NEW YORK — Protecting intellectual property rights and preventing counterfeit goods from entering the U.S. have been secondary to national security since the 2001 terrorist attacks, a government official testified last week.
The official, Loren Yager, director of international affairs and trade at the U.S. Government Accountability Office, raised questions about the government’s ability to adequately protect intellectual property and stop counterfeit goods during testimony before a Senate subcommittee last Wednesday.
Yager’s conclusions were based on an examination of the Strategy for Targeting Organized Piracy, or STOP, which was launched by President Bush in October 2004 to improve intellectual property protection.
“As a presidential initiative, STOP was not created by statute; has no formal structure, funding or staff, and appears to have no permanence beyond the current administration,” Yager testified.
As a result, it is difficult to gauge the effectiveness or long-term impact of the program, she said. However, Yager acknowledged that STOP has “energized” enforcement efforts, increased outreach to foreign governments and helped small to medium-sized businesses better understand how to protect their intellectual property.
She said the larger issue is not STOP nor the future of the program, but the decline of personnel and other resources devoted to investigating trade violations at U.S. ports and border crossings.
“Our initial work indicates that resources for IP [intellectual property] enforcement at certain ports have declined as attention has shifted to national security concerns,” Yager said.
At the same time, import levels continue to soar. Improvements in counterfeiting have also made the task of determining what is a fake and what is authentic a greater challenge for customs inspectors.
GAO officials visited several ports and border crossings around the country as part of their review of the STOP program. In many cases, they found the number of positions devoted to investigating trade and intellectual property issues had been reduced or were unfilled.
For example, at the Port of Los Angeles and Long Beach, the nation’s largest, two trade enforcement teams have been disbanded and reassigned to “national security details,” Yager said. At a San Francisco air cargo facility, four out of 13 Customs and Border Protection officers inspect cargo for trade violations on a seven-day rotation. In 2001, 12 officers shared the rotation. At the Los Angeles office of Immigration and Customs Enforcement, the number of agents assigned to commercial fraud issues, which includes counterfeiting, has been reduced to nine from 14 since 2003.
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“At several border locations we visited, we found that resources for trade and IP enforcement are thinly spread; certain IP enforcement positions had been reduced or eliminated, and one location faced challenges in filling vacant” customs officer positions, Yager said.
The number of customs seizures has grown dramatically despite the reductions. Government statistics show that 8,022 seizures were made in 2005, up 147.3 percent from 3,244 in 2000. The domestic value of those goods was $93.2 million. Apparel, handbags, wallets, footwear, watches and perfume represented almost half of the items seized, or $45.8 million worth. Apparel was the top item confiscated at $16.1 million, or 17 percent of the total. Handbags, wallets and backpacks were second at $15 million, or 16 percent, while cigarettes were third at $9.6 million, or 10 percent.
The $93.2 million in goods seized in 2005 was a dramatic decline from the $138.8 million in 2004, representing a 32.8 percent drop. Yager noted that customs has stated its goal is to concentrate on large-scale seizures. However, about 75 percent were “small-scale shipments made at mail and express consignment facilities (operated by companies that offer express commercial services to move mail and cargo, such as the United Parcel Service) or from individuals traveling by air, vehicle or on foot,” Yager said.
Only 14 percent of seizures involved goods that traveled via containers.
Counterfeiters are also exploiting weaknesses in the importing process. The in-bond system allows goods arriving at one U.S. port to be shipped to other domestic ports for official entry. Goods shipped in-bond undergo security inspections at the initial arrival port, but avoid trade inspections until reaching their final port of entry.
“Some CBP officials said the in-bond system may contribute to imports of counterfeits by allowing some importers to ‘port shop’ for ports that are less likely to identify IP violations,” Yager said.
In 2005, 26 seizures of in-bond goods were made with a domestic value of about $14 million, or 15 percent of the total value of goods seized.
Barbara Kolsun, senior vice president and general counsel for Seven For All Mankind, believes the rising number of seizures is cause for optimism.
“Considering that they have an unbelievably slim staff and their priorities are clearly on terrorism, they’ve done an amazing job of enforcing trademark rights,” she said.
The decline in value of those seized goods is less of a concern to Kolsun.
“It doesn’t matter if there are three pairs of jeans or 100 pairs found when you stop a container,” she said. “There’s a significant increase in seizures, and that means more containers are being opened, which means more bad guys are being stopped.”
Kolsun also believes the numbers show that the apparel and fashion industry as a whole is doing a better job than other sectors in working with the various agencies that handle trade inspections.
“I consider training Customs a major priority for us, and I can tell you almost every major brand is committed to helping Customs with their job,” Kolsun said.