Free Trade Zones and Counterfeit Goods

The European Union Intellectual Property Office (EUIPO) and the Organization for Economic Co-opertaion and Development (OECD)’s recent report claims that free trade zones may be facilitating illegal activities, such as trade in counterfeit and pirated products, by providing good infrastructure with little oversight over its use.

Free Trade Zones (FTZs) encompass a broad range of activities, from tourism to retail sales. They typically represent duty-free customs areas, or offer benefits based on location, in a geographically limited space. Today, there are over 3,500 zones in 130 economies, collectively employing 66 million workers worldwide.

A number of benefits drive countries to embrace FTZs. In general, these areas increase a nation’s foreign exchange reserves and improve the balance of payments. On a local level, new supply chains increase business for domestic producers that sell inputs by zone-based firms. Finally, these areas provide jobs that bolster employment and, at least in developing countries, can lead to higher wages over time.

Apart from FTZ’s benefits to their host country at both a local and national level, there may also be economic exposure to criminal activities as a result of insufficient regulation. Research shows that the number of FTZs in an economy appears correlated with the value of exports of counterfeit and pirated products.

With less oversight, rogue actors are attracted to FTZs to engage in illegal and criminal trade. The OECD’s findings indicate that one additional FTZ within an economy increases counterfeiting by 5.9 percent on average. It also appears that FTZs tend to be overly permissive by letting companies get away with poor safety and health conditions. This limited oversight is particularly troubling when one considers the potential for exploitation in areas such as human trafficking.

The OECD and EUIPO both stress the need for future action to curb the misuse of FTZs. They recommend developing clear guidelines for countries to increase transparency and promote clean and fair trade in FTZs, based on the involvement of industry members and key stakeholder of the trade supply chain.

The organizations identify three areas for future analysis. The first is the measurement the role of FTZs in the trade of illicit and counterfeit goods. The next step requires a fuller quantitative analysis of counterfeit goods. Finally, further research needs to explore why counterfeit profiles differ from similar economies.

FTZs provide a number of advantages to economies, but without further regulation and research, they may induce heightened criminal activity. Both public and private actors must devise and apply strong deterrents to the establishment of criminal networks.

Michael Czinkota teaches international business and trade at Georgetown University’s McDonough School of Business and the University of Kent. His key book (with Ilkka Ronkainen) is “International Marketing” (10th ed., CENGAGE).

Lisa Burgoa of the Georgetown University School of Foreign Service contributed to this comment.

Today’s Spring Break

Today’s Spring Break

This spring, I wanted Michael Czinkota’s students to remember their “Marketing Across Borders” class while they traveled to azure beaches and Caribbean getaways. They were to connect their break experiences to some of the themes we have explored in class. Their responses offered an interesting – and illuminating – glimpse into how international marketing shapes the decisions of young travelers.

As digital natives, most of my students performed the research and planning for their trips online. Whether scoring cheaper flights or finding top restaurants, these young travelers turned to social media platforms and travel websites like AirBnb and TripAdvisor, to find affordable, and often all-inclusive, deals for hotels and flights. Students noted the power of word of mouth, which they far preferred over mass-market pamphlets, in guiding travel decisions. Much trust was placed in the reviews of peer travelers.

Much international travel was to Mexico, the Dominican Republic, and Germany.

But even when my students ventured outside their comfort zones, they still encountered elements of the familiar. They noted the prevalence of Japanese manufactured cars, such as Toyota, in countries like Mexico and Jamaica. For food, they found a preponderance of American brands – like McDonalds and Starbucks – that were almost identical to those in Cincinnati, Ohio.

A student, involved in a social justice immersion trip to Jamaica, found international marketing to be an important tool in business development. She found billboards with emotional global brand messages: “Kakoo loves Pepsi!”; “Jamaica, land we love; Honda, car we love.” Many messages were targeted toward tourists and rendered in English rather than local languages.

In terms of favorite topics, many of my students’ broached food. There was a fascination with the globalization of food products. Students were delighted to taste the delicious meals of the world. “Food trends from around the world had penetrated the Costa Rican market: Breakfast places were serving cold brewed ice coffee, kombucha, acai bowls, avocado toast, and homemade vegan bread. Australians own the best taco joint in Tamarindo. A woman from Minnesota was the chef at a local breakfast café. Markets served poke bowls (sushi bowls from Hawaii), arepas (shredded beef sandwiches from Venezuela), and traditional French pastries.”

Students saw a choice of goods that were produced in the U.S. but tasted differently abroad. In the Dominican Republic, there were different taste versions of Coca Cola. Snacks of choice, such as Doritos, were sold at two different prices depending on whether they were sold in American or Mexican packaging. In Puerto Vallarta, Mexico, the point of sale changed in supermarkets. Oreos were sold alongside American cereals rather than in the cookie section!

All these observations contribute to a wider understanding of international marketing forces that shape tourism for young travelers today. Travel can be good – it gives more perspective, more context and more variety. Surely, there will be more alternatives and new experiences, which make life more meaningful, spicy and more interesting.

Michael Czinkota teaches international business and trade at Georgetown University’s McDonough School of Business and the University of Kent. His key book (with Ilkka Ronkainen) is “International Marketing” (10th ed., CENGAGE).

Georgetown University students, Dina El-Saharty and Lisa Burgoa, contributed to this report.

Georgetown First Year Seminar

I am delighted to have Ing. Jaroslava Pokorna Jermanová, who is the governor of the Central Bohemia Region of Czech Republic to our seminar. It’s such an honor to listen to her insights and the students all learned a lot from yesterday’s session.

WechatIMG143unnamed WechatIMG142Brief Work profile:

      • November 2016 elected by the governor of the Central Bohemia Region from October 2016 the representative of the Central Bohemia Region for the YO 2011 movement
      • 2014 until now the representative of Benešov and from 2016 the city councilor
      • November 2013 until now the deputy chairman of the Chamber of Deputies
      • October 2013 until now Member of the Parliament of the Czech Republic
      • 2007-2008 employee of ROP Central Bohemia
      • 2004-2008 representative of the Central Bohemian Region for ODS
      • 2002-2006 Mayor Krhanic in Benesov

Over the years, she has been employed by several private companies including a family enterprise to produce furniture, and before 2014 she was an advertising and marketing executive. She also founded the Women’s Academy, which aims to attract more women into politics.

Georgetown First Year Seminar Guest Speakers

I am delighted to have more key experts and guest speakers coming to my seminar.

Most recently we had

Katja Bullock
Special Assistant to the President for Presidential Personnel

 

Picture1Katja holds the same position and duties under Presidents Reagan, Bush 41 & 43 and now for President Trump. She is the Operations Officer in the Office of Presidential Personnel, responsible for all non-career appointments. Katja directs the Correspondence Unit, the Resume Management Group, as well as the clearance and nominating process of all presidential appointments in the Federal Government.

Professor Czinkota is very grateful for the visit of Katja, a key decision maker in White House
appointments. While high ranking politicians and public servants can get a few minutes with Mrs. Bullock, we had her for a full hour.

Frank Vogl

Co-founder Transparency Intl and the Partnership for Transparency Fund

IMG_5082 IMG_5075

Frank Vogl is the co-founder of two leading international non-governmental organizations fighting corruption — Transparency International and the Partnership for Transparency.  He teaches a graduate course on “Corruption, Conflict and Security” at Georgetown University; writes frequently on U.S. and international corruption for The Globalist; and, lectures extensively.  Frank is also a specialist in international economics and finance with more than 45 years of experience in these fields.

The US and Europe demonstrating unity on energy security

Bart Marcois

ukraine_flagCalmly in July, a party leader from the Czech Republic visited Washington to hold discussions with the White House and Republican members in Congress on the basis of shared values, including peace in Europe. At the recommendation of senior national security officials, he has reached out to his neighboring countries, to the east and the west. His aim: to link Europe and the U.S. in a pragmatic formula to secure energy independence in Ukraine and provide economic opportunities for the Czech Republic.

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