On-line Shopping in Ukraine. Opportunities and Challenges
Nataliya V. Misnik
While speaking about domestic trade in Ukraine it is necessary to pay special attention to such form of conducting business in that sphere as electronic commerce.
The popularity of various e-services in Ukraine has grown substantially in recent years and now more and more Internet users prefer to use on-line stores and auction portals as a place of purchasing various goods.
Advantages and disadvantages of e-shopping
As far as the behavior of Ukrainian e-shoppers is concerned, the main advantages of on-line shopping in Ukraine are as follows:
— Convenience which includes the overall ease of finding a product, time spent on shopping, minimization of overall shopping effort. On-line shopping allows consumers to shop at the convenience of their own home, and to save traveling time to retail stores and spend their time on other important tasks and hobbies.
— No need for vendors and no pressure to buy. On-line shopping benefits both the society as a whole and individuals. Society can save human resources when consumers help themselves by browsing freely on-line instead of asking for assistance from vendors. In addition, consumers are freed from the pressure to buy from the vendors and can spend more time to make wise purchase decisions. But it is important that Web sites have good product descriptions because it is one of the significant condition that satisfy consumers.
— “Infinite shelf space” available. Consumers desire a variety of products because they look for the right product that will fully satisfy them. There is infinite variety of products available on-line because on-line shopping allows consumers to browse through products that are made all around the world without geographical boundaries.
— Able to compare product price and features. With the on-line tools that enable product comparison, consumers can compare product prices and features to make a better decision with less effort.
Despite all mentioned advantages there are still a lot of concerns about e-commerce. These include:
— Privacy and security issues; privacy is the number one reason that non-on-line shoppers do not shop on-line. Almost 95% of Web users have declined to provide personal information to Web sites at one time or another when asked;
— Access to the Internet and computer is necessary; because one needs money to buy a computer and to have an Internet connection, on-line shopping seems to be limited to people who have a reasonable amount of income. Also, since it is harder to learn how to use a computer at an older age, older people tend to shop at traditional retail stores;
— Product category risk; product category risk is related to functional products such as apparel, perfume, and electronics that have functions that cannot fully be experienced on-line. On-line shoppers are worried that the products will not be what they have expected by viewing on-line;
— Too much choice. Although having access to a very large number of products is highly desirable, consumers have limited cognitive resources and may simply be unable to process the potentially vast amounts of information about these alternatives. On-line stores need to provide the variety in an organized way that will facilitate shopping on-line.
History
The appearance of e-commerce in the world dates back to 1990, when Tim Berners-Lee invented the Worldwide Web browser and transformed an academic telecommunication network into a worldwide everyman everyday communication system called Internet. Commercial enterprise on the Internet was strictly prohibited by National Science Foundation until 1995. Although the Internet became popular worldwide around 1994 with the adoption of the Mosaic web browser, it took about five years to introduce security protocols and DSL (Digital Subscriber Line) allowing continual connection to the Internet. By the end of 2000, many European and American business companies offered their services through the Worldwide Web. Since that time people have begun to associate the word “e-commerce” with the ability to purchase various goods through the Internet using secure protocols and electronic payment services.
In Ukraine e-commerce started in the early 1990s. Its appearance became possible due to the USSR’s disintegration and resulted in popularization and rapid development of private business. The further development of e-shopping in Ukraine was tied to the rise in the number of Internet users in the country and entailed an increase in interest in the Internet economy. According to the data from the State Committee for Communications and Information Technologies, Ukraine’s current Internet audience is 11.3 million people, with 88% of users accessing the net daily, 10% — several times a week, 1% — once a week, and the remaining 1% — several times a month. Nearly 90% have Internet access at home. While 59% of users come from cities with a population of over 500,000 people, only 9% live in rural areas. The largest age group of Internet users is made up of people aged 14-24 (36%), the second largest — users who are 25-34 years old (29%), and only 4% are older than 55. And that number is increasing every year. However, 45% of those who have ever done shopping on the Internet admitted that they are going to buy on the Web more frequently. So, there is no doubt that in the near future on-line shopping will become the most popular kind of domestic trade.
General legislation
At this time Ukraine has no single law codifying rules on electronic trade. So, on-line shopping is regulated in our country by the same legislation as traditional trade. That is why many issues are left unregulated and unresolved. As domestic legislation system doesn’t provide proper regulations of e-commerce activity, entrepreneurs who conduct business via the Internet ought to follow some basic trade-regulating provisions.
Main requirements
Sale of goods via e-shops is a form of business activity and it must be legalized in the established order. Thus, the owner of an e-shop must be registered as a business entity with a number of state agencies and funds, and obtain all the required permits and licenses — depending on the types of its commercial activity.
According to the Order of the Ministry of Economy and European Integration of Ukraine On the Rules on Sales of Ordered Goods and Sales of Goods Outside of Retail or Office Facilities of 19 April 2007, No.103 an agreement concluded via the Internet is defined as a distant agreement. The above Rules stipulate that the business entity that concludes distant agreements must comply with the requirements of the On Safety and Quality of Food Products Act of Ukraine of 23 December 1997, No.771/97-BP, On Sanitary and Epidemiological Welfare of Population Act of Ukraine of 24 February 1994, No.4004-XII, On Consumers Rights Protection Act of Ukraine of 12 May 1991, No.1023-XII, On Use of Registers of Accounting Operations in Retail, Public Catering and Services Act of Ukraine of 6 July 1995, No.265/95-BP, the Order of Retail Trade Execution and Rules of Retail Servicing, approved by the Decree of the Cabinet of Ministers of Ukraine of 15 June 2006, No.833, and other legal acts of legislation that regulate the retail sector.
Electronic contracts and electronic signatures
Generally, contracts can take any number of forms. They can be in writing, oral, or implied from the conduct of the parties.
The process of product sales via the Internet in Ukraine becomes more complicated because of the statutory legislative requirements to conclude almost every purchase agreement in writing (Article 208 of the Civil Code of Ukraine of 16 January 2003, No.435-IV).
The On Electronic Documents and Documentary Exchange Act of Ukraine of 22 May 2003, No.85-IV stipulates that an electronic document must be granted the same legal effect as its paper equivalent, as long as certain requirements set out in the statute are met.
In particular, an electronic digital signature must be affixed to an electronic document by its signatory. According to the On Electronic Digital Signature Act of Ukraine of 22 May 2003, No.852-IV, an electronic digital signature is based on cryptographic algorithms that utilize a set of keys (private and public).
An electronic digital signature is equaled to a personal signature by its legal status provided that: an electronic digital signature is confirmed with use of a consolidated certificate of key by means of reliable digital signature devices; during the verification a consolidated certificate of key, which is valid for the moment of putting an electronic digital signature, was used; a signatory’s personal key corresponds to the open key indicated in the certificate.
The electronic digital signature is intended for ensuring activity of individuals and legal entities, which is carried out using electronic documents. Electronic digital signature is used by individuals and legal entities — subjects of electronic documents circulation for identification of the signatory and confirmation of integrity of data in electronic form.
Use of electronic digital signature does not change the procedure for signing of agreements and other documents, which are set by law, for commitment of legal proceedings in written form. Notary actions on attestation of authenticity of electronic digital signature on electronic documents are conducted according to the procedure set by law. The signatory is entitled to and shall: demand cancellation, blocking or renewal of its certificate of key; appeal actions or inactivity of the center for certification of keys according to judicial proceedings; keep the personal key secret, etc.
In fact, the complicated procedure of certification of electronic signatures serves as an obstacle for its wide use in e-shopping. Non-compliance with the requirements on written forms makes all e-agreements voidable.
Consumer protection
The principal legislative act in Ukraine in the area of consumer protection and product liability is the On the Protection of Consumer Rights Act of Ukraine of 12 of May 1991, No.1023-XII. Under the Consumer Rights Act, merchants have an obligation to provide consumers with goods, which comply with the established quality standards, the terms of the agreement with the consumer, and the information about the goods, which is published by the merchant. Pursuant to the Consumer Rights Act, vendors must ensure the safe use of sold goods for the duration of the service life period established by law or by the agreement with the consumer or, in the absence of any relevant provisions, for a period of ten years. Furthermore, the Consumer Rights Act requires that a manufacturer of goods must ensure the availability of maintenance services for the goods during the relevant periods of time.
It also sets forth the obligations of merchants towards consumers with respect to the replacement of defective goods and warranty repairs.
Article 13 of the Consumer Rights Act stipulates that before conclusion of a distant agreement a seller must provide a consumer with the following information: name of the seller; its location; basic product characteristics; cost of the product including any delivery fees and conditions for payment; warranties and maintenance terms; proposal acceptance period; procedure for termination of the agreement; other essential information in the agreement; rights and obligations of the parties to the agreement, etc. Receipt of the above information must be confirmed by the consumer in written or electronic form.
The consumer has the right to terminate a distant agreement within 14 days from the date of the confirmation of the information or from the date of the receipt of a good or the first delivery of the good. If the disclosure of the information does not comply with the above-mentioned requirements the term for the termination of the agreement is 90 days. The section also provides for some cases when a consumer has no right to terminate a distant agreement.
If otherwise is not provided by the distant agreement, the seller must deliver the product to the consumer within the stipulated term, but no later than 30 days from the date of obtaining the consumer’s consent on the conclusion of the agreement.
Payments
The On Payments System and Funds Transfer in Ukraine Act of Ukraine of 16 May 2001, No. 2346-III defines general principles of functioning of payment systems in Ukraine, concept and general procedure for conducting funds transfer within Ukraine, as well as sets responsibility of the subjects thereof.
According to Article 18 of the On Payments System and Funds Transfer in Ukraine Act of Ukraine, an electronic document for transfer has equal legal force with a paper document. Responsibility for reliability of information that is contained in the requisites of electronic document shall be borne by the person who signed this document by the electronic digital signature. An electronic document for transfer which is not confirmed by electronic digital signature is not accepted for implementation. At the same time, while accepting documents for transfer a special versification procedure has to be carried.
If the requirements are not fulfilled, bank or other payment system member would compensate damages, caused to the subjects of transfer.
The level of trust in electronic money is also low. In spite of the fact that there are several systems in Ukraine that offer services on e-payments (the most well-known are WebMoney and iMoney), neither e-shops nor e-shoppers actively use these options. All the more, great changes are coming forth onto this market. The Administration of the National Bank of Ukraine, via its Resolution of 26 June 2008 No.178, has passed the Resolution On Electronic Money in Ukraine. According to this Resolution, electronic money may be issued only by banks and legal entities that issue electronic money in Ukraine and are not banking institutions and must accord their activity with the requirements of this Resolution within one year from the date of this Resolution coming into effect.
At the same time, shoppers are not in a hurry to use cards or e-money to pay for goods in e-shops. Taking into account the instability and the absence of proper state control over the Internet-shops, 55% of Ukrainians prefer to pay for goods on delivery: after making sure of the quality of the ordered goods. In addition, Ukrainians traditionally fear card fraud, especially when personal data is used in the Internet.
Development of legislation
It is obviously that domestic legislation in e-commerce leaves much to be desired. Realizing that, members of Parliament recently began drafting e-commerce-related legislation. The most significant achievement of drafting process in the current year was the issuance of the Draft Act On Electronic Commerce of 4 April 2011, No.6086.
The Draft Act seeks both to regulate commercial relationships of the parties involved in trading and control how trade is conducted.
Highlights of the Draft Act include:
— Items excluded from the scope of the law included medicines, electricity, securities, real estate, lottery and transportation tickets, etc.
— Chain store operators are subject to special requirements, including availability of sufficient space and special facilities for handling goods.
— There is special regulation of distance trading, including selling goods through the Internet; distance traders are required to have offices for processing their sales documentation.
— Special reporting by trading entities regarding volumes of sales and prices charged is to be introduced.
— All trading areas must be made suitable for use by disabled individuals.
— Products sold retail or wholesale must be safe and of a good quality.
— Retail outlets are to be situated in accordance with standards promulgated by Ukrainian government based on various local factors;
— Contracts for the supply of goods to retailers may not cover services relating to promotion of the goods. This is normally taken to mean a prohibition of “bonuses”
that retailers charge suppliers for selling their products on better terms.
— Suppliers must notify retailers at least seven days in advance about changes in prices.
— Government may in case of increased prices of certain socially important goods to impose price regulation for up to 90 days.
— It is illegal to charge suppliers for marketing, advertising and other services relating to the distribution of socially important goods.
— Establishment of a special governmental agency with overall oversight in the area of domestic authorized, in particular, to impose fines and conduct audits of trading entities.
Despite a lot of positive novelties of such Draft, the main scientific and expert management of Parliament noted the shortcomings of the document. In particular, they drew attention to the fact that the project largely coincides with the content of the CIS (Center for Internet Security) model law on electronic commerce.
The provisions of the Draft are not adapted properly to the existing Ukrainian system of normative-legal acts. In particular, there is inconsistency with the On Payment Systems and Funds Transfers in Ukraine Act of Ukraine and On Electronic Digital Signature Act of Ukraine. The experts noted that some provisions of the Draft do not comply with the Civil Code of Ukraine. Due to such facts Draft was submitted to further revision by the Resolution of Parliament of 5 April 2011, No.3184-VI.
Another significant trade-relating bill which was created during current year was the Draft Act On Internal Trade.
Developed by the Ministry of Economy of Ukraine the aim of this Draft to improve the conduct of trading activities in Ukraine.
The Draft’s regulations provide definitions and basic requirements for retail and wholesale trade of restaurants. Specifically, the Draft set out the features of trade and production and trading activities; distance, commissions and on-line trading, and trading activities in markets and fairs.
According to the Draft Act all on-line shops existing in Ukraine are obliged to have their own office; otherwise a fine will be imposed on. Furthermore, all proprietors who conduct business on-line have to provide consumer by a personal information about vendor’s name, location, state registration, presence of patent or license, agreement’s condition by specifying such information in catalogues, booklets, boulevards, information networks.
The representatives of the Ministry of Economy strongly believe that such a Draft will help to reduce the shadow trade sector, ensure quality control of products, and protect consumer interests. Moreover, they consider that Draft rules will create new jobs for private businesses.
On the other hand, on-line traders convinced that such a Draft is another government attempt to gain control over the on-line market and that its provisions wouldn’t bring any benefits for consumers or vendors.
In any case the Draft Act
On Internal Trade was not approved by the Cabinet of Minister and was returned to the Ministry of Economy for further revision.
Conclusion
In Ukraine investment in the Internet and e-commerce has increased dramatically in the past years. As there is clear intention among e-shoppers to buy on-line, the future of e-commerce seems to be bright. In order to promote the expansion of on-line shopping, its security should be guaranteed. But existing legislation is inadequate and cannot be relied upon to regulate e-commerce.
At present, electronic documents and digital signatures remain unregulated by Ukrainian law. Further, the drafting process is still under way. Thus, the final outcome of the parliamentary debates on e-commerce legislation could well differ from the draft bills. It also appears that a system of on-line payments should be introduced, including a large increase in the number of credit cardholders resident in Ukraine. Fulfilling all these conditions would speed up the development of the e-commerce market in Ukraine and result in higher satisfaction of the customers.
