EU takes action against Temu over illegal products

The EU has flexed the muscles it has built with the passage of the Digital Services Act, launching an investigation into online retailer Temu over possible sales of illegal products on its platform.

The European Commission is concerned that the Chinese company – which has enjoyed spectacular growth since it launched in Europe last year as a low-cost rival to Amazon and other e-commerce platforms – does not have strong enough systems in place to prevent the sale of "non-compliant" products.

That includes failure to prevent previously suspended rogue traders from returning to the platform. Meanwhile, the EC will assess whether Temu is addictive as a result of features such as game-like reward programmes and look into how it recommends content and products to users and meets transparency obligations under the DSA.

In a statement, the Commission said that the probe follows preliminary analyses of the risk assessment report provided by Temu, as well as comments from third parties. Various national authorities have said they are concerned about the possible sale of copycats of other companies' brands on Temu, along with other illegal items, including pharmaceuticals, toys, and cosmetics.

The company has built its business selling 'fast fashion' and household goods and has also courted controversy for shipping goods in small packages to buyers in the US and Europe, avoiding customs duties under so-called 'de minimis' rules, which rivals claim is anti-competitive.

Earlier this year, the trade association Toy Industries of Europe issued a report which claimed that 100 per cent of 19 test purchases on Temu failed to meet EU toy standards.

The EU has also asked rival Chinese company Shein for information under the DSA, which entered into force on February 17 and holds online platforms, search engines, hosting services, and intermediary services to standards that aim to improve transparency and accountability.

Part of the legislation involves making marketplaces allow users to flag intellectual property-infringing and otherwise illegal content online, and for online platforms to cooperate with specialised 'trusted flaggers' to identify and remove it. The are also new rules to trace sellers on online marketplaces, amongst other measures.

"We want to ensure that Temu is complying with the [DSA], particularly in ensuring that products sold on their platform meet EU standards and do not harm consumers," said EC executive vice president Margrethe Vestager.

"Our enforcement will guarantee a level playing field and that every platform, including Temu, fully respects the laws that keep our European market safe and fair for all."

The Commission said it will continue to gather evidence as it considers whether enforcement action will be taken. Under the legislation, large companies like Temu can be fined up to 6 per cent of their global turnover.