Should the South African Competition Commission Follow the EU's Lead on Regulating Companies like Temu and Shein?

Recently, Chinese e-commerce giants Temu and Shein have faced significant scrutiny in the European Union (EU). Temu, owned by Pinduoduo, was designated as a “very large online platform” (VLOP) under the EU's Digital Services Act (DSA), subjecting it to stringent regulatory requirements. Meanwhile, Shein has also been classified as a VLOP. As these platforms expand in South Africa, it’s essential to consider whether similar regulatory measures should be implemented locally and what the implications would be for South African entrepreneurs.

What It Means to Be a Very Large Online Platform

Being classified as a VLOP under the EU’s DSA means that a platform has surpassed the threshold of 45 million users per month within the EU, making it subject to the strictest regulatory requirements. These include:

1. Enhanced Transparency: Platforms must provide clear information about how their algorithms rank and recommend content.

2. Content Moderation: VLOPs must have robust systems to detect and remove illegal content.

3. Risk Management: Platforms must conduct regular assessments to identify and mitigate systemic risks, such as disseminating illegal products or misinformation.

4. Accountability: VLOPs are required to provide annual reports on their risk management activities and ensure compliance with the DSA through external audits.

Concerns Raised by Local Retailers

Several South African online shopping retailers have expressed concerns over the entry of Shein and Temu into the market. The Ecommerce Forum South Africa (EFSA) has been inundated with complaints from its members about these platforms, alleging anti-competitive practices and unethical tactics. Local retailers accuse Shein and Temu of:

1. Misleading Advertisements: Claims of misleading promotions that can deceive consumers.

2. Anti-Competitive Prices: Extremely low prices that local businesses cannot match, potentially due to exploiting import tax loopholes.

3. Exploiting Import Tax Loopholes: Using tactics such as breaking down orders into smaller packages to avoid tariffs and VAT, giving them an unfair advantage over local retailers.

Impact on Local Entrepreneurs

If companies like Temu and Shein are not regulated effectively in South Africa, local entrepreneurs may face several adverse effects:

1. Unfair Competition: These platforms can leverage economies of scale to offer lower prices, leading to a loss of market share for South African businesses.

2. Market Saturation: The influx of foreign products can saturate the market, making it harder for local products to gain visibility.

3. Quality and Safety Concerns: Without stringent regulations, there is a risk of counterfeit and unsafe products undermining consumer trust.

4. Transparency and Accountability: The lack of transparency in these platforms' operations can lead to unfair practices that disadvantage local businesses.

The Role of Regulation

The European Union is known for its highly regulated market environment, aimed at protecting consumers and ensuring fair competition. South Africa could draw lessons from the EU’s approach but must balance regulation with enabling a free-market environment:

1. Balancing Act: While regulation is essential, over-regulation can stifle innovation and hinder new businesses. Striking a balance between protecting local interests and fostering a free market is crucial.

2. Proportional Measures: Regulations should be proportionate to the risks posed by these platforms, focusing on consumer protection, product safety, and transparency without creating excessive burdens.

Steps the South African Government Can Take

To protect local entrepreneurs and ensure a fair marketplace, the South African government can consider the following measures:

1. Adopting Similar Regulations: Implementing regulations similar to the EU’s DSA could ensure large online platforms adhere to high standards of transparency, safety, and accountability.

2. Strengthening Consumer Protection Laws: Enhancing consumer protection laws to address the challenges posed by large e-commerce platforms.

3. Monitoring and Enforcement: Establishing a dedicated body to monitor and enforce regulations on e-commerce platforms.

4. Supporting Local Entrepreneurs: Providing support to local entrepreneurs through grants, training, and resources to help them compete more effectively.

How Local Entrepreneurs Can Protect Themselves

While regulatory measures are essential, local entrepreneurs can also take proactive steps:

1. Emphasizing Quality and Unique Value Propositions: Offering unique products or services and focusing on quality can help differentiate local businesses.

2. Building Strong Brand Loyalty: Engaging with customers and building a loyal customer base can sustain local businesses despite competition.

3. Leveraging Technology: Utilizing advanced technology for marketing, customer engagement, and operations can help local businesses compete effectively.

4. Maintaining Integrity in Business Practices: Conducting business with integrity is critical. Ethical practices build long-term trust with customers and create a positive reputation in the marketplace.

5. Collaborating with Other Local Businesses: Forming alliances with other local businesses can enhance market visibility and bargaining power.

Conclusion

The EU’s stringent regulatory approach to platforms like Temu and Shein under the Digital Services Act highlights the importance of protecting both consumers and local businesses in the digital marketplace. As these platforms expand into South Africa, the South African Competition Commission must consider similar regulatory frameworks to ensure a fair, transparent, and safe e-commerce environment. By doing so, they can help level the playing field for local entrepreneurs while fostering a dynamic and competitive market that benefits everyone. Achieving a balance between regulation and free-market principles will be key to nurturing a healthy and thriving e-commerce ecosystem in South Africa.

The StartUp Legal is here to help make your compliance journey seamless. Book a complimentary consultation with us using the following link: https://calendar.app.google/UEU2XhJsg9wycohN7