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Will Latvia Become a Hole in the External Border of the EU?

By Romans Baumanis,
CIPR representative in the Baltic States
March 17, 2003

Over the last four years the volume of counterfeit goods seized by customs on the European Union's external borders has increased from 10 million to nearly 100 million units - a rise of over 900 percent. This figure is confirmed in a report published by the European Commission's Directorate of Justice and Home Affairs for the Brussels Forum On The Prevention of Organised Crime.

This increase in intercepted counterfeit goods needs to be seen in context: the port of Rotterdam, for example, clears one sea container every three seconds and, in total, customs are physically able to check no more that 3 percent of all cargoes at the port. So it is not hard to hazard a guess at the real scale of counterfeiting. On the eve of EU accession, what is the situation with counterfeits in Latvia?

Counterfeiters are targeting an increasing range of consumer goods

We speak about forged or, in legal terminology, counterfeit goods when referring to the imitations of popular brands designed and marketed with the explicit purpose of deceiving the consumer about the manufacturer of the goods. Counterfeit goods are often illegally taken across customs borders.

If not so long ago, counterfeiting concentrated mainly on the so-called luxury goods - designer clothes, watches, and accessories, lately there is a tendency to forge almost anything consumers will buy. At present the illegal activities of counterfeiters target household goods and chemicals, cosmetics, footwear, medicines, automobile spare parts and many other goods and even services enjoying consumer trust and bringing profit. EU statistics show that the highest increase of counterfeit goods in 2000-2002 was in the electric household appliances sector - up a staggering 225 percent.

Counterfeiting and pirating - the plague of the 21st century?

Every year the World Economics Forum assembles several thousand participants at the Swiss Mountain resort of Davos, including political leaders, entrepreneurs, and influential opinion-leaders to discuss the problems of global development. This year for the first time the Forum turned its attention to the prevention of the increasingly global threat posed by counterfeiting.

At the Forum, representatives of nine multinational corporations established a coalition for fighting counterfeiters of their products. The coalition was joined, for instance, by Procter & Gamble, Daimler Chrysler, Gillette, Unilever, Japan Tobacco, British American Tobacco, Allied Domecq Spirits and Wines.

The representatives of these companies admitted that despite the growing volumes of counterfeit goods available across the world, the governments of many countries do not consider solving this problem to be a priority. This is confirmed, they argued, by the light penalties imposed for infringements of intellectual property. The coalition members stressed that the biggest problems are seen in the former USSR countries, China, India and Turkey.

Interpol and the World Customs Organization support the coalition's initiative. Frightening examples of counterfeits, including spare parts for automobiles and aircraft, medicines, toys, and electric appliances have been documented by Interpol. Interpol has evidence that the income from trading counterfeit goods is used for funding international terrorist organizations, including al-Qaeda and other organized crime groups. The annual income from trading counterfeit goods is estimated at US $450 billion.

What does the EU offer?

Within the European Union, counterfeiters target states with weak intellectual property legislation, thereby taking advantage of the discrepancies between the national legislation of Member States. By exploiting loopholes in legislation, they inflict damage on trade and competition between the EU Member States.

To prevent the flow of counterfeit and pirated goods, the EU published in January this year Regulations to expand the customs authority followed by a Directive setting out uniform procedures for protecting the intellectual property of Member States. The Directive is designed to stem the flow of counterfeit goods within the EU, while the Regulations attempt to improve measures for seizing counterfeits on EU borders.

The new draft Directive summarizes the most successful Member State experience and best practices in intellectual property protection. The main aim of the Directive is to harmonize existing legislation between Member States. The Directive develops further the WTO TRIPs Treaty standards: it envisages tighter penalties for the violators of intellectual property rights, as well as taking additional measures to protect the legitimate holders of rights. These include: entitling the rights holder to recover losses for lost profit or to determine compensation, and freezing the offender's bank accounts, other capital assets and profit as a security for compensating the losses.

The Regulations expand the authority of Customs to prevent violations of intellectual property rights, as well as determine norms to be observed when intellectual property violations are detected. Both documents have been prepared within a short time span to ensure a coordinated EU internal and external policy against counterfeit and pirate goods.

How Does Latvia Measure Up?

The Government has declared war on smuggling and it should now be possible to achieve a better Government understanding about the close relationship between smuggling and imports and transit of counterfeit production through Latvia. To what extent this will translate into greater Government support for the institutions involved in solving the problem is another matter.

The current situation is alarming, to say the least. Latvia has not yet resolved the issue of developing and implementing a co-ordinated national policy for protecting intellectual property. The Intellectual Property Development and Protection Strategy for 2001-2005 was adopted back in 2001, but the strategy implementation monitoring mechanism has still to be established. As a result, the Government has been unable to coordinate the roles of different institutions, including Police and Customs to enforce the current laws and to make amendments where required to close loopholes.

Effective intellectual property protection is based on "three pillars": firstly, Government and consumers educated in the field of intellectual property; secondly, effective operation of Customs to stop the counterfeit flow through and to Latvia; and thirdly, consistent and sustained efforts by law enforcement structures to stamp out counterfeits being traded and to stop their production in Latvia.

Unfortunately, all evidence points to the fact that the present situation is far from ideal, exemplified by the counterfeit cigarette production cases in Latvia: last year packaging for West cigarettes printed in Latvia and contraband tobacco were detained in the same place and declared for transit to Russia, but they stayed in Latvia with the obvious aim of producing counterfeit cigarettes. In addition, attempts were made to import counterfeit packages of Super King cigarettes from Lithuania into Latvia. This signifies that Latvia is not an innocent victim of global counterfeiters and smugglers. The "three pillars" will be effective only with successful co-operation between the rights holders and the Government to start solving the problems.

The last chance has come to secure effective intellectual property protection. Once Latvia joins the EU, its border will serve as an EU border as well. Counterfeiters and their associates have already identified the weak points in Latvia's legislation and practice. The Government needs to be aware of this and should take active measures to solve the problems caused by its limited capacity in certain key areas. For the time being, consumers remain at risk of buying, for example, car brake pads produced from pressed grass, forged toys that do not meet safety standards, or medicines without active substances - and, sometimes, worse.

Apart from the obvious effects on consumers and manufacturers, the production of counterfeits and their illegal transfer across borders has a less visible but nevertheless devastating impact on public administration. The existence of this illegal business in Latvia is impossible without corruption. Tackling corruption at its roots must, in turn, be one of the key Government priorities.

Romans Baumanis represents CIPR in the Baltic States from the CIPR regional hub in Riga, Latvia.