Temu’s low-cost market faces formal EU investigation over DSA compliance concerns

The European Union has expanded its scrutiny of online marketplaces by opening a formal procedure on Chinese low-cost e-commerce platform Temu under the Digital Services Act (DSA). The commission announced Thursday.

Online governance framework enforcers will now activate their Temu watch. The bloc’s suspicions are focused on concerns about the sale of illegal products, which can include things like toys and cosmetics that could harm consumers by failing to meet EU standards; addictive design related to how the marketplace tries to gamify buyer engagement; the transparency of Temu’s recommendation systems, including the lack of a non-profiling option for users; and issues with obligations related to researcher access to public data.

If the Commission confirms any breach of the DSA, Temu-mama, Pinduoduo, could face fines of up to 6% of its annual global turnover.

The EU has only designated Temu as subject to the DSA’s strictest set of rules – which apply transparency requirements to larger platforms, as well as requiring it to assess and mitigate systemic risks – back in maywith compliance with those rules expected this month, so the block authorities are moving quickly.

They have previously said online marketplace safety is one of their top priorities for DSA enforcement, opening a e-commerce giant AliXpress’s previous investigation this spring (which remains ongoing).

Widespread concerns

In a briefing with journalists before the formal proceedings were made public, Commission officials said the quickly opened investigation into Temu reflected both how quickly the market had grown in the region (launched only last year) and how many concerns it had shared on aspects of the platform by others, including consumer protection agencies and Member State digital service coordinators (DSCs), who apply the general rules of the DSA.

The commission noted that it is the first time it has built an investigative case based on data provided by DSCs that have a surveillance role over Temu since mid-February. DSCs in Ireland and Germany are among those that have provided Temu data to the EU.

Customs authorities and market surveillance bodies have also raised concerns, according to the Commission.

While, back in mayEU-wide consumer protection has grabbed the headlines after filing a series of coordinated complaints against Temu – accusing the company of breaching general DSA rules.

The EU has since taken over oversight of Temu after it was confirmed as a so-called very large online platform (VLOP) and also became subject to DSA’s algorithmic accountability obligations.

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

Deeper look

Officials told reporters they were concerned his risk assessment document – which Temu shared with the EU in late September – was “much too generic”.

Regarding illegal products, the bloc said it was concerned that illegal products would quickly reappear on the platform after being removed, and that “rogue traders” would also appear. But he wants to do more systemic checks to find out how widespread the problem might be.

The Commission’s concerns about addictive design relate to DSA obligations on platforms to prevent adverse effects on users’ mental well-being. Temu’s system of gamified rewards programs and features like infinite scrolling deserve closer evaluation, officials said.

The issue of researcher access concerns the public data that Temu should make available (such as through APIs) so that independent researchers can study things like removal rates of non-compliant products.

While the block had already sent Temu a few requests for information in terms of its DSA compliance – including in relation to illegal products — the Commission’s formal procedure unlocks more enforcement powers, meaning the EU will be able to deepen its investigation.

Officials stressed that while they have reason to suspect Temu may be out of compliance, they need to gather more data to confirm whether or not there has been a violation.

The EU also points out that DSA investigations can be closed if a platform offers commitments that mitigate concerns. And the bloc remains keen for the regulation to be seen to move the needle on priority safety issues – so the Commission is accepting binding commitments from TikTok to address concerns about the addictive design of the TikTok Lite app. at the beginning of 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 the interests of consumers on our platform. We will cooperate fully with regulators to support our shared goal of a safe and trusted marketplace for consumers.”

The company also noted that it is in discussions 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 sale of counterfeit goods online.

“Counterfeiting is an industry-wide challenge and we believe that collaborative efforts are critical to advancing our shared goals of protecting consumers and rights holders,” Temu added.

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

“This Commission decision is a promising step, but only the first. Now, it is important for the Commission to keep the pressure on Temu and push the company to comply with the law as soon as possible. It is not fair to consumers, nor to the many companies that comply, for certain companies like Temu to get away with breaking the law.”