In order to promote a positive and healthy development in the food e-commerce sector, the Chinese authorities have strengthened governance through laws and regulations, such as the 2015 PRC Food Safety Law, the China Food and Drug Administration (CFDA)'s Measures for the Administration of Food Operation Licensing (2015), and the State Administration for Industry and Commerce (SAIC)'s Tentative Measures for the Administration of Internet Advertising released this year. And more recently, the Measures for the Investigation and Handling of Online Violations of Food Safety Laws (Measures), which were issued by the CFDA in July and entered into effect on October 1, further cracked down on food safety violations.

The Measures and food safety violations

Regulatory scope

The changing business models mean that legal relationships among parties—beyond simple sellers and buyers—are becoming more complex. To clarify parties' various obligations, the Measures have divided the subjects of regulation into three categories:

a) Online third-party food trading platform providers.

b) Food producers and traders doing business through third-party platforms.

c) Food producers and traders doing business through self-owned websites.

Website owners and operators

Third-party online platform providers as well as food producers and traders that operate through their own e-commerce websites have been required to record file with the food and drug administration (FDA) authorities (the provincial authority for third-party platform providers and city or county-level for producers and traders operating their own sites) within 30 days after getting approval from the communication agency. The filing must include information such as the domain name, IP address, telecommunications business license, and the name of the corporate and the legal representative. All of this information will be made available to the public.

The Measures also set requirements related to technical support and information preservation. Website owners must guarantee the reliability and security of online data and retain the trade information of a food product for at least six months upon the expiry of its shelf life. Where there is no definite shelf life, the information must be retained for at least two years.

Third-party platform providers must also establish a food safety mechanism that is visible to the public. The system must involve reviewing and registering all online food producers and traders operating through the platform, conducting self-inspections, preventing and reporting illegal behavior in relation to food safety, and suspending services following serious illegal conduct or customer complaints. They have also been required to keep files of the producers and traders—containing records of their basic information and staff concerning food safety—and set up a dedicated department or to designate full-time staff to check on operations and information posted on the platform. Any suspected illicit conduct must be reported to the local FDA.

The Measures have also required third-party platform providers to cease providing services to food producers and traders being investigated or prosecuted for alleged food safety crimes, as well as those that are imposed penalties or punishment by a court or public security authority for illegal conduct concerning food safety, have had their license revoked or are ordered to stop their business by the local FDA.

Online food producers and traders

All online food producers and traders must have the relevant licenses and operate only within their registered business scope. The licenses must be posted on the platform and made available to the public.

The Measures have also set strict rules on the legitimacy and accuracy of the food-related information published online, as well as the visibility of notices related to any special storage, transportation and consumption requirements. Food traders charged with violations can be fined from Rmb5,000 to Rmb30,000.

The Measures have also supplemented the strict obligation imposed on producers and traders in the Food Safety Law concerning health and infant foods. Online food traders of health foods, formula foods for special medical purposes, and infant formula milk powder products must not only publish their business and food production licenses, but also publish the registration or record-filling certificate and include the hyperlink to the corresponding page on the CFDA website. For health foods, a notice stating that the product does not serve to substitute drugs must be clearly visible. Under medical-related foods, special total nutrition formulas are not allowed to be sold or purchased online. And online advertisements of infant formula products must not indicate any health benefits such as increasing intelligence, enhancing immunity, or resistance to diseases. A fine may be imposed for violations.

The regulator's reach

The Measures have clarified one of the key challenges faced by regulators in terms of determining the administrative jurisdiction of e-commerce. They state that any illegal conduct by the third-party platform service providers must be governed by the FDA at the county or higher level where the provider is located, while violations by food producers and traders will be handled by the FDA where the producers/traders or their operations are based. If any food traded online causes accidents or other serious consequences, the FDA located where the illegal acts or damage occurred will have jurisdiction. If two or more administrations are involved, the one that first registers and carries out the investigation will have jurisdiction over the case.

The absence of certain physical operations in the food e-commerce business can make it challenging for the authorities to preserve evidence. The Food Safety Law actually mentions that the FDA should purchase samples for random inspection, but the Measures have gone one step further, by laying out a more detailed process of buying the samples. The administration could act as anonymous buyer to purchase food online while recording all information concerning the order, such as the purchasing personnel, the payment account and delivery address. Unpacking the sample must also be recorded through photos or videos. Samples ordered by adhering to the process stipulated in the Measures can be deemed valid and admissible evidence.

In addition to the regular administrative penalties such as warnings, fines and license revocations for illegal conduct, the Food Safety Law last year added an interview process for assessing liability. The Measures have elaborated on the process, stating that the FDA is entitled to conduct interviews with the legal representative or person in charge of the third-party platform providers and online food producers and traders if potential food safety hazards or risks are suspected. The accountability interview acts as part of the FDA's risk prevention mechanism against food safety issues.

A new level of standards

The Measures have taken regulatory supervision over the food e-commerce sector to an entirely new level, where the obligations and liabilities of the industry players are much more comprehensive. Companies operating third-party e-commerce platforms should prioritize conducting self-inspections of their internal management and control mechanisms regarding food safety issues against the Measures' requirements. An integrated system will help a company understand its liability along each step of the online trading process.

It is worth noting that the Measures have imposed a continuing obligation on the platform providers. The providers must not only review and register the information of the producers and traders they work with at the outset, but also keep the recorded information up-to-date and confirm its authenticity. Besides reviewing and establishing files for all necessary information before the traders join the platform, the scheme should also include carrying out frequent inspections of the producers and traders' business, establishing a designated department or staff for handling food safety issues, conducting self-inspections concerning food safety, reporting any illegal behavior of producers and traders to the authorities, and suspending services in response to non-compliance in a timely manner.

The individual online traders must continue to maintain the safety of food production. And in terms of compliance, ensuring the integrity of a product's information and description posted online is also of great importance, regardless of whether they operate through a third-party or self-owned platform. It would be advisable for these entities to conduct a thorough review of all information posted and pay special attention to the wording and content for special foods (including health foods and infant formulas).

Companies must remain on the lookout for specific regional policies. The emerging industry of food e-commerce means local governments will continue to formulate regulatory policies to supplement the national regulations. For example, the Tentative Measures for the Supervision and Administration of Online Food, issued in Beijing, and the Measures for the Supervision and Administration of Online Food Delivery Services, released in Shanghai, have already entered into effect this March and September, respectively.

Xudong Ni and Tracy Bao East & Concord Partners, Shanghai