspace and thus constitutes an important step along the road to the continued growth of China's e-commerce market.

Eugene Clark is a columnist with China.org.cn. For more information please visit:

http://www.china.org.cn/opinion/eugeneclark.htm

Opinion articles reflect the views of their authors only, not necessarily those of China.org.cn.