Chinese fast-fashion e-commerce giants Temu and Shein have been ordered by European Union tech regulators (DSA) to provide detailed information on their compliance with the bloc's new online content rules by July 12, 2024. The move follows complaints from consumer organizations regarding the companies' handling of illegal and harmful content on their platforms.
As Very Large Online Platforms (VLOPs) with over 45 million users in the EU, Temu and Shein are subject to stricter obligations under the Digital Services Act (DSA), which came into force on August 25, 2023 for large platforms. The DSA aims to create a safer digital space where fundamental rights of users are protected and to establish a level playing field for businesses.
The European Commission has sent formal requests to both companies, asking them to clarify their adherence to the DSA's provisions on illegal product notifications, prevention of user deception through dark patterns, protection of minors, transparency of recommendation systems, traceability of traders, and compliance by design.
Failure to provide satisfactory information by the July 12 deadline could result in fines of up to 6% of the companies' global turnover. Temu, owned by Chinese e-commerce group PDD Holdings Inc, and Shein, founded in China but with a Singapore headquarters, have seen rapid growth in Europe and are now required to take greater responsibility for content on their platforms under the new EU rules.
The DSA introduces a “notice-and-action” mechanism, requiring platforms to quickly remove illegal content when notified and provide clear justifications for such takedowns. Platforms must also regularly report on their content moderation efforts and take steps to combat the spread of disinformation.
Additionally, the DSA mandates greater advertising transparency, with users having the right to know why they are targeted with specific ads. Targeting based on sensitive data such as ethnicity, political views, or sexual orientation is prohibited. Measures to protect minors include age verification and parental consent for services aimed at children.
Very large platforms like Temu and Shein must also assess and mitigate systemic risks such as illegal content dissemination, privacy violations, and negative effects on electoral processes. Independent audits and data access for researchers are part of the risk assessment obligations.
The DSA's enforcement involves both national authorities and the European Commission, with the latter being the primary supervisor for VLOPs. Digital Services Coordinators, appointed in each EU member state, will support the Commission in monitoring platforms' compliance.
The increased scrutiny on Temu and Shein comes amid a broader crackdown by the EU on the practices of large tech companies, both domestic and foreign. The Digital Markets Act (DMA), a sister regulation to the DSA, aims to promote fair competition and prevent abuses by “gatekeeper” platforms.
Other Chinese tech firms, such as TikTok and Alibaba, are also grappling with the implications of the EU's new digital rules. As Europe sets the pace for online platform regulation, the global impact of the DSA and DMA is likely to be significant, reshaping the responsibilities and obligations of tech giants worldwide.
For Temu and Shein, the challenge will be to balance their rapid growth and popularity with the need to invest in robust content moderation, risk assessment, and user protection measures. As young companies in the fast-moving world of online fashion retail, they will need to adapt quickly to the EU's regulatory landscape to avoid hefty fines and reputational damage.
The outcome of this compliance process will have far-reaching consequences not just for Temu and Shein, but for the broader e-commerce and social media ecosystem. As the July 12 deadline looms, the world will be watching to see how these Chinese tech giants navigate the complex terrain of EU digital regulation.
