A loophole in the legal framework for cross-border e-commerce

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A loophole in the legal framework for cross-border e-commerce

The rapid evolution of technology in recent years has greatly facilitated Internet-based economic development in Vietnam. According to the Vietnam Digital 2020 Report released by We Are Social and Hootsuite, Vietnam is having a vast number of Internet users (around 68 million internet users, accounting for 70% of the population in 2020). Therefore, Vietnam has become one of the top potential destinations for foreign investors involving in the field of e-commerce. In 2020, as the Covid-19 pandemic spreads far and wide over the world, it led to a considerable change in the consumption trend – changes in how we buy things from offline to online. As a result, e-commerce in general and cross-border e-commerce, in particular, has become more popular with people and facilitated the unprecedently rapid development. However, is the current legal framework for cross-border e-commerce enough to cover this new change?

1. An overview on regulations of the prevailing laws of Vietnam on e-commerce

The definition of E-commerce Activity is first provided in Decree 52/2013/NĐ-CP on E-commerce. E-commerce activity means conducting part or the whole of the process of commercial activity by electronic means connected to the Internet, mobile telecommunications network or other open networks.

Currently, Decree No. 52/2013 / ND-CP on e-commerce provides 03 governed subjects with 06 roles in e-commerce as well as 03 forms of e-commerce activities, specifically as follows:

The 03 below subjects shall be subject to the scope of governed subjects of Decree No. 52/2013/ND-CP on e-commerce, which are:

  • Vietnamese traders, organization and individuals;
  • Foreign individuals residing in Vietnam;
  • Foreign trader/organizations with a commercial presence in Vietnam via investment operation, establishment of branches and representative offices or websites with Vietnamese domain names.

The above subjects are permitted to be involved in by 03 forms of e-commerce activities, which are:

  1. E-commerce website for sales;
  2. E-commerce service provision website, including E-commerce trading floor, Online auction website, Online promotion website, Other types of website as stipulated by the Ministry of Industry and Trade; and
  3. E-commerce applications on mobile devices, including e-commerce applications for sales and  e-commerce service provision applications.

Accordingly, traders, organizations, and individuals are able to set up an e-commerce website/application to promote their own commercial activities, to sell goods or to provide services; or to set up an e-commerce website/application to provide a platform to enable other traders, organizations, or individuals to conduct their commercial activities.

Moreover, Decree 52/2013/ND-CP also clearly set forth roles involving in e-commerce activities. Accordingly, the decree provides 06 roles involving in commercial activities as follows:

  1. The owner of e-commerce website for sales; who are traders, organizations or individuals that design e-commerce websites by themselves to serve their own commercial promotion, sales or service.
  2. Traders or organizations providing e-commerce services; who are traders, organizations or individuals that design e-commerce websites to provide a platform to enable other traders, organizations or individuals to conduct their commercial promotion, sales or services.
  3. Sellers; who are traders, organizations or individuals that use websites of traders or organizations providing e-commerce services to conduct their commercial promotion, sales or services.
  4. Customers; who are traders, organizations or individuals that purchase goods or use services on e-commerce websites for sales and e-commerce service provision websites.
  5. Traders or organizations providing technical infrastructure; who are traders or organizations providing technical infrastructure for the owners of e-commerce websites for sales and for the traders or organizations providing e-commerce services.
  6. Other traders, organizations or individuals using networking e-devices involving in commercial activities.

Decree 52/2013/ND-CP has provided clear regulations for participating subjects, the forms of e-commerce activities as well as roles in the e-commerce context. Therefore, thanks to those clear regulations in e-commerce activities, traders/organizations in Vietnam are able to run this kind of business very well. However, is the legal framework sufficient to cover the increasing change in the consumption trend in the context of a move towards global integration?

2. Loophole and the attempt to tighten/patch the lhe laws

Nowadays, Decree 52/2013/ND-CP still plays a key role in governing e-commerce activities or related activities. However, the Decree has not fully covered all the subjects playing roles in e-commerce activities. Specifically, Decree has omitted an important subject in its scope of the governed subjects. The “omitted” subject is foreign traders, organizations or individuals involving in e-commerce activities without having any commercial presence in Vietnam. This leads to a big gaping hole in management and protection of Customer’s rights. Moreover, this can create many unfairness among organizations who are sharing the e-commerce market. While enterprises/organizations having a commercial presence in Vietnam or Vietnamese enterprises/organizations have to comply with as well as be governed by Decree 52/2013/ND-CP with tons of procedures to follow and conditions to meet, the cross-border providers of e-commerce services are not subject to any procedure as conducting business in Vietnam. 

Currently, the laws of Vietnam are trying to patch the aforementioned loophole in many different ways to create a better playground. Specifically, in other areas such as national security and defense or consumer protection, the Government of Vietnam issued the Law on Cybersecurity on June 12, 2018 to regulate relationships in cyberspace, which includes e-commerce. Accordingly, domestic and foreign enterprises, which provide services on telecommunications networks, the Internet, and value-added services in cyberspace in Vietnam have activities of collecting, exploiting, analyzing and processing data about personal information, data about the relationship of service users, data created by service users in Vietnam, must set up a branch or representative office in Vietnam. In other words, enterprises providing cross-border e-commerce services must have a commercial presence in Vietnam according to Article 26.3 of the Law on Cybersecurity 2018. Accordingly, by having a commercial presence in Vietnam , Enterprises/organizations providing cross-border services have been one of the governed subjects by Decree 52/2013/ND-CP. Therefore, the Law on Cybersecurity 2018 shall be deemed as a partial solution to tighten the large policy gap created by the absence of specific provisions in Decree 52/2013/ND-CP as well as other documents on participating subjects involving in cross-border e-commerce activities.

However, the Article 25 of the Draft Decree detailing a number of articles of the Law on Cybersecurity 2018 provides 04 conditions for an enterprise providing cross-border e-commerce services to be subject to set up a branch or Representative office in Vietnam. Accordingly, foreign enterprises that fully meet the following conditions must store data and set up a branch or representative office in Vietnam:

(i) Enterprises providing one of the following services on the telecommunications network, the Internet, or the added services in cyberspace in Vietnam: Telecommunications services; Services for storing and sharing data in cyberspace; Providing national or international domain names for service users in Vietnam; E-commerce; Online payment; Payment intermediary; Transport connection services through cyberspace; Social networks and social media; Online video games; Email;

(ii) Conducting activities of collecting, exploiting, analyzing and processing all kinds of data in accordance with the provisions of the Law on Cybersecurity;

(iii) Allowing service users to perform prohibited acts under the Cybersecurity Law; and

(iv) Infringing regulations of the Law on Cybersecurity.

It can be seen that the draft is more likely to narrow and clarify the scope of Article 26.3 above of the Law on Cybersecurity 2018. Accordingly, not all businesses/organizations involving in cross-border e-commerce activities are required to set up a branch or representative office in Vietnam, provided that the four above-mentioned conditions set forth in the Draft are not fully met. However, this Draft is still under review at the moment by the Government and has not been approved.

In fact, the Law on Cybersecurity has not really taken practice effect in controlling the data of Vietnamese users and has not put strong pressure on businesses/organizations providing cross-border services. 

3. How to patch the mentioned loophole correctly?

In the author’s opinion, the most effective solution for this problem does not come from amending or supplementing other legal sources but from tightening the loophole in the core legal regulation on e-commerce activities, which is Decree 52/2013/ND – CP. It is obvious that currently, the amendment and supplementation of Decree 52/2013/ND-CP in the context of increasing integration in conjunction with various investment forms is the most urgent thing to do at all. The Ministry of Industry and Trade is expected to complete the draft Decree 52/2013/ND-CP to submit to the Government for consideration and approval in early 2021.

According to published information, the upcoming draft amendment and supplement decree is likely to expand the scope of regulation of Decree 52/2013/ND-CP to create a fairer playground for traders, organizations and individuals conducting commercial activities in Vietnam. Specifically, the Draft will amend the “foreign traders and organizations having a commercial presence in Vietnam” in Decree 52/2013/ND-CP to “foreign traders and organizations engaged in e-commerce activities in Vietnam”.

In addition, the draft also provides several additional regulations on conditions for market approach applicable to foreign investors in the field of e-commerce services, in conjunction with the purpose of making Decree No. 52/2013/ND-CP to be consistent with the provisions of the Law on Investment 2020 for the conditional inestment industry ,business line. Accordingly, the conditions for market approach applicable to foreign investors in this Draft include:

(i) Must invest in certain investment forms under the Law on Investment (in the case of establishing an economic organization or contributing capital/purchasing shares/contributing capital of an economic organization);

(ii) Being in the list of prestigious global technology companies in the field of e-commerce published periodically by the Ministry of Industry and Trade;

(iii) Requesting for appraisal opinions of the Ministry of National Defense or the Ministry of Public Security in the case of controlling at least 1 enterprise or more in the top five of enterprises with a dominant position in the market. 

Moreover, for the ultimate purposes of protecting Consumers’ rights, the draft of the decree amending and supplementing Decree No. 52/2013/ND-CP will additionally provide regulations on the obligation to publish certificates or licenses issued by the competent authorities as well as the obligation to provide consumers with the method of secured payment via a payment intermediary.

The draft also indirectly protect the consumers’ rights by requiring foreign individuals/organizations involving in e-commerce activities in Vietnam to establish an economic organization or contribute capital, purchase shares or captial contribution portions in economic organizations in accordance with the Law on Investment. As a result, the Draft can solve perennial problems in resolving disputes or claims of consumers for their rights and interests in purchase transactions in terms of the e-commerce activities with foreign elements.

If you have any questions or require any additional information, please contact Apolat Legal – An International Law Firm in Viet Nam.

This article is for general information only and is not a substitute for legal advice.