EU IN THE MEDIA: Countering Counterfeits, By CARLOS GUTIERREZ, GUNTER VERHEUGEN, PETER MANDELSON and SUSAN SCHWAB, Wall Street Journal, June 20, 2006; Page A20

EU in the Media

"Countering Counterfeits," By CARLOS GUTIERREZ, GUNTER VERHEUGEN, PETER MANDELSON and SUSAN SCHWAB, Wall Street Journal, June 20, 2006; Page A20

The global economy for illicit goods is massive, but by definition impossible to measure. What we do know is that it is getting bigger. The number of counterfeit items seized at European Union borders has increased by more than 1,000%, rising to over 103 million in 2004 from 10 million in 1998. At U.S. borders, seizures of counterfeit goods have more than doubled since 2001. Even allowing for improved detection rates, there is little doubt that the situation is getting worse.

Today the EU and the U.S. will launch a joint action strategy on the global enforcement of intellectual-property rights. The groundbreaking agreement between the EU and the U.S. envisages closer customs cooperation, including more data sharing. There are plans for joint border enforcement actions, including in third countries, and the creation of joint networks of EU and U.S. diplomats in third countries working on intellectual-property protection.

Twenty years ago, counterfeiting might have been regarded as a problem chiefly for the makers of expensive handbags. In the 1980s, 70% of firms affected by counterfeiting were in the luxury sector. But in 2004, more than 4.4 million items of fake foodstuffs and drinks were seized at EU borders, an increase of 196% over the previous year. In the U.S., seizures of counterfeit computers and hardware tripled from 2004 to 2005. There are also fake electrical appliances, car parts and toys. Even airplane parts are being pirated: The Concorde crash of 2000 appears to have been caused by a counterfeit part that had fallen off another aircraft.

Perhaps most worrying is the booming trade in counterfeit medicines, which were reckoned to account for almost 10% of world trade in medicines in 2004. A recent study in the Lancet concluded that up to 40% of products labeled as containing the antimalarial drug artusenate contain no active ingredients. Most of these fake drugs are headed for the world's poorest countries. The World Health Organization estimates that 60% of counterfeit medicine cases occur in developing countries.

The popular view is that buying a fake is a win-win game, so long as you know what you are paying for. Everyone enjoys a bargain. But it's far too easy -- and wrong -- to write off this kind of crime as not really harmful to anyone. Counterfeiting is big business for criminal organizations that can affect entire sectors of the international economy. And when pirates move into fake medicines and fake car-parts, we move from rip-offs to potential tragedy.

The scale of counterfeiting matters enormously for the EU and the U.S., who compete on their reserves of innovation, invention and high-quality design and production. Piracy strips that comparative advantage away. Our economies are adapting to low-cost competition from the developing world. We have a right to expect that our own comparative advantages be respected.

But it is not just the developed world that has a stake in this fight. Tolerating counterfeiting almost inevitably backfires. Developing countries that tolerate the existence of a parallel illicit economy in their market will quickly lose the confidence of foreign investors and services traders, and the technology transfer that these bring with them. They also undermine the development of innovative and creative businesses in their own economy. Although China is now taking steps to better enforce its intellectual-property laws, it has for too long turned a blind eye to these problems. Ironically, customs authorities are now intercepting increasing numbers of Beijing 2008 Olympic knockoffs.

It is time for a new global strategy and a much tougher global approach. All members of the World Trade Organization have signed agreements to fight counterfeiting. The new focus has to be on enforcing the rules we already have against counterfeiting and piracy in particular. Countries that have signed up to these rules should no longer expect an easy ride if they don't implement them.

Our initial efforts will focus on working more closely together to address challenges in China and Russia. But we also have major concerns in Asia, Latin America and the Middle East. We recognize that it is not always easy for developing countries to tackle intellectual-property theft effectively, and we will help these countries reinforce their own efforts.

American and European industries are right alongside us. They have long demanded better international intellectual-property protection. An integral part of the EU-U.S. strategy is the development of public-private partnerships in third countries, working with industry to pool information and intelligence and to jointly address the enforcement problem.

The competitiveness of European and American industry depends on respect for intellectual property, and so do the health, safety and security of our citizens. But everyone in the global economy benefits when intellectual-property rights are secured. The EU-U.S. joint action is a clear signal that we will work with our trading partners to ensure that their legal commitments on intellectual property are accompanied by a genuine willingness to tackle the problem at their borders, in their courts and on their streets.

Mr. Gutierrez is U.S. Secretary of Commerce, Mr. Verheugen Vice President of the European Commission for Enterprise and Industry, Mr. Mandelson EU Trade Commissioner, and Ms. Schwab the U.S. Trade Representative.