Taobao put on Notorious Markets list for second year in a row
The US Trade Representative has announced its 2017 Notorious Markets list, naming Alibaba's Taobao as one of 25 online platforms that engage in the sale of counterfeit goods. It is the second consecutive year Taobao appears on the list, despite a year-long anti-counterfeiting campaign by Alibaba.
“Marketplaces worldwide that contribute to illicit trade cause severe harm to the American economy, innovation, and workers," said U.S. Trade Representative Robert Lighthizer in a statement.
Alibaba is peeved at the USTR's decision, which crashes the company's anti-counterfeiting coming-out party. Indeed, the Chinese internet giant had been engaged in a year-long publicity campaign to depict itself as an IP-protection zealot ready to join the ranks of polite global brand society.
The Hangzhou-based firm had seemed confident that those efforts would pay off, especially after just one industry group - the Auto Care Association - recommended that the USTR name Taobao to the blacklist again. Other industry groups that had advised Taobao be placed on the list in 2016, notably in the luxury sector, seemed satisfied with Alibaba's progress fighting counterfeiting.
In a statement, Alibaba Group President Michael Evans questioned the USTR's objectivity: "In light of all this, it's clear that no matter how much action we take and progress we make, the USTR is not actually interested in seeing tangible results," he said, adding: "We have no other choice but to conclude that this is a deeply flawed, biased and politicized process."
Evans has reason to be displeased. Alibaba's reputation won't benefit from continued association with fake goods, especially as it moves to expand internationally. Further, Alibaba believes the USTR is treating the company unfairly. In the past year, it has significantly curbed infringing listings on its platforms, company executives say.
To be sure, Alibaba has made progress fighting counterfeiters. As noted by Bloomberg, Alibaba says it closed about 230,000 IP-infringing Taobao stores from Sept. 2016-August 2017. The Chinese internet giant also maintains that the leads it provided to law enforcement helped police to make roughly 1,000 arrests and shut down nearly the same number of counterfeit manufacturing and distribution facilities. Finally, Alibaba went on a legal offensive last year, winning several cases against counterfeiters it discovered on the Taobao platform.
Unfortunately, in the U.S. government's view, Alibaba's efforts have been insufficient. Evans is probably right that politics factored into the USTR's decision. In a break from U.S. tradition, the Trump administration has advocated a muscular economic nationalism and vowed to be firm with China on trade issues. Beijing isn't used to Washington weaponizing economics - a page taken straight from the Chinese book.
However, it's worth Alibaba's time to respond to the auto sector's concerns. Auto parts are among the most counterfeited products in China, costing the industry hundreds of millions of dollars a year. Counterfeiting of auto parts is prolific enough that it makes sense to ban their sale on certain platforms.
To assuage the auto industry, Alibaba banned auto airbags from its AliExpress and Alibaba.com sites in October. Yet they remain available on Taobao, which is by far the largest of those three platforms. The USTR recommends the ban be expanded to Taobao.
Further, the USTR advises Alibaba follow up with police after tipping them off about counterfeiters "to ensure meaningful enforcement outcomes." Finally, Alibaba should aim to ameliorate its repeat infringer policy, the USTR says.