It faces tighter EU rules amid growing consumer protection concerns: TECH: Business Times

The European Commission has announced that Temu, the high-speed e-commerce platform owned by China’s PDD group, will have to comply with strict EU rules on online content under the Digital Services Act (DSA). This development puts Temu in the same category as major tech companies such as Amazon, Meta Platforms and TikTok.

The EU’s DSA directive stipulates that companies with more than 45 million users must be considered very large online platforms (VLOPs) and adhere to stricter standards to combat illegal and harmful content as well as counterfeit products. Tego, which launched in the EU in April last year, averaged around 75 million monthly active users in the EU in the six months ending March 31, 2024.

“Following today’s designation, VLOP Temu will be required to comply with the most stringent rules set out in the DSA within four months of notification,” the European Commission said in a statement. This means Temu must meet these requirements by the end of September 2024.

As VLOP, Temu will be required to conduct a comprehensive risk assessment and implement measures to mitigate systemic risk associated with the services provided. These include preventing the display and sale of counterfeit goods, dangerous or illegal products and items infringing intellectual property rights. Failure to comply with DSA regulations may result in financial penalties of up to 6% of a company’s total annual turnover.

The decision to designate Temu as a VLOP came shortly after European consumer protection groups filed coordinated complaints against the company, alleging repeated DSA violations. The complainants included the European consumer organization BEUC, which represents 45 consumer protection groups across the EU. They called on lawmakers to classify Temu as a VLOP, citing concerns about the platform’s practices.

Temu now joins 23 other companies struggling with additional obligations under the DSA, which applies to both VLOPs and very large online search engines (VLOSEs). This group includes products from companies such as Alibaba, Alphabet, Amazon, Apple, ByteDance, Meta, Microsoft, and Snap. In December, three porn sites were also designated as VLOPs, and Temu’s Chinese retail competitor Shein was the first person to be designated under the rules.

As a VLOP, Temu will be subject to increased scrutiny regarding the use of algorithms, artificial intelligence, content ranking and recommendation tools. The company will also be required to assess and mitigate any systemic risks arising from the services it provides, including addressing counterfeit, illegal or unsafe products listed on its platform.

From the moment of notification, Temu will have four months to comply with these additional requirements. The company will need to work with the European Commission and the Irish Digital Services Coordinator – Temu’s European headquarters is in Dublin – to provide regular risk assessment reports. These reports are required at the beginning of the compliance period and annually thereafter.

The European Commission’s decision to include Temu in the VLOP category reflects its commitment to ensuring that large online platforms meet higher standards of accountability and transparency. The move is aimed at protecting consumers and maintaining the integrity of the digital marketplace.

The designation of Temu as a VLOP highlights the growing influence of Chinese e-commerce platforms in the global market and the increasing regulatory scrutiny they face. The DSA’s stringent requirements aim to create a safer online environment for consumers by holding large platforms accountable for the content and products they host.

As the compliance deadline approaches, Temu will need to make significant changes to its operations to meet the stringent EU standards. This includes improving content moderation practices, improving transparency in the use of algorithms, and ensuring the rapid removal of counterfeit and unsafe products from the platform.

The European Commission’s decision is a significant step in regulating very large online platforms and highlights the importance of consumer protection in the digital age. Temu’s compliance with the DSA will be closely monitored, and Temu’s efforts to meet these new standards will likely set a precedent for other emerging e-commerce platforms.