Study: Free trade zones foster counterfeiting trade

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Counterfeiters increasingly use free trade zones around the world to mask their illegal business, says a new report published by ICC’s initiative BASCAP. The impact of the global Covid-19 pandemic is further exacerbating the problem, according to the analysis.

Illicit trade in counterfeits continues to be an increasing problem in free trade zones (FTZs), and the situation is made even worse by the global coronavirus pandemic. So, global supply shortages provide new opportunities for counterfeiters to exploit the weaknesses of free trade zones. This is an alarming finding of a new study by the Business Action to Stop Counterfeiting and Piracy (BASCAP), an initiative of the International Chamber of Commerce (ICC).

The report, published at the end of 2020, analyzes the impact of free trade zones on the global trade in counterfeits, and offers recommendations on how this illegal trade could be curbed. Compared to the previous report from 2013, there seems to be no noticeable improvement. For example, criminals continue to use the transit or transshipment of goods, often through several free trade zones, in order to disguise the illicit origin of their products. After importing fake goods into free trade zones, the counterfeits might e.g. be further processed, assembled, modified, and re-labeled. When the goods are then imported or transported to other free trade zones, the actual origin of the products is effectively concealed, the report explains.

Piotr Stryszowski, Senior Economist of the OECD, stresses the importance of acting against criminal practices in free trade zones: “In the aftermath of the COVID-19 pandemic, we will critically need clean trade to stimulate economic recovery. Free Trade Zones will be an essential factor in these processes, but we need to ensure they will not be abused by criminals that run illicit trade networks.“ In the last ten years, international counterfeit trade has increased by 80 percent and represents about 2.5 percent of world trade, according to an OECD study mentioned by BASCAP.

A free trade zone increases the value of counterfeits exported from an economy by 5.9 percent, according to a study by OECD and EUIPO. To curb counterfeit trade in free trade zones, the work of national customs authorities is key, says BASCAP’s latest report. The study therefore calls for measures such as expanding customs’ authority to inspect processes in free trade zones; clearly placing free trade zones under the jurisdiction of national customs authorities; and being able to sanction violations with severe penalties under criminal and civil laws.

The current report, Balancing Facilitation and Control to Combat Illicit Trade in Free Trade Zones, was developed in collaboration of BASCAP working groups with BASCAP members and external stakeholders, including the Pharmaceutical Security Institute (PSI), the World Customs Organization (WCO), the International Trademark Association (INTA), the World Free Zone Organization (WFZO), and the ICC World Chambers Federation.


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