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Tug of Law

With the influence of powerful special interests looming large, some question whether China’s new E-commerce Law will truly rein in malpractice in the burgeoning sector.

By Zhao Yiwei Updated Nov.27

On August 31, 2018, the E-commerce Law, China’s first overarching law governing the e-commerce sector, was passed by the National People’s Congress (NPC), China’s top legislative body. It will take effect on January 1, 2019.  

It came after a tough battle between conflicting interests. Drafting began at the end of 2013, and proposals from the industry association on behalf of companies, and from academics and regulators, were reviewed to produce a draft that was originally submitted for review by lawmakers in late 2016.  

It would take three more drafts to pass. Yin Zhongqing, deputy director of the NPC’s Financial and Economic Affairs Committee, who was tasked with drafting the law, pointed out that in China most laws are passed after three readings, but the E-commerce Law failed to get the green light until a fourth.  

“The law specifies regulations on platform operations, contracts, dispute settlement and liabilities involved in the e-commerce sector as well as the maintaining of market order,” he told a press conference on August 31.  

The law aims to “protect consumer rights” and “boost the sound development of the sector” while balancing the legitimate interests of the three parties – e-commerce platforms, vendors and consumers, according to Li Yongjian, an internet economy researcher with the Chinese Academy of Social Sciences.  

Whether platforms can be held liable for misconduct on their sites is the most controversial part of the law. According to the third draft, if e-commerce platforms failed to properly examine the qualifications of vendors, or fail to protect consumer safety, they would have been held “jointly liable” for their misdeeds.  

But the fourth draft of the law, read on August 27, 2018, included a clause that reduced the liability of e-commerce platforms from “joint liability” to a weaker “supplementary liability.” In the legal sense, joint liability allows consumers to take both platforms and vendors to court for damages, while supplementary liability means that consumers can only sue vendors.  That change sparked debate among lawmakers and legal scholars, amid fears that reducing the platforms’ liability would leave consumers poorly protected. Xu Xianming and Cai Fang, two members of the NPC Standing Committee, said the clause had“driven China’s legislation backwards,” and said priority should be given to consumer rights.  

A key champion of the supplementary liability clause, Li Yongjian claimed controversies emerged because the original liability and regulation systems had failed to keep up with the changing economic situation and the rapid development of the e-commerce sector. He told NewsChina that for consumers, it is much easier to sue platforms than to sue sellers, but for platforms it would be a heavy operational cost to bear the responsibility of each consumer rights infringement.  

“It is lazy governance and a lack of fairness if platforms are held accountable for all violations,” said Liu Kaixiang, a commercial law professor at Peking University. He told our reporter that platforms should ensure safety and that vendors were vetted, as well as bear supplementary liability, arguing that if platforms can demonstrate they have met these responsibilities and committed no faults, they should be immune from liability.   

Platform Liability 
The day before the draft was delivered to the NPC, the clause underwent yet another revision – and “corresponding liability” was eventually added to the final law.  

“The revision process turned out to be a tug of war among various parties,” Yin Zhongqing said. “Platforms insisted that joint liability was too stringent. Supplementary liability was also lambasted for being too lenient to platforms. Corresponding liability is a relative balance of different voices.”  

According to Shi Jianzhong, a law professor at the China University of Political Science and Law, “corresponding liability” involves various types of responsibility and methods of bearing responsibility, but the clause is not very clear or definite. The unclear wording will increase the cost of making claims, meaning consumer rights are poorly protected. Shi said corresponding liability includes, but is not limited to supplementary liability, and it even includes joint liability. From a legal perspective, he added, the revision does amount to progress.  

Consumer Rights 
According to Liu Kaixiang, the new Ecommerce Law draws on other legal clauses when judgments of specific cases are involved. Liu says the law weighs the liability of both platforms and vendors and highlights consumer rights.  

It stipulates that platforms should establish complete credit systems and should not delete any comments from consumers. Meanwhile, platforms should display search results for commodities and clearly label products of paid listings as advertisements. In addition, internet payment platforms should be held accountable when consumers suffer a loss from transactions due to payment instruction errors.  

The law also requires platform operators to strictly abide by laws and regulations when accessing and using the personal information of users, placing emphasis on consumer privacy. Operators are prohibited from commercial acts of tie-in sales and cannot assume the consent of users.  

Platform operators could face a penalty of between 500,000 yuan (US$73,000) and two million yuan (US$290,000) for unreasonably restricting transactions on platforms, or failing to take necessary steps against intellectual property infringement by vendors on their platforms in cases they are aware of or should be aware of. E-commerce platforms face fines of up to 500,000 yuan (US$74,626.9) if they delete negative reviews on products sold on their platforms.  

“E-commerce involves many fields and loopholes will naturally emerge if the market is under the regulation of a single law,” Li Yongjian, an internet economy researcher with the Chinese Academy of Social Sciences, told NewsChina. He said that although the E-commerce Law focuses on the retail market, it actually applies to virtually all fields in the sector. Products and services sold on the platform are both regulated in the same way, without attention to their variety and difference.  

The law has vague clauses concerning the responsibilities of takeout food platforms and ride-hailing platforms, which are highly likely to result in disputes. But Li says when disputes arise, the law has a limited legal reference value and the supervision and penalties have to be conducted in line with related laws by related agencies.  

In terms of rights, the current clauses in the E-commerce Law are apparently not useful to solve the bulk of complicated disputes. There is consensus to encourage the establishment of third-party dispute settlement agencies and the platform’s own dispute settlement mechanisms.  

According to a recent report released by China’s Ministry of Commerce, e-commerce trade amounted to 29.16 trillion yuan (US$4.26t) in 2017, an increase of 11.7 percent year-on-year. Statistics from www.100EC.cn, an online sales dispute settlement platform, showed that alongside China’s expanding e-commerce market, disputes between consumers and platforms or vendors have been on the rise – complaints about retail e-commerce accounted for more than 60 percent of total e-commerce complaints in the first half of 2018.  

“Most e-commerce disputes can be solved by platform self-regulation mechanisms after negotiations, so we wouldn’t need to waste judicial resources,” Li Yongjian said. He suggested the government establish social welfare institutions to take care of disputes and encourage e-commerce platforms to set up three-party mediation mechanisms such as the dispute settlement mechanism on Alibaba’s Taobao, China’s dominant e-commerce platform.  

“Most clauses in the E-commerce Law are not mandatory, so their effectiveness in solving disputes will be limited,” Liu Kaixiang said. “The e-commerce sector involves many departments, laws and regulations, and it’s difficult to coordinate the interests of all of them. That’s why it is impossible to make the law comprehensive. The only hope we have for the law is its role in guiding the sound and orderly development of the sector.”