EU fines Chinese online retailer Temu $232 million for violating Digital Services Act

Chinese online retailer Temu was fined 200 million euros ($232 million) on Thursday after a European Union investigation found the company failed to protect consumers from illegal products such as toxic or dangerous toys and dangerous electronics.

The 27-nation bloc’s fine comes after preliminary findings last year that Temu was putting its customers at high risk from products sold on its platform, such as children’s toys and small electronics, that did not comply with EU consumer safety rules, the AP reported.

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The punishment against Temu was handed down by the EU executive under the Digital Services Act (DSA), a wide-ranging set of rules that mandates online platforms to ensure internet users are safe from harmful content or risky goods under the threat of heavy fines.

Why does the EU impose a fine on Temu?

EU investigators carried out “mystery shopping” which uncovered several “non-compliant” products, including many electronic device chargers that failed basic safety tests. The exercise also found a very high percentage of baby toys that posed a safety risk, either because they contained chemicals at levels exceeding safety limits or because parts of them had come off and could pose a choking hazard.

The bloc said the Chinese retailer failed to identify, analyze and evaluate the systemic risks associated with illegal goods sold on its platform and the resulting harm to European consumers.

It also said the platform failed to conduct proper risk assessments, a particularly serious breach of the bloc’s digital rules.

European Commission Executive Vice-President Henna Virkkunen said risk assessment is not “ticking a box”. In a prepared statement, she added: “Temu’s risk assessment underestimates specific risks, lacks specificity, is not based on solid evidence and is not comprehensive.”

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Virkkunen added that the risk assessment leaves the public, regulators and users in the dark about the true extent of the potential harm caused by illegal products sold on Temu.

Temu rejected the EU’s decision and called it “unreasonable”

Temu said that he did not agree with the decision and considered the fine to be “disproportionate”. The company said the decision was related to the commission’s first 2024 DSA assessment of the Chinese vendor “and does not reflect the current state of our systems.”

“Temu engaged constructively with the Commission throughout the process and has since taken further steps to strengthen risk assessment, platform governance and user protection,” the statement said.

The Chinese retailer has until the end of August to present an “action plan” to correct the problem. Failure to comply may result in additional daily, weekly or monthly fines.

The company gained popularity by selling low-cost products, from clothing to home goods, shipped directly from sellers in China. The platform has 92 million users across the EU and is owned by PDD Holdings Inc., which also operates Chinese e-commerce platform Pinduoduo.

Second fine under the DSA

The penalty for Temu is the second time Brussels has imposed a fine under the DSA, a three-year-old law, following a 120 million euro ($140 million) fine imposed on billionaire Elon Musk’s social network X last year.

In December last year, Musk’s X was fined for violating the bloc’s digital regulations, a move that risks renewing tensions with the United States over free speech.

The commission, the bloc’s executive arm, said it was punishing X for three different breaches of the DSA’s transparency requirements. The decision could infuriate President Donald Trump, whose administration has criticized digital regulations, complained that Brussels is targeting American tech companies and vowed to retaliate, the AP reported at the time.

Regulators said the blue X tick violated rules on “deceptive design practices” and could leave users exposed to fraud and manipulation.

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Before Elon Musk acquired X, then known as Twitter, blue marks served as verification badges usually reserved for celebrities, politicians and other prominent figures, including Beyoncé, Pope Francis, writer Neil Gaiman and rapper Lil Nas X.

After Musk bought the platform in 2022, X began offering badges to anyone willing to pay $8 a month.

According to the European Commission, this change means that X no longer meaningfully verifies the identity of account holders, making it harder for users to determine whether the accounts and content they interact with are authentic.

Key things

The EU is rigorously enforcing the Digital Services Act to ensure that online platforms protect consumers.
Failure to conduct a proper risk assessment can result in significant financial penalties for companies.
The Temu case underscores the importance of compliance with security regulations, especially for platforms selling consumer goods.