Liu Lixin, Li Yang, Dai Zheng

Food and Drug Administration of Beijing Chaoyang District, China

Tao Lili, Wang Shuo, Zhao Hua

Beijing Technology and Business University, China

Introduction

E-commerce is the commercial activity by means of electronic information technology. This new business model breaks through the time and geographical restrictions of traditional commerce, and also promotes the revolutionary transformation of macroeconomic operation and management while challenging the traditional micro economy.[1]As a new commercial mode, e-commerce will inevitably bring a series of social and legal problems, such as economic dispute caused by online transaction and source tracing and responsibility investigation of counterfeit products, posing a new challenge to the effective supervision of relevant governmental departments and the perfection of legal and regulatory systems. In this paper, representative of e-commerce enterprises in Beijing were interviewed, the e-commerce supervision system was sorted out, problems and difficulties during the supervision were analyzed, and corresponding supervision suggestions were put forward.All of these work has provided data and policy support for the rapid development of e-commerce of Chinese cosmetics industry.

E-commerce mode and characteristics

E-commerce is generally divided into business-tobusiness (B2B), business-to-consumer (B2C), consumerto-consumer (C2C) and business-to-government (B2G)modes based on the participants involved.[2,3]Both the suppliers and demanders of B2B transaction are enterprises, which utilize the B2B platform to conduct transaction activities; B2C is also called online sales,where enterprises sell commodities and services to the consumers through the Internet, including online retailer,e-shop and virtual retailers, and B2C can also be divided into vertical B2C, integrated B2C and platform B2C; C2C is a form of transaction between individuals by use of the Internet, where the seller provides commodities for online auction, and the buyer selects the commodities for bidding; B2G is a typical e-commerce activity between the government and the enterprise, where the government releases the purchasing list on the Internet, and the undertaker responds electronically.

The key difference between e-commerce and traditional business is that e-commerce uses Internet transmission as the basic transaction mode. The unique properties of e-commerce are based on the openness, virtuality and other characteristics of Internet:

1) universal transaction subjects. E-commerce breaks through the geographical boundaries by use of the globalconnecting Internet as the transaction platform.

2) 24-hour transaction time. E-commerce overcomes time restriction compared with traditional business.

3) global transaction market. Internet links the whole world together, forming a global transaction market.

4) virtual transaction mode. Except that the transaction subjects and transaction objects are realistic, the remaining links of the entire transaction process are virtual and paperless.[3,4]

Current situation of cosmetics E-commerce

According to the consulting report released by Qianzhan Research Institute for Prospect Industries,[5]as a single category in networked transaction, the transaction of online purchasing of cosmetics product has increased from RMB 12.49 billion in 2009 to RMB 97.51 billion in 2014. A great leap has achieved in just 5 years, with an increase of 33.09% on a year-on-year basis by RMB 19.24 billion in 2013 compared to that in 2012, and with an increase of 26.02% on a year-on-year basis by RMB 20.13 billion in 2014 compared to that in 2013.

According to the research report of iResearch,[6]online channel of domestic cosmetics includes C2C platform, integrated B2C platform, vertical B2C platform,offline channel self-supporting e-shop, brand selfsupporting e-shop and group buying platform. C2C platform was initiated earlier. The oversea e-buy was established in 1995, while Taobao.com was established in 2003. Integrated B2C platform, vertical B2C platform and brand self-supporting e-shop were mostly initiated in 2008, while offline channel self-supporting e-shop and group buying platform were mostly initiated after 2010.

At present, Tmall.com, JD.com and Jumei.com are the three major cosmetics e-commerce giants in China.As powerful integrated e-commerce operators, Tmall.com and JD.com have strong influence and resource integration capacity, which are more trusted by consumers than Taobao.com. Vertical e-commerce represented by Jumei.com focuses on in-depth research and exploration,providing the consumers with better products and services.

Based on the data,[5]the cosmetics online transaction value in April 2014 was RMB 8.35 billion, wherein the C2C platform transaction value was RMB 5.26 billion,accounting for 63.0%, and the B2C platform transaction value was RMB 3.09 billion, accounting for 37.0%. The cosmetics transaction value of Tmall.com, Jumei.com and JD.com ranked Top 3 among the B2C platforms, which were RMB 1.34 billion, 0.56 billion and 0.26 billion respectively, accounting for 83.3% of that of the entire B2C platform transaction in April. As predicted by Research Institute for Qianzhan Industries,[5]along with the constant entry of traditional cosmetics brands into the e-commerce field, it is expected that the networked transaction growth rate of cosmetics e-commerce will be significantly higher than the industrial growth rate,and the networked transaction proportion of cosmetics in China will be also constantly increased. It is expected that by 2020, the networked transaction of cosmetics in China will be up to RMB 252 billion, and the overall proportion in the cosmetics industry will also be increased to about 46%.

Responsibility of cosmetics e-commerce supervision subject

The working frame in the supervision of cosmetics e-commerce is presently as follows: administration for industry and commerce is responsible for registration of network operation formalities; food and drug administration is responsible for supervision of cosmetics safety implementation; customs department is responsible for customs clearance management of entry-exit of cosmetics from e-commerce channels; and public security department is responsible for supervision of transaction safety and suspected crime.

Administration for industry and commerce

The responsibility of administration for industry and commerce for supervision of network market includes:access supervision of network operation subjects, i.e.access registration of network operation subjects that conform to the registration conditions; supervision of network operation objects, i.e. supervision of quality of commodities under transaction in the network economy;supervision of online operating behaviors, e.g. unlicensed operation, false propaganda, sale of counterfeit and shoddy commodities and pyramid sale; supervision of electronic contracts; protection of intellectual property rights, i.e. protection of exclusive right to use the enterprise name (trade name) and trademark; protection of consumer rights and interests.[7-9]

Traditional supervisory measures are still effective for the third-party transaction platform operators by use of the B2B or B2C operation mode, e.g. spot check on the quality of commodities in stock, specific rectification of key commodities as well as establishment and implementation of purchasing-selling ledger system to allow the commodity traceability to continue to function.

China Food and Drug Administration (CFDA)

CFDA is mainly responsible for national Internet cosmetics supervision, including: promoting the establishment and implementation of the entity responsibility of enterprises basically concerned with cosmetics safety in production and operation; conducting the cosmetics e-commerce safety risk monitoring according to the cosmetics safety risk monitoring plan; establishing and supervising the implementation of cosmetics supervision measures; establishing and organizing the implementation of cosmetics supervision inspection system; organizing and investigating serious illegal activities; and establishing Administration recall and disposal system for defect products, and supervising the implementation.

In the Regulations Concerning Supervision and Administration of Cosmetics (Draft for Review) released in 2015, it is required that the third-party online trading platform for cosmetics shall be supervised, and shall implement the real-name registration system for the cosmetics producers and operators. The third-party online trading platform for cosmetics provider shall undertake the management responsibility for the networked cosmetics producers and operators, stop any act in violation of the regulation and report such act to the food and drug administration in the registration place of the platform provider, and stop providing the service for those with serious illegal act.

General Administration of Customs of the People’s Republic of China

E-commerce enterprises or individuals with the customs by the customs approval and e-commerce trading platform for cross-border trade of inbound and outbound goods and articles, in accordance with this notice subject to customs control . The operators of premises for storage of goods under customs supervision shall complete the filing formalities for e-commerce business with the customs to receive the customs supervision. E-commerce enterprises or individuals,payment enterprises, logistics and warehousing shall transmit in real time relevant order, payment, warehousing and logistics data to the e-commerce customs clearance management platform through the e-commerce service platform. After customs releases entry-exit goods/articles of e-commerce, e-commerce enterprises shall accept the subsequent customs supervision as required.

Other departments

Public security department shall monitor the transaction security and suspect criminal acts.

Investigation of cosmetics E-commerce enterprises

Cosmetics e-commerce giants such as JD.com,Amazon.com, Jumei.com and Dangdang.com have common characteristics but also have their respective advantages in terms of genuine product guarantee, which are closely related to the strict quality control measures,and reflected as follows:

Verify qualification

Review the basic qualification and brand qualification of merchants, select and manage them in advance,including review the basic qualification of suppliers: such as business license, organization code, tax registration certificate, tax payer qualification certificate, opening bank permit, entrusted processing authorization and manufacturer information; review the brand qualification of suppliers: including authorization of use of trademark license (or trademark acceptance notice) and related trademark, test report, customs declaration of imported commodities, quarantine certificate on imported goods,level-by-level sales authorization certificate and special product qualification (cosmetics production enterprise hygiene license, administrative license approval for domestic/imported cosmetics for special purpose or filing certificate on domestic/imported cosmetics for special purpose, inspection & quarantine certificate on imported cosmetics). Amazon China implements the strategy of white list for the merchants to be settled down in the platform to clean and reduce the third-party sellers from the brand and seller dimensions for the suspected counterfeit commodities.

Sales inspection

The purchasing, marketing and warehousing links are provided with full-time goods inspectors and quality controllers, who are responsible for registration and acceptance of commodity quantity, quality and packaging of incoming and outgoing goods, registration of commodity shelf life, and rejection and of nonconforming commodities, etc.

Spot check of commodities on a regular basis: test by third-party testing agencies, screening by brand parties and comparison with genuine products, and online shop visit on a regular basis to investigate the shop compliance,the product information and picture, so as to remove the non-conforming products off shelves.

Tracing of suspected counterfeit commodities: screening of high-risk commodities based on the monitoring and analysis of user comments and feedback, external complaints and return data. Commodities with long-term or short-term sudden high complaint rate are investigated by means of query of supplier qualification, spot check of inventories and contact with associated users.Commodities confirmed as counterfeits or with serious quality problems will be removed off shelves in a timely manner.

After-sales inspection

In the after-sales, customer complaints and returns shall be treated rapidly, and faulty commodities shall be removed off shelves. JD.com has put forward the timebased requirement for the after-sales service of merchants settled down, who are required to reply the handling suggestion within the specified period of time. If a merchant fails to handle within the specified period of time, it will be deemed as having no objection to the aftersales service proposed by the customer, and JD.com shall has the right to reply the handling suggestion on behalf of merchant according to the customer requirement,and the merchant must provide the after-sales service for the customer according to the handling suggestion of JD.com. The possible loss or additional expense incurred will be borne by the seller. Jumei.com implements the 30-day unconditional return service, and even the opened commodities can be returned and the postage is borne by Jumei.com. Jumei.com and Dangdang.com take the strategy of compensation in advance in coordinating the customer complaints, and seek for punishment on the merchants afterwards.

Investigation of food and drug supervisors

The food and drug supervisors of Chaoyang District,Haidian District and Dongcheng District of Beijing have interviewed and investigated to understand the current situation of operation and supervision of the cosmetics e-commerce industry.

Legality of cosmetic products

With respect to the legality of cosmetic products, food and drug administration shall mainly focus on whether the domestic cosmetics are produced by the enterprises that have obtained valid Cosmetics Production Enterprise Hygiene License; whether the domestic cosmetics for special purpose have obtained the “approval number of domestic cosmetics for special purpose”; whether the imported cosmetics for non-special purpose have obtained the “filing certificate of imported cosmetics for non-special purpose”; whether the imported cosmetics for special purpose have obtained the “hygiene license approval of imported cosmetics for special purpose”;whether the imported cosmetics are imported within the effective period of hygiene license approval or filing certificate; and whether the imported cosmetics have passed the inspection of inspection & quarantine department.

Label identification of cosmetics

With respect to the supervision of cosmetics label identification, food and drug administration shall mainly focus on whether the cosmetics have the quality conformity mark, whether the product name is consistent with the Regulations on Naming of Cosmetics, the Instruction for Use of Consumer Products—General Labeling for Cosmetics and other relevant regulations for cosmetics label identification management; whether the domestic cosmetics are indicated with the name and address of production enterprises; whether the imported cosmetics are indicated with the name of country or region of origin as well as the name and address of dealers, importers and agents in China; whether the products are indicated with the production date and shelf life or the production batch number and the expiry date; whether the domestic cosmetics are indicated with the hygiene license number of production enterprises;whether the cosmetics for special purpose are indicated with the approval number; and whether the imported cosmetics for non-special purpose are indicated with the filing number.

Storage condition and hygiene condition of product

Food and drug administration shall make field investigation on the cosmetics storage condition and hygiene condition, including whether the premise and warehouse of cosmetics enterprises are kept clean and tidy inside and outside; whether they are provided with ventilation, dust-proof, damp-proof, insect-proof and ratproof facilities; whether the bulk cosmetics and the trial cosmetics are provided with anti-pollution facilities; and whether the cosmetics storage condition and shelf life are consistent with the requirements.

Product promotion

Food and drug administration shall also monitor the product promotion, including whether the cosmetics are propagandizing the efficacy, using medical terms or indicated with indications; and whether the cosmetics statements are false or exaggerated; and whether the inshop propaganda materials contain the claims of disease prevention and treatment functions or other illegal claims.

Other illegal activities

Food and drug administration shall supervise that whether there are any self-made cosmetics or other illegal activities.

Supervision difficulties of cosmetics e-commerce industry

Fake, shoddy products and product traceability

In recent years, along with the rapid development of the emerging industry of online shopping, the cases of selling counterfeit cosmetics on e-commerce platforms.Such illegal activity is low-cost and highly-disguised.There are numerous merchants settled down in the e-commerce platform. Although the merchants have passed the review in the form of merchant qualification and brand qualification, it is unable to make the field investigation, so it is difficult to trace to the source,and it is difficult for the supervision department to investigate.[10]

Definition of supervision subject and multiple department supervision

E-commerce has no geographic restriction. Production,third-party platform operation and consumption are often in different regions. The related governmental departments of various regions shall cooperate in handling the disputes and cases. The supervision responsibility and scope are not defined clearly. As customary, the food and drug administration of the registration place of the cosmetics networked transaction platform provider is responsible for the supervision. Management of cosmetics quality problem reporting shall be subject to the actual transaction place. However, there is no legal basis to support. The cooperation efficiency during the transfer of complaint events among supervision departments in different regions shall also be increased. In addition,e-commerce is under the joint supervision of multiple departments such as Electronic Information Department,Industry and Commerce Department, Food and Drug Administration, Quality Supervision Department and Safety Supervision Department. Each department has its own focus. There is no effective lateral communication between the departments, and there is no information sharing mechanism.

Imperfect laws and regulations

Cosmetics e-commerce is an emerging business model in recent years, without a perfect legal and regulatory system. For example, there is no barriers to enter for cosmetics operation at present, requiring no permission.If an enterprise has a business license for daily use articles,it can also sell cosmetics, resulting in that the supervision department cannot obtain the basic information,and cannot carry out more comprehensive and more effective supervision. In the Administrative Measures on Cosmetics Labeling, there are requirements for label identification, but there are no penalties, resulting in lack of maneuverability during the specific supervision.The supervision department cannot require the nonconforming cosmetics to be removed off shelves, but only instruct the merchants to correct, and if the merchant does not cooperate, the supervision department will be at a loss. E-commerce platform generally retains the electronic documents on review of qualification of online merchants, and after the merchants leave the platform, the retained documents might be cleared. In addition, during the spot check on the site, because the storeroom is not in the same location as the headquarters, the qualification of products under spot check and the information platform cannot be provided in a real-time manner, bringing some hidden troubles to the objective authenticity of data for spot check.

Opaque ascription of responsibility and information

If there are problems with the cosmetics sold by a merchant selling on the third-party platform, it is difficult to tell who is responsible for. If a merchant selling on the third-party platform is complained that the products have quality safety problems, and is pulled off sheleves, but other platforms might know nothing about the punishment, resulting in that the non-conforming products are still sold in other e-commerce platforms,endangering the health and legitimate rights and interests of consumers.

Chaotic channels bring about difficulties to distinguish the genuine and fake products

Channels for online sales of cosmetics are chaotic.Some imported products are not supplied by the brand authorizing party, but they are possibly not fake. However,to protect the authorized distribution system, the brand party does not intervene to distinguish the genuine and fake. Due to the products which are sold online are not from the formal authorized channel, the legitimate rights and interests of consumers cannot be protected.

Supervision suggestions

To further perfect the existing supervision system and ensure the onlice cosmetics market can create more benefits for the economy and society, there are suggestions for the problems existing in the supervision of cosmetics network transaction in China as follows:

Perfecting the legal and regulatory system of e-commerce

We should identify the legislation planning, strengthen the systematicness and consistency in the legislation,determine the steps, key points and basic principles of e-commerce legislation, and coordinate the laws,regulations, department rules and local regulations to avoid conflicts, so that they can supplement each other.[11]We also should clearly define the ascription of responsibility of the cosmetics e-commerce platform and the merchants selling on the platform, identify the supervision responsibility subject affirmation principle,identify the requirements for retaining and time limit of the related paper and electronic documents of the merchants selling on the platform, identify the rules for punishment of illegal label identification, intensify the maneuverability of laws and regulations, strengthen the market supervision and spot check, and increase the punishment.

Establish the information sharing and releasing platforms

We should integrate the regulatory resources to establish a unified and open consumer service, information sharing and releasing platform. Integrating the information about cosmetics qualification review of CFDA and the information about local cosmetics production enterprises and dealers at the provincial, bureau and local level,and providing the link query address. Each supervision department shall release the illegal cosmetics investigation information, cosmetics safety events, spot check results and other information on the platform in a timely manner. Each e-commerce enterprise shall also upload the merchant violations, cosmetics safety risks, removal off shelves and other information in a timely manner to achieve the nationwide information sharing.

Identify the jurisdiction of each supervision department and strengthen the cooperation between departments

At present, many departments have participated in the online cosmetics supervision, and the administrative supervision system has basically formed. If supervision departments can cooperate mutually to give their respective supervision roles into full play, the cosmetics network transaction market will achieve normative and sound development. Due to the complexity and universality of network transaction market supervision, the regulatory resources of each supervision subject are limited. Therefore,horizontally, an information communication system shall be established and perfected between network supervision departments, and longitudinally, an information flow system shall be established between governmental departments to achieve the regional cooperation and coordination.

Establish the related industrial standards to bring the role of social institution into full play

China should endeavor to give the role of industrial associations into play by learning the experiences of other countries, establishing the related industrial standards based on the development trend of cosmetics network transaction, maintaining the rights and interests of the commodity network transaction participants through market self-regulation; and give the role of consumer organizations into play in the afterwards supervision, so that the consumers’ interests can be fully represented;form a force able to contend against the illegal activities in the commodity network transaction; maintain the consumers’ rights and interest, and purify the cosmetics networked transaction market.[12]

To sum up, in accordance with the overall requirements for the national market economy development and the current development situation of the cosmetics industry,China shall establish a supervision pattern based on the legal supervision, with market mechanism regulation and industry self-regulation and supplemented by government supervision.

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