WASHINGTON — China still has a counterfeiting problem — and the U.S. isn’t letting up on the pressure.
U.S. trade officials said Wednesday that the sale of counterfeits online is still “rampant” in China, despite steps taken in the last year by the Chinese government to implement reforms and crack down on the sale of fake goods. As a result, the U.S. Trade Representative’s office again placed China on a “priority watch list” in its 2016 Special 301 report and pledged to use a new tool this year to pressure countries like China to step up protection and enforcement of intellectual property rights.
“We made significant progress over the last year in a number of areas,” said USTR Michael Froman. “The report shows many countries have passed stronger intellectual property laws. They’ve undertaken enforcement actions against problems like criminal online piracy networks and cross-border shipments of counterfeit consumer products.
“But our work is far from over,” he added. “That’s why we placed 11 countries on the priority watch list and 23 countries on the watch list. At its core, this report sends a strong message as to the priority we are putting on these issues in our trade agenda.”
USTR reviewed 73 trading partners and placed 34 of them on either the priority watch list or watch list. Five countries “improved their status” in this year’s report, according to officials. Pakistan and Ecuador were upgraded and moved from the priority watch list to the watch list, while Belarus, Tajikistan, and Trinidad and Tobago were removed from the list after taking steps to improve IP enforcement.
Also of note, the U.S. added Switzerland to the watch list this year, noting that despite that country being a strong partner on IP issues, copyright holders have “essentially been prevented from enforcing their rights against online infringers” and the country has become “an increasingly popular host country for infringing Web sites.” The situation is ironic given that one of the country’s main industries is the production of watches, often a key product for counterfeiters.
India, a big supplier of textiles and apparel to the U.S., remained on the priority watch list for “lack of sufficient measurable improvements” to its IPR framework, the report said. U.S. officials have stepped up engagement with India to address concerns and noted that the country has taken some positive steps on IP protection and enforcement.
USTR said it will conduct out-of-cycle reviews for Colombia, Pakistan, Tajikistan and Spain to “promote engagement and progress on specific IPR opportunities and challenges.”
China is the top supplier of counterfeits imported into the U.S., and apparel brands and retailers have in the past raised concerns in particular about Alibaba’s Taobao online marketplace.
Federal authorities seized $1.35 billion in counterfeit and manufactured goods, based on an estimated manufacturer’s suggested retail price of the goods, in fiscal year 2015, according to the latest data.
China remained the primary source economy for counterfeit and pirated goods seized, accounting for a total estimated MSRP value of $697 million, or 52 percent of the estimated MSRP value of all IPR seizures. Bogus apparel and accessories, along with watches and jewelry, were the top two product categories seized.
The USTR report outlined concerns about “widespread counterfeiting and digital piracy” in China, calling on that nation’s government to “accelerate development of its e-commerce law to ensure that it addresses online piracy and counterfeiting, while providing appropriate safeguards to Internet service providers.”
“Widespread online piracy and counterfeiting in China’s massive e-commerce markets result in great losses for U.S. right holders involved in the distribution of a wide array of trademarked products, as well as legitimate music, motion pictures, books and journals, video games and software,” the USTR report said.
Trade officials cited a 2014 report from China’s State Administration for Industry and Commerce revealing that “more than 40 percent of goods that SAIC purchased online during a survey were ‘not genuine,’ a classification it described as “including fakes.”
“Although some leading online sales platforms have streamlined procedures to remove offerings of infringing articles, right holders report that the procedures are still burdensome and that repeat infringers are not deterred by penalties,” the USTR report said.
The American Apparel & Footwear Association, which filed complaints with the government about the sale of counterfeits on Alibaba’s Taobao platform last year, said in a public submission for the USTR report in February that it was “encouraged by efforts being made” but still had “deep concerns” about the prevalence of counterfeit goods on many Alibaba sites.
“Counterfeit goods cost our industry billions of dollars every year,” said Rick Helfenbein, president and chief executive officer at AAFA. “This annual report spells out the progress — or lack of progress — in the fight against counterfeits and other forms of intellectual property theft. Counterfeit product hurts sales and counterfeit products made in questionable working conditions can damage a brand’s reputation, putting both consumers and workers at risk.”
He cited a new report from the Organization for Economic Co-operation and Development that said the manufacture and sale of counterfeit goods is almost a half-trillion dollar industry worldwide.
“AAFA is particularly pleased that the report highlights problems in e-commerce, such as those relating to enforcement through country code top-level domains,” he said. “With footwear, apparel and other fashion accessories among the most heavily counterfeited items globally, and given the growing use of e-commerce platforms to traffic in these items, the Special 301 report’s focus in this area is well placed.”
Stephen Lamar, executive vice president at the AAFA, said brands are still having difficulty registering on Taobao in particular and experiencing “sluggish takedown” procedures. In addition, sites that are taken down reappear quickly under another name, he said.
Lamar said the 301 report “raises awareness and draws attention” to the counterfeiting problem to the industry, as well as the American public.
A USTR official, speaking on background with reporters, said the study highlighted the “tremendous challenges that trademark counterfeiting poses to” all companies.
“With respect to Alibaba, it is one that we dealt with in our Notorious Markets report, which was issued this past December,” the official said. “While we didn’t list Alibaba in this report necessarily, what we did was call out some of the challenges that some of our stakeholders like AAFA are facing. We’ll also take a hard look at all companies and notorious markets like we do each year this fall including Alibaba and anyone else who is engaged where stakeholders are concerned.”
The report cited positive steps taken by the Chinese government last year, including an overhaul of its intellectual property laws and regulations, as well as a pilot study of “specialized intellectual property courts.”
Froman said a provision in the Customs trade and enforcement bill that President Obama signed into law in February will give more authority to the agency and its partners to develop “action plans” for countries on the “priority watch list.”
He acknowledged that China remains the “leading source country of counterfeit and pirated goods,” using its “industrial policies that use IPR transfers as a misguided means to accomplish domestic, economic and manufacturing goals.”
“Thankfully, we’ve got stronger and better tools to carry out our tasks this year and in the years to come,” Froman added. “USTR will develop action plans this year with concrete benchmarks to hold countries accountable for IP-related trade practices that disadvantage American companies.”