Page:Special 301 Report 2010.pdf/14

 Counterfeiting and piracy affects the profits of legitimate producers and impacts consumers whose lives and safety are at risk when they purchase fake goods. It also damages the economies of the countries in which it occurs by decreasing tax revenue and deterring investment. Counterfeiters and pirates generally pay no taxes or duties, and they often disregard basic standards for worker health and safety and product quality and performance. Industry reports trends in counterfeiting and piracy that include:

 A greater diversity in the types of goods that are being counterfeited, as well as the production of labels and components for these fake products. Exploiting free trade zones (FTZs), counterfeiters are establishing a global trade in counterfeit items, shipping them separately to FTZs to be assembled and distributed in another country. FTZs are also often used to disguise the origin of counterfeit goods.

A rapid growth in the piracy of copyrighted products in virtually all formats, as well as counterfeiting of trademarked goods, because these criminal enterprises offer enormous profits and little risk. Counterfeiters and pirates require little up-front capital investment and even if caught and charged with a crime, the penalties imposed in many countries are so low that they offer little or no deterrence against further infringements.

A growth in the online sale of physical pirated and counterfeit products that is rapid and that is matching the volumes associated with street vendors and physical markets. Legal and investigative institutions face difficulties in responding to this trend. Online advertisements for sale of illegitimate physical goods that are delivered through the mail or by hand are found in many countries including China, Romania, and Ukraine. For example, in China, although the largest Internet-based sales portals have responded to rights holders' complaints of counterfeit and pirated product listings, more than 75 percent of illicit sellers have reportedly re-listed the infringing goods.

Another notable trend involves shipping counterfeit products separately from labels and packaging to evade enforcement efforts. For example, infringers in Russia reportedly import unbranded products, package these products with unauthorized packaging materials bearing the rights holders' trademarks, and subsequently export the products to various countries. Infringers in countries such as Paraguay reportedly facilitate these illegal activities by exporting label and packaging components to these counterfeit and pirated product assemblers. 

Stronger and more effective criminal and border enforcement is required to stop the manufacture, import, export, transit, and distribution of pirated and counterfeit goods. Through bilateral consultations, FTAs, and international organizations, USTR is working to ensure that penalties have deterrent effects, and that penalties include significant monetary fines and meaningful sentences of imprisonment. Additionally, important elements of a deterrent enforcement system