On February 17, 2022, USTR released its annual report on notorious markets for counterfeiting and piracy. The Press Release from USTR provided the following description of the report.
“WASHINGTON – The Office of the United States Trade Representative (USTR) today released the findings of its 2021 Review of Notorious Markets for Counterfeiting and Piracy (the Notorious Markets List). The Notorious Markets List highlights online and physical markets that reportedly engage in or facilitate substantial trademark counterfeiting or copyright piracy.
“‘The global trade in counterfeit and pirated goods undermines critical U.S. innovation and creativity and harms American workers,’ said Ambassador Katherine Tai. ‘This illicit trade also increases the vulnerability of workers involved in the manufacturing of counterfeit goods to exploitative labor practices, and the counterfeit goods can pose significant risks to the health and safety of consumers and workers around the world.’
“Reflecting the Biden-Harris Administration’s worker-centered trade policy, the 2021 Notorious Markets List’s issue focus section examines the adverse impact of counterfeiting on workers involved with the manufacture of counterfeit goods. The section describes how the illicit nature of counterfeiting requires coordination between relevant actors in order to effectively uncover and combat labor violations in counterfeiting operations across the globe.
“The 2021 Notorious Markets List also identifies 42 online markets and 35 physical markets that are reported to engage in or facilitate substantial trademark counterfeiting or copyright piracy. This includes identifying for the first time AliExpress and the WeChat e-commerce ecosystem, two significant China-based online markets that reportedly facilitate substantial trademark counterfeiting. Also, China-based online markets Baidu Wangpan, DHGate, Pinduoduo, and Taobao continue to be listed, as well as nine physical markets located within China that are known for the manufacture, distribution, and sale of counterfeit goods.
“Background
“USTR first identified notorious markets in the Special 301 Report in 2006. Since February 2011, USTR has published annually the Notorious Markets List separately from the Special 301 Report, to increase public awareness and help market operators and governments prioritize intellectual property enforcement efforts that protect American businesses and their workers.
“he Notorious Markets List does not constitute an exhaustive list of all markets reported to deal in or facilitate commercial-scale copyright piracy or trademark counterfeiting, nor does it reflect findings of legal violations or the U.S. Government’s analysis of the general intellectual property protection and enforcement climate in the country concerned. Such analysis is contained in the annual Special 301 Report issued at the end of April each year.
“USTR initiated the 2021 Notorious Markets List Review on August 30, 2021, through publication in the Federal Register of a request for public comments.
While counterfeiting can be found in every country, the USTR report is focused on online and physical locations where IP rights holders express concern with large volumes of counterfeit goods and poor enforcement. Many countries are flagged as hosting online problem actors and/or for having one or more physical locations where significant counterfeiting is occurring. The list is not intended to be exhaustive.
For example, the 42 online sites listed include eleven online markets where the country or countries where the servers operate are not known. In addition, online markets are attributed to nineteen countries (some online markets may list more than one country). China is listed for seven; Russia for five, the Netherlands for three, France, Bulgaria, Indonesia and Iraq for two and all other listed countries for one (Egypt, Finland, Iceland, Romania, India, Czech Republic, Vietnam, Panama, Israel, Singapore, Jordan and Switzerland).
In addition, eighteen countries are listed with one or more physical markets in the report. The eighteen countries include Argentina, Brazil, Cambodia, Canada, China, India, Indonesia, Krygyz Republic, Malaysia, Mexico, Paraguay, Peru, Philippines, Russia, Turkey, Ukraine, United Arab Emirates and Vietnam.
China has been and continues to be the country from which the greatest value and volume of counterfeit goods are seized each year by the U.S. Customs and Border Protection Service as this quote from page 41 of the report makes clear.
“China continues to be the number one source of counterfeit products in the world. Counterfeit and pirated goods from China, together with transshipped goods from China to Hong Kong, accounted for 83 percent of the value (measured by manufacturer’s suggested retail price) and 79 percent of the volume of counterfeit and pirated goods seized by U.S. Customs and Border Protection (CBP) in 2020.
A major purpose of the report each year is to highlight markets perceived as problematic and to focus USTR, foreign governments, market owners and businesses on the need to improve efforts to reduce counterfeiting in those markets. The report reflects the situation with individual markets and, where progress has been made, where ongoing issues may exist. As the press release and report make clear, the notorious market report is not a review of countries compliance/improvements on intellectual property protection. That is handled in the annual Special 301 Report which is released at the end of April.
While China criticized the report as not reflecting its efforts at improving IP enforcement and for not dealing with counterfeiting issues within the U.S., the criticism is misplaced. See Inside U.S. Trade’s World Trade Online, China blasts U.S. notorious markets list as ‘irresponsible,’ hypocritical. First, the report that looks at China’s efforts on intellectual property more broadly is the annual Special 301 Report. The next report will be released by the end of April 2022. Second, the report is generated in large part by a review of submissions by companies to its annual Federal Register notice, hence the term “reportedly” used in the report. Finally, USTR’s task is to examine how trading partners are implementing intellectual property rights and obligations and how effective enforcement is. The report fulfills the mandate but doesn’t suggest that counterfeiting isn’t a problem globally or that efforts are required around the world to address the problem, including in the U.S.
Of particular interest in this year’s report is the issue focus section which looks at the effects of counterfeiting on working men and women. I copy pages 3-9 of the report below.
“Issue Focus: The Adverse Impact on Workers Involved in the Manufacture of Counterfeit Goods
“This Administration is committed to a worker-centric trade policy as an essential part of the Build Back Better agenda that protects workers’ rights by fighting forced labor and exploitative labor conditions, and increases transparency and accountability in global supply chains. This year’s NML Issue Focus3 examines the adverse impact of counterfeiting on the workers who are involved in the manufacture of counterfeit goods. Inadequate labor market regulations contribute to the trade in counterfeit and pirated goods.4 Counterfeit manufacturing often occurs in clandestine work places outside the reach of labor market regulations and inspection systems, which increases the vulnerability of workers to exploitative labor practices. Evidence indicates that the production of counterfeit goods exists alongside widespread labor abuses, from substandard and unsafe working conditions to child labor and forced labor. The illicit nature of counterfeiting requires coordination between relevant actors, including IP right holders, labor organizations, workers’ rights associations, and government enforcement agencies in order to effectively uncover and combat labor violations in counterfeiting operations across the globe.
“I. Counterfeit Manufacturers Operate Outside the Law, Increasing Worker Vulnerability
“Counterfeit product manufacturing occurs in illicit operations that by nature do not operate within the wide range of regulations, licensing requirements, government oversight, and government inspections that not only ensure products are safe for consumers, but also ensure that the rights of workers are protected. A recent report by the Transnational Alliance to Combat Illicit Trade (TRACIT) outlines how the illicit trade in counterfeit merchandise is a subset of the informal economy that exists beyond the reach of the state such that production of these goods may be partially or totally concealed to avoid payment of taxes or to avoid labor or product regulations. The informal economy in which counterfeiting thrives makes the occurrence of labor abuses, including forced labor and child labor, in counterfeit production sites difficult to detect and report.
“Counterfeiting operations often exist outside of the monitoring ability of organizations including international and non-governmental organizations, such as the International Labor Organization’s Better Work Program, the Fair Labor Association, the Worker Rights Consortium, and the Clean Clothes Campaign.6 These organizations issue detailed public reports on workers’ rights violations, drawing upon their investigations, research, and interviews at production facilities. However, facilities engaged in the production of counterfeit goods do not receive the same level of oversight and are not included in these investigations or reports. Therefore, the public pressure on companies and governments to improve working conditions and address forced labor and child labor violations in legitimate production facilities does not exist in the same way for facilities that produce counterfeit goods.
“The regulatory and supervisory pressure, whether by government oversight or inspections by other organizations, on producers of legitimate goods does not, of course, eliminate workers’ rights abuses, leaving potential violations undetected or unremediated in workplaces around the world. Working conditions in counterfeiting facilities, however, are observed to a much lesser degree and, therefore, have a much smaller opportunity to be remedied. As pointed out by the United Nations Office on Drugs and Crime (UNODC), if workers’ rights violations “can happen in global companies whose supply-chain practices are at least open to some degree of scrutiny, then the situation would be much worse for workers in a clandestine setting.”
“II. Evidence of Forced Labor and Other Labor Violations in Counterfeiting Operations
“Government authorities, non-governmental organizations, and investigative journalists have documented evidence revealing that forced labor and child labor exists in counterfeit manufacturing operations, as well as other labor violations such as hazardous working and living conditions, restrictions on freedom of movement, and suppressed wages or wage garnishment. The informal economy, which includes the workplaces that produce counterfeit goods, is known to be where the vast majority of child labor, forced labor, and human trafficking occurs. As reported by UNODC, workers are often coerced into producing counterfeit items, and children and migrants who have been smuggled into a country are among the most vulnerable targets. The U.S. Department of Homeland Security agrees, explaining that counterfeit goods are “often produced in unsafe workplaces, with substandard and unsafe materials, by workers who are often paid little or sometimes nothing in the case of forced labor.” These abuses are not isolated to certain products or areas, but occur in counterfeit manufacturing facilities across countries, regions, and industrial sectors.
“For example, in 2020 in Istanbul, Turkey, an investigative firm found evidence of child labor while conducting raids on production facilities of counterfeit luxury goods. Children were working on machinery to produce counterfeit handbags and engaged in detailed sewing work, a task for which employers sometimes prefer to hire children. In 2017 in Lima, Peru, owners of a counterfeit lightbulb operation that were found to be utilizing forced labor, including of minors, were charged with aggravated human trafficking. The workers were reportedly locked in shipping containers while the production was carried out in twelve-hour shifts.
“Non-governmental organizations and industry contacts have reported that factories located in China making counterfeit products often have unsafe working conditions that do not adhere to local or international environmental, health, and safety standards. Right holders report that detecting these facilities is increasingly difficult for them because the operators know their operations are illegal and therefore take measures to evade detection. For example, some factories producing counterfeit goods operate at night or with blacked out windows and limited ventilation, even if they use dangerous chemicals. One brand protection manager explained that factories making counterfeit goods often save money by using chemicals, dyes, and adhesives that look and perform similarly to those in legitimate products but are unsafe for workers. Another contact claimed to have visited three counterfeit manufacturing factories in 2021 and described the conditions as ‘horrendously unsafe.’
“Recently, labor violations have been reported in the production of counterfeit personal protective equipment and other COVID-19 related products. These counterfeit products have been reported to be made in unsterile conditions, including in sweatshops previously used to make other types of counterfeit goods.
“Finally, existing data shows a correlation between the use of forced labor and child labor in the global production of certain products and the types of products that are most commonly counterfeited. Data from the World Customs Organization, Organisation for Economic Cooperation and Development, and U.S. Customs and Border Protection identifies some of the top counterfeited products as garments, electronics, footwear, and fashion accessories. As reported by the U.S. Department of Labor, these product categories are also among those associated with labor exploitation, including child labor and forced labor. Similarly, China is the top country of origin for counterfeit goods seized by U.S. Customs and Border protection as well as the country with the greatest number of products made with forced labor, including state-sponsored forced labor.
“III. More Research, Coordination, and Documentation Is Needed
“The Federal Register Notice for the 2021 Notorious Markets List solicited information from the public on this Issue Focus. Few submissions provided relevant information. The lack of information, examples, and anecdotes on this pervasive issue highlights not only the need for more data on the adverse impact of counterfeit manufacturing on workers, but also the need for coordination between entities monitoring and enforcing intellectual property violations and labor violations. Additional data in this area can also improve our understanding of how illicit supply networks operate, as well as how they recruit, use, and abuse their labor force.
“The lack of data can be largely attributed to the fact that counterfeiters work in the shadows of the informal economy and right holders only have visibility into counterfeit manufacturing facilities when they accompany law enforcement on raids. Law enforcement raids on counterfeiting facilities rarely involve participation from labor inspectors. The general absence of labor inspections in counterfeit manufacturing facilities leads to workers’ rights abuses going undetected and unresolved, and leaves little recourse for workers who have been compelled by coercion or force to produce counterfeit goods.
“In its recent report on the use of forced labor in counterfeit manufacturing and other sectors of the informal economy, TRACIT calls on governments to “strengthen inter-agency and inter-departmental cooperation at the national level, particularly by improving law enforcement capacities.” To help facilitate that coordination, the U.S. Department of Labor produces reports on international child labor and forced labor and provides other tools like the Better Trade Tool and Comply Chain that serve as valuable resources for research, advocacy, government action, and corporate responsibility to document the current situation of global labor abuse and take action. Further coordination between governments and relevant stakeholders would undoubtedly lead to the documentation and reporting of many more labor violations in the global counterfeit marketplace.
“IV. Conclusion
“Manufacturers of counterfeit goods operate outside of regulations and inspection systems, leading to widespread labor violations alongside already well-known intellectual property violations. There is an opportunity for the companies and enforcement authorities that work to shut down counterfeiting operations for intellectual property violations to collaborate and coordinate with those focused on forced labor and other workers’ rights violations to uncover and remedy these critical issues. If labor inspectors, labor-focused organizations, workers’ rights associations, and others target counterfeit manufacturing facilities for enforcement, this will not only protect workers and consumers, but will also reduce global trade in counterfeit goods. Increased coordination between those that engage in labor monitoring and those that engage in intellectual property enforcement holds the potential to advance research on the subject and to remedy labor abuses that currently go unaddressed.
Terence Stewart, former Managing Partner, Law Offices of Stewart and Stewart, and author of the blog, Current Thoughts on Trade.
To read the full commentary from Current Thoughts on Trade, please click here.