The e-commerce platform mandated by Congress and charged to the General Service Administration to build may have bigger challenges than any protest or industry complaint.

The White House is cracking down on counterfeit products and threatening Amazon, Walmart.com, eBay and others with suspension and debarment unless they address this growing concern.

President Donald Trump signed an executive order on Jan. 31 outlining the actions the government will take should these e-commerce platforms fail to solve these problems.

“Counterfeiting is the purest expression of intellectual property theft. And much of the counterfeit trafficking we are observing today is facilitated by e-commerce platforms like Amazon, Alibaba, E-Bay, Shopify, JD.com, and Walmart.com,” said Peter Navarro, the assistant to the President for trade and manufacturing policy, during a press call. “Today, when people shop online in what they think is the safety of their homes and on their favorite e-commerce platforms, they have an unacceptably high risk of being defrauded or even harmed by everything from contaminated infant formula, inferior child car seats, exploding batteries, and dangerous electronics, to deadly substances like fentanyl which can appear in fake prescription opioids. Put simply, what’s being sold on the Internet these days aren’t goods in a lot of cases — they’re ‘bads.’ This crisis is not about any one e-commerce platform. This is about e-commerce platforms as a class playing by a different set of rules that simultaneously hammer brick-and-mortar retailers, defraud consumers, steal American jobs and rip off intellectual property rights holders.”

The Wall Street Journal reported in late November that Amazon, Walmart and eBay were among the companies which have expressed interest in bidding on the e-commerce solicitation.

It’s those different sets of rules that Navarro describes that has been at the center of much of the uneasiness about the e-commerce platform over the last 18 months.

The questions about how e-commerce platform providers will comply laws governing federal procurements, and whether GSA will create two separate and unequal procurement systems for the government have consistently come up during discussions with industry.

This executive order could throw more of a wrench into GSA’s plans than any bid protest, for which there have been two. The first was an agency-level protest by Amazon. The second, more recent one, is from Overstock.com, which is challenging the terms of the solicitation. It is arguing that the solicitation imposes unreasonable requirements that restrict competition. GAO has until April 24 to decide this protest.

New requirements from executive order

This executive order ups the ante for GSA and whether it can address the concerns the White House is highlighting. GSA plans to launch the proof-of-concept this spring and run it for three years.

The e-commerce platforms do not have to comply with specific laws like the Trade Agreements Act or the Buy American Act because purchases are under the micro-purchase threshold of $10,000.

But this is not the case for the new requirements under the executive order, which is why they are a bigger threat to the e-commerce platform than anything else. GSA estimated agencies spend about $6 billion a year on purchases below the MPT.

“The Trump administration is also going to hold both the counterfeit traffickers in China and the counterfeit enablers, like Amazon and Alibaba and Shopify, accountable for the great harm they are doing to American consumers, manufacturers, and workers,” Navarro said. “E-commerce hubs like Amazon, Alibaba, Shopify, and Walmart.com are putting most of the burden of monitoring counterfeit trafficking on American intellectual property rights holders rather than taking any effective responsibility. As a further blow to informed consumer choice, the e-commerce platforms are not required by law to provide country-of-origin labeling on their websites, and most have steadfastly refused to do so voluntarily.”

The EO calls on the Department of Homeland Security and Customs and Border Protection directorate to take steps to establish criteria for companies or individuals to protect intellectual property and the supply chain.

“E-commerce platforms like Amazon, Alibaba, JD.com, and Shopify also are the great enablers of counterfeit trafficking,” Navarro said. “Within days that a new American innovation appears for sale on the web, counterfeit — counterfeiters in places like China can set up competing websites offering knockoffs made with inferior materials at a third of the cost and sold at half the cost. As soon as you put up a new innovation for sale on the internet, it’s likely to be copied.”

DHS advises e-commerce platforms

DHS also issued a Jan. 24 report to the President on how it can combat counterfeit and pirated goods. In the report, DHS included an entire section on e-commerce platforms, particularly those that use warehouses in the U.S. to distribute products.

“The platforms that use this model may also coordinate with customs brokers, as well as provide third-party logistics and freight forwarding services to assist with the initial delivery of goods to the warehouse. Although this model is a significant innovation for legitimate commerce and provides benefits to consumers in the form of reduced costs and shipping time, it creates a mechanism that allows counterfeit traffickers to minimize transportation costs as well, while intermingling harmful goods among legitimate goods,” the report states. “From a risk perspective, this model allows goods to enter the United States in a decentralized manner, allowing a counterfeit trafficker to spread the risk of seizure across a number of low-value packages. In situations where the fulfillment center is outside the U.S. Customs area, this model provides the opportunity to use ocean container shipping as the primary mode of transit for the shipment, which keeps overall shipping costs relatively low as ocean cargo is much cheaper than air delivery. It is in part because of these incentives that these fulfillment centers have emerged as an important element of the supply chains for many counterfeit traffickers.”

Navarro said a simple fix for Amazon, for example, would be to list the country of origin and hold suppliers accountable by taking them down once they find counterfeit or pirated items.

“There’s absolutely awful vetting, in many cases, of the third-party sellers, to the point where maybe they don’t look at them much at all, or even if they look at them, they don’t bother to see how many aliases they’re operating under. It’s almost as if they don’t want to know,’ he said. “One of the most important things that Amazon could do tomorrow to show good faith to the American people would be to begin identifying country of origin on their websites. This is a tremendous disadvantage to bricks-and-mortar retailers. If you go onto a brick-and-mortar retail store, you will see the country of origin clearly on the label. And if you get a counterfeit, you can sue them. You can do neither with Amazon.”

Few grains of sand on a huge beach

He added that Amazon has refused to put that kind of information on its websites.

“My judgment borders on the criminal for them to do that because they — on the one hand, they say that they want to crack down on this stuff; on the other hand, they do not provide consumers with the appropriate information to solve the problem,” Navarro said. “E-commerce platforms like Amazon, e-Bay, and Alibaba claim they’re spending considerable time and money battling counterfeit trafficking, but their expenditures amount to little more than a few grains of sand on a huge beach of tainted profits they are creaming from the counterfeit trade.”

Amazon said on Jan. 24 that this year it will begin reporting all confirmed counterfeiters that it has blocked to law enforcement so they can build cases against them.

“Amazon’s anti-counterfeiting efforts are best in class but we recognize they are not perfect and will continue to innovate and work with policymakers and law enforcement to protect brands and customers,” the company said.

A Walmart spokesman told Reuters in a statement that the company takes reports of counterfeit goods very seriously and works proactively to prevent them.

“In the rare case that someone reports what they believe is a counterfeit item, we quickly block the item and then investigate promptly,” the Walmart statement said. “Today, we only see this on a very small fraction of less than one percent of total items available for sale on Walmart.com.”

Given the bids are in for the proof-of-concept for the e-commerce platform, it’s unclear if GSA will have to issue an amendment to address the executive order requirements or if they will address them in another way. No matter the approach, the executive order is another reason why getting the e-commerce platform over the finish line is getting more difficult.

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