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CAIT’s feedback on proposed e-commerce rules calls for transparency to all stakeholders

Stating that India’s e-commerce rules need to be consumer-centric, CAIT suggested that platforms should have a customer care facility, display the search algorithm to consumers, and more. 

Transparent operations of e-commerce platforms, easy accessibility and adequate grievance redressal by e-commerce entities, non-discriminatory access of marketplace platforms to all stakeholders, and avoidance of conflict of interest between marketplace platforms, sellers, and various service providers on the platform are the four key points that the Confederation of All India Traders (CAIT) highlighted as enablers of a “robust and dynamic regulatory framework” in its feedback submitted to the government on the proposed amendments to the e-commerce rules.

The government on June 21 proposed amendments that give the existing Consumer Protection (E-Commerce) Rules, 2020 more teeth. The proposed changes include new rules to address abuse of FDI regulations, the establishment of a grievance redressal mechanism, new display and labelling criteria for foreign goods, the prohibition of flash sales, restrictions on promotions, fall-back liability, among other things. The last day to submit feedback on these proposed changes was July 21.

Read: Summary of the proposed amendments to E-Commerce Rules, 2020

Why this matters? CAIT has been vocal in criticising the current e-commerce and FDI regulations. It has repeatedly alleged that platforms like Amazon and Flipkart are abusing FDI regulations and engaging in anti-competitive practices such as deep discounting and predatory pricing that are hurting offline retailers as well as smaller sellers on the platform. Its comments on the proposed amendments not only shed light on what the organisation thinks of the proposed rules but might also shape how the final version turns out.

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“The draft rules will shatter the dreams of few companies to become new version of East India Company and will bring an end to crony capitalism that exist in current e-commerce landscape of India.” – CAIT in a press release

Suggestions made by CAIT

Stating that India’s e-commerce industry is expected to reach USD 200 billion by 2026, CAIT submitted that India’s e-commerce rules need to be consumer-centric. In addition to boosting consumer confidence, the government must also motivate smaller retailers and MSMEs to adopt e-commerce, CAIT said. The confederation offered the following four key enablers to achieve both these objectives:

Transparent operations of e-commerce platforms

  • Disclose the complete terms and conditions between the platform and sellers: Calling transparency the “hallmark of any business activity”, CAIT submitted that e-commerce platforms must disclose the complete terms and conditions between the platform and sellers registered on it, including the criteria of every discount.
  • Disclose complete information to the consumers at the pre-purchase stage: CAIT urged that e-commerce platforms must disclose all information about the sellers and products to the consumer at the pre-purchase stage.
  • Disclose search algorithm: CAIT added that platforms must transparently display the search algorithm to consumers to allow them to make informed choices.

The proposed amendments do cover the above points but CAIT has suggested revising the language to clauses 6 (3) (a), (b), (f ), (g) and 6(4), 8(1)(f) to further strengthen the rules.

Easy accessibility and adequate grievance redressal by e-commerce entities

  • Customer care facility: While stating that it supports the grievance redressal mechanism and mandatory registration with DPIIT that is proposed in the draft rules, CAIT pointed out that many e-commerce platforms do not have customer care numbers for consumers to call in case they need to deal with problems like late deliveries, defective products, sales service, cancellation, etc. CAIT has suggested modifications to clauses 6(3)(b) and 8(1)(f) to address this.

Non-discriminatory access of marketplace platform to all stakeholders in the value-chain

  • Sellers must have their choice in logistics and payments providers: Sellers in a marketplace e-commerce platform must have non-discriminatory access to their choice of logistics service providers and payment gateway providers, CAIT suggested.
  • Sellers must have non-discriminatory access to customers and vice versa: “Each seller must have non-discriminatory access to every customer and every customer must have such access to every seller on the platform,” CAIT stated.
  • Differentiation must be based on sound reason: CAIT submitted that platforms must “not create any discrimination under the garb of differentiation and every differentiation so created must be based on sound reason and must not be arbitrary.”
  • New rules to prevent preferential sellers, preferential logistics partners, and payment gateways: CAIT has suggested new rules that will disable marketplace entities from creating preferential sellers, preferential logistics partners, and preferential payment gateways. The confederation said that these rules will help prevent practices like predatory pricing, deep discounts, and capital dumping.
  • Sellers of the same category must receive the same treatment: CAIT has suggested that sellers of the same category must be provided with the same terms and conditions, fee charges, discounts, etc., and categorisation of sellers must be “done in a transparent and objective manner and should be published on the website of the marketplace entity.” CAIT has also urged that no e-commerce entity should be allowed to give preferential treatment and all e-commerce platforms must disclose information like seller fees publically on the platform in order to allow sellers to make informed decisions. CAIT has suggested amending rule 6(4) to capture these suggestions.
  • Marketplace platforms should not be allowed to provide third-party services: CAIT suggested that marketplace e-commerce platforms should not be allowed to provide third-party services like logistics (delivery, warehousing) and payments. If related parties of the e-commerce platforms are providing these services, CAIT said they should transparently publish on the platform:
    1. the terms and conditions for such services
    2. the delivery charges, warehousing charges, charges for payment services, etc
    3. all other commercial terms.
  • Allow for smooth integration of third-party service providers: CAIT submitted that e-commerce platforms “should allow easy and smooth enrollment of all warehousing service provider, logistic service providers, and payment service providers through a transparent and non-discriminatory agreement and publish the APIs for quick integration with the platform so that the sellers on the platform can choose their service provider in a transparent manner.” CAIT has suggested enacting a new rule along with amending rule 6(5) to enable this.
  • No service provider should be denied: E-commerce platforms must not be allowed to deny registration to a service provider for providing services.

“These changes will put an end to the subsidies being extended to controlled sellers by offering huge discounts to them in a differentiated manner. Similarly, the use of affiliated payment service providers to lure consumers and influence them to buy from these controlled trading companies, by giving discounts on payment service charges, would come to an end.” — CAIT

Avoidance of conflict of interest between marketplace platform, sellers, and service providers on the platform

  • Marketplace-based platforms should not sell, inventory-based platforms should not enroll third-party sellers: CAIT submitted that a marketplace-based e-commerce platform and its related entities should not be allowed to sell on the platform and an inventory-based e-commerce platform should be the only seller on the platform and not enroll third-party sellers. While the proposed rules address the former, the latter is a new suggestion made by CAIT. The confederation has suggested amending rules 3(1)(i) and 3(1)(j) to reflect this change.
  • Introduce more comprehensive rules to prevent platforms from selling to controlled sellers: CAIT alleged that e-commerce platforms misuse loopholes in FDI regulation to control a group of sellers on their platform and gives these sellers preference in terms of ranking, fees, free delivery, etc. It cited the example of Amazon’s control over Cloudtail, Appario, Darshini Mobile to illustrate its point. To prevent this from happening, CAIT suggested that “the platform owner or any of its related parties or affiliates or associated enterprises should not participate in the sale of any product, directly or indirectly.” CAIT added that “the definition of ‘indirectly’ should be all-encompassing and all-inclusive so that there is no loophole.” CAIT also suggested amending the definition of a marketplace e-commerce entity to capture this.
  • Bundles fees should not be allowed: CAIT submitted that a new rule should be added to prevent e-commerce entities from charging bundled fees “for services provided with respect to the e-commerce platform and any other services provided by the entity to the consumers like videos and movies, delivery, etc.” “This will prevent cross-subsidy and create a level-playing field for all sellers on the platform,” CAIT stated. This appears to be targeted at Amazon’s Prime subscription which offers a variety of services for a single monthly payment.
  • Same brand name should be used for marketplace-based and inventor-based platforms: “If the same company or its related parties/associated enterprises are operating an e-commerce marketplace platform as well as an inventory-based e-commerce platform, the two platforms cannot use the same or similar brand name or branding. This is essential so that the consumer is not confused or mislead between the marketplace platform and e-commerce store,” CAIT submitted.
  • Further enhance definitions of related parties and associate enterprises: In order to prevent conflicts of interest between marketplace e-commerce entities and sellers on the platform, CAIT suggested further enhancing the definitions of related parties and associate enterprises to plug all loopholes. It has proposed including affiliated entities in the definition of associated enterprise and changing the threshold for the common ultimate beneficial ownership to 5 percent from 10 percent.

Establish a monitoring mechanism

  • In a separate press release, different from the one that contained the points mentioned above, CAIT also called for a mechanism to monitor compliance of rules by e-commerce platforms. It added that this mechanism must be empowered to take action in the event of a violation. It is not known if this suggestion was submitted to the government.

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