The spring of cross-border beauty in China is over

Report by: JUMEILI.CN

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"The status quo of cross-border beauty is about to be broken."

"Finally, treat everyone equally."

"It's long overdue to supervise cross-border beauty. It's too unfair to only supervise domestic cosmetics strictly."?

When the new regulations put huge pressure on domestic cosmetics companies, the relatively loose supervision of cross-border beauty makes many companies call it "unfair".

But recently, a platform training meeting broke the "special treatment" of cross-border beauty merchants.

1. Tmall requires the rectification on promotion of the function of cross-border beauty

In early April, an industry related person revealed to Jumeili that Tmall held a special training session for cross-border beauty merchants on the platform. According to reports, the theme of this training session is that the platform requires merchants to rectify the efficacy claims of beauty products within a time limit. "The platform requires that the promotion of efficacy of beauty products in cross-border e-commerce channels is the same as that of domestic general trade." said Aleksey, the head of cross-border of a European and American niche brand.

Aleksey explained to Jumeili specifically: "The platform requires that the promotion of cross-border beauty on the page must comply with the domestic advertising law and relevant regulations, and be consistent with general trade, and that the product promotion must be consistent with the product packaging and instructions, the claims beyond these descriptions must provide corresponding qualification certification materials. "

"If the rectification is not completed within the time limit, the platform will give the merchant 2 chances. If the rectification is not completed for the third time, the platform will directly remove the product link and delete the product link." He added.

Regarding this news, many people in the industry said that they have "heard about it", but since they have not received the official notification document from the platform side, they are still waiting and seeing. "Words involving sensitive claims will be dealt with first, just in case. However, what to do in the future depends on the official announcement of the platform." said the cross-border person in charge of a French niche brand.

Jumeili reporters observed that products such as Phyto-C Olive Gel and Cosmetic Olive Serum have all removed the previous claims of "anti-inflammatory" and replaced them with claims such as "soothing" and "reducing redness"; Dr.Ci.Labo have also removed EGF-related (Epidermal Growth Factor) products from the shelves. At present, only some C2C stores and daigou stores still sell a small number of these products, but it is worth noting that these stores have coded the "EGF" logo on the product bottle.

△EGF labels on product packaging are coded

All the signs seem to indicate that the platform is about to start grasping the issue of claims of cross-border beauty. However, compared to the relatively calm cross-border beauty brands and their agents, this news seems to make domestic cosmetics brands and companies more "excited". "Finally, we have started to regulate cross-border beauty. Previously, the new regulations regulated domestic brands and enterprises from filing registration, packaging labels, raw materials, and efficacy claims. However, cross-border beauty products are not within the scope of supervision and many things restricted by the regulations are still being done. This is too unfair for domestic cosmetic brands that honestly follow the new regulations!” said the person in charge of a new domestic beauty brand. This "complaint" is mainly because the market environment of cross-border beauty is relatively free compared to domestic general trade cosmetics.

2. Free but chaotic cross-border e-commerce

As the world's second largest beauty market, China has always been the focus of foreign brands.

Compared with traditional foreign trade and import trade modes, the process of cross-border e-commerce is simpler, with low operating costs and low tax rates, while enjoying the dividends of the policy. In December 2021, the General Administration of Customs issued an announcement deciding to cancel the filing of domestic consignees of imported cosmetics, which means that another gate has been opened for cross-border e-commerce. At the same time, the e-commerce platform will also provide more resources and support policies for overseas niche brands in marketing and supply chain optimization.

At the beginning of 2022, Tmall has ushered in a wave of "store openings". Brands under the beauty giants such as L'Oreal and Amore Pacific have opened overseas flagship stores on the Tmall platform to further expand the Chinese market. These include Hera, Kate and other brands that have withdrawn from offline counters one after another.

Under various "preferential treatments", cross-border e-commerce has become a new channel for overseas niche beauty brands to enter the Chinese market and a new growth point for multinational companies. Data shows that in the past year, more than 5,000 new overseas brands entered the Chinese market through Tmall, of which more than 2,000 small and medium-sized brands successfully had a try in the Chinese market and achieved monthly sales of over 100,000 yuan.

"For international brands, to switch to cross-border e-commerce is essentially more economical than to operate offline. The offline cost is too high, especially under the influence of the epidemic, the cost of labor and material resources are rising." said Huang Guangming, training manager of Singapore LUXASIA China.

In addition to the above-mentioned policy inclination, cross-border beauty is not bound by the domestic cosmetics filing and registration management measures, and the relatively loose supervision gives cross-border beauty more free development space.

1) Freedom under loose supervision

According to the "Announcement on the Supervision of Cross-border E-commerce Retail Import and Export Commodities" issued by the General Administration of Customs in 2018, China’s cross-border e-commerce commodities are supervised as imported goods for personal use, and the first import license approval, registration or filing requirements for relevant commodities are not implemented.

Moreover, people familiar with the matter also revealed that cross-border beauty does not need to carry out in-vivo efficacy tests, "Cosmetics regulations have no special requirements for cross-border products, and efficacy claims is not necessary to follow the domestic cosmetic technical regulations." Huang Guangming said. "However, publicity on the cross-border beauty market is still restricted by domestic advertising laws," he added.

In this case, there are still products such as "EGF" and "CBD" that have been clearly pointed out by the State Food and Drug Administration as restricted raw materials for cosmetics on Chinese e-commerce platforms, including well-known international brands such as Dr.Ci.Labo and CSS; There are also many cross-border beauty products with claims of "anti-inflammatory" that are prohibited in China. For this reason, many people in the industry have expressed their incomprehension to the press.

△Cross-border products with "anti-inflammatory" claims

On the one hand, domestic cosmetics have entered the era of strict supervision, and on the other hand, cross-border beauty is still relatively free, which makes many practitioners feel "unbalanced". "If a domestic brand wants to launch a new product, it will take at least 2-3 years, in addition to the research and development time, there are registration and filing procedures, and the required efficacy tests. However, cross-border beauty brands are not restricted by this set of rules when the new products are launched on the market. It is much faster than domestic brands, it is more free in terms of ingredients and claims, and there is no need to deduct prohibited words word by word.” The person in charge of a new skin care brand complained.

2) Chaos in freedom

However, under the advantages of a relatively relaxed environment and favorable policies, the cross-border e-commerce attracts batches of players to enter the game, while making this market relatively chaotic, with frequent problems of smuggling, fake goods, and tax evasion.

At the end of December 2020, the anti-smuggling department of the customs and the local police in Shenzhen jointly launched a centralized crackdown on gangs suspected of smuggling through cross-border e-commerce platforms, while investigating suspected smuggling stores in Huaqiangbei Manha Beauty Trading Center and other shopping malls. The criminal gang was suspected of smuggling goods worth over 600 million yuan.

According to Oriental Fortune.com, its beauty smuggling industry chain is realized through fake customs clearance in the name of cross-border e-commerce, and it will also flow “fake goods” to the market. "Real goods are sold in first- and second-tier cities or professional beauty markets, and fakes are sold in third- and fourth-tier cities or personal beauty stores" has become the "unspoken rule" of the shopping center’s smuggled goods. According to the General Administration of Customs, in 2020, 79 cases of smuggling through cross-border e-commerce channels were investigated, with a value of 10.49 billion yuan.

These illegitimate market circulation channels also make cross-border e-commerce have tax evasion problems. Recently, two companies in Yiwu imported cosmetics through cross-border e-commerce, and were fined a total of 859,000 yuan for missing consumption tax.

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3. With tightened regulations, the spring of cross-border beauty is coming to an end

In fact, not only the platform side has begun to regulate the claim of cross-border products, but also the state's supervision of cross-border e-commerce has gradually started.

1) Implement quality and safety risk detection

"The Announcement on Supervision Matters Concerning Cross-border E-commerce Retail Import and Export Commodities" stipulates, "In order to prevent the quality and safety risks of import and export commodities, the customs shall monitor the quality and safety risks of cross-border e-commerce retail import commodities, and order relevant enterprises to conduct quality and safety risk monitoring of unqualified or unqualified goods. Commodities with quality and safety problems shall take risk reduction measures, supervise the goods that have not yet been sold, and investigate the responsibilities of relevant business entities in accordance with the law; issue risk warnings and take corresponding control measures for commodities with high quality and safety risks found in monitoring.

On March 14, Yiwu Customs centrally destroyed a batch of unqualified cross-border imported goods, mainly baby toothpaste, baby shampoo and other maternal and infant products. Yiwu Customs stated that they strictly prevent commodities that do not meet Chinese product quality, safety and hygiene standards from entering the domestic consumer market.

At the same time, raw materials that are not allowed by domestic regulations may also be included in the scope of supervision. "New products with CBD-like ingredients can no longer be filed with customs," Aleksey said. "Now customs will review the formula materials of products to see if there are any domestically banned ingredients."

2) Cross-border e-commerce advertising is included in compliance supervision

On November 26 last year, the State Administration for Market Regulation announced the "Administrative Measures for Internet Advertising (Draft for Public Comments)", which will be open to public comments for one month. The draft of the Measures pointed out that, "If an overseas advertiser without a representative office or branch in China publishes or entrusts the publication of an advertisement for cross-border e-commerce retail imported goods through a cross-border e-commerce platform, they shall entrust in writing a domestic market entity that provides customs declaration, payment, logistics, warehousing and other information for them to assume advertiser responsibilities. This means that cross-border e-commerce advertising will be included in the domestic supervision system.

Before the release of the draft, the "Advertising Law" and related regulations apply to cross-border e-commerce retail imported products in principle, but on the basis of not endangering China's social and public interests. Standards or technical specifications such as quality, safety, hygiene, environmental protection, and labeling may apply to the requirements of the country of origin.

The revision in the draft may mean that the previous exemption for cross-border e-commerce advertising will be withdrawn in the future.

3) The tide of tax inspections is coming

With the outbreak of tax evasion incidents by top broad casts of live commerce such as Wei Ya and Shirley, the industry-wide and multi-level e-commerce tax repayment has become an irreversible trend. In fact, the scope of this tax inspection is not limited to the top KOLs, but the entire e-commerce industry.

As one of the booming industries in the past two years, cross-border e-commerce has gradually become a key regulatory target. This year, many cross-border e-commerce companies have been found to have tax evasion.

It cannot be ignored that the overall environment of the cross-border e-commerce industry has reached a watershed. Last year's Amazon account bans and this year's PayPal account freeze have sent a signal to Chinese cross-border e-commerce merchants that cross-border e-commerce must embark on the road of compliance.

"To build a good brand image in China, you still need to meet domestic regulations in the end," Huang Guangming said. The relatively “reckless” cross-border e-commerce industry is only a temporary exemption for early development. As the industry and market gradually expand, order and standardization will definitely be put on the agenda. Under the background of favorable policies and the rapid development of e-commerce, cross-border e-commerce still has a long dividend period in the future.

But with the regulation in place, the free and wanton spring of cross-border beauty seems to be over soon.