Temu's EU Digital Services Act Breach: Safety & Traceability
Temu's aggressive market expansion has brought significant challenges, particularly in the realm of sustainable supply chain practices.
Its market reach and influence has grown exponentially, particularly in the EU and US markets.
The e-commerce giant boasts more than 292 million active users across the globe as its Gross Merchandise Volume grew from US$14bn in 2023 to US$70.8bn in 2024.
Temu has acted as a disrupter in the e-commerce space during this time, harnessing a direct to consumer (D2C) approach by cutting out retailers.
The brand's cost-efficient model prioritises affordability over environmental and safety considerations, attracting more scrutiny from regulators and sustainability advocates.
After an investigation, the European Commission has now found Temu to be in breach of the Digital Services Act, citing a "high risk for consumers in the EU to encounter illegal products on the platform".
The investigation was opened in October 2024, focusing on the effectiveness of its consumer risk mitigation measures, use of addictive design featured, transparency of systems and data access.
This latest development marks a significant point in regulatory history – setting a standard for other ultra-low cost e-commerce platforms.
Temu’s risk assessment from October 2024 was deemed inaccurate, relying on generic industry information rather than specific data about its own marketplace. This oversight likely led to inadequate measures to prevent the sale and dissemination of illegal products, such as baby toys with toxic chemicals or small electronics that do not meet EU safety standards.
We shop online because we trust that products sold in our Single Market are safe and comply with our rules.
In our preliminary view, Temu is far from assessing risks for its users at the standards required by the Digital Services Act.
Consumers’ safety online is not negotiable in the EU – our laws, including the Digital Services Act, are the foundation for a better protection online and a safer and fairer digital Single Market for all Europeans.
The breach highlights serious consumer safety concerns, as there is a high risk that EU consumers might encounter non-compliant, unsafe or counterfeit goods on Temu.
Temu does have the opportunity to defend itself against these findings, as it examines the Commission's investigation and replies to the findings.
However, this preliminary finding could expose Temu to potential fines of up to 6% of its global annual turnover and could trigger enhanced regulatory supervision to enforce compliance.
Competitive pressures
Temu's competitive edge lies in its pricing strategy, which allows it to dominate cost-sensitive markets.
However, the ethical dimensions of supply chain practices, including labour and environmental impacts, become critical when considering long-term sustainability.
Temu shares almost all its customers with the likes of Amazon, Walmart and Target. More than 96% of its users also shop with the first two, while 84% also use the latter. This overlap means reputational risk could have a larger impact on the company; if customers begin to worry about Temu’s reliability or ethics, they may decide to stick with the alternatives.
Still, Temu undercuts these bigger retailers on price and that advantage is hard to match.
Amazon and Walmart can’t always match that because of their more complex, regulated operations.
Temu’s mobile-first, heavily gamified shopping app has helped it gain popularity fast, especially among younger users.
Between 2023 and 2024, it overtook Shein in sales growth despite entering the market later, signalling strong momentum.
Regulatory risks
Regulatory issues now present a bigger problem. Consumer trust hinges on the expectation that products sold in the EU meet regulatory standards and are safe to use.
The EU’s Digital Services Act demands that platforms protect users from illegal or unsafe products but, whilst it is reported that Temu said that it “will continue to cooperate fully with the Commission," its failure to guarantee product compliance has eroded trust.
With new rules targeting online sellers, regulators are demanding stronger risk assessments and mitigation strategies.
Temu relies on vast volumes of cheap, small parcels from Chinese suppliers.
In the US, more than one million of these arrive daily, overwhelming delivery systems.This high-volume, low-cost model exploits customs loopholes like the US$800 “de minimis” exemption in the US or the EU’s €150 threshold, which allow parcels to enter duty free.
New 2025 laws aim to close these gaps.
Whilst the full investigation is ongoing, the world is watching closely.
