The Organisation for Economic Co-operation and Development (OECD) Releases Governance Frameworks to Counter Illicit Trade – Another Important IP Resource

Enshrined in the U.S. Constitution, intellectual property rights (IPR) are part of America’s constitutional heritage. Millions of American jobs owe their existence to the innovation economy, and IP-intensive industries tend to offer higher than average wages. Unfortunately, IP theft is widespread, and counterfeit and pirated products are found in most economies throughout the world. According to a 2016 joint Organisation for Economic Co-operation and Development-European Union Intellectual Property Office (OECD-EUIPO ) report, the total volume of trade in counterfeit goods was estimated at $461 billion totaling 2.5 percent of world imports. And commerce in illegal goods is showing no signs of abating. Not surprisingly, no country has been hurt more by this trend than the United States as increasingly a product’s design and the intellectual property underpinning it is the most valuable part of an item and design and product development are where the U.S. traditionally excels. With globalization, strong domestic IPR protections are no longer sufficient – America’s trading partners need to demonstrate similarly robust IP protection and enforcement standards.

In an effort to provide some global guidance on combating illicit trade, the OECDTask Force on Countering Illicit Trade Policy released a report in March Governance Frameworks to Counter Illicit Trade. It is an invaluable resource for those interested in learning more about the consequences of illicit trade and steps governments can take to combat counterfeit and pirated goods. The Report can be accessed here and explores the importance of institutional capacity in countering illicit trade.

The Report begins by assessing three areas where more institutional capacity is needed: (1)effective penalties and sanctions; (2)better screening of small shipments for illicit items and (3)reduction of illicit trade activities taking place in and through free trade zones (FTZs). The rapid proliferation of illicit goods can be traced in part to FTZs and increasingly complex supply chains. The global reduction of trade barriers has largely been positive heralding the largest expansion of prosperity globally that the world has ever seen, and the widespread embrace of rule of law including IPR protections is associated with increased economic growth. However, the expansion of international markets has also provided opportunities for those engaged in illegal commerce. Illicit trade can result in threats to public health and consumer safety, erosion in corporate profits, innovation disincentives for industries and reductions in tax revenues. Frequently, governments face this threat in ways that are uncoordinated and poorly implemented only to be outmaneuvered by traffickers. As the Report notes “[illicit trade] is a global and rapidly evolving challenge” that requires constant tactical updates.

The Report provides actionable solutions pointing out that IP enforcement is as much a matter of governance as law enforcement. Laws that provide for strong IPR protections are only as strong as a government’s will and ability to implement them, and illicit traders are only too willing to exploit enforcement weaknesses. The good news is that robustly enforced IP penalties and sanctions work! Criminal networks prefer to trade in goods where rewards are high and risks are low, so the ability of law enforcement to enforce existing legislation and when needed coordinate with foreign authorities is a potent tool for reducing illegal commerce. Strategies to deal with the increase in small shipments which are more difficult to screen as well as policy adaptations that FTZs could adopt to impede illicit traders are also useful.

Middle-income, emerging economies like the BRICS (Brazil, Russia, India, China and South Africa) are “key players” in the trafficking of fake goods, so the second section of the Report details governance in these nations. BRICS engagement in developing strategies to combat IP theft is crucial. China, for example, is the largest source of counterfeited and pirated products in the world accounting for 67 percent of the total value of counterfeit and pirated world imports and 63 percent of the number of global customs seizures between 2011 and 2013 according to the joint OECD/EUIPO report referenced above. And while there are signs of progress in emerging economies, more work is needed. Statutory remedies for IPR infringement are strong in the BRICS countries, however IPR enforcement in the courts and other governmental entities is suboptimal.

Trade in illicit goods is a worldwide phenomenon that is on the rise, and this Report offers practical solutions on how effective governance structures, public institutions and international cooperation can combat it. Strong IPR protections benefit consumers, industry and nations in the form of protection of health and safety, increased innovation and greater economic growth.