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Temu Faces EU Scrutiny Under DSA for Potential Violations in Curbing Illegal Sales

By  |  October 30, 2024

The European Union is preparing to launch a formal investigation into the eCommerce platform Temu over concerns it may be failing to prevent the sale of illegal products on its site, according to sources familiar with the matter. Per Bloomberg, the investigation could result in significant fines if the platform, owned by Chinese company PDD Holdings Inc., is found in violation of EU regulations designed to curb illegal online activities.

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    Sources indicate that the European Commission (EC) is set to open proceedings imminently, though the exact timing remains uncertain as the EU executive body undergoes a transition of political leadership. If the investigation goes forward, it would mark the latest in a series of regulatory actions aimed at tech giants operating within the EU, underlining the bloc’s heightened focus on online safety and consumer protection. According to Bloomberg, European regulators are working aggressively to enforce the Digital Services Act (DSA), a comprehensive regulation that mandates major internet platforms to control the spread of disinformation and prevent the sale of illegal goods. Platforms with over 45 million EU-based users are required to adhere to these standards or risk financial penalties reaching up to 6% of their global annual revenue.

    The current probe stems from an October 11 request by the European Commission that Temu disclose its policies and data on efforts to counter illegal or counterfeit goods. The Commission demanded “detailed information and internal documents” outlining Temu’s strategies for identifying and mitigating the sale of banned products. However, sources suggest that Temu’s responses did not sufficiently address the Commission’s concerns, per Bloomberg.

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    Related: EU to Impose Duties on Cheap Chinese Goods from Temu, Shein and AliExpress

    If formal proceedings commence, Temu will have the opportunity to propose countermeasures in response to the Commission’s findings. These steps could potentially allow the platform to avoid financial penalties by demonstrating a commitment to improve its practices regarding illegal content.

    Temu, which rapidly gained popularity following its high-profile “Shop Like a Billionaire” campaign during the 2023 Super Bowl, has capitalized on its low-cost offerings and interactive shopping features to attract customers in multiple regions, including the EU and the US. The app’s success has driven significant user growth globally, making it one of the most downloaded shopping apps in the US, but has also placed it under increased scrutiny from regulators.

    The regulatory pressure seems to have influenced market sentiment, as PDD’s American depositary receipts (ADRs) dipped 2.6% to $121.95 in New York following the news, having fallen as much as 4.6% earlier in the day. Overall, PDD’s stock has dropped 17% year-to-date, reflecting broader concerns over regulatory headwinds.

    The European Commission representatives did not respond immediately to requests for comment, according to Bloomberg. A spokesperson for Temu told CPI, “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.”

    Source: Bloomberg