Last week, EU regulators conducted an unannounced raid on the Dublin-based European headquarters of Temu, an online retailer and subsidiary of China’s e-commerce titan, PDD Holdings. The action arose from concerns regarding potential Chinese state subsidies extended to the company.
As of yet, Temu has not issued a response to the matter.
This event coincides with escalating concerns within the EU about an influx of inexpensive Chinese imports. The surge has come via low-value e-commerce shipments, largely due to a customs exemption on packages valued under 150 euros. European retailers argue that this waiver gives e-commerce platforms such as Temu and Shein an undue competitive edge. To address this, the EU executive intends to eliminate this duty exemption by year-end.
The Foreign Subsidies Regulation (FSR)
The European Commission’s Foreign Subsidies Regulation (FSR) has been enacted to address this issue. Its purpose is to curb competition from non-EU companies that receive subsidies from their respective governments. The FSR empowers the Commission to levy penalties equating to 10% of a company’s aggregated yearly turnover for any infractions.
The Commission confirmed it executed an unannounced inspection on an EU-based e-commerce business under the FSR. However, they have not disclosed the identity of the company or the location of the raid.
Temu’s Global Success and Troubles with EU Authorities
Temu has amassed a global customer base in the tens of millions via its online store. The e-commerce platform sells a wide range of items from smartphones to duvet covers and leggings at incredibly low prices. This has even prompted Amazon to introduce its rival service, ‘Amazon Haul’.
Under the tagline “shop like a billionaire”, Temu has attracted approximately 116 million average monthly users in the EU, according to its most recent transparency report. This is an impressive feat considering it only expanded into the European market in April 2023.
EU regulators typically conduct raids when they have evidence of regulatory violations, which can originate from whistleblowers or their own investigations. These actions often result in companies offering concessions or cooperation in exchange for reduced penalties.
However, this is not Temu’s first encounter with EU authorities. The Commission initiated an investigation into Temu under the Digital Services Act, a regulation overseeing online platforms, last year. In July, the Commission released preliminary findings claiming that Temu has not done enough to prevent the sale of illegal products on its platform.
Foreign subsidies may come in various forms such as zero-interest loans, below-cost financing, tax breaks, or preferential tax treatment, among others.
In November, China’s trade surplus exceeded US$1 trillion for the first time, with manufacturers rerouting more goods to non-US markets due to tariffs, resulting in an export boom to Europe, Australia, and Southeast Asia.
Questions & Answers
What spurred the raid on Temu’s headquarters by EU regulators?
The raid was prompted by concerns regarding potential Chinese state subsidies to the online retailer.
How does the EU’s Foreign Subsidies Regulation (FSR) aim to address competition from non-EU companies?
The FSR aims to curb competition from non-EU firms that receive government subsidies. The regulation allows the Commission to impose fines of up to 10% of a company’s annual aggregated turnover for breaches.
What were the findings of the European Commission’s previous investigation into Temu?
The Commission’s preliminary findings suggested that Temu was not taking sufficient actions to prevent the sale of illegal products on its platform.
