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Role of Free Trade Zones and Free Ports in the Transshipment and Transit of Counterfeit Goods





November 8, 2006

Sponsoring Committee: Anti-Counterfeiting & Enforcement Committee (ACEC)


Resolution

WHEREAS, it is in the interest of countries to have the strongest enforcement mechanisms possible to protect consumers, the investment climate and labor markets, promote economic growth, and reduce the loss of tax revenues that are directly affected by the lack of efficient enforcement mechanisms and protections against trademark counterfeiting;

WHEREAS, unrestricted regimes for transshipment and transit of goods through free trade zones and free ports significantly contribute to the trafficking of counterfeit goods around the world;

WHEREAS, it is in the interest of consumers to stand apprised of and be able to avoid counterfeit goods, some of which pose great dangers to their health and safety;

WHEREAS, trademark owners support the establishment of a legal framework to enable public authorities, especially customs authorities, to apply border measures that allow effective actions in relation to counterfeit goods that undergo transshipment or transit through free trade zones and free ports.

BE IT RESOLVED, that the International Trademark Association urges governmental authorities to take the necessary actions to apply the following measures to halt the transshipment and transit of counterfeit goods in free trade zones and free ports:

  • Prohibit the admission to, processing in, and export from the free trade zones of counterfeit goods, irrespective of country of origin of such goods, country from which such goods arrived, or country of destination of such goods.
  • Empower customs authorities to exercise jurisdiction before the entry and after the exit of goods into a free trade zone, and to inspect goods in a free trade zone or a free port to ensure that no offence as to trafficking in counterfeit goods is being committed.
  • Ensure close cooperation between national customs authorities and the special authorities of their free trade zones or free ports in order to provide the efficient enforcement of anti-counterfeiting criminal and civil laws to check the offences of trafficking in counterfeit goods.
  • Ensure the applicability and enforcement of anticounterfeiting criminal and civil laws to check the activities of trafficking in counterfeit goods in free trade zones and free ports that currently allow free movement of goods of any nature without regard to origin, quality, purpose, and destination of goods; and without or minimal customs treatment of such goods in transit or transshipment.

Background

A free trade zone (FTZ) is a specified area within the territorial jurisdiction of a country where there is either a minimum or no customs control on entry or exit of goods. A free port (FP) is characterized by its whole harbor plants (sheet of water, quays, wharves, warehouses, factories, etc.) that are considered by law outside the customs boundaries. FTZ’s and FP’s are not subject to such standard government restrictions on trade such as Customs treatment, banking laws, taxation, labour laws and economical laws and transactions. The relation between the free transit of goods within FTZ’s and FP’s and the corresponding increase of counterfeiting activities in these areas has become one of the most important issues relating to the protection of trademark rights.

Goods passing through FTZ’s or FP’s and transshipped through multiple ports, creates opportunities for counterfeiters to disguise the true country of origin of goods. Counterfeiters also take advantage of customs territories where border enforcement for transshipped or in transit goods is known to be weak, with the intention of passing the goods through those customs territories to their destination.

Counterfeiters use FTZ’s and FP’s to carry out at least three different types of illegal operations: 

  • “Merchants” import shipments of counterfeit goods into the warehouses in the FTZs and then re-export counterfeit goods to other destinations. Therefore, FTZ’s are not only used to ‘sanitize’ shipments and documents, thereby disguising their original point of manufacture or departure, but also become "distribution points' in the supply chain for counterfeit goods.
  • Counterfeiters import unfinished goods and then “further manufacture” them in the FTZ’s by adding counterfeit trademarks, or repackaging or re-labeling the goods, and then export those “finished” counterfeit goods to other countries.
  • Counterfeiters often completely manufacture counterfeit goods in FTZ.
The Anti-Counterfeiting & Enforcement Committee believes that the unrestricted regimes for transshipment and transit of goods through FTZ’s and FP’s significantly contribute to the development and extension of the scale of trafficking of counterfeit goods around the world. Accordingly, the ACEC recommends this resolution to the INTA board for the following reasons: (1) A fully uncontrolled transshipment of goods does not sufficiently protect trademark rights; (2) there is a need for a legal framework for establishing the responsibility of public authorities, especially customs authorities, to apply border measures for the purpose of undertaking effective actions in relation to goods that under go transshipment or transit and are suspected of being counterfeits; and (3) there is also a need to alter the approach of customs authorities, which often tend to treat goods in transit with lesser scrutiny than goods imported or exported out of the respective country.