Uncertainty Surrounds Enforcement of Some Rules in China's New E-Commerce Law

It is unclear how China will enforce some of the regulations introduced in its new e-commerce law, according to an April 7 report published by the American Chamber of Commerce in Shanghai, leaving some foreign companies and small businesses uncertain about selling products to China online. Some foreign department stores that previously shipped online sales directly to China have already switched to large Chinese e-commerce platforms that import through a Chinese distributor, according to the report. Others, the report said, “have pulled out of the Chinese market entirely.”

China’s new e-commerce law makes several significant changes to the online marketplace, including requiring e-commerce companies to register with China customs through a business already registered in China and to report “real-time” transaction data of imports, according to the report. That requirement is one of many introduced in the new regulations, which took effect Jan. 1 and impact almost all parties involved in e-commerce trade.

“If you do not meet the requirements necessary to get on [China’s e-commerce platforms] you almost certainly will not get on,” according to a report from law firm Harris Bricken. “Or if you do get on such platform and then start creating liability risks for your platform operator, you can expect to get booted off relatively quickly.”

Also uncertain is how enforcement will play out with requirements that e-commerce companies register with China customs and report their transaction data, the AmCham report said. Although all e-commerce companies must register with China customs or risk their products being blocked, the report said it will be difficult for foreign companies and small business to meet the requirements. China customs may block imports of “non-compliant goods” or shut down “websites of foreign sellers that do not comply,” according to the Harris Bricken report.

While enforcement of some rules is still unclear, the law made several changes for e-commerce vendors that had immediate impacts. Changes include requiring companies to provide Chinese customs with their business license, “administrative permit” or a statement explaining they are “not required to register,” the AmCham report said. The law also requires vendors to disclose information about its goods in a “comprehensive, authentic, accurate and timely manner so as to protect the consumer’s right to know and right to choose,” the report said, and “[p]rovide non-targeted options if it provides targeted search results based on the consumer’s interests, habits or other personal traits.” Vendors must also “[n]ot use any tie-in sale as a default option,” according to the report, and clearly present required refund procedures that are not “unreasonable.”

The law also set out a series of rules for platform operators -- entities that provide the online marketplace for vendors to sell goods to customers, such as Alibaba.com, Taobao.com and JD.com. Platform operators must keep records of all goods and services bought and sold on their platforms, according to the report, and “establish fair and transparent rules” for transactions. The law also requires operators to verify the identities and tax registration of vendors, the report said, and makes the platform operator liable for products sold on its website that “do not comply with personal safety or property security requirements if the platform operator knew or should have known about the failure to comply.” Operators are also responsible for establishing rules for intellectual property protection and must block any transactions that “infringe on an IP holder’s rights,” the report said.

The changes also increased limits on the annual value of e-commerce goods that are permitted for duty-free imports, expanded the list of goods eligible for trade and tightened restrictions on redistribution by so-called grey market channels called "Daigou" (see 1903220054).