On April 3, President Trump signed a memorandum calling for the Department of Homeland Security to prepare a report with recommendations to prevent the trafficking and sale of counterfeit goods in the American marketplace. The Department of Homeland Security is to work with the Commerce Department, the attorney general, and other federal agencies to prepare the report within 210 days. The memorandum requests the report to “identify appropriate administrative, statutory, regulatory, or other changes, including enhanced enforcement actions, that could substantially reduce trafficking in counterfeit and pirated goods or promote more effective law enforcement regarding trafficking in such goods.” Further, the report’s recommendations should be based on available data, but also identify further data to collect and share amongst federal agencies.

Peter Navarro, the director of the White House National Trade Council, commented that the memorandum acts as a “warning shot across the bow,” for e-commerce marketplaces to self-regulate in this area, or otherwise the government will intervene. He stated the memorandum targets third-party marketplaces including eBay, Amazon, and Alibaba, as well as third-party payment processors and customs brokers. According to the memorandum, the Government Accountability Office performed an investigation by purchasing products from third-party marketplaces in categories of frequently counterfeited goods. It found that more than forty percent of the goods were counterfeit. A recent report from the Organization for Economic Co-operation and Development estimates counterfeit and pirated goods account for 3.3% of global trade.

This obviously impacts supply chains. Often, U.S. manufacturers simply assume that the components that go into their finished products are authentic. But the OECD report shows that this is not always the case. Therefore, U.S. manufacturers that import from regions where counterfeiting is prevalent need to take advantage of their contractual inspection and auditing rights. U.S. manufacturers that do not have broad inspection and auditing rights need to insert such rights in their next round of contracting exercises. At the very least, U.S. manufacturers need to ensure that they have robust indemnification provisions that allow them to recover for any counterfeiting violations against component suppliers.