Fear and Loathing in Asia: Grappling with Withdrawal Rights

 

photo (41)Something happened to me over the summer and I’m still not quite sure how I feel about it. It all started when I was given the opportunity to present at the East China University of Political Science and Law (“ECUPL”) alongside fellowMEPLIers, Jan Smits, William Bull, Jiangqiu Ge, Catalina Goanta and Willem Loof. The topic of my short (and relatively mundane) talk was regarding consumer protection and withdrawal rights in the EU vis-à-vis China’s newly amended Consumer Protection Code [中华人民共和国消费者权益保护法].[1]

After highlighting some germane aspects of the EU’s Consumer Rights Directive (2011/83/EU), I gave my usual spiel about how “consumers are not weak and through collaborative consumer protection, they can protect themselves”. For this talk, I added a bit about how “mandatory withdrawal rights reduce party autonomy and the opportunity for consumers to haggle for a cheaper price, thus reducing the parties’ freedom to contract.”[2] Essentially, I (along with my Chinese counterpart Dr. Wenjie Zhao) advocated for keeping general withdrawal rights optional rather than mandatory (as is the case in the EU and China for most online purchases). My argument sounded reasonable enough at the time (if I may say so myself), but after the conference, while visiting Japan, I started to question some of the things that I had said during the conference and here is why…

 

One of Them Is Not Like The Other

Prior to our ECUPL visit, I thought – for some inexplicable reason – that there wouldn’t be much of a difference (at least on paper) if one were to compare withdrawal rights afforded to an average consumer living in one of the EU Member States and a consumer living in countries like China or Japan. As silly as this may sound, the Japanese and the Chinese actually transplanted – or at least modeled – many of their laws from Europe (mostly Germany). So I just assumed that the EU, China and Japan would all offer similar withdrawal rights to consumers making online purchases, albeit with varying durations allotted for consumers to actually “cool off”.

Upon closer inspection, my uneducated guess was not so far off from reality at least with regards to the EU and China: They both offer withdrawal rights to consumers for online purchases, although China only offers a cooling period of 7 days compared to the EU’s 14 days.[3] Moreover, Article 9 of the EU’s Consumer Rights Directive allows consumers to return most goods purchased online “without giving any reason”, and similarly in China, a consumer can return most goods purchased online “without justification”[4] in accordance with Article 25 of their newly amended Consumer Protection Code. The black sheep out of the three and the jurisdiction that proved my speculation wrong was my native land of Japan.

 

A Case of Path Dependence? Withdrawal Rights in China and Japan

Simply put, the Japanese prescription of withdrawal rights for consumers with regards to online purchases is very different from that of China or the EU. Before getting to the nitty-gritty of it all, its worthwhile to present a bit of history and background here about how withdrawal rights developed in China and Japan.

The aforementioned Chinese Consumer Protection Code back in 1993 did not mention withdrawal rights, thus the consumers could not rely on cooling off periods to escape their contracts. The right to withdrawal in China first emerged in 2003 at a local level with the promulgation of Regulations of Shanghai Municipality on the Protection of Consumers’ Rights and Interests [上海市消費者利益保護条例][5]. This was the Regulation that first introduced the cooling off period to protect Chinese consumers (mostly) from doorstep sellers that pressured consumers into buying something that they did not particularly need or want. The 2013 Amendment [2013修正][6] of the Chinese Consumer Protection Code expanded this protection offered by withdrawal rights nation-wide via the aforementioned Article 25 (thus giving consumers a 7 day withdrawal period for distant purchases, which includes purchases made over the telephone, online, etc.).

Shifting gears to Japan, it is worth clarifying at the onset that withdrawal rights and cooling off periods do exist in the land of the rising sun. As a matter of fact, Japan first introduced the concept of a cooling off period in 1976 (even before China), when they promulgated the Act on Doorstop Selling [訪問販売法].[7] This regulation on doorstop selling was subsequently absorbed into the Act on Specified Commercial Transaction [特定商取引法], which is the relevant law today that generally deals with consumer protection, doorstep selling, distance selling, etc.[8] The Act initially provided consumers with a cooling off period of 4 days to return goods if there was, at the time of the contract, some element of undue pressure or influence (i.e. doorstep selling, aggressive telemarketing, etc.). In this way, the Japanese Act on Specified Commercial Transaction is similar to Shanghai’s 2003 Regulations on the Protection of Consumers’ Rights and Interests. In 1984, amendments to the Act extended the cooling off period from 4 days to 7 days, and then again in 1991, yet another amendment to the Act extended the cooling off period from 7 days to 8 days (which is the prescribed cooling off period in Japan today).[9]

Although the duration of the cooling off period was extended periodically since the Act’s first inception, what remained unchanged throughout the decades was Japan’s insistence on not extending the right of withdrawal to consumers making online purchases.[10] Whereas in China and the EU, regulations that prescribe mandatory withdrawal rights enable consumers to generally return goods that they purchased online “without justification” or “without giving any reason”, in Japan, this particular right to withdrawal from online purchases is not guaranteed by the law. The reasoning behind Japan’s refusal to do so is because unlike doorstop selling, telemarketing or other more aggressive sales tactics, online shopping does not pressure the consumer to make unwanted purchases, thus reducing the need for the law to protect them in such situations, especially at the expense of Japanese retailers.[11]

Due to this fact, if a Japanese consumer, for example, buys a hand bag online from a Japanese online retailer that does not voluntarily offer withdrawal rights, the consumer does not have an enforceable right that is guaranteed by the law to return the bag for a refund (even if it is returned within 8 days). In other words, while many businesses offer individual return policies, there is no mandatory withdrawal right that would allow a Japanese consumer to return that bag for a refund. What it comes down to is that Japan’s withdrawal right regime is the optional withdrawal right regime that I advocated for at ECUPL. The question, at least for me, then shifted to the following: is the “Japanese way” (the optional withdrawal right regime) that I advocated for, really the “better” way that I proclaimed it is? The best way for me to find out was for me to transform into… a consumer.

 

Exercising Withdrawal Rights: Real Consumer Experiences

I must briefly interject here by acknowledging that this idea – to try a more hands on approach to determine what benefits (if any) the consumers have in a optional withdrawal right regimes – was not one of my own, but a proposal that was suggested to me by my colleague Catalina Goanta. In a bigger project spearheaded by Catalina (and relying on the “user-based methodology” designed by her), we are currently in the process of collecting actual consumer experiences around the globe to see how consumers are exercising withdrawal rights and charting their experiences across various different jurisdictions (some that offer mandatory withdrawal rights and some that do not). This project aims to offer some real insights about what it means to exercise withdrawal rights and hopefully, we will be able to illustrate how consumers are benefiting from mandatory withdrawal rights or, in the alternative, coping without them.

The underlying motivation for us to carry out this research was our concern that there is somewhat of a disconnect between how we, as academics, debate the pros and cons of withdrawal rights compared to how we, as consumers, actually exercise withdrawal rights. It is our working hypothesis, at least for the time being, that once we climb down from the ivory tower and attempt to return an item that we purchased online, there is a world of previously unaddressed issues and frustrations that can only be experienced by consumers.

For anyone interested, we are currently on schedule to present the results of this project at this year’s annual Ius Commune Conference in Edinburgh.

 

Sneak Peak: Japan Report

Screen Shot 2014-09-09 at 11.15.55.png

Screen shot of my purchasing options on Rakuten.

Shameless plug about future MEPLI projects aside, as I was saying, I decided to make an online purchase while in Japan to see whether my talk at ECUPL had any merit. So in collaboration with Catalina, I ordered an Apple Magic Mouse from Japan’s largest online retailer, Rakuten to fulfill my part about collecting real consumer experience for our project. Similar to Amazon, Rakuten is a market place where sellers can list their items on Rakuten’s massive online marketplace. The most notable aspect about Rakuten’s website – besides the sheer number of things that are on sale – was the fact that depending on which seller you ordered from, there were different return policies: Some sellers specified that “no returns” were allowed, while others offered a cooling off period of 8 days.

The mouse with “no returns” was priced at ¥8,500 [roughly €62], whereas the mouse that came with the 8-day withdrawal right was ¥11,000 [roughly €80]. As I noted at ECUPL, in a jurisdiction with no mandatory withdrawal rights, choices like these are available for the consumers. If I knew for certain that I was not going to return the mouse, I could have saved roughly €18.[12] The main thrust of my argument, at least when I presented in China, was the allure of this €18, or more generally, the fact that optional withdrawal rights would be preferable precisely because it would give consumers the opportunity to find something cheaper, albeit taking a bit more risk. That decision, whether to take that risk or not, is ultimately up to the consumer, which is the very essence of “consumer autonomy” and freedom to contract.

 

Conclusion

While I advocated for these lofty contractual ideas (i.e. freedom of contract and the opportunity for consumers to seek out lower prices during my talk in China), it occurred to me while browsing through the immense Rakuten website that shopping, at least for me, was a huge pain in the ass. Especially in an optional withdrawal right regime like Japan, where consumers are required to do a bit more research to compare and contrast not just the products themselves, but their return policies, shopping became somewhat of an inconvenience at best and possibly even a nuisance.

Moreover, the process of actually dealing with the return – by exercising one’s withdrawal right in an optional withdrawal right regime like Japan – was quite laborious as well, which is a story I shall save for Edinburgh. In light of these concerns, the new question in my series of evolving questions regarding this subject now was whether I would have paid €18 not to deal with sorting out which product offered what kind of withdrawal rights. The truth – as I admitted in the beginning – is that I’m still not quite sure how I feel about it all, but I hope that Catalina and I will have it all figured out by the time we land in Edinburgh come November.

 

 

* Many thanks to fellow MEPLI researcher Jiangqiu Ge on his invaluable assistance with the Chinese consumer laws.

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[1] Pronounced “zhōnghuá rénmín gònghéguó xiāofèi zhě quányì bǎohù fǎ” for those motivated readers.

[2] Based on the assumption that traders that are compelled to refund consumers will likely increase the price charged to the consumers.

[3] There are other differences as well (i.e. Chinese law does not obligate the trader to inform the consumer about their right to withdrawal, etc.).

[4] The text of the code states in Chinese: “且无需説明理由”

[5] Pronounced “shànghǎi shì xiāofèi zhě lìyì bǎohù tiáolì”.

[6] The amendments went into effect on 15 March 2014.

[7] Pronounced “houmonhanbaihou”.

[8] Pronounced “tokuteishoutorihikihou”.

[9] Act on Specified Commercial Transaction, Articles 9, 24 & 48

[10] For whatever it is worth, the Japanese Justice Ministry’s Legislative Council subcommittee made a proposal to amend various parts of the Japanese Civil Code in the upcoming year (2015) to address issues on consumer protection.

[11] The EU, at least, justifies granting withdrawal rights to its citizens in the belief that it will increase cross border trade and strengthen the internal market, which is an issue that Japan is not particularly concerned with.

[12] I often face this type of dilemma when I reserve my flight a few months ahead of a trip and the airline gives me an option to “insure” my trip in the event that I want to cancel or modify my trip later. Whenever I don’t buy it, that is usually when I have to change my flight details, and vice versa.

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