The European Union has expanded its control of online markets by opening formal proceedings against Chinese low-cost e-commerce platform Temu under the Digital Services Act (DSA), the Digital Services Act. The Commission announced THURSDAY.

Those responsible for enforcing the e-governance framework will now strengthen their monitoring of Temu. The bloc’s suspicions focus on concerns over the sale of illegal products, which can include products like toys and cosmetics that could harm consumers by failing to meet EU standards; addictive design linked to the way the market seeks to gamify buyer engagement; the transparency of Temu’s recommendation systems, including the absence of a non-profiling option for users; and issues related to obligations related to researchers’ access to public data.

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

The EU has only designated Temu as subject to the DSA’s strictest set of rules – which apply transparency requirements to large platforms and require them to assess and mitigate systemic risks – back in MayCompliance with these rules is expected from this month, so block officials are acting quickly.

They have already stated that online market security is one of their top DSA enforcement priorities, opening a earlier investigation into e-commerce giant AliXpress this spring (which remains ongoing).

Widespread concerns

At a briefing with journalists before the formal proceedings were made public, Commission officials said the quickly launched investigation into Temu reflects both the speed with which the market has grown in the region (it was only launched last year) and how many concerns have been shared with others, including consumer protection agencies and digital service coordinators (DSCs) at Member State level , which apply the general rules of the DSA.

The Commission noted that this was the first time it had constructed an investigative file based on data provided by the DSCs, which have been exercising a monitoring role over Temu since mid-February. The DSCs of Ireland and Germany are among those who have provided data on Temu to the EU.

Customs authorities and market surveillance bodies have also expressed concerns, the Commission says.

Back in Mayconsumer protection across the EU made headlines after filing a series of coordinated complaints against Temu, accusing the company of breaching general DSA rules. Since then, the EU has resumed surveillance of Temu after it was confirmed as a supposedly very large online platform.

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 that Temu’s risk assessment document – which the company shared with the EU in late September – was “far too generic”.

The bloc said it was concerned about the rapid re-emergence of illegal products on the platform after being removed and the re-emergence of “rogue traders”. But he wants to do more systemic checks to determine the extent of the problem.

The Commission’s concerns regarding addictive design relate to platforms’ DSA obligations aimed at preventing negative impacts on users’ mental well-being. Temu’s system of gamified reward programs and features such as indefinite scrolling merit further evaluation, officials said.

The issue of researcher access concerns what public data Temu should make available (e.g. via APIs) so that independent researchers can study things like withdrawal rates of non-compliant products.

While the bloc had already sent Temu some requests for information regarding its DSA compliance – including illegal products — the Commission’s formal procedure unlocks more coercive powers, meaning the EU can deepen its investigation.

Officials stressed that while they have reason to suspect Temu may not be complying, they need to collect more data to confirm whether or not there was a violation.

The EU also highlights that DSA investigations can be closed if a platform offers commitments that allay concerns. And the bloc remains supportive of the regulation moving forward on priority security issues – which is why the Commission accepted binding commitments from TikTok to address concerns about the addictive design of the TikTok Lite app. earlier this year.

In a statement responding to the DSA investigation, Temu wrote: “Temu takes its obligations under the DSA seriously, continually 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 reliable market for consumers.

The company also said it was in discussions to join the Commission’s Memorandum of Understanding on the Sale of Counterfeit Products over the Internet – a voluntary effort to strengthen efforts to combat the sale of counterfeit products online.

“Counterfeiting is an industry-wide challenge, and we believe collaborative efforts are essential to advance 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, head of digital policy at the European Consumer Organisation, welcomed the development: “There are many problems identified by consumer groups with Temu, including numerous dangerous or illegal products on sale or the frequent use of design techniques to deceive consumers.

“This decision by the Commission is a promising step, but only the first. It is now important that the Commission maintains pressure on Temu and pushes the company to comply with the law as quickly as possible. It is neither fair to consumers, nor to the many businesses that comply, that some companies like Temu simply flout the law.”