The World Trade Organization, through the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs), and the World Customs Organization (WCO) are providing the legal framework and support for a consistent and effective approach for countries to intercept counterfeit products, including procedures for interacting with the intellectual property (IP) owners. The way it works is straightforward. When Customs identifies a “suspect shipment”, it can detain it for an initial period while it works with the IP holder to authenticate it as either legitimate or counterfeit. Having already established a process and communication with Customs will accelerate the process of condemning counterfeit goods, saving time and expense.
While TRIPs provides a framework, national customs policies and procedures for IP protection and interception of counterfeit goods can vary, significantly. In most countries, the customs authorities, or other concerned agencies, will be proactive and accept briefings from pharmaceutical companies to assist them in the initial process of distinguishing genuine from counterfeit.
Customs factors the information into its risk management approach to physical and documentation checks with favourable outcomes for pharmaceutical companies, both in terms of facilitating legitimate product flows and in seizing counterfeit goods.
Effective action against counterfeit is typically in three stages:
Preliminary: A pharmaceutical company engages with Customs and provides key IP and supply chain information, including the characteristics of genuine products, import/export flows, and known characteristics of counterfeit products/flows. IP holders can also provide training sessions to Customs about their products.
Interception: Customs identifies a suspect shipment. It can initially detain the shipment while it contacts the IP holder, who is given time to carry out verification and/or obtain a judicial ruling that the product is counterfeit. If it is, the pharmaceutical company submits the ruling to Customs, and it will refuse permission to import. In some jurisdictions, Customs will accept a declaration from the company that a shipment is counterfeit.
Closure: The shipment is either released (if it is not counterfeit or timelines for action are not observed) or seized (goods are condemned and destroyed, if local law allows).
Worried about the security of goods crossing their borders, policymakers in several countries have enacted laws to protect citizens from harmful, and potentially deadly, imported materials. The unintended consequence is that legitimate trade flows may be hindered because of the additional security. Resolutions have been adopted under the auspices of the WCO to establish a task force and a framework to advance the goals of security and trade facilitation in the context of “integrated supply chain management and related customs matters”. Companies can also participate in voluntary programmes. For example, the US Customs and Border Patrol (CBP), through its Custom-Trade Partnership Against Terrorism (C-TPAT), seeks to build relationships that strengthen and improve the international supply chain and the US border security.
The CBP is asking businesses with trade activity across the US borders to maintain the integrity of their security practices and communicate and verify the security guidelines of business partners in their supply chain. The EU is introducing a similar programme, the Authorized Economic Operator (AEO). The AEO, a key element of the EU’s Customs Security Programme, is designed to achieve similar objectives. The EU AEO also provides certification for customs simplification and trade facilitation benefits.
To develop a communications process with Customs, pharma executives need to consider some key questions: Do we have sufficient information on our supply chains to enable us to communicate and partner effectively? Which countries have the most suitable laws, procedures, and practices to establish contact with Customs for effective anti-counterfeit initiatives? How can we get all departments in our organization “on the same page” in developing an approach to Customs, so that we present a coordinated direction. Who will take the lead in initiating contact? What costs may arise in applying to Customs for assistance in intercepting counterfeit or as a result of customs interceptions (i.e., to prove a product is counterfeit and enable Customs to seize and/or destroy it)? What are the benefits and costs of participation in any voluntary supply chain security programmes worldwide? Who in our organization is responsible for weighing costs and benefits?
Building a strong relationship with customs authorities is indispensable in helping manufacturers and other IP owners improve their supply chain performance and act effectively against counterfeit products at an operational level. Companies seeking to broaden their options for this should explore the opportunities generated by the TRIPs Agreement as well as regional and country-specific security programmes such as the EU AEO and US C-TPAT. Both help strengthen a company’s brand protection framework, potentially intercept harmful counterfeits, and provide long-term benefits that help ensure continued international supply chain efficiency.
Colm Halpin is director, Global Strategic Indirect Tax, Ernst & Young. Comments are welcome at firstname.lastname@example.org