Beijing Confirms Cross Border E-Commerce is Here to Stay
On November 21, 2018, only 11 days after China's first International Import Expo (CIIE), an event that commenced with President Xi reminding the world that China is keeping its doors open wide for global trade, the Standing Committee of the Chinese State Council announced that the current regulatory mechanism for Cross Border E-commerce (CBEC) will remain in place even after the grace period is set to end on December 31, 2018. This means that goods exported to China via CBEC will continue to be treated as personal items and not be subject to pre-market clearance (e.g., product registration or notification), a requirement for certain categories of goods imported via traditional modes of trade unless otherwise exempt.
Prior to the announcement of this policy, industry was sitting in a "gray zone" wondering if the CBEC "expressway" for marketing special goods (e.g., infant formula, health foods, cosmetics, medical devices, etc.) would close after the 2018 deadline. With the new announcement, the Chinese government is assuring that foreign brands will continue to enjoy the advantages of selling products on CBEC platforms, especially products that are often faced with many regulatory hurdles when they are brought into the country as commercial import.
That being said, anyone who utilizes CBEC should remain vigilant in fulfilling the compliance obligations set forth by the Chinese government, as there is often a misconception that CBEC goods are not regulated.
Notably, on November 30, the Chinese Ministry of Commerce issued a notice ("Notice") jointly with five other administrative agencies, including the General Administration of Customs, which elaborates the regulatory requirements for different CBEC participants and products in the post-transitional period to ensure compliance. The following summarizes the specifics with respect to the safety and quality management of CBEC products:
Local entrustment - operators of CBEC retail business (hereinafter "CBEC enterprises"), must bear the responsibility of product safety and quality. They must entrust a domestic company that has industrial and commercial registration to register with local customs and be responsible for faithful reporting. This domestic company will be supervised by local authorities and will be jointly and severally liable in civil disputes.
Consumer protection - CBEC enterprises are obligated to protect consumer rights by disclosing product information, establishing mechanisms of product recall, consumer reimbursement and compensation. China has developed regulations for product recalls in general and food recalls. Therefore, CBEC enterprises should become familiar with rules in this regard.
Notification of potential risk - CBEC enterprises must alert Chinese consumers via a notice of potential risk on the CBEC website to the fact that the CBEC product meets technical specifications (for product safety, quality, hygiene, labeling and environmental protection, etc.) in the country of origin, which may differ from requirements in applicable Chinese standards. This is the first time that the government indirectly clarified a CBEC product does not have to strictly follow applicable Chinese standards. By placing a purchasing order, the consumer is considered acknowledging and accepting a product that may not meet the Chinese requirements.
Electronic Chinese labeling - CBEC goods are purchased directly from overseas, thus the Notice confirms that the use of a Chinese label is not required. This is helpful clarification, as it is used to be unclear whether CBEC products are obligated to bear Chinese labels. Under the announcement, Consumers should be able to check the electronic Chinese labeling information on the website. That is to say CBEC enterprises should, nevertheless, prepare labeling information in Chinese and make it available online. However, it is subject to further clarifications as to what information and how it must be presented in the online electronic label on the webpage.
Risk prevention and control - CBEC enterprises must establish a mechanism to manage product quality at different stages of the supply chain. Product traceability must at least cover from the overseas place of departure (i.e., where the product is shipped from) to the domestic consumer.
On August 31, 2018, China passed its new Chinese E-Commerce Law (effective on January 1, 2019); however, it does not offer much detailed guidance on the regulatory requirements for CBEC goods. Prior to the announcement of the above new CBEC policies, Chinese consumers, even the so-called "professional consumers", were entitled to file complaints and lawsuits against CBEC products that are alleged to be non-compliant under legislation that is enacted by the National People's Congress (e.g., the Chinese Food Safety Law). Interestingly, courts have been split on decisions regarding the scope of regulatory requirements that should apply to CBEC products. With clarifications from the central government in a form of administrative notice (e.g., this joint announcement), we will see how the new policies will be viewed in judicial practice.
Notably, the revised Implementation Regulation of the Food Safety Law ("Implementation Regulation") has not yet been finalized, but one hopes that, when published, the Implementation Regulation will reflect the signal from the Chinese central government and confirm the nature of CBEC food products from the aspect of food legislation, i.e., whether CBEC food products fall beyond the scope of imported food, and thus, do not need to follow every regulatory requirement that applies to food imported via traditional trade. Therefore, the industry should continue to monitor this closely and see if any new requirements are introduced to regulate foods sold in CBEC business.
In sum, while the door appears wide open for certain products shipped to China via CBEC creating a golden opportunity for foreign companies that want to bring their products into the Chinese market, challenges remain. Despite the overall friendly environment for CBEC business, no less effort should be taken by producers and operators to ensure and document product safety and quality.