EU cracks down on Temu and Shein: Compliance with DSA under scrutiny

EU cracks down on Temu and Shein: Compliance with DSA under scrutiny Dashveenjit is an experienced tech and business journalist with a determination to find and produce stories for online and print daily. She is also an experienced parliament reporter with occasional pursuits in the lifestyle and art industries.

The European Commission has launched a decisive move against popular Chinese online marketplaces Temu and Shein, demanding detailed explanations of their adherence to the Digital Services Act (DSA).

This action follows a complaint from consumer organisations and marks a significant step in the EU’s efforts to regulate digital platforms and protect consumers from deceptive practices and illegal products.

In a June 28, 2024 statement, the Commission sent Requests for Information (RFIs) to Temu and Shein. These RFIs demand detailed explanations of how the two Chinese e-commerce giants have implemented various DSA obligations, specifically the ‘Notice and Action mechanism’, the design of online interfaces, protection of minors, transparency of recommender systems, traceability of traders, and compliance by design.

The Notice and Action mechanism allows users to notify platforms of illegal products, while the prohibition of ‘dark patterns’ ensures that online interfaces do not deceive or manipulate users. The Commission’s enforcement action follows a complaint submitted by consumer organisations. 

This complaint outlines concerns about Temu and Shein’s compliance with the DSA and highlights potential risks posed to consumers. It catalyzes the Commission’s decision to scrutinise these platforms more closely. The complaint, available on The European Consumer Organisation, BEUC’s website, underscores the urgency of addressing these issues to ensure consumer protection in the rapidly growing digital marketplace.

The complaint report specifically targets Temu: “Since its launch in Europe in early 2023, Temu has experienced what has been described as a “meteoric rise in traffic and sales in Europe” to become among the most downloaded apps in many European countries and among the most popular online marketplaces today, competing with other e-commerce giants such as Amazon or eBay.

For context, Temu is operated by the Chinese company PDD Holdings (also owner of Pinduoduo) and has its European office in Ireland. Its business model is similar to that of other shopping platforms such as Shein or Alibaba. Most products sold on Temu are shipped to consumers directly from Chinese factories or warehouses.

The report attributed Temu’s skyrocketing appeal to three factors: heavily discounted consumer products, gamified experience for consumers, and Intensive advertising, including influencer marketing. “Temu has rapidly attracted millions of European users with its heavily discounted products and aggressive marketing. However, it is suspected of violating EU consumer protection laws, specifically the DSA,” the report reads. Catalyzing the Commission’s decision to scrutinise these platforms more closely, the consumer organisation listed Temu’s several significant alleged violations of the DSA:

  1. Manipulative techniques: Temu heavily relies on gamification and intensive advertising, which is suspected of exploiting and manipulating consumer behaviour. The platform’s design potentially includes ‘dark patterns’ that deceive users, contrary to DSA regulations.
  2. Lack of trader traceability: The marketplace reportedly fails to ensure the traceability of traders on its platform, which is a critical requirement under the DSA to maintain transparency and accountability. This lack of traceability makes it difficult for consumers to verify the legitimacy of sellers and the safety of products.
  3. Opaque platform operations: The overall functioning of Temu remains opaque, hindering users’ understanding of how the platform operates and makes decisions. This lack of transparency directly violates the DSA, which mandates clear and open communication with users.
  4. Inadequate consumer protection: The complaint underscores Temu’s failure to provide a safe, predictable, and trustworthy online environment. This includes insufficient measures to protect minors and inadequate responses to illegal product listings users report.

What’s next for Temu and Shein in Europe?

Temu and Shein will have until July 12, 2024, to respond to the Commission’s RFIs. The Commission will consider their responses and decide on further steps, should they include initiating proceedings under Article 66 of the DSA. In contrast, Article 74 (2) of the DSA allows the Commission to impose fines on entities that provide inaccurate or incomplete information. 

Non-response to the RFIs could result in periodic penalty payments that would keep authorities accountable for compliance. “Following their designation as Very Large Online Platforms, Temu and Shein are subject to the supervision of the Commission, including for the general obligations of the DSA, which entered into force on February 17, 2024, and are subject to the request for information sent today,” the Commission stated.

Additionally, the Commission also noted that Temu and Shein will continue to be supervised in respect of their general obligations under the DSA by the Coimsiún na Meán and the Competition and Consumer Protection Commission as the competent authorities of Ireland. This multi-tiered oversight aims to ensure comprehensive compliance and consumer protection across the EU.

“Temu and Shein have four months from the designation to comply with the more stringent rules under the DSA, notably the obligation to duly assess and mitigate any systemic risks stemming from their services, such as the dissemination of unsafe and counterfeited products,” it added.

Impact on digital platforms

The European Commission’s aggressive enforcement of DSA against Temu and Shein reflects the EU’s determination to enforce and comply with consumer protection measures in a mature market. Inevitably, the RFIs are a crucial compliance test for Temu and Shein. The answers will shape the Commission’s investigation but could also serve as a pilot for how other digital platforms might be examined using DSA rules.

(Photo: Christian Lue / Unsplash)

See more: Google slapped with €1.49bn EU fine for antitrust in advertising

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