Legal loopholes for fake leather in the EU Gustavo Gonzalez-Quijano, COTANCE Hearing EESC/CCMI The counterfeit & pirated products industry Brussels, 6 April 2017

A few (more) figures OECD (2007): Up to USD 200 billion of international trade could have been in counterfeit or pirated products in 2005. RAND Europe (2012) Report on a the development of a new approach for measuring the impact of infringements on sales OHIM (2015) Sector Study Clothing, Footwear & Accessories: €26.3 billion, (9.7% of the sector’s turnover) of lost sales to the EU economy OHIM (2016) Sector Study Handbags and Luggage*: €1.6 billion (12.7% of the sector’s turnover) of lost sales to the EU economy OECD (2016): imported fakes worldwide are estimated at USD 461 billion in 2013 (5% of goods imported into the EU are fakes, € 85 billion (USD 116 billion))

Is this all? What about knock-on effects on suppliers? OHIM (2015) Sector Study Clothing, Footwear & Accessories: estimates that direct annual losses of legitimate industry in the EU are approximately €26.3 billion, corresponding to 9.7% of the sector’s sales. The knock-on effects on supply industries and on government revenue raises this figure to approximately €43.3 billion of lost sales to the EU economy, which in turn leads to employment losses of 518,281 and a loss of €8.1 billion in government revenue. OHIM (2016) Sector Study Handbags and Luggage*: estimates that direct annual losses of legitimate industry in the EU amount to approximately €1.6 billion, corresponding to 12.7% of the sector’s sales. The knock-on effects on supply industries and on government revenue, raises this figure to approximately €3.2 billion of lost sales to the EU economy, which in turns leads to employment losses of about 25,700 jobs and a loss of €516 million in government revenue. *refers only to manufacturing and does not include wholesale and retail trade (included in the Clothing, Footwear & Accessories study) OHIM: In addition to the direct loss of sales in the identified sector, there are also impacts on other sectors of the EU economy. These indirect effects are a result of the fact that the different sectors of the economy buy goods and services from each other for use in their production processes. If one sector ́s sales are reduced because of counterfeiting, then this sector will also buy fewer goods and services from its suppliers, causing sales declines and corresponding employment effects in other sectors.

Orphan fakes IPR infringements (trademarks, patents, copyrights) are the basis of the attempts to quantify the impact of fakes in trade and our economies But fakes are more than that: OECD 1998: counterfeit products encompass all products made to closely imitate the appearance of the product of another so as to mislead consumers. While the Leather symbol is an Italian Collective trademark registered in several markets and a Certification mark in the UK, leather suffers more than just from formal IPR infringements. Example: Products marketed as leather while being made from synthetic substitutes: a false and misleading description is also a fake! Examples: eco-leather; vegan leather; bonded leather; leatherette; Textile leather, etc. (Trade) Mark or Term, both create expectations with respect to the quality and characteristics of the products concerned, and therefore serve as an important informational tool that consumers use to evaluate different products. Improper use of a trademark or a trade-term compromises or destroys its value to producers and consumers. The actual degree to which products are being counterfeited and pirated is unknown, and there do not appear to be any methodologies that could be employed to develop an acceptable overall estimate. The clandestine nature of many counterfeiting and piracy activities, the general lack of indicative data and the difficulty in detecting counterfeit and pirated products contribute to difficulties in this regard. Analysis has therefore focused on international trade, where data, from customs authorities, are more abundant.

Assessing the economic impact of fakes for EU leather 2017 COTANCE Submission to the Commission False descriptions and counterfeiting: In both cases one finds at the basis, the usurpation of an identity that belongs to somebody else. In false descriptions, the identity belongs to an industry and in counterfeiting, to a brand. The OHIM study arrived at ratio for the indirect impact of counterfeiting, including the impact on EU leather supplies, of approximately €17 billion (6%). The turnover of Europe’s tanning industry being roughly 1/10 of the one of textiles and man-made fibres combined, it is reasonable to suggest that the share of the indirect impact on EU tanners would be 10% of the total, i.e. €1.7 billion (+/-20% of the tanning sector’s annual sales) The OHIM Study on handbags and luggage arrived to a similar figure for the knock-on effects of its supply chain The submission discusses 82 legal proceedings engaged by the industry in 4 EU member States from 2010 to 2016. This corresponds to an average of 3 procedures against false descriptions per year and per country in the sample. Euratex key figures 2015 reports a turnover for textiles of € 80 billion and for Man-made fibres of €10 billion.

Current weakness of the protection against fake leather Mutual recognition of technical regulations: Regulation (EC) 764/2008 Collective or Certification marks UCPD (EC/2005/29) Yes, but: Although the Commission in its new Guidance to the UCPD refers to “eco-leather” and “Textile-Leather”, it means acting on the consequences of a problem without addressing the cause that lies at the heart of it. An ex post intervention does not stand in for an ex ante action. Finally, as the former guidance, the new document is not binding on the European Commission nor on national enforcing authorities.

How protecting legitimate leather suppliers in the World’s largest consumer market? EU Mandatory Leather Authenticity Rules like in the textile sector! (Regulation (EU) No 1007/2011) National pre-92 labelling rules exist in 4 EU member States (FR, IT, ES, BE) + post-92 in 4 other (AT,ET,EL,LT) Unlike other industries, where sector‐specific rules regulate labelling for both food products and non food products, there is no EU regulation yet on the labelling of leather and leather products, with the only exception of leather footwear (Directive 94/11/EC). Reversing the burden of proof Codified in Article 169 TFEU, the right to information is one of the fundamental specific consumer rights

Questions? Thank You! COTANCE 40, Rue Washington B-1050 Brussels www.euroleather.com