SAIC's consumer protection comes at a price

The Measures for the Administration of Online Transactions (网络交易管理办法), issued by the State Administration for Industry and Commerce (SAIC), come into effect on March 15 this year. Although aimed at enhancing security and compliance, they are also suspected of being an attempt by the SAIC to increase its authority.

“While the SAIC stands to protect consumers, it also wants to get more power over the process,” said Michael Tan, a partner at Taylor Wessing.

The Measures are based on the amendments to the Consumer Protection Law which comes into effect on the same day. They also build on the old tentative measures promulgated in 2010 by strengthening personal data protection in light of the rapidly-developing online commerce industry.

Online providers are now required to take any technical or necessary steps to keep consumers' information safe, as well as provide remedies if the information is leaked or lost. Stricter penalties for violation and non-compliance were also introduced.

“The highly innovative industry in itself creates new business models and companies, and clarity on how to regulate them is necessary,” said Tan.

Ulterior motives

Regulators benefit from stricter regulations and compliance. From a government perspective, any law issued empowers the legal authorities.

Tan highlighted that some articles in the Measures state that operators must report certain statistics to the SAIC and questioned whether such data collection is really necessary from an administrative point of view.

This is not the first time the SAIC has this move. A decade ago the Beijing SAIC tried to regulate internet operators and activities. This raised concerns as it was promoted by a local authority, and web activities are neither governed by a proprietary board nor limited to a specific jurisdiction or boundary. Local authorities were unable to enforce their rules against operators in other parts of the country.

“But this received the attention of the national AIC, and this law we're talking about now seems to be the very preliminary version of that initiative. The SAIC is naturally moving towards that to control e-commerce activity,” Tan said.

Grace Chen of Bird & Bird noted that on December 27 last year the SAIC announced that it would start drafting a fully-fledged e-commerce law. Although such a unified law is unlikely to be issued or enforced in the immediate future, it is a sign that China is looking towards legislating and consolidating the sector's regulations.

Given the speed at which the online commerce industry is evolving, one law may not be feasible in practice. “We can hope that one umbrella law can capture all of e-commerce, but there are always going to be small issues here and there that must be addressed in other ways,” Chen said.

Tan agreed that regulators should look after specific categories of business. “It is indeed necessary to cover all aspects of e-commerce law, but it is impossible to address them all on one paper,” he said.

Consumer protection

The SAIC's move to augment its power can be justified by public outcry for more security. Constant media reports of a lack of protection, especially in online platforms, have added up to the demand for a new set of rules.

The Measures contain many provisions stating online retailers must provide consumers with sufficient information, such as contact, product and operations information. They also entitle the consumer to return goods purchased online within seven days of receipt with no questions asked.

The Measures also give extensive guidance on third party platforms in an attempt to deal with the problem of platform providers trying to dodge liability when something goes wrong. They add penalties and increase the risk for foreign companies doing business online, especially those that are dealing directly with customers.

Consistently under the media spotlight, the international internet companies that act as online goods or services providers will also be required to abide by the increasingly stringent provisions. “Though there are no special rules for international providers, the companies should look into their own method of business to confirm that it follows the Measures and the modified Consumer Protection Law,” said David Yu of Llinks Law Offices.


By Katherine Jo