Discussion on the Application of E-Commerce Law to Overseas E-Commerce Operators

Preamble

As we’ve mentioned in the article Analysis of the Influence of E-commerce Law on E-commerce Business Operators, in recent years, the demands of domestic [1] consumers for overseas goods and services have been growing and the cross-border e-commerce industry has developed drastically.  Domestic e-commerce giants like Tmall and JD also engaged in the cross-border e-commerce field one after another. It has emerged E-commerce platforms such as Tmall Global and JD.HK mainly providing overseas goods and services to domestic customers. The recently-issued E-commerce Law of People’s Republic of China (hereinafter referred to as “E-commerce Law”) and relative rules have aroused much attention of cross-border e-commerce operators. Relevant clients of us called for such concerns like “whether the provision of the E-commerce Law that the e-commerce operators shall obtain domestic market entity qualification is applicable to overseas e-commerce operators”. Therefore, in order to provide useful reference for relevant institutions and professionals, we try to figure out the application and influence of E-commerce Law toward overseas e-commerce operators in this article (herein only referring to overseas e-commerce platforms and operators running business at such platforms, hereinafter referred to as “Overseas Platforms” and “Overseas Operators at Platforms” respectively).

 I Definition and Categories of Overseas E-commerce Operator

1. Definition

As its name implies, overseas e-commerce operator means the e-commerce operators engaging in business deals overseas. In accordance with Law of the People's Republic of China on Administration of Embarkation and Disembarkation, Administrative Measures on Individual Foreign Exchange, Measures for the Administration of Foreign-related Investigation as well as the other laws and regulations, “overseas” refers to countries or areas outside Chinese customs boundary which not only includes other countries and regions, but also includes Hongkong, Macao and Taiwan of China. Pursuant to E-commerce Law, “e-commerce operators” indicates natural persons, legal persons and other non-legal-person organizations that engage in business activities of sale of goods or provision of services through Internet and other information network. Hence, “overseas e-commerce operators“ means natural persons, legal persons and other non-legal-person organizations registered in countries or regions outside Chinese customs boundary (including Hongkong, Macao and Taiwan of China) that engage in business activities of sale of goods or provision of services through Internet and other information network.

2. Categories

Targeting at different consumer groups, overseas e-commerce operators can be classified into the following three categories: the first category mainly targets at domestic consumers, such as Tmall Global, JD.HK and overseas operators running business at these platforms. The second category, such as neimanmarcus and Macy's, targets at global consumers, and domestic consumers are able to directly select a domestic address to receive goods on websites or apps thereof.  The third category doesn’t target at domestic consumers, so domestic customers are not able to directly select a domestic address to receive goods on websites or apps thereof.   In order to buy goods form such overseas e-commerce operators, domestic consumers have to register in a foreign transshipment company to obtain an overseas address, to which overseas e-commerce operators deliver the goods after the placement of orders, then the foreign transshipment company will deliver the goods to domestic consumers. The third category overseas e-commerce business operator includes Wish, newegg, shopee, etc.

II Application of E-commerce Law to overseas e-commerce operators

In accordance with Article 2 of E-commerce Law, domestic e-commerce activities are applicable thereto, but the actual situations of “domestic e-commerce activities” are not clearly stated. Here comes the question, does the provision of goods or services by overseas e-commerce operators to domestic consumers falls under “domestic e-commerce activities”? In other words, shall overseas e-commerce operators be governed by E-commerce Law? We will figure out this issue from three aspects: legislative opinion, existing laws and judicial practices.

1. Legislative Opinion

According to the report on the review results of E-commerce Law of People’s Republic of China (Draft),  issued by the Constitution and Law Committee of the National People's Congress on August 28, 2018 (Hereinafter referred to as "NPC Report"), provisions of E-commerce Law in relation to consumer protection may be applicable to e-commerce activities like domestic consumers’ purchase of goods from overseas e-commerce operators pursuant to Law of the People's Republic of China on the Application of Laws to Foreign-related Civil Relations (Hereinafter referred to as “Law on the Application of Laws”). To our comprehension, provisions of E-commerce Law in relation to consumer protection shall be applicable to overseas e-commerce operators in the premise of conforming to the relevant provisions of Law on the Application of Laws. As Article 42 of Law on the Application of Laws provides, the laws of the consumers' regular residence shall apply to consumer contracts; when consumers choose the laws of the place in which the goods or services are supplied or, the operators have not engaged in related business activities in the consumers' regular residence, the laws of the place in which the goods or services are supplied shall apply. In judicial practice, therefore, provisions of E-commerce Law in relation to consumer protection can be applied directly in accordance with the above-mentioned provisions of Law on the Application of Laws.

2. Existing Laws

As mentioned above, overseas e-commerce operators described herein include the two categories of Overseas Platforms and Overseas Operators at Platforms. Therefore, two kinds of legal relations will be formed when domestic consumers purchase goods through Overseas Platforms: one is service contractual relation between domestic consumers and Overseas Platforms, and the other is sales contractual relation between domestic consumers and Overseas Operators at Platforms. According to Law on the Application of Laws, legal application of the two kinds of relations are different, to be more specific:

The laws, to which the service agreement between domestic consumers and Overseas Platforms (hereinafter referred to as “Service Agreement”) applies, shall comply with general provisions[2] of Law on the Application of Laws in relation to the legal application of creditor’s rights: it comes first the laws which the two parties concerned choose by agreement, and if no chosen, such laws which have the closest relation with the contract shall apply. Thus, if the parties to the Service Agreement do not choose the applicable law and, the court or arbitration institution considers that the Service Agreement shall apply to the laws at the regular residence of domestic consumers [3], relevant provisions of E-commerce Law in relation to consumer protection shall apply, including but not limited to provisions on protection of consumers’ personal information, safeguard of consumers’ rights to know and to choose, guarantee of the quality of goods and services and so on.

While the laws, to which the sales contract between domestic consumers and Overseas Operators at Platforms (as well as Overseas Platforms with self-operated business) (hereinafter referred to as “Sales Contract”) applies, shall comply with relevant provisions of Law on the Application of Laws in relation to consumer contracts [4]: the laws at the regular residence of domestic consumers shall apply, unless consumers choose the applicable laws of the place in which the goods or services are supplied ( we construe it as the main business place of overseas e-commerce operators) or the operators have not engaged in related business activities in the consumers' place of regular residence. In addition, if certain Sales Contract involves product liabilities, relevant provisions of The Law on Application of Law in relation to product liabilities shall apply[5]: the laws at the regular residence of domestic consumers (the infringee) shall apply, unless domestic consumers (the infringee) choose to apply the laws at the principal place of business of the overseas e-commerce operator (the infringer) or the laws of the place in which the infringements happened, or the overseas e-commerce operators (the infringer) do not engage in related business activities in the domestic consumers’ (the infringees') place of regular residence. In summary, the applicability of E-commerce Law to Sales Contracts and related product liability disputes shall be comprehensively judged combining both the choice of domestic consumers and whether overseas e-commerce operators have related business activities in domestic territory (there is no official interpretation of “having relevant business activities in domestic territory”. We construe that relevant business activities shall be related to the subject matter of Sales Contracts). Relevant provisions of E-commerce Law shall apply when certain consumer does not choose applicable law and certain overseas e-commerce operator has related business activities in domestic territory [6].

In this regards, the Circular on Improving the Regulation of Cross-border E-commerce Retail Imports (hereinafter referred to as “the Circular"), jointly issued by six departments including the Ministry of Commerce on November 28, 2018, specifies that Overseas Operators at Platforms shall bear the liability of transmitting transaction electronic data and declaration list to customs apart from product liability and responsibility of protecting consumers’ rights and interests. Moreover, Overseas Operators at Platforms must entrust a domestic enterprise  to register at the customs. Therefore, “the Circular" confirms the applicability of the provisions of the E-commerce Law in relation to consumer protection to Overseas Operators at Platforms at the level of business operation.

Nevertheless, we hold that domestic consumers shall be entitled to choose the laws at the locality of the provision of goods or services if such laws protect consumers’ rights and interests better than domestic laws. Concerning the principle of protecting consumers’ rights and interests, the implementation of “the Circular” will not have the legal effect of depriving consumers of their rights to choose. However, whether E-commerce Law will still be applicable if domestic consumers’ choices are based on the standard contractual terms provided by Overseas Platforms? We will carry out specific analysis in what follows..

3. Judicial Practices

3.1   Domestic Consumers and Overseas Platforms

As mentioned aforehead, the two parties to the Service Agreement may choose the applicable law by agreement. But in business practices, domestic consumers have to check the standard Service Agreement provided by Overseas Platforms if they need to purchase goods thereon. Therefore, the applicable law is chosen by “the platform” rather than by “agreement”. For example, the Service Agreement [7] between domestic consumers and the operation entity of Tmall Global, Taobao China Holding Limited (hereinafter referred to as” Taobao Holding”), agrees that all disputes arising from the agreement shall be submitted to Hong Kong International Arbitration Centre using the laws of Hongkong. While JD.HK’s[8] Service Agreement[9] agrees that it is subject to domestic laws. Whether such standard terms are legal and valid? Shall domestic consumers’ acceptance to the Service Agreement be equal to their choosing the applicable laws at the place in which the goods or services are provided as prescribed in Law on the Application of Laws? Although in practices there has not occurred any judicial precedent concerning the validity of standard terms of Overseas Platforms, the head of Civil Adjudication Tribunal No.4 of the Supreme People’s Court specially referred to Law of the People's Republic of China on the Protection of Rights and Interests of Consumers (hereinafter referred to as “ the Law on Protection of Consumers”) when answering question regarding Article 4 of Law on the Application of Laws which clearly states direct applicability of “Mandatory Provisions” of Chinese laws during journalist interview on The Interpretation of the Supreme People's Court on Several Issues Relating to Application of the Law of the People's Republic of China on Application of Laws to Foreign-related Civil Relations (I) (hereinafter referred to as “Interpretations of the Supreme People's Court”).Therefore, we hold that, although Article 10 of the Interpretations of the Supreme People's Court does not list the “provisions on protection of consumers’ rights and interests” as one of the “Mandatory Provisions”, however, such inexhaustible listing method has a catch-all clause: “Any other circumstances that shall be determined as the mandatory provisions”. Therefore, concerning the aforesaid answer to  journalist, the Law on Protection of Consumers shall be considered as mandatory provisions so as to exclude the choice of applicable law by the standard terms of the Service Agreement. In addition, Opinions of the Supreme People's Court on Providing Judicial Services and Guarantees for Hainan to Comprehensively Deepen Reform and Opening Up (No. 16 [2018] of the Supreme People's Court) provides, when a cross-border e-commerce platform uses standard form clauses to enter into an arbitration agreement with a consumer without taking reasonable measures to remind the consumer to pay attention, the consumer’s requesting the people’s court to confirm the invalidity of such arbitration agreement shall be supported. This provision is in line with Article 31 of Interpretations of the Supreme People's Court on Application of the "Civil Procedural Law of the People's Republic of China [10]. Although these two provisions above-mentioned of the Supreme People's Court concern only the validity of arbitration agreement, their declarations of protection on consumers’ rights and interests offer references for determining the validity of terms on choice of applicable laws.

It is worth noting that “the Circular” requires cross-border e-commerce platforms should be domestic market entity from January 1, 2019. In other words, Overseas Platforms mainly targeting at domestic consumers, such as Tmall Global and JD.HK have to transfer its registration address to domestic territory or operate their platforms by establishing domestic subsidiaries. And, after they are transferred to domestic e-commerce platforms, E-commerce Law shall apply. As described above, if Overseas Platforms targeting at global consumers choose not to register as a domestic operation entity, even if their Service Agreements take reasonable measures to remind the consumer to pay attention, the Law on Protection of Consumers and the Law of Product Liability (including relevant provisions of E-commerce Law) are not necessarily excluded from being applied. For Overseas Platforms not targeting at domestic consumers, as they do not build direct contractual relation with domestic consumers, E-commerce Law will not be applicable to them.

• Domestic Consumers and Overseas Operators at Platforms

There is also no judicial precedent where domestic consumers directly sue Overseas Operators at Platforms in legal practices. We deem the absence is attributed mainly to two reasons: The first is the high cost of safeguarding legal rights. The course for domestic consumers to sue overseas entities (or to apply for arbitration) is complicated, time-consuming and expensive. Another problem for domestic consumers to face is the recognition and enforcement of effective judgments. These expenses are disproportionate to the possible claim amount, so domestic consumers may reluctantly give up safeguarding legal rights. The other reason is the low level of legal awareness of some domestic consumers. When purchasing goods on Overseas Platforms, they mistake the platforms for sellers, so they will not trace the particular business operator at the platform. To Offer further support for domestic consumers to take legal actions against the platforms, “the Circular” requires the cross-border e-commerce platforms to fulfill the liability of advance compensation when domestic consumers’ legal rights and interests are damaged. In other words, domestic consumers will be able to require the cross-border e-commerce platforms to compensate their loss directly. After compensation to the consumers, the platforms can by themselves coordinate with Overseas Operators at Platforms.

Certainly, “the Circular” is applicable only to the circumstance where domestic consumers purchase goods from cross-border e-commerce platforms operated by domestic entities. If domestic consumers purchase goods from overseas procurement platforms or overseas business operators, the legal application may refer to the provisions above-mentioned and analysis on the legal application to Overseas Platforms.

Conclusion

Data from the customs shows that in the first nine months of 2018, China's cross-border e-commerce retail imports amounted to 57.9 billion yuan, an increase of 56.6% year-on-year. Furthermore, the State Council’s executive meeting held recently decided to continue and improve the policies on cross-border e-commerce retail imports, to expand their scope of application, and to widen opening-up to stimulate the potential of consumption to a higher extent. With the rapid development of cross-border e-commerce market, however, relative disputes are also increasing. Therefore, while encouraging the development of cross-border e-commerce market, the State Council’s executive meeting has also defined the principle of prudent supervision: improving and refining the relevant regulatory requirements, clarifying the responsibilities of government departments and each participant including cross-border e-commerce enterprises, cross-border e-commerce platforms, domestic service providers, etc., strengthening supervisions and risk control of commodity quality and safety, and protecting consumers' rights and interests. In order to implement the spirit of the State Council’s executive meeting, relevant provisions such as "the Circular" have intensively come out recently which will be interpreted in our next article. Please stay tuned with the Wechat public account "Law Bridge of PE and TMT".

*** Postgraduate Ji Zhiwei from Law School of Fudan University offered assistance for this article.

[1] The term "domestic" or "overseas" in this article refers to areas inside China's customs territory or outside China's customs territory.

[2] Article 41 of Law on the Application of Laws   The parties concerned shall negotiate and choose the applicable laws for the contracts. If the parties concerned have not made a choice, for the party whose fulfilment of obligations can best realize the contract features, the laws of his regular residence or other laws which have the closest relationship to the contract shall apply.

[3] Article 15 of The Interpretation of the Supreme People's Court    Where a natural person has lived continuously for more than one year in a place and taken the place as the center of his/her life when a foreign-related civil relation is taken place, changed or terminated, the People's Court may determine such place as the habitual residence of the natural person as stipulated by the Law on Application of Laws to Foreign-related Civil Relations, except for circumstances such as taking medical treatment, labor dispatches, business trips, etc.

[4] Article 42 of Law on the Application of Laws   For consumer contracts, the laws of the consumers' regular residence shall apply; when consumers choose the laws of the place in which the goods or services are supplied or the operators have not engaged in related business activities in the consumers' place of regular residence, the laws of the place in which the goods or services are supplied shall apply.

[5] Article 45 of Law on the Application of Laws  For product liabilities, the laws of the place of the infringee's regular residence shall apply; if the infringed choose to apply the laws of the infringer's principal place of business, the laws of the place in which the infringements happen shall apply, or the infringers do not engage in related business activities in the infringees' place of usual residence, the laws of the infringer's principal place of business or the laws of the place in which the infringements happen shall apply.

[6] See footnote 3 for protection on consumers’ information.

Article 74 of E-commerce Law    An e-commerce business operator selling goods or providing services who does not perform contract obligations, or does not perform contract obligations as agreed, or causes others to suffer damages shall bear civil liability pursuant to the law.

[7] The effectiveness, interpretation, revisions, implementation and dispute resolution of this Agreement will be subject to the laws of the Hong Kong and any conflicting legal rules or principles of Hong Kong will not be applicable to this Agreement. All disputes, issues or claims arising from this Agreement, including breach of contract and the validity and termination of this Agreement, will be arbitrated in Hong Kong using the effective Hong Kong International Arbitration Centre (“HKIAC”) Administered Arbitration Rules valid at the time of submission of the arbitration notice.

[8] Upon verification, the operation entity of JD.HK is JD.com International Limited registered in Hongkong.

[9] In accordance with JD User Registration Agreement, it is subject to laws of People’s Republic of China.

[10] Where a business operator enters into a jurisdiction agreement with a consumer using standard terms but does not adopt a reasonable method to highlight it to the consumer, the People's Court shall support the consumer's assertion that the jurisdiction agreement is invalid.