Temu’s low-cost marketplace faces official investigation in EU over multiple DSA compliance concerns

The European Union has expanded its scrutiny of online markets by launching formal action under the Digital Services Act (DSA) against Chinese low-cost e-commerce platform Temu. Commission announced Thursday.

Enforcers of the online governance framework will now increase their control over Temu. The bloc’s suspicions focus on concerns about the sale of illegal products such as toys and cosmetics that fail to comply with EU standards and potentially harm consumers; addictive design for how the market tries to gamify shopper engagement; the transparency of Temu’s recommendation systems, including the absence of a non-profiling-based option for users; and issues related to liability related to researcher access to public data.

If the Commission confirms any breach of the DSA, Temu’s parent company Pinduoduo could face fines of up to 6% of its annual global turnover.

The EU designated Temu as subject only to the strictest rules of the DSA; These rules mandate the assessment and mitigation of systemic risks, as well as transparency requirements on larger platforms. back in mayThe rules are expected to be enforced starting this month, so the bloc’s enforcers are moving quickly.

Having previously said that online market security is one of the DSA’s key priorities for its implementation, Previous research by e-commerce giant AliXpress this spring (continues).

Common concerns

Commission officials told reporters in a briefing before the official hearing was made public that the swiftly launched investigation into Temu reflected both how rapidly the market was growing in the region (it was launched only last year) and how much concern was shared with him about the investigation. Some aspects of the platform are overseen by others, including consumer protection authorities and Digital Services Coordinators (DSCs) at Member State level, who enforce the general rules of the DSA.

The commission noted that it had established an investigative case for the first time based on data provided to it by the DSCs, which have had an oversight role over Temu since mid-February. DSCs in Ireland and Germany are among those providing data on Temu to the EU.

According to the commission, customs authorities and market surveillance bodies have also expressed concerns.

During, back in mayIt hit the headlines after consumer protection bodies across the EU lodged a series of coordinated complaints against Temu, accusing the company of breaching the DSA’s general rules.

Since then, following Temu’s approval as a very large online platform (VLOP), the EU has taken over control of Temu and is also subject to the DSA’s algorithmic accountability obligations.

Temu’s assessment and mitigation of systemic risks is one of the areas the Commission will now investigate.

deeper view

Officials told reporters they were concerned that the risk assessment document Temu shared with the EU at the end of September was “too general”.

On illegal products, the bloc said it was concerned that illegal products were rapidly reappearing on the platform after removal and that “rogue traders” were also reborn. But he wants to do more systematic checks to find out how extensive a problem this might be.

The Commission’s concerns about addictive design relate to DSA obligations on platforms to prevent adverse effects on users’ mental health. Features such as Temu’s system of gamified rewards programs and indefinite scrolling should be evaluated more closely, officials said.

The issue of researcher access relates to public data that Temu must make available (such as APIs); so independent researchers can examine issues such as takedown rates of non-compliant products.

Although Blok has already sent several to Temu requests for information Regarding DSA compliance — including those related to illegal products — Unlocks the Commission’s power to further enforce the formal process, meaning the EU can deepen its investigation.

Authorities stressed that while they had reason to suspect Temu wasn’t following the rules, they needed to collect more data to confirm whether there was a violation.

The EU also points out that DSA investigations can be closed if a platform offers commitments to address concerns. And the bloc remains keen for regulation to be seen to move the needle on priority security issues; The Commission therefore accepts binding commitments from TikTok to resolve concerns about the addictive design of the TikTok Lite application earlier this year.

In a statement responding to the DSA investigation, Temu wrote: “Temu takes its obligations under the DSA seriously, continuously investing to strengthen our compliance system and protect consumer interests on our platform. “We will fully cooperate with regulatory authorities to support our shared goal of a safe and secure market for consumers.”

The company also stated that discussions were ongoing to join the Commission’s “Memorandum of Understanding on the sale of counterfeit goods on the Internet – a voluntary effort to increase efforts to combat the online sale of counterfeit goods”.

“Counterfeiting is an industry-wide problem, and we believe collaborative efforts are necessary to advance our shared goals of protecting consumers and rights holders,” Temu added.

Responding to the Commission’s announcement of the DSA process in a statement, Fernando Hortal Foronda, digital policy officer at the European Consumer Organization (BEUC), welcomed this development: “There are many problems that consumer groups have identified with Temu, including many dangerous or illegal products .the frequent use of design techniques to discount or deceive consumers.

“This decision of the Commission is a promising step, but only a first step. It is now important for the Commission to keep up the pressure on Temu and force the company to comply with the law as soon as possible. “The fact that some companies like Temu get away with ignoring the law is not fair to consumers or the many businesses that comply with these rules.”