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A Grey Shadow on Cross Border eCommerce

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China’s Regulations on Imports have Loopholes, but for How Long?

Anna Zhao of the China-Britain Business Council puts it best. “Currently, there’s a seesaw dynamic between Chinese market demand for cross border products, and government regulation of that market’s development.” 

“Both are putting pressure on the other,” she said, addressing the CBBC’s recent event exploring cross border as a channel for western healthcare & cosmetics brands.

Event speaker Karen Maddocks of the Beijing British Embassy’s Science & Innovation Network offered the most salient example of this uneasy dynamic. “In the UK and EU, testing cosmetics on animals is banned, whereas in China it’s mandatory. Therefore, ethical international companies cannot access the China market, and Chinese products cannot export to the EU.”

This situation is at odds with the entire proposition of cross border’s putative ease of importation, which in general allows non-Chinese companies without licenses and certification to sell to Chinese customers for personal use.

Despite the conflict, any number of ethical products are available online in China. A search for The Body Shop brand on Alibaba’s C2C megamall Taobao returns hundreds of items for sale.

Cross-border site KJT, which also presented at the event, offered optimistic assurances that foreign products of any nature could be imported through the cross-border model.

But other participants at the event were not in agreement. Chinese attorneys, as well as policy advocates from international pharma companies, were vociferous during the Q&A,  warning of the legal gray area developing, as cross border supplies demand for such products under a framework that has not yet been fully regulated.

“The reason such products are currently being sold is because the government has not yet implemented a comprehensive policy regarding online sales of foreign goods,” said IP lawyer Mr. Xu. “When the framework is developed, companies of any nature not fully in compliance with the CFDA (Chinese Food and Drug Administration) may find themselves in conflict with the law.”

Another important ramification of this issue concerns advertising of such products. Cross border advocates and other stakeholders claim that, as long as the brands advertised clearly state that they are foreign goods, and otherwise not China certified, they can place ads on a caveat emptor basis.

The issue is vital, as simply placing a product on a cross-border site by no means assures sales. China’s online marketplace is one of fierce competition, dominated by brands which aggressively advertise in market. As for the cross border segment, the majority of sales are driven by fashion and supplement brands already iconic in China, such as Michael Kors and GNC, with buyers looking for savings and authenticity rather than new options.

Event participants, including the several attorneys in attendance, were far less sanguine about the continued ability of non-China certified products to be advertised on the license of domestic companies. “China’s legal priority is to protect the Chinese consumer, as well as its domestic interests,” cautioned one such attorney. “To think that this quasi-legal scenario of advertising non-certified products can continue sustainably is overly optimistic.”

Pharmaceuticals and cosmetics companies face the hardest transition from a cross-border to domestic Chinese model, on sites such as Tmall and JD. They must undergo certification for each product, each of which can take 3-6 months and cost upwards of $10,000.

For companies selling less controversial products that don’t directly impinge on a consumer’s health, the process of licensing and product certification is becoming increasingly streamlined. On the other end of the seesaw, the Chinese government is fully committed to supporting cross border ecommerce development, including the cross border segment, as a key driver of its mandate to transition to a consumer economy, with attendant opportunities for entrepreneurship.

IP and trademarks/business licensing can be applied for here and here, respectively, albeit in Mandarin. A growing number of both western and English-speaking native legal experts are offering streamlined services to facilitate the process, at rates far below those charged in North America and Europe.

The case for ‘testing the China market’ through cross-border is by no means off the table, but awareness of the corollary grey area is crucial to making an informed decision. Companies with a deeper commitment to the market should strongly consider establishing in country, based on evidence provided by programmatic data. Apprising sales on Tmall versus China cross border ecommerce option Tmall Global in one’s product category, for example, would be a good indicator of potential outcomes for either choice.

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