The Office of the United States Trade Representative (USTR) released its annual Special 301 Report, identifying 36 countries as most concerning when it comes to protecting against intellectual property (IP) and counterfeiting.
China, again made USTR’s Priority Watch List, reflecting the urgent need for fundamental structural changes to strengthen IP protection and enforcement. These efforts should focus on trade secret theft, online piracy and counterfeiting, the high-volume manufacture and export of counterfeit goods, the report said.
USTR noted that it has taken action to address a range of unfair and harmful conduct, including technology transfer requirements imposed as a condition to access the Chinese market. It has also initiated dispute settlement proceedings at the World Trade Organization to address discriminatory licensing practices.
India was also placed on the Priority Watch List for “lack of sufficient measurable improvements to its IP framework on long-standing and new challenges that have negatively affected U.S. right holders over the past year.”
Indonesia was identified for the Priority Watch List due to the reported lack of adequate and effective IP protection and enforcement. “Indonesia’s patent law continues to raise serious concerns, including with respect to patentability criteria, local manufacturing and use requirements, and compulsory licensing,” USTR said.
Saudi Arabia also made the unfavorable list for failing to address longstanding IP concerns and further deteriorating IP protection and enforcement within its borders. Specifically, concerns remain regarding the lack of IP protection for innovative pharmaceutical products, while USTR cited the country for not taking action against the rampant satellite and online piracy made available by illicit pirate service BeoutQ.
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“In virtually all countries identified in this report, IP enforcement is lacking,” USTR said. “Many trading partners, including Brazil, China, Colombia, Hong Kong, India, Indonesia, Nigeria, Paraguay, Singapore, Thailand, Turkey, the UAE, and Vietnam, do not provide adequate or effective border enforcement against counterfeit and pirated goods. In addition, many listed countries’ customs officials lack authority to take ex officio action to seize and destroy such goods at the border or to take such action for goods in-transit.”
The accompanying Notorious Markets List highlighted online and physical markets that reportedly engage in and facilitate substantial copyright piracy and trademark counterfeiting. The list cites 33 online markets and 25 physical markets that are reported to be involved in “substantial” copyright piracy and trademark counterfeiting.
Free trade zones (FTZs), for one, were cited for becoming “major facilitators of illegal and criminal activity, including the illicit trade in pirated and counterfeit goods, smuggling and money laundering.”
FTZs are designated economic areas that are not subject to customs duties, taxes or normal customs procedures of their host countries. They can range from a single warehouse to entire harbors and cities, consisting of thousands of businesses.
FTZs are an increasingly important part of global trade and play a particularly prominent role in the economies of developing countries, USTR said. The number of free trade zones grew to more than 3,500 zones in 130 economies in 2018 from 79 zones in 25 economies in 1975 and are said to account for roughly 20 percent of world exports.
While rationales for establishing FTZs vary among countries, generally, they serve the purpose of attracting foreign investment, creating jobs, increasing exports, and testing new economic policies. However, USTR said “without adequate and effective IP enforcement, the incentives provided by FTZs are attractive to those who want to engage in illegal activities, including the trade and manufacture of counterfeit and pirated goods.”
“For example, removing customs duties and simplifying customs procedures in FTZs may also reduce the need for customs authorities to inspect shipments, leading to less customs oversight on goods transiting through FTZs,” the report noted. “Ease of setting up businesses and reduced vetting for business proprietors in some FTZs may provide openings for criminals to create legitimate shell companies for their illicit enterprises.”
Among the online market places the list cited was China’s largest e-commerce platform, taobao.com, which is owned and operated by Alibaba Group. USTR noted that while Alibaba has taken some steps to curb the offer and sale of infringing products, the report said companies continue to report high volumes of infringing products and problems with using takedown procedures.
“Serious concerns remain about Alibaba’s responsiveness,” USTR said, citing continued complaints over ineffective takedown procedures, burdensome enrollment requirements for a Good Faith program that reduces the evidentiary burden for takedown requests, and Alibaba’s delays in responding.
Looking at the source and distribution of counterfeit products, the report said China continues to be identified as the primary source. Together with Hong Kong, through which Chinese merchandise often transships, China accounted for 78 percent of the value and 87 percent of the seizures by Customs & Border Protection in 2017.
“Some Chinese markets, particularly in larger cities, have adopted policies and procedures intended to limit the availability of counterfeit merchandise,” the report said. “However, these policies are not widely adopted and enforcement remains inconsistent. At the same time, some online markets are cooperating with law enforcement on counterfeiting and piracy operations offline. It is reported that, in many instances, Chinese authorities engage in routine enforcement actions in physical markets. USTR welcomes these efforts and recommends their expansion to more effectively combat the scale of the reported problem in China.”