Šemeta: EU and China must fight cigarette smuggling

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Cigarette smuggling and fake designer goods will top the agenda when Europe's Anti-Fraud commissioner Algirdas Šemeta meets Chinese officials in Shanghai this week. The commissioner told EURACTIV the EU has an "enormous problem" with illegal goods entering the European market from China.

Algirdas Šemeta is European commissioner for taxation and customs union, audit and anti-fraud.

He was speaking to Gary Finnegan.

To read a shortened version of this interview, please click here.

How would you characterise EU-China relations in the area of customs cooperation? What progress has been made over the past 18 months since the Action Plan on customs and IPR [intellectual property rights] was signed?

Let me first put the situation into context. China is the EU's most important trading partner; the source of the majority of our imports and our fastest growing export market. We traded almost €300 billion worth of goods with each other in 2009, and we have every reason to believe that these strong trade relations will continue to grow in the years ahead.

Now, if we consider the fact that customs monitors every single import and export that passes over the EU's borders, it becomes clear how important a cooperative customs relationship is between two such important trading partners. It is the basis for facilitating trade while ensuring that our laws and standards are respected, and that only safe and legal products reach our consumers.

Over recent years, there has been real progress in EU-China customs cooperation. The first step in any such cooperation lies in understanding each other's needs and priorities. Frequent dialogue, both at political and technical level, helps to build a more solid foundation for customs cooperation between both sides and greater mutual understanding on areas where more work is needed. For this reason, visiting China within the first year of my mandate, to discuss key customs matters with my counterparts there, was very important to me.

There are a number of success stories in EU-China customs cooperation already. For example, since the Action Plan on Intellectual Property Rights (IPR) was signed in January 2009, the exchange of information between customs authorities and enforcement authorities on both sides has improved. We have also begun work to strengthen the partnership between customs and industry in China on IPR.

These are key elements in fighting against the trade in fake, counterfeit and pirated goods, which undermine legitimate businesses in both the EU and China. More work still needs to be done within the framework of the Action Plan, which is why I will be recommending that it be extended until the end of 2012. But its effects so far give cause for optimism.

Another area where good advances have been made is supply chain security, and I will be looking to see how we can make further progress in this field during my visit to Shanghai.

How has the economic crisis affected the European market's demand for cheap, illegal products? 

While you would imagine that the trade in cheaper counterfeit products would rise at times of economic crisis, our statistics indicate otherwise. In 2009, there was a decrease of about 15% in the number of goods suspected of infringing intellectual property rights detained by customs. This figure largely reflects the overall drop in trade due to the global economic downturn.

However, this drop in the number of suspected counterfeit goods detained at customs is no reason to be complacent. We still have an enormous problem when it comes to cheap and illegal products entering the EU from China. In fact, China accounted for about 60% of all products suspected of infringing IPR which were detained by customs last year. That is why I have put this point high on the agenda for my discussions in Shanghai.

Based on experience, do you believe the Chinese authorities are serious about clamping down on counterfeit products given how important some of these industries are to the economy of its southern provinces?

It is in China's own interest to take counterfeiting and piracy seriously, and to show the world that it will enforce intellectual property rights in its own territory. This is the only way to increase global trust in Chinese products and to protect their own companies that play by the rules. We are now seeing counterfeit versions of Chinese brands at EU customs, which means that IPR infringements are no longer just an issue of foreign concern in China.

While customs clearly has a critical role to play in tackling counterfeit and pirated products, border measures are just one element of the overall enforcement strategy. The supply and demand of fake products also needs to be addressed, for example. The Commission will continue to work closely with China on all areas related to IPR, including on the development and implementation of laws on issues such as copyright and patents. 

Do you think the pace of legal changes in China – and enforcement of new laws – is fast enough? 

In the last five years, we have seen a number of positive changes in China in the field of customs. Looking again at the issue of IPR, for example, China has both adopted and started implementing legislation to tackle fake products. Of course, there is still room for improvement, especially if you look at the proportion of counterfeit goods that still come from China. But I hope that China will maintain momentum in this area. 

There has also been good progress in improving the security of the supply chain. For example, an important part of EU-China customs cooperation is a pilot project called 'Smart and Secure Trade Lanes'. This tests the security legislation and the new technologies which play such an important role in ensuring that the products which reach our markets are safe. We are very pleased with the active role that China has taken in this exercise and intend to extend the pilot project with a view to further increasing supply chain security in EU-China trade.

Good international trade relations depend on mutual trust, and this trust is built on concrete action to ensure that fundamental principles are respected. I do believe that China understands this. I am confident that we will be able to continue to build on the cooperative relationship we have forged so far in customs, and work together on any problems that need to be addressed.

Is the expansion of European designer brands in China putting extra pressure on the Chinese to tackle counterfeits? 

Certainly, as more European designer brands establish themselves in China, the importance of protecting intellectual property has become more apparent. In addition, Chinese brands are emerging, with an increasing market presence internationally, and this provides a strong incentive for the Chinese authorities to promote effective IPR protection.

I think the Chinese are also becoming more sensitive to the damaging effects of counterfeiting on research, innovation and jobs, and this provides further motivation for them to tighten their enforcement.

Are there any indications that the level of cigarette smuggling from China has decreased? Can EU consumer demand for cheap cigarettes be addressed?

Cigarette smuggling is still a very serious problem for the EU. Over five billion illegal cigarettes were seized by customs in 2008, and China remains one of the main sources of counterfeit cigarettes. That is why the Commission has invested considerable resources into working with the Chinese authorities to tackle this problem.

Since 2008, the European Anti-Fraud Office (OLAF) has had a liaison officer in Beijing specifically to facilitate better dialogue and information exchange on such issues. Chinese Customs and OLAF have built up a cooperative relationship in tackling cigarette smuggling over the past few years, and I will be speaking to my Chinese counterparts about this issue during my visit to Shanghai.

We have seen efforts on the part of the Chinese authorities to take a strong stance against counterfeit cigarettes. For example, in 2008, the State Tobacco Monopoly Administration (STMA) reported that they had raided over 3,000 production sites throughout China, apprehended 7,128 people and seized 8.3 billion counterfeit cigarettes. If the drive to stamp out the illegal production and trade in cigarettes is kept as a high priority at political level, the effects will filter down to all levels of society.

With regard to consumer demand here in Europe, the Commission and member states invest significant resources in trying to reduce the demand for cigarettes of all kinds. When it comes to cheap cigarettes specifically, consumers need to understand the potential consequences of the 'savings' they might think that they are making. Cheap, un-taxed cigarettes are frequently sold to fund serious organised crime groups and possibly terrorist organisations.

Consumers should also keep in mind that counterfeit cigarettes are made and sold in an unregulated, underground environment which increases the risks that they are exposed to (beyond the usual health risks of smoking).

Given the volume of chemicals used for synthetic drug products which flow out of China, are you frustrated that this cannot be swiftly curtailed? 

Drug precursors are legitimate chemicals used for making everyday products such as perfumes, plastics and colourings. However, if they are diverted into illicit channels they can be put to very dangerous use, and are the basis of a number of illegal narcotics. So while we cannot ban the trade in drug precursors, we have to make absolutely sure that they don't fall into the wrong hands.

For that reason, the Commission has given very high priority to ensuring tight customs controls on these chemicals, and to working with international partners on this issue. Last year, the EU and China concluded a bilateral agreement specifically on drug precursors.

Thanks to this agreement, we have already taken a number of concrete steps, such as implementing trade monitoring mechanisms and enabling shipments suspected of trafficking dangerous precursor chemicals into the EU to be suspended. This is an area which obviously requires constant monitoring and the Commission will continue to work closely with the Chinese authorities to ensure that it remains high on the agenda. 

Are you concerned about the production and export of counterfeit medicines from China to the European market? 

I am concerned about counterfeit medicines of every origin, not just those produced in China. Fake medicines pose a real threat to our citizens. People with very serious diseases, such as HIV, can end up taking completely ineffective counterfeit medication without realising it. Moreover, some fake medicines can be lethal, due to the unregulated environment in which they are produced.

Around 10% of all products detained by customs in 2009 on suspicion of violating intellectual property rights were medicines. This is a very worrying statistic.

In addition, we are increasingly finding this type of product coming into the EU in small quantities, often as a result of Internet orders. The Commission is working to tackle this problem on all fronts and in particular through cooperation with our trading partners.

While EU customs does stop a huge number of fake medicines from entering the EU, the best solution is obviously to stop them being exported in the first place. I will certainly be looking to strengthen cooperation with the Chinese authorities on this matter over the coming years.

What does China ask of the EU in these negotiations? 

Customs has two main functions: to facilitate trade and to ensure that only safe and legal products are allowed onto the market. China benefits as much as the EU does in pursuing such goals. Good customs cooperation means that products can flow much more quickly and smoothly between both sides, thereby strengthening our trade channels.

In addition, many of the issues which are of concern for the EU, such as product safety and IPR, also affect Chinese citizens and businesses.

So it is in everyone's interests to combine forces in addressing these issues.

Will you discuss trade barriers during your visit? 

I am very aware that EU businesses still struggle with serious barriers to trade in China, which cost billions in lost trade opportunities every year. My colleague, Trade Commissioner Karel de Gucht, raised this issue during his visit to Shanghai in July and the Commission is working hard to ensure that as many of these barriers as possible are removed.

I will certainly re-iterate our messages in relation to this problem where I can. Above all, I will be looking to see where improvements can be made in customs to facilitate trade, to the benefit of both European and Chinese businesses.

Will you raise human rights issues as part of wider discussions? 

Human rights are an integral and fundamental part of the EU's relations with the rest of the world, and the Commission gives great importance to promoting human rights in the EU-China relationship. The conference on customs cooperation may not be the appropriate forum for such discussions, but it is an issue that will remain central to the wider EU-China partnership.

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