ISE01/16-17

• The recent years have seen a rapid growth of electronic commerce ("e-commerce") in many parts of the world. For example, global Internet retailing totalled US$991 billion (HK$7,682 billion) in 2015, which more than doubled the amount of US$380 billion (HK$2,946 billion) in 2010. As a proportion of total retail sales, global Internet retailing also increased markedly from 3.1% in 2010 to 7.3% in 2015. Asia,^{1Legend symbol denoting China is the largest e-commerce market in Asia, followed by Japan and South Korea.} North America and Western Europe were the world's top three largest Internet retailing markets in terms of sales value.
• However, e-commerce has not flourished in Hong Kong as indicated in the survey conducted by the Census and Statistics Department ("C&SD").^{2Legend symbol denoting See Census and Statistics Department (2015).} In 2014, only 23.4% of persons aged 15 or above had used online purchasing services for personal matters during the past 12 months. This penetration rate of e-commerce consumers ("e-consumers") did not compare favourably with that in the United Kingdom (73%), Japan (67%), South Korea (54%) and China (33%).^{3Legend symbol denoting China refers to the mainland of China in this Essentials.} While the C&SD survey did not state the reasons for the slow uptake of e-commerce in Hong Kong, some consumer surveys suggested the concerns over quality of products and services purchased as well as payment security as two major obstacles to consumers shopping online.^{4Legend symbol denoting For example, Visa's 2015 eCommerce Consumer Monitor Survey showed that 64% of consumers surveyed cited quality of goods and services as their top concern when it came to making purchases online. Separately, MasterCard's Online Shopping Survey conducted in 2015 reflected that 78% of consumers surveyed regarded payment security as a key consideration when shopping online. See Visa (2015) and MasterCard (2016).}
• Indeed, there have been calls among stakeholders for the Government to enhance the consumer protection regime to cover e-consumers as well, thereby building consumer confidence in e-commerce. This issue of Essentials highlights the e-consumer protection measures in the European Union ("EU"), China, South Korea and Singapore where Internet retailing is relatively more popular than Hong Kong. They have implemented one or more of the following measures to protect e-consumers: enactment of specific e-consumer protection laws, establishment of alternative dispute resolution ("ADR") mechanism, and introduction of trust mark schemes.

E-consumer protection law

• In 2014-2015, the Consumer Council received a total of 5 403 complaints related to online shopping, representing an increase of 52% over 2013-2014. Yet there is no specific legislation in Hong Kong dedicated to safeguarding the interests of e-consumers. Existing ordinances, particularly the Trade Descriptions Ordinance (Cap. 362), are generic consumer protection laws targeting general consumers.
• Unlike Hong Kong, the EU, China and South Korea have already enacted laws specifically to protect the rights of e-consumers. The respective consumer laws prescribe for a cooling-off period during which e-consumers can withdraw their online orders, which lasts for 14 days in the EU and seven days in both China and South Korea.^{5Legend symbol denoting The cooling-off period is not applicable to certain products or services as specified in the e-consumer protection laws of the places studied. For examples, the cooling-off period is not applicable to the purchase of tailor-made goods, fresh or perishable goods, downloadable audio and visual products, and delivered newspapers or magazines in China.} This is particularly important in view of the distant nature of online shopping and the ensuing concern over the quality of goods purchased online. Unlike face-to-face transactions, online purchase only allows the buyers to examine the goods after receiving them.
• Apart from the cooling-off period, online retailers in China, South Korea and the EU are also obliged to provide e-consumers with clear information such as contact details, description of goods and services provided, payment methods, delivery arrangement, procedures of order cancellation and refund policy. Such information is to enable e-consumers to make informed decisions regarding their online transactions.

Alternative dispute resolution mechanism

• In addition to legislation on e-consumer protection, the EU and South Korea have also put in place an ADR mechanism to enable e-consumers and online retailers to resolve their contractual disputes in a simple, fast and low cost manner outside court.
• In the EU, all member states are obliged to establish an ADR mechanism for access by consumers and retailers (including online and offline retailers) to settle their disputes outside court proceedings. Recently, the European Commission has further introduced a free Online Dispute Resolution ("ODR") platform whereby EU consumers and retailers can submit their disputes arising from online purchases to ADR online. As required by the European Commission, all online retailers in the EU must provide a link to the ODR platform on their websites.^{6Legend symbol denoting The ODR platform takes the form of an interactive and multilingual website developed and operated by the European Commission. A consumer who has a dispute with an online retailer can access the platform and fill out a complaint form online that will be sent to the retailer concerned. If both the consumer and online retailer concerned can agree on an ADR entity, the ODR platform will automatically transfer the complaint to that entity which will work as an independent third party to resolve the dispute and reach an outcome within 90 days.} According to the European Commission, the introduction of the ADR procedure and ODR platform encourages consumers and retailers to make transactions online and across borders as consumers can seek redress easily even for low-value purchases. The procedure/platform also benefits the retailers as they can avoid excessive costs to settle disputes with consumers and avoid damage to their reputation.
• Similarly in South Korea, e-commerce disputes can be resolved through the ADR procedure managed by the E-Commerce Mediation Committee. The Committee, which was set up by the Korean government under the Framework Act on Electronic Documents and Transactions, is tasked with (a) providing consulting and mediation services for the settlement of e-commerce disputes, and (b) resolving the disputes submitted to it within 60 days. This provides the avenue for quickly and effectively settling the e-commerce disputes and reducing the amount of litigation that would otherwise come into existence.

Trust mark schemes

• In Hong Kong, concerns about security of online payment and privacy have been holding back consumers from buying online. In the EU, South Korea and Singapore, their respective government agencies, trade associations and/or private organizations have implemented trust mark schemes to reassure consumers of the trustworthiness of online retailers certified under the schemes. In these places, the trust mark is displayed as a visible logo or "stamp of approval" on the websites of certified online retailers indicating that they have conformed to a specified set of standards such as security of payment, privacy, business practice and dispute resolution procedures.
• In the EU, the Ecommerce Europe, a trade association representing the e-commerce sector in Europe, introduced a harmonized trust mark - the Ecommerce Europe Trustmark - in 2015. The move represents an effort to reassure e-consumers with a clear and recognizable trust mark based upon a common set of standards, thereby boosting cross-border e-commerce through better protection for e-consumers.^{7Legend symbol denoting The Ecommerce Europe Trustmark is a non-profit trust mark based on self-regulation. It is awarded to compliant online retailers that are members of one of the national associations of Ecommerce Europe.} Before that, the diversity of trust mark schemes introduced within and across EU's member states have confused e-consumers on the level of assurance offered by these schemes and undermined their effectiveness.
• While the development of a harmonized trust mark scheme in the EU has been led by the e-commerce sector, the implementation of a nationwide trust mark initiative in South Korea and Singapore has been led or supported by the government. In South Korea, the Ministry of Science, ICT and Future Planning has implemented the eTrust Certification System under which eTrust certificates are awarded to online retailers that meet the specified consumer protection standards. In Singapore, the National Trust Council, an industry led body supported by the Singapore government, has implemented the TrustSg Programme to boost consumer confidence in e-commerce. Under the Programme, the National Trust Council accredits organizations such as trade associations or chambers of commerce to manage their online retailer certification schemes. These accredited organizations award electronic label - the TrustSg seal - to worthy online merchants within their industry so as to signal the latter's adherence to sound e-commerce practices.

Observations

• Concerns over the quality of goods purchased online and payment security have been holding back the development of e-commerce in Hong Kong. Indeed, Hong Kong has lagged behind the EU, China, South Korea and Singapore in terms of the e-consumer penetration rates. In these places, e-consumer protection regime is more robust with the enactment of specific legislation to protect e-consumers, establishment of a user-friendly and low-cost ADR/ODR platform to settle e-commerce disputes, and/or implementation of a nationwide or harmonized trust mark scheme to boost consumers' confidence in transacting in the online environment.

Prepared by Ivy CHENG
Research Office
Information Services Division
Legislative Council Secretariat
25 October 2016