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Thursday, October 31, 2024

EU targets Temu in major probe on illegal products

Temu is one of 25 platforms mandated to comply with the DSA due to their size, alongside competitors like Amazon, AliExpress, and Shein.

The European Union launched a formal investigation into the Chinese-founded e-commerce platform con Thursday, focusing on its efforts to prevent illegal product sales and address addictive design features. This probe could potentially lead to substantial fines under the EU’s Digital Services Act (DSA) if the platform fails to meet consumer safety and compliance standards.

Concerns Over Illegal Products and Repeat Offenders

Temu, owned by PDD Holdings and known for its budget-friendly marketplace and tagline “shop like a billionaire,” rapidly expanded across the EU after entering the European market in April 2022. Despite its popularity, the European Commission suspects that Temu’s control systems to prevent illegal products are insufficient, citing numerous reports from authorities in Germany, Denmark, and Ireland. Authorities have raised concerns about the sale of counterfeit items, pharmaceuticals, cosmetics, and toys, some of which may not meet EU health and safety standards.

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One specific issue flagged by the EU is Temu’s lack of a robust system to track and block “rogue traders.” According to the European Commission, suspended sellers sometimes reappear on the platform within days, potentially contributing to the circulation of unsafe or illegal products. Complaints from the European Consumer Organisation (BEUC) and 17 national members across the EU have further amplified concerns about consumer transparency and safety on the platform.

Addictive Design Under Scrutiny

Temu’s design, which incentivizes users through game-like reward programs, has also raised red flags. EU regulators say these design elements could foster compulsive shopping behaviors, posing risks to users’ mental and physical well-being. The European Commission plans to investigate the platform’s content recommendation systems and will evaluate if Temu’s addictive features have adequate mitigations in place. Fernando Hortal Foronda, digital policy officer at BEUC, expressed his concern, calling the design techniques a way “to trick consumers” into continued purchases and engagement.

Temu is one of 25 platforms mandated to comply with the DSA due to their size, alongside competitors like Amazon, AliExpress, and Shein. Platforms of this scale must meet specific consumer safety standards, including protecting against harmful content and promoting transparency. Failure to do so could result in fines of up to 6% of global turnover or, for severe and repeated violations, potential EU bans.

The Digital Services Act

The Digital Services Act (DSA), enacted this year, represents one of the EU’s strongest tools in regulating large digital platforms. The legislation requires companies like Temu to actively prevent the sale of illegal goods, protect user safety, and allow access to researchers studying the platform’s public data.

Margrethe Vestager, the EU tech chief, emphasized the investigation’s aim to ensure Temu meets DSA requirements and maintains EU consumer protection standards. “Our enforcement will guarantee a level playing field and that every platform fully respects the laws that keep our European market safe and fair for all,” Vestager noted. If the investigation confirms breaches of the DSA, Temu could face severe penalties.

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In response to the EU’s probe, a Temu spokesperson said the company is fully committed to cooperation, stating, “Temu takes its obligations under the DSA seriously, continuously investing to strengthen our compliance system and safeguard consumer interests on our platform.” Temu has already shown responsiveness, and the company is due to sign a memorandum of understanding to combat counterfeiting across the internet, indicating a potential shift towards proactive compliance.