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The European Union has expanded its scrutiny of online marketplaces by opening a formal procedure on low-cost Chinese e-commerce platform, Temu, under the Digital Services Act (DSA). The committee announced Thursday.
Implementers of the online governance framework will now lift their oversight of Temu. The bloc’s suspicions center around concerns about the sale of illegal products, which may include things like toys and cosmetics that could harm consumers by not complying with EU standards; Addictive design related to how the marketplace seeks to bring a touch of gamification to shopper engagement; The transparency of Temu’s recommendation systems, including the absence of a non-profile-based option for users; and issues relating to obligations relating to researcher access to public data.
If the Commission confirms any violations by Pinduoduo, the parent company of DSA Temu, it could face fines of up to 6% of its annual global revenue.
The EU only designated Temu as subject to the DSA’s tougher set of rules – which apply transparency requirements to larger platforms as well as requiring them to assess and mitigate systemic risks – in May, with compliance with those rules expected from this month, so the EU enforcers They move fast.
They have previously said that online market integrity is one of their key priorities for the DSA, and opened a previous investigation into e-commerce giant AliXpress this spring (which is still ongoing).
Widespread concerns
In a briefing with reporters before the formal action was announced, Commission officials said the quickly opened investigation into Temu reflects how quickly the market is growing in the region (it was only launched last year) and how many concerns have been shared with it about aspects of the platform by others, Including consumer protection agencies and Member State Digital Services Coordinators (DSCs), who enforce the general rules of the DSA.
The Commission indicated that this is the first time that it has built an investigative case on the basis of data submitted to it by the direct support centers that have had a supervisory role over Timo since mid-February. Performance support centers in Ireland and Germany were among those that submitted data on Temu to the EU.
Customs authorities and market watchdogs have also raised concerns, according to the committee.
While, in May, consumer protection from across the EU made headlines after a series of coordinated complaints were filed against Temu – accusing the company of violating the DSA’s general rules.
The EU has since taken over supervision of Temu after it was confirmed to be a very large online platform (VLOP) and became subject to the DSA’s algorithmic accountability obligations as well.
Valuing TIMO and mitigating systemic risks is one of the areas the committee will now investigate.
Look deeper
Officials told journalists they were concerned that the risk assessment document – which Timo shared with the EU at the end of September – was “too general”.
Regarding illegal products, the association said it was concerned that illegal products would quickly reappear on the platform after they were removed and that “rogue merchants” would also return. But he wants to conduct more systematic tests to see how widespread the problem is.
The Commission’s concerns about addictive design relate to the DSA’s obligations on platforms to prevent negative impacts on users’ mental health. Temu’s system of rewards programs and features like unlimited swiping deserve careful evaluation, officials said.
The problem with researcher access relates to the public data that Temu must make available (for example through APIs) so that independent researchers can study things like removal rates of non-compliant products.
While the bloc has already sent Temu some requests for information regarding its compliance with the DSA law – including in relation to illegal products – the Commission’s formal actions open up further enforcement powers, meaning the EU will be able to deepen its investigation. .
Officials stressed that although they have reason to suspect that Temu may be non-compliant, they need to collect more data to confirm whether or not there has been a violation.
The EU also notes that DSA investigations may be closed if the platform makes commitments that allay concerns. The union remains keen for the regulation to be seen as moving the needle on priority safety issues – hence the Commission accepting binding commitments from TikTok to resolve concerns about the addictive design of the TikTok Lite app earlier this year.
In a statement in response to the DSA’s investigation, Temu wrote: “Temu takes its obligations under the DSA seriously, and continually invests to strengthen our compliance regime and protect consumer interests on our platform. We will fully cooperate with regulators to support our shared goal of providing a safe and reliable marketplace for consumers.”
The company also indicated that it is in discussions to join the Commission’s “Memorandum of Understanding on the Sale of Counterfeit Goods Online” – a voluntary effort to strengthen efforts to combat the sale of counterfeit goods 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,” Timo added.
Responding to the Commission’s DSA action announcement in a statement, Fernando Hortal Foronda, Digital Policy Officer at the European Consumer Organization (BEUC), welcomed the development: “There are several issues identified by consumer groups with Temu, which include several dangerous or illegal products. To sell or repeatedly use design techniques to deceive consumers.
“This decision by the Commission is a promising step, but only the first. Now, it is important that the Commission continues to put pressure on Timo and push the company to comply with the law as soon as possible. It is not fair to consumers, nor to the many companies that comply, for certain companies such as Timo from breaking the law.
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