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Navarro: Counterfeits harm Americans and threaten national security. Trump has a plan to combat them (opinion)

CNN logo CNN 1/31/2020 By Peter Navarro for CNN Business Perspectives
Head of Intellectual Property Investigation Bureau, Catherine Yip Wai-sim (not pictured) talks about summer job scams and online counterfeits at the Customs Headquarters in North Point, July 17, 2017. © Edward Wong/South China Morning Post/Getty Images Head of Intellectual Property Investigation Bureau, Catherine Yip Wai-sim (not pictured) talks about summer job scams and online counterfeits at the Customs Headquarters in North Point, July 17, 2017.

The Department of Homeland Security (DHS) has just released a report that should be required reading for every American consumer. It documents the dangerous, meteoric rise of counterfeit trafficking in an age of e-commerce and provides a comprehensive set of actions to quickly turn this mounting crisis around.

Historically, counterfeit trafficking was largely confined to dark alleys and flea markets. Today, huge e-commerce platforms like Alibaba, Amazon, JD.com, Shopify and Walmart.com serve as global hubs that seamlessly interconnect a vast network of online third-party marketplaces and under-scrutinized vendors. Often located on foreign soil, many vendors who sell on these third-party marketplaces are now inundating American homes with counterfeits, pirated products and other contraband such as deadly fentanyl and other synthetic opioids.

Since 2000, contraband seizures by US Customs and Border Protection (CBP) have increased more than 10-fold. In 2018 alone, CBP seized more than 33,000 shipments of counterfeit goods worth $1.4 billion, with some of this trafficked through e-commerce sites.

Footwear, apparel, accessories, watches and jewelry, and handbags and wallets accounted for more than half of all 2018 seizures. Adidas, Nike, NFL jerseys, Louis Vuitton and Gucci were some of the most counterfeited brands and products — in one case, in 2019 CBP officers seized counterfeit Rolex watches with a value (if they were authentic) of more than $1.4 million.

Consumer electronics — from fake earbuds and smartphones to hoverboards and microchips — accounted for another 10% of seizures. A 2016 Apple lawsuit claimed that, based on an internal investigation of more than 100 "Apple" products on an online seller, nearly 90% of them were fake.

Fake prescription drugs and counterfeit personal care items, such as cosmetics, which accounted for 7% of 2018 seizures, can sicken or kill you. Counterfeit prescription drugs can be incorrectly dosed, lack active ingredients or be laced with deadly additives like fentanyl. Counterfeit cosmetics can contain everything from dangerous bacteria to human waste.

Counterfeits also threaten national security. The report notes that 12% of DHS seizures in 2018 included counterfeit technological components that are "critical to the defense industrial base, and thus critical to national security."

E-commerce counterfeiting is booming because it's highly profitable. Production costs are low, there is no costly R&D, millions of customers may be accessed online at zero marginal cost, payment processing (often from offshore collaborators) is swift, and the big (and oh-so-convenient) e-commerce platforms offer an air of faux legitimacy and trust.

This DHS report pulls back the veil on this unlawful trafficking and identifies two problematic e-commerce features: the extreme difficulty in policing third-party online sellers, banks and payment processors located on foreign soil; and the failure of e-commerce platforms — together with other counterfeit enablers like payment processors, customs brokers, express mail consigners and fulfillment centers — to accept sufficient responsibility or liability for the egregious harm that the trade in counterfeit and pirated goods is doing to our economy, public health and safety and national security.

A key report finding: "Absent the adoption of a set of best practices and a fundamental realignment of incentives brought about by strong government actions, the private sector will continue to fall far short in policing itself."

The DHS will immediately begin working to combat trafficking in counterfeit and pirated goods by: aggressively applying civil fines and penalties to bad actors, suspending and debarring repeat offenders and treating foreign sellers of goods as responsible parties subject to sanctions.

As this new report documents, the private sector can do much more to combat counterfeit and pirated products trafficking. It sets forth a set of private sector "best practices" that include: significantly enhanced third-party marketplace vetting; limits on high-risk products such as prescription drugs, infant formula and airbag components; rapid notice and takedown procedures; and pre-sale identification of third-party sellers. The administration also wants e-commerce platforms to provide clearly identifiable country of origin disclosures, which brick-and-mortar retail providers are required to provide but online sellers often are not.

These best practices are not meant as mere suggestions. The federal government will use all means necessary to encourage rapid adoption and to monitor progress.

In the 21st century, it is frankly absurd for American consumers to face the significant risk of being defrauded or physically harmed by the products they buy online, yet the current risks are unacceptably high. The Trump administration is tackling this problem head on and in "Trump time," which is to say as soon as possible.

This report puts both counterfeiters and those within the e-commerce system clearly on notice that they must step up to the monitoring, detection and enforcement plate. It's long past time this Wild West of the 21st digital century be tamed. President Trump, with the DHS and his administration deputies as his enforcers, is just the sheriff to do it.

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