The European Union has expanded its scrutiny of online marketplaces by opening a formal proceeding on Chinese low-cost e-commerce platform, Temu, under the Digital Services Act (DSA), the Commission announced Thursday.

Enforcers of the online governance framework will now dial up their oversight of Temu. The bloc is worried about the sale of illegal products that might include things like toys and cosmetics that could harm consumers if they do not comply with EU standards; addictive design, which refers to how the marketplace seeks to gamify shoppers' engagement; the transparency of Temu's recommender systems, in particular the lack of a non-profiling-based option for users; and problems with obligations related to researcher access to public data.

If the Commission finds any breach of the DSA, then Temu's parent, Pinduoduo, would face a fine that may be up to 6% of its global turnover.

The EU only designated Temu as subject to the DSA's strictest set of rules — which apply transparency requirements on larger platforms as well as requiring them to assess and mitigate systemic risks — back in May, with compliance for those rules expected from this month, so the bloc's enforcers are moving quickly.

They've said previously that online marketplace safety is one of their key DSA enforcement priorities, but they launched an investigation earlier this spring into the e-commerce giant AliXpress, which remains ongoing.
Widespread concerns
In a briefing to journalists ahead of the official proceeding being made public, Commission officials said the investigation opened promptly on Temu reflects both the speed at which the market has grown in the region (it launched only last year) and the extent to which concerns have been shared by others, including consumer protection agencies and Member State-level Digital Services Coordinators (DSCs), which enforce the DSA's general rules.

The Commission said this is the first time it's building an investigatory case on the basis of data provided by DSCs, who have had an oversight role on Temu since mid-February. DSCs in Ireland and Germany are among those that have provided to the EU data on Temu.
Customs authorities and market surveillance bodies have also raised concerns, the Commission says.

Consumer protections from around the EU made headlines back in May after lodging a series of coordinated complaints against Temu, accusing the company of breaching the DSA's general rules. Since then the EU has taken over oversight of Temu after it was confirmed as a so-called very large online platform.
One of the areas the Commission will now investigate is the assessment and mitigation of systemic risks by Temu.
Deeper look
Officials said journalists that they are worried that the risk assessment document Temu shared with the EU at the end of September was "far too generic."

The bloc is worried that illegal products reappear quickly on the platform after they are taken down and "rogue traders" respawn, but it wants to do more systemic checks to see how extensive a problem this might be.

The Commission's worries about addictive design pertain to DSA requirements on platforms to prevent adverse effects on users' mental health. Temu's gamified reward programs and features, such as infinite scrolling, warrant further scrutiny, according to officials.

The issue of researcher access pertains to public data that Temu should be making available - for example, through APIs - so independent researchers can study things like its rates of take-downs of non-compliant products.

Whereas the block had already sent Temu a few requests for information related to DSA compliance — including the illegal products case — the Commission's formal proceeding unlocks more enforcement powers, and the EU will be able to dig deeper into this case.

Officials said that while they have cause to believe Temu may be non-compliant, they need to collect more information to determine whether or not there has been a breach.

The EU also mentions that DSA investigations may be closed if a platform offers commitments that assuage concerns. And the bloc remains keen for the regulation to be seen moving the needle on priority safety issues — hence the Commission accepting binding commitments from TikTok to resolve concerns around 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, continuously investing to strengthen our compliance system and safeguard consumer interests on our platform. We will cooperate fully with regulators to support our shared goal of a safe, trusted marketplace for consumers."

To the above, the company observed that it is in consultation over becoming part of the Memorandum of Understanding by Commission in selling counterfeit goods over the internet — a not-for-obligation collaboration towards the enhancement of attempts aimed at combating the trading of counterfeit goods online.

"Counterfeiting is an industrywide challenge and, we believe that concerted efforts are necessary to work toward the realization of shared objectives: consumer and rights protection," Temu added.

Responding to the announcement of the DSA proceeding by the Commission, in a statement, Fernando Hortal Foronda, digital policy officer at the European Consumer Organisation welcomed the development saying, "There are many problems consumer groups have identified with Temu, which include many dangerous or illegal products on sale or the frequent use of design techniques to trick consumers.".

"This is a promising step by the Commission, but only the first. Now, it's up to the Commission to maintain the pressure on Temu and force the company to abide by the law as soon as possible. It is neither just for consumers nor for those businesses that do comply to have some companies like Temu flout the law.