Investing 31-05-2024 16:04 15 Views

EU designates Temu as a ‘very large online platform’, what does it mean for Chinese e-tailer?

The European Commission announced on Friday that it has designated Temu, an online shopping platform owned by PDD Holdings, as a Very Large Online Platform (VLOP) under the Digital Services Act (DSA).

This designation mandates Temu to comply with stringent European Union regulations within four months, placing it in the same category as Amazon, Meta Platforms, and TikTok.

Systemic risks and regulatory compliance

As a VLOP, Temu will be required to assess and mitigate systemic risks associated with its services.

These include the listing and sale of counterfeit goods, unsafe or illegal products, and items that infringe on intellectual property rights.

The European Commission emphasized that it will closely monitor Temu’s compliance, particularly in measures aimed at protecting consumers and curbing the sale of illegal products.

Temu’s rival, Shein, received the same designation last month, highlighting the EU’s rigorous approach to regulating large online platforms.

User base and impact of designation

Temu, which entered the EU market in April 2023, has quickly amassed a substantial user base, averaging 75 million active monthly users in the EU for the six months ending March 31, 2024.

This user base exceeds the DSA’s threshold of 45 million users, triggering the VLOP designation.

“Following today’s designation as a VLOP, Temu will have to comply with the most stringent rules under the DSA within four months of its notification,” the European Commission stated.

This means Temu must align with these regulations by the end of September 2024.

Financial implications of non-compliance

The DSA’s obligations for VLOPs are extensive and include rigorous measures to assess and mitigate systemic risks.

Companies must ensure they are not facilitating the sale of counterfeit goods, unsafe or illegal products, or items that infringe intellectual property rights.

Non-compliance with the DSA can result in severe penalties, with fines of up to 6% of a company’s global annual turnover.

Temu’s rapid growth in the European market underscores its significant impact on the region’s e-commerce landscape.

However, this growth comes with increased scrutiny and regulatory expectations.

The European Commission’s designation aims to ensure that large online platforms like Temu operate within a framework that prioritizes consumer safety and market fairness.

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