New China’s E-commerce Law: 5 Things You Need To Know

11/10/2018

The Chinese government is ready to enact its first-ever e-commerce law: the new legislation is a positive development in the country’s long-lasting fight against counterfeit products and intellectual property violations, say lawyers.

 

On August 31, 2018, the Standing Committee of the National People’s Congress of the People’s Republic of China approved the first-ever e-commerce law. The approval is a first step; a new comprehensive e-commerce law will be implemented starting January 1st 2019.

As we know, the e-commerce market has literally exploded in China in recent years, bringing along unprecedented business opportunities as well as a new legal issues and concerns. As a result of that, the government has recognized that more regulation is needed to protect both consumers and producers rights, and rule the competition amongst large and small players in this ever-growing industry.

Here are the 5 main aspects that will be affected by the new legislation.

 

 

  1. Plurality is the new normal: no more unfair advantages for market leaders

The new regulation will call for better and fair competition. E-commerce platforms will be prohibited from “excluding or restricting other players, and cannot impose unreasonable restrictions, conditions, or fees on merchants and producers”. The main goal of this is to level the playing ground between giant platforms – such as Alibaba and JD – and thousands of smaller e-commerce players. We will see how platforms will respond on this, yet the paper released by the government say that violators “may face fines of 500,000-2 million RMB”.

 

  1. Clearer obligations and liabilities to protect intellectual property

This has been a very hot topic for years – for both Chinese and international consumers of Chinese products. Article 45 of the new e-commerce law says: “Where an e-commerce platform operator knows or should have known an intellectual property infringement committed by a business operator in the platform, it shall remove, block or disable the link, or terminate transaction or services or take other necessary measures [to deter the infringing act].”

So what has actually changed? Before the new law only sellers were responsible; now, e-commerce platforms that “should have known” the intellectual property infringements must deter such infringements. Also, they have to establish clear rules to protect IP rights. If not compliant, they “may be fined anywhere from 500,000 RMB to 2 million RMB for failing to respond to claims of counterfeit items”. Which is definitely something online operators would not want to face.

 

  1. Protect consumers from fake reviews: every store needs a business license to operate.

The law will make platforms responsible for the quality of the goods and services, which means consumers can seek damages from the e-commerce platform directly. The platforms would then have to compensate consumers, and seek reimbursement from the actual retailers of the goods or services. As the government strives to protect consumers from counterfeiters and fraud, more scrutiny will be placed on platforms and other providers.  

The new law highlights that individual selling accounts on platforms such as Taobao and WeChat may have to register with the State Administration for Industry and Commerce to receive an official business licence in order to sell their goods.

 

  1. Everybody has to file tax review. No more Daigou?

Now even individual-run stores on WeChat and Taobao will have to file tax returns and issue official tax receipts. To enforce this clause, platforms such as Taobao and WeChat will have to verify business licenses, conduct identity checks on sellers, and submit both identification and information to tax authorities. It’s still to be seen how much taxes sellers will have to pay, yet it’s clear is that there will be more scrutiny on daigou selling through WeChat and Taobao.

The reason is easy: they need to be registered with the government and pay taxes. Daigou primarily profit of the markup between overseas products and those already sold in China: the new regulation will make their margins become even thinner, eventually leading them to exit the business completely. This is of course good new for cross-border e-commerce platforms and operators, as well as for those consumers that want to purchase products directly from international brands with no intermediaries.

 

  1. This is the first-ever comprehensive e-commerce law in China

The law specifically regulates the conduct of three groups: platform operators (Tmall, Taobao, Pinduoduo, JD, etc.), in-platform operators (those that operate shops on platforms), and any other types of e-commerce businesses (including WeChat stores, standalone e-commerce sites, etc.). Thus, this is the e-commerce law in China that considers all the players in the industry. The new regulations embrace different fields such as IPR, customers and producers protection and a real tax review.

Pop sellers on WeChat and Taobao may be forced to register and pay income taxes for the first time, as the State’s Council is putting them on the same level playing as local brick-and-mortar retail stores. This groundbreaking aspect of the new regulation includes gray-market daigou agents who buy international brands overseas and resell them in China. This may prove to be beneficial for cross-border e-commerce, which involves the direct selling of overseas products from brand/retailer to Chinese consumer.

 

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