In this first part of a two-part series, we look at regulatory aspects of the updated e-commerce regime in China.

Following the recent executive meeting of the State Council of China in November 2018, multiple ministries, including the Ministry of Commerce, passed a series of regulations in respect of cross-board e-commerce retail imports.

The Notice of the Ministry of Commerce, the Development and Reform Commission, the Ministry of Finance, the general Administration of Customs, the general Administration of Taxation and the AQSIQ on improving the supervision of cross-border e-commerce （ “Notice”）issued on 28 November 2018, will come into effect from 1 January. The current polices on cross-border e-commerce retail imports will continue after the transition period, which started when with an earlier notice jointly issued by the Ministry of Finance, General Administration of Customs and State Administration of Taxation took into effect in April 2016, and whose term have been extended twice until the end of this year. 

In addition to the current preferential tax on imports through cross-border e-commerce platforms, these goods will receive more relaxed regulation as imports for personal use.

These regulations and arrangements intend to maintain the continuity and stability of the customs regulatory policies in the transition period, and further clarify the responsibilities of government agencies, cross-border e-commerce enterprises and e-commerce platforms, as well as domestic service providers, to strengthen product quality and safety controls as well as safeguard consumer interests.

Some of the key issues addressed in the Notice are:

Definition of the “Cross-border E-Commerce Retail Import”

“Cross-border E-Commerce Retail Import” refers to the consumption behaviour of consumers in China who purchase goods from abroad through cross-border e-commerce third party platform operators and through the "Online purchase bonded import" or "Direct Purchase import".

The Notice makes reference to the “List of Cross-Border E-Commerce Retail Imports 2018 version” (“List“) jointly issued by eleven ministries including the Ministry of Finance. Goods imported under the regime are limited to personal use and must meet the tax policies for cross-border e-business retail imports. Goods included in the List have so far enjoyed zero tariffs within a set quota and had their import VAT and consumer tax collected at 70 percent of the statutory taxable amount. Such preferential policies granted by the Notice will be extended to another 63 tax categories of high-demand goods, which include cosmetics, personal care products, medical devices, electronic products, as well as certain small household appliances among over 1,300 items.

Increase of the single transaction limitation and annual maximum limitation  

The single transaction limit for retail goods imported through cross-border E-commerce channels has been increased from RMB2,000 to RMB5,000 (currently approx. US$290 to US$725) and the annual maximum for products purchased by each person has been increased from RMB20,000 to RMB26,000 (approx. US$2,900 to US$3,770).

No requirements for licensing, registration or record-filing for first-time imports

Retail imports through cross-border e-commerce platforms will not be subject to requirements for licensing, registration or record-filing for first-time imports.   The government’s attitude in relation to a number of products has gradually relaxed through a series of polices. For example, when the list of cross-border e-commerce retail imports was first introduced on April 6, 2016, "first imported cosmetics" were excluded from the range of retail imports that benefited from the cross-border e-commerce regime (ie. the first import of cosmetics was required to be licensed or recorded). A notice issued by Customs in May 2016 made clear that they would not enforce the first import licensing requirements on goods such as cosmetics and the practice has continued to date as a transitional policy.  In accordance with the latest Notice, "Cross-border e-commerce retail imports are regulated as personal use of imported goods, and the first import licence approval, registration or record-filing requirements for the goods concerned are not implemented". So far, cross-border e-commerce retail import channels of cosmetics and other special commodities continue to not need to submit the first import approval.

To clarify, the above exemption policy only applies to particular products imported for the first time through cross-border E-commerce. By contrast, those imported for the first time by the general trade, for example, cosmetics, still require applying for licensing approvals or recordals.

Obligations of cross-border e-commerce retail import operators

The Notice imposes a series of obligation on foreign owners of goods to be imported through cross border e-commerce channels.  Among others, the main obligations are to:

• guarantee product quality and safety;
• protect consumer rights and interests, including but not limited to, assuming the related responsibility for product information disclosure, provision of product returns and exchange services, establishment of unqualified or defective product recall system etc.; and
• provide consumers, in conjunction with the cross-border e-commerce platforms, risk notification and to guarantee that consumers confirm their consent before they place an order to purchase. The notification should be in the ordering pages or other prominent location and should contain at least the following statements:
• related goods meet the quality, safety, health, environmental protection requirements of the place of origin;
• marking and other standards or technical specifications but may differ from China's standards. Consumers bear the relevant risks themselves;
• related goods directly purchased from abroad may not have Chinese label. Consumers can view the Chinese electronic label of goods through the website and
• goods purchased by consumers are for personal use only and may not be sold again.

Broadening the areas for application of new policies

Implementation of the new regulations and polices will be extended from the 15 cities such as Hangzhou to another 22 cities which have just established comprehensive cross-border e-commerce pilot zones.  As such, 37 major cities, for example, Beijing, Tianjin, Shanghai, Guangzhou will now be covered. Direct purchase import businesses in a non-pilot city may implement the relevant regulations by reference of the Notice.

In Part 2, we will look at some of the practical implications for brand owners resulting from these changes.

This article was written in conjunction with Sunny Su of  Lusheng.