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Requirements for Daigou Traders under China’s New E-commerce Law

  •   18 Sep 2018
  •    Lennie Tao
  •   2607  Views
  •   Post a comment

    Takehome:

    • China's new E-commerce Law requires that "daigou" traders complete registration if necessary, obtain relevant licenses, pay taxes and avoid breaking the advertisement law.
    • Daigou purchasers using ecommerce platforms will come under greater scrutiny as e-commerce platforms are forced to more carefully assess the safety and authenticity of goods circulating on their platforms and also the credentials of the merchants selling those products.

    On Aug 31, 2018, the Standing Committee of the National People's Congress promulgated China's first E-commerce Law, which will become effective on Jan. 1, 2019. (Click here to read Implications for CBEC)

    As the first specialized law for e-commerce, it intensifies efforts to address deep-seated problems in this booming industry and enacts severe measures to regulate online merchants and ecommerce platforms. With respect to overseas ecommerce, the chaos caused by a special group of online traders namely China's daigou purchasers is a big concern and although Daigou has not been specifically addressed by the new law the general requirements articulated within have profound implications for Daigou traders.  

    "Daigou"...What does it mean ?

    Daigou is not a legal term but a word from mandarin Chinese that describes the phenomenon of Chinese diaspora purchasing goods overseas for sale in mainland China through unofficial and previously unregulated channels.

    In China, there are basically three models of "daigou". First, mail products directly from abroad to China. Second, daigou purchasers carry products in their luggage to go through customs and then send products to customers by express delivery. The third way involves importing products through unofficial channels, stockpiling and then selling in the mainland.

    So what's the implication of E-commerce Law to these "daigou" purchasers? Currently, there are no measures in the new e-commerce law developed to specifically regulate the behaviors of "daigou" trader, however on a broader level, there are general stipulations which do specify new requirements for "daigou" traders.

    Dos and don'ts for "daigou" traders

    Legal implications for daigou traders according to e-commerce law:

    • Strong recommendation: Register with and obtain relevant license from Administration for Industry and Commerce

               Law basis: Article 2, 10 and 12, 26 of China's E-Commerce Law

    Article 2 “E-commerce” mentioned in this law, refers to the business activities of selling goods or service through digital networks.

    Article 10 An e-commerce operator (including e-commerce platforms, individual merchants of these platforms and people who trade through their own websites or other online service) shall obtain the rights/registration for market participation according to the laws and regulations, except for those who sells their own agricultural and sideline products, who engage in physical activities and trade their own skills, and those who engage in other activities which do not need registration.

    Article 12 E-commerce operators shall obtain relevant administrative license if specified by relevant laws and regulations.

    Article 26  E-commerce operators who conduct cross border e-commerce shall obey laws, regulations and other related rules about import and export supervision and administration.

    • Always Pay Tax

    Mr. Jiang opened an online shop on Taobao selling imported foods. During the operation, he purchased goods abroad and carried foods in his luggage to go through customs. Finally, he was arrested because he didn't declare these products and the quantity and amount was large. His behavior was considered tax evasion.

    Law basis: Article 11, 28, 71, 72 of China's E-Commerce Law.

    Article 11  The E-commerce operator shall fulfill the obligation to pay taxes.

    Article 28  E-commerce platforms shall submit merchants' ID information to administrative departments for market regulation and remind those who haven't registered to complete registration according to laws and regulations... The e-commerce operators of platforms shall report and submit information related to taxation of operators of this platform to taxation departments...

    Article 71  The country shall promote the development of cross-border ecommerce by developing an efficient management system governing declaration, taxation, inspection and quarantine of imports and exports, and payment, etc. ...

    Article 72  The agencies in charge of imports and exports should carry forward the comprehensive service and supervision of customs declaration, taxation, inspection and quarantine etc. and optimize the supervision procedure, accreditation sharing and enforcement cooperation.

    • Avoid breaking advertisement law

    Legal basis: Advertisement Law and Article 17 of China's E-Commerce Law

    Article 17  E-commerce operators shall describe commodities or service information fully, honestly, accurately and timely to guarantee consumers’ right of know and right to choose. E-commerce operators shall not be involved in false advertisement activities.

    E-commerce platforms to supervise and become more accountable for online merchants operating using their platform: In the past it was very easy to open and operate an online shop. After the E-commerce Law comes into effect, if a merchant involved in food business lacks a business license and food operation license, the platform has the right to report to relevant administrative departments (failure to report this information makes the platform directly accountable for any potential safety violations). As long as the platform operator informs authorities prior to any issues it is not accountable for any subsequent activities. The merchant may then face a fine (which can be as much as RMB 2 million yuan), confiscation of goods and closure of store. In this way, the supervision of platforms will effect merchants directly, including "daigou" purchasers.

    Requirements for "daigou" purchasers with online shops (Food)

    Model

    Requirements for compliance

    Law basis

    Take orders from online shops, then mail products directly from abroad to China

    1. Go to provincial administration for industry and commerce to obtain Food Operation License

    2. Go to provincial administration for industry and commerce to obtain Business License registered as individual merchant

    3. Declare the products to customs and pay tax legally.

    (No special demands for selling products like health food and infant formula)

    Criminal Law of the PRC (relevant regulations of tax evasion)

    Imported Articles Classification Table of the People’s Republic of China (including tariff rate)

    Measure adjustment of inbound and outbound personal postal articles

    Storage of Passengers' Luggage and Articles Which Are Not Released Temporarily

    Regulations on Implementing Customs Administrative Penalty of the PRC

    Carry products on person to pass through customs and then send products to customers by express delivery

    Buy products from abroad first and then resell them on platforms

    Still in grey area.

    Who wants to be compliant shall register as a company to conduct following operation activities. (details explained below)

    Besides the laws mentioned in the first two models, it shall also obey:

    Food safety law

    Administrative Measures on Import and Export Food Safety

    Law of the People's Republic of China on Import and Export Commodity Inspection

    AQSIQ notice of further regulation of approving inspection and quarantine certificate for imported food and cosmetics

    Although the third model of daigou is very popular in China, it is illegal. At best we can say it is a grey area. Activities involving the stockpiling of large volumes of products with the specific intent to redistribute for retail is obviously not a personal activity. Based on this, sale of these products shall follow strictly with domestic laws for all relevant steps in the product lifecycle and product chain of custody. For example, prepackaged food must be with Chinese labels before being imported into China and must also undergo customs and quarantine inspection by China customs.

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    Comments


    Hi Lennie, I as an Australian, operate an an overseas eCommerce site (Australia) selling a range of food and cosmetic products available in Australia with most only having english on the label and then shipping them to China customers. Does this new law apply to me? If it does, how do we apply for the right accreditation? Refer - China's new E-commerce Law requires that "daigou" traders complete registration if necessary, obtain relevant licenses, pay taxes and avoid breaking the advertisement law. I want to ensure I am registering correctly as I do not wish to break the laws. Thanks, Craig
    Sunday, 7 October 2018
    Hi Craig, this new law does not apply to you, since your eCommerce site is set up in Australia and you ship products directly from Australia to customers in China. No need to complete registration or obtain relevant licenses. Just pay taxes. Thanks.
    Monday, 8 October 2018