EU investigates Temu and Shein for violations of Digital Services Act

The European Commission has taken decisive action against popular Chinese internet platforms Temu and Shein, demanding detailed explanations regarding their compliance with the Digital Services Act (DSA).

The action comes in response to a complaint from consumer organisations and is an important step in the EU’s efforts to regulate digital platforms and protect consumers from fraudulent practices and illegal products.

In a statement dated 28 June 2024, the Commission sent Requests for Information (RFIs) to Temu and Shein. These RFIs requested detailed explanations of how the two Chinese e-commerce giants implemented various DSA obligations, in particular the “notice and action mechanism”, the design of online interfaces, the protection of minors, the transparency of recommendation systems, the traceability of merchants and compliance with the design.

The Notice and Action mechanism allows users to notify platforms about illegal products, while the ban on “dark patterns” ensures that online interfaces do not deceive or manipulate users. The Commission’s enforcement action follows a complaint by consumer organizations.

This complaint raises concerns about Temu and Shein’s compliance with the DSA and highlights potential risks for consumers. It catalyzes the Commission’s decision to investigate these platforms more closely. The complaint, available on the website of the European Consumers’ Organisation, BEUC, highlights the urgent need to address these issues to ensure consumer protection in a rapidly evolving digital market.

The complaint report specifically refers to Temu: “Since its launch in Europe in early 2023, Temu has experienced what has been described as a ‘skyrocketing increase in traffic and sales across Europe,’ becoming one of the most downloaded apps in many European countries and one of the most popular online marketplaces today, competing with other e-commerce giants such as Amazon and eBay.”

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

The report attributes Temu’s surge in popularity to three factors: heavily discounted consumer products, gamified consumer experiences, and heavy advertising, including influencer marketing. “Temu quickly attracted millions of European users with its heavily discounted products and aggressive marketing. However, it is suspected of violating EU consumer protection rules, in particular the DSA,” the report says. Catalyzing the Commission’s decision to investigate the platforms more closely, the consumer organization listed several significant alleged DSA violations by Temu:

Manipulative Techniques: It relies heavily on gamification and heavy advertising, which is suspected of exploiting and manipulating consumer behavior. The platform design potentially includes “dark patterns” that deceive users, contrary to DSA regulations.
Lack of Merchant Tracking: The marketplace reportedly does not provide the ability to track merchants on its platform, a critical requirement under the DSA to maintain transparency and accountability. This lack of tracking makes it difficult for consumers to verify the legitimacy of sellers and the safety of products.
Opaque Platform Operations: The overall functioning of Temu remains opaque, making it difficult for users to understand how the platform operates and makes decisions. This lack of transparency directly violates the DSA, which mandates clear and open communication with users.
Inadequate consumer protection: The complaint highlights that Temu has failed to provide a safe, predictable and trustworthy online environment. This includes insufficient measures to protect minors and inadequate responses to illegal product offers reported by users.

What’s next for Temu and Shein in Europe?

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

Failure to respond to the RFI could result in periodic penalty payments, which will hold authorities accountable for compliance. “Following their designation as Very Large Online Platforms, Temu and Shein are subject to the Commission’s oversight, including the general obligations of the DSA, which came into force on 17 February 2024, and are subject to the request for information sent today,” the Commission said.

In addition, the Commission also noted that Temu and Shein will continue to be supervised in relation to their general obligations under the DSA by Coimsiún na Meán and the Competition and Consumer Protection Commission as the competent authorities for Ireland. This multi-layered supervision aims to ensure comprehensive compliance and consumer protection across the EU.

“Temu and Shein have four months from the date of their designation to comply with the DSA’s more stringent rules, in particular the obligation to properly assess and mitigate any systemic risks arising from their services, such as the distribution of unsafe and counterfeit products,” it added.

Impact on digital platforms

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

(Photo: Christian Lue / Unsplash)

See more: Google fined €1.49 billion by EU for antitrust advertising breaches

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Tags: E-commerce, Europe, Ago