E-commerce has revolutionized the way consumers shop and businesses sell goods. Policymakers rightly want to ensure that consumers shopping online—whether buying directly from retailers or indirectly from sellers via online marketplaces—receive the same protections as when they make a purchase in brick-and-mortar stores. For example, the Senate has introduced the Country of Origin Labeling Online Act (COOL Online Act) so that consumers can access information about a product’s origins for products sold online. However, despite good intentions, the act would create an uneven playing field for listing a product’s country of origin between brick-and-mortar stores, online retailers, and online marketplaces.
The legislation would create different rules based on whether a product is sold by online retailers, online marketplaces, or brick-and-mortar stores. Manufacturers are responsible for affixing the country-of-origin information to products imported into the United States to be sold in brick-and-mortar stores. U.S. Customs and Border Protection (CBP) ensures compliance with requirements for goods imported into the United States. The COOL Online Act would require online retailers and online marketplaces to list the product’s origin on the online listing, which they would typically receive from the product vendor. If online retailers receive incorrect information from vendors and post that information, they may be liable. In contrast, brick-and-mortar retailers are not liable if the information affixed by the manufacturer is incorrect.
Liability for incorrect country-of-origin information presents a significant risk for online retailers. Online retailers would need to verify the country-of-origin information provided by a vendor before listing a product in order to avoid posting potentially incorrect information. But there is no simple way to verify this information, and verifying vast amounts of product information could raise costs for those selling online, raising costs and limiting options for consumers.
While this legislation is intended to promote transparency for consumers, it could create confusion given other requirements online retailers must satisfy. For example, the INFORM Act requires online marketplaces to collect and display information about where the product sellers are located. However, the product seller may be located in a different country than the product. Displaying this information side-by-side may confuse consumers who don’t understand the difference between the product and seller.
The legislation establishes a safe harbor for sellers using online marketplaces so that they are not liable if the country-of-origin information provided by vendors or other third-parties is inaccurate. But the legislative text is vague, and it is unclear how this safe harbor applies to online retailers who do not sell through an online marketplace. While it is important to recognize the difference between online marketplaces and online retailers, the legislation should not create a safe harbor for one but not the other. Otherwise online retailers may find it increasingly challenging to compete, undermining their ability to thrive in the e-commerce landscape.
Finally, the proposed enforcement strategy for country-of-origin claims introduces another lack of parity between online and brick-and-mortar retail businesses. The COOL Online Act gives the Federal Trade Commission (FTC) authority to enforce the country-of-origin labeling requirements for products sold online. For products sold in stores, CBP enforces the country-of-origin labeling requirements. Enforcement by two different agencies will create needless confusion and uneven enforcement, especially for businesses that operate both brick-and-mortar and online retail. This lack of parity will also create new barriers that could stymy existing retailers from expanding into online or brick-and-mortar stores.
Despite good intentions, the COOL Online Act would create a complex and multi-tiered system for providing country-of-origin information to consumers. The lack of parity between brick-and-mortar and online businesses and the burden of verifying information provided by vendors necessitate revisiting and refining this legislation. Lawmakers should review the proposed text, consider the implications of different enforcement standards by different agencies, and offer a safe harbor that applies to all online businesses, not just third-party marketplaces. This would allow essentially all online retailers to have the same liability protections that apply to brick-and-mortar businesses.
Striking a balance between consumer protection and the viability of e-commerce enterprises is crucial to fostering a thriving and competitive digital marketplace. It is imperative for lawmakers to engage in thoughtful dialogue with stakeholders from the e-commerce industry to develop a sustainable and even regulatory framework for online and traditional retail.