Monday, June 10, 2013

Free trade zones in ASEAN and IP crime

Free Trade Zones (FTZs) or export processing zones, are great for the economic development of a trading nation since they increase trade through tax and duty reductions. However criminals such as counterfeiters now exploit the relaxed oversight that follows this. As a result FTZs are now the focus of increased attention. BASCAP has produced an excellent report on the IP concerns.

The OECD says "free-trade areas (are) attractive locations for parties engaging in trade of counterfeit/pirated goods". And because FTZs are often free from IP enforcement, counterfeiters can clean up fake shipments, hide origin, pack and repack and even brand and assemble goods in FTZs.  The fundamental problem is that although FTZs are supposed to be subject to national laws and only tax and duties should differ, often Customs and other authorities are prevented from monitoring activities there. The Revised Kyoto Convention seeks to address this but is a voluntary agreement.

In South East Asia, several are well known - Port Klang in Malaysia, Battam in Indonesia and Labuan in East Malaysia, off the Brunei coast as well as Cavite in Manila. It is striking how many there are in the world's busiest shipping route around the Malay peninsula.

Malaysia has a large number of FTZs. Although Malaysian Customs has in some cases taken action against fakes, the simplified free zone Customs documents used make it much harder to trace fake shipments. The Malaysian courts clearly held in a Philip Morris case in 2009 that FTZs are subject to all national laws including IPRs, and thus 2 containers of fake cigarettes were seized.

Vietnam has the Tan Thuan EPZ near Saigon. Although goods there are supposed to be subject to inspection, the IP Office (NOIP) considers FTZ are not part of Vietnam for the purposes of trademark infringing use, thus is at odds with other rules. Enforcement at present is difficult. 

Singapore has no FTZs, but Battam is a short 20km hop away in Indonesia. It is a major commercial hub, supporting Singapore, (far from any economic centres in Indonesia) and increasingly a transit point for fake goods (several recent seizures of luxury goods bound for Battam, suggest processing and re-export of fakes there). Indonesia in practice still operates no Customs IP border protection system.

Many FTZs are known havens for counterfeit goods so global efforts to bring more oversight to prevent criminal activities is to be welcomed.

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