Trend prompts industry, government action. China’s Alibaba e-commerce platform draws ire of AAFA.

Fake products are a fixture of international trade, cropping up in everything from handbags and perfumes to machine parts and chemicals. But footwear is the most-copied item, and the industry has been pushing governments to take action. U.S. government agencies like the United States Trade Representative (USTR) have taken note but have not delivered much in the way of results.

Imports of counterfeit and pirated goods are worth nearly half a trillion dollars a year, or around 2.5% of global imports, with U.S., Italian, and French brands the hardest hit, according to a report released last year by the Organization for Economic Cooperation and Development (OECD) and the EU’s Intellectual Property Office. The report put the value of imported fake goods worldwide at $461 billion in 2013, compared with total imports in world trade of $17.9 trillion. Most originate in middle income or emerging countries, with China taking the top spot among producers of counterfeit merchandise. In 2016, U.S. Customs seized counterfeit and pirated goods worth $1.38 billion.

While footwear may be the biggest victim, trademarks are infringed on everything from apparel to produce. Counterfeiting also produces knockoffs that endanger lives—auto parts that fail, pharmaceuticals that make people sick, toys that harm children, baby formula that lacks nourishment, and medical instruments that deliver false readings. The proceeds of this illicit supply chain often go to organized crime, according to the OECD report.

Alibaba in the Crosshairs

Knockoffs of footwear and apparel also present safety issues, and not only economic losses, noted Stephen Lamar, executive vice president of the American Apparel & Footwear Association (AAFA) “Footwear, apparel, and other fashion items top virtually every list of top counterfeited products and seizures,” he said. “But the victims of intellectual property theft stretch even further than the U.S. jobs that are lost due to foreign counterfeits. Facilities that make knock off shoes, clothes, and accessories do not typically meet the high standards or comply with regulations to ensure product safety, worker safety, and workers’ rights.”

According to the OECD report, the top countries whose companies have their intellectual property rights infringed are the United States, whose brands or patents were affected by 20% of the knockoffs, Italy with 15%, and France and Switzerland with 12% each. Japan and Germany stood at eight percent each followed by the UK and Luxembourg. While China is the top provenance of fake goods, its companies also fall victim to counterfeiters.

Many of the problems associated with footwear and apparel counterfeiting pop up online, and the Chinese e-commerce giant Alibaba, a company that generated $15.7 billion in revenues last year, has been in the crosshairs of industry and government efforts to stem counterfeiting. The company has been on the radar screen of the USTR since at least 2015. Lamar says Alibaba has been “sluggish” in implementing a program to combat counterfeit and pirated goods, adding that “Alibaba was either incapable or not interested in addressing the problem.”

Underscoring the e-commerce angle, the OECD found that postal parcels are the top method of shipping bogus goods, accounting for 62% of seizures between 2011 and 2013, and reflecting the growing importance of online commerce in international trade, including counterfeit trade. The traffic goes through complex routes via major trade hubs like Hong Kong and Singapore and free trade zones such as those in the United Arab Emirates. Other transit points include countries with weak governance and widespread organized crime such as Afghanistan and Syria. The report noted that traffickers in counterfeit goods often exploit governance gaps in emerging economies. Weaknesses in internet governance

Counterfeiters also exploit weaknesses in internet governance, often choosing domain names similar to the brand owner’s trademarks in an effort to trick consumers. They also attempt to avoid detection by U.S. brand owners and legal authorities by choosing a country code top-level domain (ccTLD), as opposed to the more common .com and other typical business domain extensions, according to a recent AAFA report. ccTLDs are subject to different regulatory requirements depending on the country with which it is associated and many are often not subject to the dispute resolution mechanisms widespread elsewhere on the internet. Some ccTLDs require complex and time-consuming efforts, including litigation, to disable or recover domain names that infringe U.S. trademarks.

The AAFA wants Alibaba’s Taobao e-commerce platform back on the USTR’s “notorious markets” list. Taobao had been removed from the roster in 2012 because of the perceived progress Alibaba had made in tackling the problem, but Lamar said that since then the problem has only worsened.

In response to the AAFA’s allegations, Alibaba said it has implemented a range of measures to fight counterfeits on its websites, including data mining, random product checks, offering an online complaint form, working with authorities in Beijing, and cooperating with more than 1,000 brand owners and several industry associations.

“Our track record of fighting illicit activities is clear,” an Alibaba spokesperson told the AJOT. “Like all global companies in our industry, we must continue to do everything we can to stop these activities.” The company, the spokesperson added, has been in discussions with the AAFA since 2012 over how best to tackle the issue “and was committed to continuing to do so.”

Interestingly, 2015 was the last time Alibaba was mentioned in a USTR report, at which time the office expressed concern over the company’s failure to stem the trade in counterfeit goods but declined to re-list Alibaba as a notorious market. The 2017 Section 301 Report, an annual USTR document which examines intellectual property violations, and the first such under the Trump administration, did not mention Alibaba. The 2017 report continued to place China on the USTR’s priority watch list along with Algeria, Argentina, Chile, India, Indonesia, Kuwait, Russia, Thailand, Ukraine, and Venezuela.

Product counterfeiting continues to frustrate U.S. companies and government agencies. Even as communications with China has improved, the number and volume of counterfeit product emanating from the People’s Republic continues to grow. (see sidebar on page 12) As for the rest of the world, enhanced levels of cooperation by foreign governments have been hard to come by.

“Sadly,” said Lamar, “our assessment of foreign cooperation, enforcement, and legal regimes remains largely unchanged from 2016.”