HAN KUN LAW OFFICES BEIJING SHANGHAI SHENZHEN HONG KONG WWW.HANKUNLAW.COM Legal Breakthrough in Online Food Sales Regulation David TANG︱Min ZHU On August 18, 2015, the China Food and Drug Administration (“CFDA”) issued the Notice of Soliciting Opinions on the Administrative Measures on Online Food Sales (Draft for Comment) on its official website. As a supporting regulation of the Food Safety Law and the Administrative Measures on Food Sales Licenses (“Sales Licensing Measures”), both of which were implemented on October 1, 2015, the Administrative Measures on Online Food Sales legislation (“Online Sales Measures”) not only shows that the CFDA is making a continuous effort to improve its regulatory process, but also reflects that the sale of food products online, as a new mode of doing business in the food industry, is important with respect to both public consumption and governmental supervision. Application Scope of the Online Sales Measures There are various kinds of online food sales operators, such as food producers, food trading companies (wholesale and retail), food sales websites without offline physical stores (e.g., some fruit and fresh food direct delivery companies) and online self-produced food stores. Another important market participant is the third-party online food e-commerce platform provider (“platform provider”), such as Taobao, T-mall, Yihaodian, and Jingdong. Pursuant to Article 3 of the Online Sales Measures, “online food sales” refers to the sale of food products via internet channels, which also includes edible agricultural products and food additives. Article 8 stipulates that online food business operators may conduct online food sales either by setting up their own websites or through platform providers. With such provisions, it is clear that all types of online food business operators fall within the scope of the Online Sales Measures. From a supervisory perspective, online food operators are essentially no different than traditional offline food operators. The only difference between the two types is that the operators utilize different platforms or means of doing business. Regardless of whether the food operators set up their own websites or do business via a platform provider, they are still October 9, 2015 HAN KUN LAW OFFICES BEIJING SHANGHAI SHENZHEN HONG KONG WWW.HANKUNLAW.COM subject to the same requirements as offline operators, such as applying for operating permits (such as food operator licenses or alcohol distributor licenses) or filing records with the authorities as the laws and regulations require (for example, some provinces have enacted local publicity card systems for small family workshops and food vendors). Therefore, the Online Sales Measures do not have additional entry requirements for online food operators, but merely act to regulate specific aspects which are associated with online food sales. For example, requirements for setting up online food sales websites (Article 8), obligations to give written notice to the supervisory department regarding website information (Article 9), delivery requirements for selling fresh, heat preserved, refrigerated or frozen food (Article 12), and the obligation to remind purchasers of a “no questions asked return” policy (Article 18), etc. Supervisory Mode---“Licensing + Recording” Article 7 of the Online Sales Measures stipulates that online food operators must acquire a legal license or recording certificate. Failing to do so will result in the business operator not being allowed to participate in any online food sales activities, except for those activities for which such a license or certificate is not required. However, the Online Sales Measures do not have specific regulations regarding the conditions of applying for licenses, recording procedures or any applicable exceptions. In fact, these provisions can be found in other related laws and regulations. According to Article 35 of the Food Safety Law, the State has implemented a licensing system for food manufacturing and sales. Engagement in food manufacturing, selling and catering services is subject to licensing according to law, with the exception of selling edible agricultural products. In addition, according to the 2009 Food Safety Law and its implementation in practice, food manufacturers or catering service providers which have already acquired licenses do not need to apply for additional food operation licenses if they sell their self-produced food products. Article 36 of the Food Safety Law provides that small family workshops and food vendors should be regulated by provincial level governments. According to a sample of 15 different local jurisdictions, a majority have implemented either a register or recording system. Thus, we can see from the current legislation that, theoretically, licenses are required for all online food sales activities with the exception of circumstances in which no licenses are required or where only recording (filing) is needed for small family workshops and food vendors. Nowadays, many people use WeChat to sell self-produced food, most of which, strictly speaking, shall be treated as small family workshops. Therefore, according to applicable local HAN KUN LAW OFFICES BEIJING SHANGHAI SHENZHEN HONG KONG WWW.HANKUNLAW.COM legislation, such WeChat food sellers are only required to register or file a record with the relevant local authorities. In this sense, such WeChat food sellers are actually covered by the existing legislation, although some in the press have reported that they face no regulatory oversight. Nevertheless, government authorities shall still seek a more effective means of supervision due to the particular characteristics of such small shops. Additional Obligations for Platform Providers Pursuant to the Food Safety Law, platform providers are required to register the real names of online food operators, examine the operators’ food manufacturing or trading licenses, promptly stop and report to the authorities any violations committed by online food operators and immediately terminate online services for violators in the event of any serious violation. Where a platform provider fails to perform these obligations and, as a result, the lawful rights and interests of consumers are harmed, the platform provider shall be held jointly and severally liable with online food operators for any damages. Furthermore, in the event that consumers’ lawful rights and interests are harmed as a result of purchasing food via an online food e-commerce platform, but the platform provider is unable to provide the true address and current contact information of that online food operator, the platform provider must make advance compensation to consumers. Before the new Food Safety Law came into effect on October 1st, 2015, some platform providers, such as Taobao, Tmall and Jingdong had already updated or modified their applicants’ qualification recording and license examination rules to tackle the challenges presented by policy changes in the new law. Besides for the provisions related to platform entry and legal liabilities which are already included in the Food Safety Law, the Online Sales Measures also bring forward more detailed and specific provisions for the creation and maintenance of platform providers’ websites, including some encouraging provisions. These provisions include: a. setting up specific regulatory agencies or designating specific managers to do daily inspection and reporting (Article 22); b. obligating platform providers to save information data evidence (Article 23); c. food recall obligations (Article 25); d. encouraging the use of professional services such as third-party authentications, evaluations, and information management (Article 26); and e. encouraging a consumer advance compensation system (Article 28). HAN KUN LAW OFFICES BEIJING SHANGHAI SHENZHEN HONG KONG WWW.HANKUNLAW.COM Construction of the Online Food Sales Legislative System Until now, the Food Safety Law and the Sales Licensing Measures have been the main legal documents which regulate online food sales. Chapter IV of the Food Safety Law, “Food Production and Business Operations,” establishes the basic principles and system of food sales operations. Article 62 regulates the “obligations of third-party online food e-commerce platform providers.” Article 131 regulates the “liabilities for violations committed in online food transactions.” However, the Food Safety Law does not have specific provisions regarding the sale of food on self-created websites. The Sales Licensing Measures regulate food sales and catering industry services through administrative licensing. The Sales Licensing Measures also act to divide food sales operations into separate functions: food sales operators, catering service providers and unit cafeterias. In contrast, the Online Sales Measures provide for a more detailed regulatory framework, specifically with respect to “business transactions regarding online food sales, including edible agricultural products and food additives.” In addition to food industry-specific legislation, the Product Quality Law, Tort Liability Law, Consumer Protection Law and the 2014 SAIC-promulgated Administrative Measures on Online Trading also regulate the related areas of business operator supervision and consumer rights. Separate Supervision for Online Food and Drug Sales In May 2014, the CFDA issued the Administrative Measures on Online Food and Drug Sales (Draft for Comment) (“Online Food and Drug Sales Measures”) which, although once expected to be finalized in early 2015, were not ultimately issued after several rounds of consideration. The Online Food and Drug Sales Measures seek to regulate food (including edible agricultural products and food additives), dietary supplements, drugs, cosmetics and medical devices in one piece of legislation. However, the promulgation of the legislation in its current form is considered challenging in part due to the inherent differences among these products and in approaches to regulating them. In particular, certain provisions which call for lifting a ban on online prescription drug sales have proven to be controversial. The effectiveness of the measures after they have been promulgated has also been called into question. Although the CFDA has not given any clear explanation on this matter, the promulgation of the Online Sales Measures indicates that the CFDA is taking the approach of regulating the online sale of food and drugs through separate legislation. In addition, it has been learned that the CFDA has begun to have discussions on drafting the HAN KUN LAW OFFICES BEIJING SHANGHAI SHENZHEN HONG KONG WWW.HANKUNLAW.COM Administrative Measures on the Online Sale of Medical Devices. This further supports the notion that the CFDA will regulate the online sale of each of the five product categories under its supervision through separate legislation. ● This Legal Commentary has been prepared for clients and professional associates of Han Kun Law Offices. Whilst every effort has been made to ensure accuracy, no responsibility can be accepted for errors and omissions, however caused. The information contained in this publication should not be relied on as legal advice and should not be regarded as a substitute for detailed advice in individual cases. If you have any questions regarding this publication, please contact David Tang (+86-21-6080 0905; email@example.com) or Min Zhu (+86-21-6080 0955; firstname.lastname@example.org). 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