19 July 2016

Decoding the New Rules for Online Food Trading

This article was written by Chen Bing and Yang Yue

I. Origin and Background 

On 14 July 2016, the China Food and Drug Administration (“FDA”) issued the Measures for the Investigation and Punishment of Unlawful Acts concerning Online Food Safety (“Measures”) to be implemented on 1 Oct, 2016. 

The Measures are another set of implementing regulations introduced by FDA as a result of the promulgation of the new Food Safety Law. The Measures have come two years after two drafts were released for public comment. One draft was the Measures for the Supervision and Administration of Internet Food and Drug Operation (draft for comments) released in 2014, and the other was the Measures for the Supervision and Administration of Online Food Operation (draft for comments) released in 2015. After considering these two drafts and comments and the Implementing Measures for Food Safety Law (draft for comments) released in December 2015, the Measures have finally been issued. They impose specific obligations on food manufacturers and operators relating to the online food trade, and set out detailed procedures for investigations and liability for unlawful activities. 

II. Key Takeaways

The main aspects of the Measures can be put in two categories: the legal obligations imposed on food manufacturers and operators who participate in online trading, and the investigation and punishment of unlawful activity. More specifically: 

A. Regulated Subjects

The Measures control “online food manufacturers and operators” (“Online Operators”) which are defined to include: 

  • Third party online food trading platform providers (“Third Party Platform”), such as widely known taobao.com, and  JD.com (excluding their self-operated businesses); 
  • Food manufacturers and operators trading through Third Party Platforms , such as vendors trading through the aforementioned third party platforms; and 
  • Food manufacturers and operators trading through their own websites, such as sfbest.com,  and the self-operated business of yhd.com, chaoshi.tmall.com and so on. 

It is worth noting that online catering platforms and online catering service providers also fall within the scope of “online food manufacturers and operators”. Although the Measures only have one provision specifically addressing online catering, the general provisions in the Measures will also apply to online catering services. Prior to the promulgation of the Measures, some local authorities issued local regulations in this regard. For example, the Shanghai Municipal Food and Drug Administration and Shanghai Municipal Communications Administration jointly issued Shanghai Online Catering Services Regulatory Measures (“Shanghai Measures”) on 24 June 2016, setting out detailed controls specifically addressing issues relating to online catering services. 

B. Regulated Activities 

Activities subject to regulation by the Measures include: 

  • provision of platform services and management by a Third Party Platform; 
  • operating activities conducted by food manufacturers and operators through a Third Party Platform; 
  • operating activities and the usage of the website of food manufacturers and operators trading through their own websites. 

Besides reiterating some existing rules covering the online advertising of special food, the Measures does not specifically cover other online advertising activity. However, online advertising of food is subject to the Interim Measures for Online Advertising promulgated by the State Administration for Industry and Commerce on 4 July 2016 which controls online advertising in general. 

C. License and Filing Requirements

For Online Operators: The Measures stipulates that licenses must be acquired according to relevant laws, and business activities must be conducted within the approved scope of such licenses. This is a natural stretch of the current food manufacturing and distribution license regime.

For platforms and operator owned websites: The Measures stipulates that Third Party Platform providers and operators of own websites must apply to the FDA and file information relating to the platform or website, and information about the enterprise operating the platform or website. Since this is a new mechanism introduced by the Measures, Third Party Platforms and website operators are strongly advised to keep a close eye on subsequent implementation measures on filing, and commence filing procedures once the Measures take effect. 

D. Compliance Requirements for Platforms and Websites 

The Measures imposes compliance requirements applicable uniformly to both third-party platforms and operator owned websites, as well as specific compliance requirements applicable solely to the platform or website. 

  • Third Party Platforms and owned websites must have satisfactory technical specifications to ensure the reliability and safety of online food trading data and material; 
  • Third Party Platforms and owned websites must maintain sound record-keeping of trading related information, these records must be maintained for no less than 6 months after the expiry date of the food, or for no less than 2 years if the food does not have a clear expiry date;  
  • Third Party Platforms must put in place a series of protocols to ensure the safety of the food traded online, including the vendor due diligence protocol, self-inspection protocol, food safety violation reporting protocol, cessation of services protocol, compliance and investigation protocol and so on. The protocols must be disclosed to the public on the platform.  Third Party Platforms must also maintain a vendor archive. 
  • Third Party Platform providers are obligated to immediately stop and report food safety violations to the FDA when a violation is made known to it. In cases where an unlawful act constitutes gross violation, the platform must cease to provide further services to the violator.  Gross violations include a violator that: (1) has been investigated or prosecuted due to being suspected of committing food safety related crime; (2) has been sentenced to a criminal penalty for a food safety related offense; (3) has resulted in a detention or security administration punishment for food safety violation; (4) has resulted in a revocation of license, suspension of business or other punishment imposed by the  FDA. 

E. Compliance Requirements for Operational Activity 

This part of the Measures emphasizes the introduction of a transparent mechanism where authentic information about the business owner and food must be fully disclosed to the public:

  • Online food manufacturers and operators must publicly display their business license and food manufacture or operation license on their website, and quantitative grading information if the service provider is providing a catering services; 
  • Online information must match the label used on packaging; 
  • Online information for food which is not health food may not imply health function claims, infant formula is not permitted to explicitly or implicitly indicate boosting of the immune system or health function claims, and health food must adequately place a warning label to inform customers that this product cannot substitute for medication;
  • The online sale of special food (including health food, formula food for special medical use, infant formula), must display a product registration certificate or filing certificate, and where an advertising permit is available, display the advertising permit number, and link to the official government data inquiry website;
  • Full nutrition formula food for special medical use cannot be traded online;
  • Where special treatment is needed for storage and transportation, relevant notice and instructions must be made clear online and any special measures must be implemented. 

F. Investigation and Punishment of Unlawful Acts

The Measures clarifies the jurisdiction, investigation power, sampling inspection procedures, results handling and questioning mechanism for investigating and punishing unlawful activities concerning online food safety (“Unlawful Activity”): 

Jurisdiction over Unlawful Activity: the Measures sets out principles for determining jurisdiction over Unlawful Activity such as:

  • The place where the responsible entity is located or where the food  is manufactured or the operator is located determines the jurisdiction for investigation and punishment of the Unlawful Activity.
  • The place where the Unlawful Activity has taken place or where the result of the Unlawful Activity has taken place has jurisdiction if a food safety accident or serious damage has occurred.
  • The place where the responsible party is located or where it manufactures or operates  shall determine the jurisdiction for handling a consumer complaint. 

Investigation Power. The Measures specify the actions the FDA can take to investigate. These include on-site inspection, sampling inspection, interrogating and investigating parties, accessing and copying relevant materials, retrieving on-line surveillance and records and other actions. 

Handling of sampling inspection results. It is worth noting that, the inspection of online trading will be conducted through online purchasing, which means, in the future, many operators might find their products have been sold to supervision authorities. When a product fails an inspection, the Measures provides the following procedures:

  • The Online Operator as well as the Third Party Platform will be notified of the inspection results at the same time;
  • The Third Party Platform is obliged to stop the sale of unacceptable food;
  • If an Online Operator cannot be reached, the Third Party Platform must stop providing a service to that operator. 

The interview mechanism. The Measures has stretched and extended the information gathering and administrative consultation mechanism under the Food Safety Law. The situations where the interview mechanism will apply has been extended to include situations where the food safety risk might spread, the complaint about the food safety problem has not been handled properly, the full investigation of a hidden danger has not been conducted in a timely manner, or the food safety responsibility has not been carried out. 

G. Legal Liability

The liability section of the Measures details the punishment incurred for each Unlawful Activity. The punishments fall roughly into two categories:

  • One category is punishments for violation of obligations specifically laid down in the Measures, mainly the obligations of due diligence, establishing protocols, record-keeping and disclosing information to the public. The amount of most of these punishments are in the range RMB 5,000 to RMB 30,000.
  • The other category of punishments invokes existing punishments in the  Food Safety Law. For example, in the following situations the punishment in the Food Safety Law will apply: (1) the Third Party Platform fails to cease providing service as required, (2) the Third Party Platform fails to perform its obligations and this causes serious consequences, (3) the Online Operator acted beyond its approved business scope. 

III. Implications

The nature of online food trading means that the consumer cannot make contact with the online operator in person, neither can the consumer access the physical products. These characteristics determine the importance of the full disclosure of information, truly and regularly, and the need not to overlook the role and responsibility of the third party platform. The Measures, by stressing these two aspects, have complemented the Food Safety Law and other existing regulations. It has also provided specific rules for the investigation and punishment of unlawful activity. It is foreseeable that the Measures will have a material impact on the online food trade in the future. 

Editor’s note: This article was simultaneously published on Chinalawinsight.com

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