How the Government of Ukraine Should Build State Policy in the Field of E-Commerce

Analytical document How the Government of Ukraine Should Build State Policy in the Field of E-Commerce This analytical document was prepared under the auspices of the Ukrainian Side of the Ukraine–EU Civil Society Platform with the assistance of the "Civic Synergy" project, funded by the European Union and the International Renaissance Foundation. The content of this publication is the sole responsibility of the team of authors and does not necessarily reflect the views of the European Union or the International Renaissance Foundation. "Civic Synergy" The "Civic Synergy" project is aimed at strengthening public participation in the implementation of European integration reforms in Ukraine by building institutional capacity. The "Civic Synergy" project is also intended to strengthen the activities of the Ukrainian Side of the Ukraine–EU Civil Society Platform (UA CSP) and the Ukrainian National Platform of the Eastern Partnership Civil Society Forum. The project is funded by the European Union and the International Renaissance Foundation and is implemented by the European Programme Initiative of the IRF. Ukrainian Side of the Ukraine – EU Civil Society Platform The Ukrainian Side of the Ukraine – EU Civil Society Platform (UA CSP) is part of the Ukraine–EU Civil Society Platform — a body for public oversight of the implementation of the Association Agreement between Ukraine and the EU, established in accordance with Articles 469-470 of the Agreement. The UA CSP consists of 15 members representing various sectors of civil society — public associations, trade unions and employers' organizations, approved by the Assembly of the UA CSP. The UA CSP relies on the work of 6 thematic working groups, which together comprise over 240 member organizations. Working groups under the auspices of the UA CSP:

1. "Political Dialogue, Foreign and Security Policy" 2. "Freedom, Justice, Human Rights" 3. "Economic Cooperation, Free Trade Area, Cross-Border Cooperation" 4. "Employment, Social Policy, Equal Opportunities and Health" 5. "Energy, Transport, Environment and Climate Change" 6. "Science and Technology, Information Society, Education, Training and Youth, Culture and Sports"

How the Government of Ukraine Should Build State Policy in the Field of E-Commerce Analytical document AUTHORS Valentyna Pleskach, Head of the Department of Applied Information Systems of the Faculty of Information Technology, Taras Shevchenko National University of Kyiv Nataliia Borodachova, Vice-President of the All-Ukrainian Consumer Federation "Puls", Director of the NGO "Institute of Consumer Programs" Liliia Oleksiuk, Head of the All-Ukrainian Association "Information Security and Information Technologies", Coordinator of the Working Group "Freedom, Justice, Human Rights" of the Ukrainian Side of the Ukraine-EU Civil Society Platform Methodological support — R. Kobets and M. Koltsov 4 List of Abbreviations .........................................................................................................................................6 Summary ...............................................................................................................................................................7 Introduction ...................................................................................................................................................................9 E-Commerce Development Trends .................................................................................................................... 14 Methodology .................................................................................................................................................. 15 Problem Statement ........................................................................................................................................... 16 Who Is Dissatisfied with the Current Policy and Why / Stakeholders .............................................. 22 Information Sources .................................................................................................................................. 28 Annex 1. European Integration Measures on E-Commerce .................................................................. 30 Annex 2. System and Mechanisms of Consumer Rights Protection in the EU............................................ 32 Annex 3. European Integration Measures in the Interests of Consumers ................................................... 34 Annex 4. Analysis of the Law "On Electronic Commerce" .............................................................. 36 Annex 5. Draft Law of Ukraine "On Electronic Trade" ............................................. 42 Annex 6. List of Laws That Need to Be Amended .................................................. 46 Annex 7. Proposals for Amendments and Additions to the Law of Ukraine "On Protection of Consumer Rights" ....................................................................... 48 5 6 List of Abbreviations EESC — European Economic and Social Committee SSC — single social contribution ESC — European Social Charter (revised) UTS — Unified Tariff Scale LU — Law of Ukraine CMU — Cabinet of Ministers of Ukraine IMF — International Monetary Fund MW — minimum wage MFA — Ministry of Foreign Affairs of Ukraine Ministry of Economic Development — Ministry of Economic Development and Trade of Ukraine Ministry of Social Policy — Ministry of Social Policy of Ukraine Ministry of Finance — Ministry of Finance of Ukraine Ministry of Justice — Ministry of Justice of Ukraine ILO — International Labour Organization LS — living standard y/y — year on year AW — average wage UA CSP — Ukrainian Side of the Ukraine-EU Civil Society Platform ALS — actual living standard FTU — Federation of Trade Unions of Ukraine CEB — central executive body Summary E -commerce is becoming a trend and — the fastest-growing sector that instantly responds to the latest challenges thanks to the use of ICT and digital markets, and therefore requires constant monitoring and regulatory measures by state bodies. Forecast of the global e-commerce market volume in 2017 — $1.9 trillion, and in 2019 — $2.3 trillion. The growth rate of internet users is 7-8% per year. According to another study, the global e-commerce market will grow from $4.9 trillion in 2015 to $8 trillion in 2020, especially in the e-banking and e-commerce sectors for digital and physical goods (services). These figures indicate the enormous potential of e-commerce in the world as a whole and in Ukraine in particular. The greatest value of the internet is anonymity, which contributed to the development of e-commerce to certain limits. Today there is a trend toward identification of participants in relations in the field of e-commerce in order to protect consumer rights and personal data. Such changes should increase the level of trust in participants in financial transactions. However, the development of Big data (sets of information of very large sizes that cannot be processed by traditional methods and approaches) and consumer identification carry certain risks — users may become even more unprotected from the legal use of their personal and other data. It should be noted that there are challenges in the field of e-commerce, in particular: recognition of cross-border electronic transactions (the complex of rights and obligations of the parties to an electronic transaction); confirmation of the existence of relationships in the field of e-commerce; cybercrimes; fraud; violations of the protection of personal and other data (storage of data for marketing purposes without notifying consumers, excessive data storage periods by providers, excessive or insufficient identification of persons); multichannel; improper implementation of electronic services (including trust services). These challenges are caused, in particular, by significant barriers to the development of e-commerce, the largest of which include the following: imperfect national legislation in the field of e-commerce; monopoly of large online retailers and retail chains, consumer distrust of e-commerce; risky investment in the field of e-commerce due to insufficient legal support, economic and political instability in the country, etc. An important direction of Ukraine's economic development — the field of electronic commerce — requires state stimulation. This will also allow additional revenues to the State Budget of Ukraine. Measures to stimulate the field of e-commerce should cover comprehensive regulatory, organizational and technological regulation, namely: activities of telecommunications service providers; provision, delivery and implementation of electronic (including trust) services; rules for concluding electronic transactions with a system of legal safeguards, including obtaining evidence of the conclusion of a transaction (receipts), payment for consumed goods or services; possibility of cross-border e-services; protection of consumer rights; electronic taxation system. Institutional, regulatory, organizational and technological regulation can be ensured by the following methods (options), taking into account models of e-commerce regulation, 7 in particular the European one. Several scenarios for the development of e-commerce are possible: I. Leave the current policy in the field of e-commerce in Ukraine unchanged. II. Assign the function of forming and implementing state policy in the field of e-commerce to the Ministry of Economic Development and Trade. III. Create, under the auspices of the Prime Minister together with the National Bank of Ukraine and with the participation of all interested stakeholders, an interagency working group to develop a Concept for the Development of E-Commerce in Ukraine. The optimal option for institutional support for the development of e-commerce is the second of the listed scenarios — assigning the function of forming and implementing state policy in this area to the Ministry of Economic Development and Trade. Cross-border cooperation requires global mechanisms for regulating e-commerce and the development of new international conventions on e-commerce and e-trade. In order to harmonize national and international legislation in this area, it is necessary to create a working group, inventory Ukraine's regulatory acts and bring them into compliance with Directive 2000/31/EC of the European Parliament and of the Council (Directive on Electronic Commerce) of 8 June 2000, taking into account the commitments undertaken in the EU Agreement. 8 The authors also proposed developing a Roadmap for the Development of E-Commerce in Ukraine in the following order:

1. Expert analysis of the current legislation of Ukraine regarding the implementation of the Directive, review of the proposed UNCITRAL approaches and preparation of a detailed report on the state of regulatory regulation in the field of e-commerce and consumer rights protection.
2. Creation of a working group of interested parties (both state and public, business, consumer rights protection organizations) and a step-by-step action plan with clear deadlines.
3. Analysis of the developed draft regulatory acts by European experts (for example, the EESC).
4. Advocacy of the proposed approach using the capabilities of the Ukrainian Side of the Ukraine-EU Civil Society Platform (UA CSP).
5. Introduction of amendments to legislation (Annex 6. List of laws that need to be amended).
6. Information campaign in support of the Roadmap.

Roadmap. Introduction T he field of electronic commerce (e-commerce), as defined by the United Nations Commission on International Trade Law (UNCITRAL), covers electronic types of activity in the form of processing, transmission of information, etc. through data messages used in the context of commercial activity. At the same time, commercial activity refers to economic relations of a commercial type. These relations cover contracts of sale and purchase (exchange, supply, etc.) of goods, works and services, including factoring; leasing; investment; financing; banking services; insurance, etc. Electronic commerce (e-commerce) is an electronic economic activity aimed at the sale of goods and services using information and communication technologies based on network interactions between buyer and seller. Business transactions of electronic commerce are distinguished by their purposes and nature. According to the international standard ISO/IEC 15944-1:2011 Information technology ‒ Business Operational View ‒ Part 1: Operational aspects of Open-edi for implementation, the governing rules of a business transaction are as follows: it may allow a person to use one or more identifiers (for example, one of several different credit or debit cards), or may require a person to have or use a predetermined personal identifier (for example, a personal medical card, a national health insurance card, a passport, a driver's license, etc.). The personal identifier provided to represent a person in a business transaction must be "recognized" by the other party to the business transaction. Each party to the transaction may have its own governing rules for "recognition and identification of a person." The identity document that determines identity must be established to an extent sufficient for the purposes of the business transaction. In a business transaction, a recognized identity document is established either by mutual recognition and acceptance, or by reference to an identifier in the registration scheme of the relevant registration authority (a third trusted party in this business process, the analogue in Ukraine being a key certification center), by introducing clarity and algorithmization of the field of electronic document flow used in entrepreneurial activity for e-commerce purposes. As noted above, today there is enormous potential for e-commerce in the world as a whole and, in particular, in Ukraine. Figure 1 West Central South North East European Reports Reports include country profiles, trends & Infographics. Reports contain countries:

• Eastern: Rom, Rus, Ukr, a.o.
• Western: BeNeLux, Fra, Ire, UK
• Southern: Gre, It, Port, Spa, Turk, a.o.
• Northern: Den, Est, Fin, Lat, Lith, Nor, Swe, a.o.
• Central: Aus, CR, Germ, Hun, Pol, Swi, a.o.

818 million people live in Europe 564 million people use the Internet 331 million people are e-shoppers Europe € 423.8 bn +14.3% 100% 70% 2,475 + jobs directly or indirectly via e-commerce 715,000+ estimated online businesses EU28 4.0 bn+ € 368.7 bn +13.7% number of parcels sent annually (f) € 208.1 bn € 106.5 bn € 47.2 bn € 38.4 bn € 23.4 bn Ecommerce Europe association data at a glance 2015 +13.3% +12.9% +15.4% +16.1% +24.6% Ecommerce Europe https://www.Ecommerce-europe.eu © Ecommerce Foundation (June 2015) https://www.Ecommercefoundation.org Info: [email protected] For reports: [email protected] Twitter: @Ecommerce_EU Free download at: https://www.ecommerce-europe.eu/facts-figures/free-downloads Positioning papers 1. e-Regulations 2. e-Privacy&Transparency; 3. e-Payments 4. e-Identification & Trust Services 5. e-logistics 17+ leading e-commerce associations 40% GOMSEC Global Online Measurement Standard B2C E-Commerce Round Tables Meetings in 8 European cities for e-commerce experts and invitees 9 The top ten e-commerce market leaders, according to ecommerce-europa.eu, include: China, USA, United Kingdom, Japan, Germany, France, Canada, Russia, South Korea, Australia (Figure 1). The leaders of e-commerce sites include: Amazon, Taobao, Tmall, Alibaba, Flipkart, Snapdeal. Table 1 STATISTICAL DATA OF THE REVIEW OF E-COMMERCE DEVELOPMENT IN UKRAINE 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Volume of e-commerce in 0.40 0.60 0.55 0.73 1.10 1.59 2.37 3.24 4.44 5.65 Ukraine, USD billion Growth, year over year, % 50 -8 34 50 45 49 37 37 27 Penetration of 0.6 0.7 1.0 1.1 1.3 1.6 2.3 2.9 3.8 4.5 e-commerce in Ukraine, % Volume of retail trade in Ukraine, UAH billion An important trend is that the growth rates of developed markets are declining, while Southern and Eastern European markets are gaining significant momentum. Among all European countries, Ukraine ranks first in growth in 2016 319 449 443 530 675 804 902 967 1025 1087 Volume of retail trade in Ukraine, USD billion 63.2 85.2 56.9 66.8 84.7 99.5 105.5 111.8 118.5 125.6 Growth, year over year, % 35 -33 17 27 17 6 6 6 6 compared to previous years with a figure of approximately 30-35%. In addition, the average growth rate from 2011 to 2015 was 37%, which is the highest among Eastern European countries. Table 2 STATISTICAL DATA ON SALES THROUGH THE B2C E-COMMERCE MODEL DURING 2011-2016 B2C sales through electronic commerce in Eastern Europe, 2011-2016, EUR million 2011 2012 2013 2014 2015 2016* Average growth 2011- 2015,% Russia 8 247 10 937 14 697 19 259 20 536 21 621 6.6% 26.2% Romania 600 800 1 040 1 200 1 490 1 786 24.2% 25.7% Ukraine** 303 446 660 784 1 058 1 429 34.9% 37.2% Bulgaria 120 150 195 254 300 342 18.1% 25.8% Others 495 615 747 950 1 101 1 322 15.9% 22.2% Total 9 766 12 948 17 339 22 446 24 486 26 500 9.1% 26.3% Source: Ecommerce Foundation, AKIT, EWDN, UADM and Statista, 2016 Growth 2014-2015,% 10 In Ukraine, the number of electronic orders for goods grows annually by approximately 25-30%, and turnover in hryvnia — by 40-60%, and, according to forecasts, the volume of the e-commerce market should grow. In particular, in 2016 the volume of the e-commerce market amounted to UAH 33.4 — 33.7 billion, in 2017 it will reach UAH 44 billion. Currently, the share of e-commerce in the structure of retail trade in Ukraine is about 2%, in contrast to about 12% in Germany, 13% — in the USA, 15% — in the United Kingdom. In 2013, the volume of Ukraine's e-commerce market amounted to $2 billion. Clothing, electronics, books and household appliances are sold especially actively via the internet. Food trade is also gaining momentum — most market participants consider this segment the most promising for the next five years. According to the Ecommerce Foundation, the depth of internet penetration in Ukraine is 49% (21.86 million internet users); according to EMA, 44% is the growth of the e-commerce market in 2017 (January-June 2017 compared to the same period in 2016); according to Gemius, 26% of Ukrainians regularly make purchases online; according to Nova Poshta, 30% of online shoppers pay for orders by card on the website, 25% of online shoppers make purchases from a mobile device (Admixer), or 26% — according to UADM. The most visited online stores (traffic