Three Reasons Why USTR Was Wrong to Put Alibaba’s Taobao Back On ‘Notorious Markets’ List

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Three Reasons Why USTR Was Wrong to Put Alibaba’s Taobao Back On ‘Notorious Markets’ List

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China’s eBay equivalent is once again in the firing line over trading in fake goods–and now a U.S. watchdog has blacklisted the e-commerce giant.

Late last month, the Office of the United States Trade Representative (USTR) released its “notorious markets” list, and Alibaba’s Taobao finds itself on it once again.

In its report, the USTR said the marketplace is of “concern due to the large volume of allegedly counterfeit and pirated goods available.” It continued that, “right holders in the United States and internationally continue to report serious challenges to reducing high levels of counterfeit and pirated goods on Taobao. Longstanding obstacles to understanding and utilizing basic IP enforcement procedures continue unabated.” Taobao was taken off the list in 2012.

While the designation does not carry any official sanction or penalty it does have the effect of muddying the truth about Alibaba’s marketplaces and the important role the company is playing in the evolution of cross-border commerce and the reimagination of theretail model.

First we must clarify that Alibaba has two major platforms for selling brands to Chinese consumers. Taobao is a platform for individuals and third party companies to sell merchandise on a C2C basis. The company’s B2C marketplace, Tmall, is the platform where global and Chinese brands create flagship stores to sell direct to consumers. Tmall, the more-important platform to global retailers and brands, is virtually counterfeit-proof.

Now, here are three reasons why the USTR made a mistake:

1. Online counterfeits are a global scourge that brands from all over the world have to combat on a daily basis.

For example, one out of every four CDs sold on Amazon is fake and just last month did Amazon started suing merchants who sell counterfeits. Japan’s largest e-commerce marketplace, Rakuten, has a fake review and counterfeit problem as well. Nike sued South America’s biggest platform, Argentina-based Mercado Libre, over fakes. Adidias and Levi’s have experienced major problems with the platform as well.

Brands need a global approach to counterfeits because e-commerce is now global, not local. Singling out a Chinese platform, not coincidentally in the current political environment, does nothing to address the larger problem. Rather brands should be working with all of the major platforms on a unified approach to the problem.

2. Cutting off the nose to spite the face.

China is the fastest growing consumer market in the world and dozens of U.S. brands and retailers are successfully selling on Tmall. In fact, during this year’s 11-11 Shopping Festival 27% of products sold through Alibaba were foreign brands. U.S. brands were the number one sellers.

U.S. brands should be further engaging China’s consumers through Alibaba. There is still little understanding with most brands on the opportunity China holds for them through cross-border commerce. This designation could end up creating a backlash among Chinese consumers against U.S. brands in the way that Japanese brands endured in 2012 over tensions between the two countries governments.

3. Alibaba has made a massive and sincere effort to eliminate fakes from Taobao.

From an internal letter to employees by CEO Daniel Zhang that I obtained this effort is clearly outlined, as is the disappointment with the USTR’s decision:

Over the past year, we reorganized our team, optimized our tactics and armored up with technology. We spared no expense and manpower to upgrade our team, and launched an all-out war against counterfeits.

Over the past year, the platform governance team identified a large number of links to infringing products using big data analytics. The number of links removed was 16 times the number of links reported by rights owners. Working with law enforcement, we shut down many counterfeit-manufacturing factories and sent over 800 counterfeiters to prison in the protection of brand owners.

In today’s world, counterfeit manufacturers and sellers are global operations. Our platform governance team rose up to the challenge and was relentless in the fight over the past year. Platform governance team, you are the pride of Alibaba.

We are disappointed today, but not because we didn’t fight hard enough. It is because even though we gave it our all and then some, the United States Trade Representative has returned Taobao to the “Notorious Markets” list.

One can’t help but wonder what combination of lack of information, political calculation and perceived self-interest on the part of a small minority of brands and retailers from the U.S. played in pushing this decision, but the fact that no U.S. marketplaces were even reviewed and that no other major foreign marketplace is on the list is worrying for the future of U.S. companies growing and profiting from the desire Chinese and other Asian consumers have for U.S. brands.

Michael Zakkour is vice president, China/Asia Pacific Practice at global consulting firm Tompkins International and is the author of best-selling business book “China’s Super Consumers.”

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