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Will China’s revision to its E-Commerce legislation make a difference?

China’s State Administration of Industry and Commerce (“SAIC“) issued a draft of the new Administrative Measures for Online Commodity Trading and Relevant Services (网络商品交易及有关服务管理办法) on 11 September 2013 (the “Draft Online Trading Procedures“), with the objective to revise and clarify the Interim Measures for the Administration of Online Commodities Trading and Relevant Services (网络商品交易及有关服务行为管理暂行办法) issued by it on 31 May 2010 (the “Tentative Online Trading Procedures“). The aim of the Tentative Online Trading Procedures was to regulate online commodity trading conduct and to protect online consumers and business operators. However, the Tentative Online Trading Procedures left a number of unresolved issues relating to e-commerce in China.

1. 2010 Tentative Online Trading Procedures

Among other things, the Tentative Online Trading Procedures required vendors to register using a real-name system and to display their business license information on their websites. Vendors and service providers were also required to display accurate and detailed information about their products or services as well as to comply with intellectual property and anti-unfair competition laws. Furthermore, online service providers were required to establish a monitoring system to review commodities and service information, to take immediate action and report any violation of laws and regulations to the local Administration of Industry and Commerce (“AIC“) department. While the Tentative Online Trading Procedures signified a focussed endeavour to develop and monitor the online trading environment, things have moved on, and they have become considerably outdated. As a result, the SAIC issued the Draft Online Trading Procedures for public consultation on 11 September 2013.

2. 2013 Draft Online Trading Procedures

The Draft Online Trading Procedures have clarified the above real-name registration system requirements, specifically stipulating that individual online vendors are allowed to engage in online transactions despite not having a business license from the AIC. However, they are only allowed to do so through a third-party transaction platform, and must register with the third-party transaction platform using their real names. In addition, the Draft Online Trading Procedures imposed stricter monetary penalties, increasing the fines from RMB 10,000 to 30,000 for acts such as mishandling of personal data, failure to cooperate with authorities in investigations of vendors’ violations and failure to provide adequate management of its transaction platform. If online vendors engage in anti-competitive activities, which include intentionally damaging a competitor’s reputation, performing fictitious transactions to increase one’s business reputation or selling counterfeit products, they will be liable for a penalty ranging from RMB 10,000 to 30,000. Given that the fines all seem to come in below RMB30,000 (approximately  USD 4920), it is difficult to predict whether this new draft, of itself, will really help consumers combat the unlawful behaviour of online vendors and third-party platforms.

3. Significance

While the penalties imposed in the Draft Online Trading Procedures alone may be too low to significantly influence the big players, it may still be possible to rely on the overlap with existing, higher-ranking legislation within the Chinese legislative hierarchy which has more severe penalties and real “teeth”. These include the PRC’s Anti-Unfair Competition Law[1] and the Trade Mark Law [2] which are laws promulgated by the Standing Committee of the National People’s Congress and thus will rank above the Draft Online Trading Procedures. Under these higher-ranked laws, for the same types of unlawful activities listed above, online vendors may be imposed a fine between one to five times the unlawful earnings, revocation of their business licence as well as criminal liabilities. Therefore, with such low penalties, consumers may still have to rely on the ‘bigger guns’, which may not be specifically targeted at e-commerce, to seek redress.

Having said that, the Draft Online Trading Procedures are still of value. A significant contribution of the Draft Online Trading Procedures is the clarification of the real-name registration system which addresses a serious issue with vendor identity and which represents one of the key elements for consumer protection in e-commerce. After-sales customer services have proved in practice to be particularly inadequate, as consumers who wish to return or repair products, or launch complaints are often hampered by the difficulty in identifying the original seller. The real-name registration system will hopefully create a credit and disclosure system to address problems that arise from counterfeiting, inferior product quality, misrepresentation and fraud. Only when confidence in Chinese cyberspace is restored can e-commerce achieve its full potential in China. This can only be realised if adequate legal rules are in place to regulate e-commerce and, more critically, the rules are enforced and the punishments are significant enough to deter would-be online fraudsters.

[1] People’s Republic of China Anti-Unfair Competition Law (中华人民共和国反不正当竞争法), effective 2 September 1993.

[2] People’s Republic of China Trade Mark Law (中华人民共和国商标法), effective on 1 March 1983, and amended in 22 February 1993, 27 October 2001 and on 30 August 2013. The latest version of the Trade Mark Law shall come into effect on 1 May 2014.