The Belt and Road: Impact on counterfeit supply chains
Should brand owners be worried about the Belt and Road and the impact on counterfeit supply chains? Not at the moment, writes Josh Mandell and Audrey Boisselet.
In the days following the Brexit referendum the most frequently searched question in Britain was ‘what is Europe?’ If only President Xi Jinping had been advised of this he might have tried to answer the ‘what is the Belt and Road?’ question before inviting the world’s leaders to his Summit in Beijing. But as with Brexit, many left Xi’s Summit wondering what the Belt and Road means, what it will bring to its stakeholders, and over what period of time.
The conceptual difficulty is that China's Belt and Road initiative goes far beyond being a specific project or even a collection of development programmes. While it can be viewed on one level as the creation of new trading routes (see map below), on another level it represents a total reimagining of existing interconnections between China, Eurasia, and beyond. Over time, investments and improvements in infrastructure and trading relationships are hoped to boost economies across the region and help Chinese companies expand their operations and investments outside of China. While it seems that a significant amount of new infrastructure will be developed to support overland trade, the Belt and Road also looks to improve relationships between China and countries along ocean shipping routes.
Traditional concerns about intellectual property protection and Eurasian trade have tended to focus on a shift to the use of land routes for the supply of counterfeits into Central Asian and European markets. While these links are sure to develop, the vast majority of trade continues to be done by sea. In fact, according to customs data, land trade across the Xinjiang Border remains small in comparison to South China sea trade (see Table 1 below for comparisons). This massive imbalance is likely to remain the case for some time to come. As land routes and regional trade develop, however, businesses and intellectual property rights holders will want to ensure that they keep pace by:
- Monitoring the growth of Chinese and multinational competitors' trade, investment, and IP along the Belt and Road, especially in Central and Southeast Asia.
- Monitoring the growth of industry sectors, consumption, and trade in Central Asia and other Belt and Road countries. IP portfolios and customs protection programmes in these jurisdictions will need to suit local business needs while recognising the importance of protecting other markets that are downstream on the Belt and Road. Greater engagement with local customs authorities in regions like Xinjiang, in far-western China, may become necessary as trade channels grow.
- Protecting European and African markets by monitoring trends in customs seizures in these markets and along traditional trade routes from coastal China, including trading hubs like Dubai and the corridor created by Russia's Customs Union with Kazakhstan.
So in reality, just as companies wait to see what Brexit brings, rights owners would do well to monitor and observe the Belt and Road rather than rush to adapt their approaches to intellectual property protection.
Chinese Customs and Belt and Road Policies
China’s General Administration of Customs (GAC) has been busy implementing Belt and Road policies and several are worth noting, including:
- Initiatives to support the development of China-Europe Railway Express (CR Express) linking China with Europe by fast-track cargo rail;
- Launching the EU – China Smart and Secure Trade Lanes (SSTL) project, joined by 27 ports so far.
- Cooperating with customs in the EU, Singapore, and Hong Kong on Authorized Economic Operators;
- Establishing Green Channels for agricultural products at border crossings with Kazakhstan, Tajikistan, and Kyrgyzstan; and
- Launching the "Breeze" Enforcement Campaign against counterfeit and inferior quality goods being exported from China, specifically to countries along the Belt and Road routes.
China-Europe Railway Express (CR Express)
While many of the above initiatives are having a slow but positive impact on IP protection, the question on many rights owners’ minds is what impact the CR Express will have on counterfeit supplies into Europe. By way of background, the CR Express provides regular cargo rail services to 16 Chinese cities, including Chongqing, Chengdu, Zhengzhou, Wuhan and Suzhou, and calls at more than 12 cities in eight European countries, including Duisburg, Hamburg, Warsaw, Lyon and Madrid. The CR Express provides a one-stop service in cargo inspection, quarantine, and customs clearance.
While the CR Express is of increasing interest to manufacturers in western China who are looking for an alternative to sea freight as well as companies in coastal regions that are attracted by local governments’ financial support for use of the CR Express, the reality is that volumes (although increasing) remain relatively small and the lack of a return cargo from Europe means that it will take time for the economic benefits to materialise.
We will continue to monitor the possible impact of the Belt and Road on rights holders and will cover it in future editions of the magazine.