India Makes It to The First Five of "Fake Exports" List

MUMBAI: India is the fifth biggest exporter of fake goods globally; while China is on the top with a huge 63 per cent share in the estimated half-a-trillion dollars a year or around 2.5 per cent of worldwide imports of counterfeit and pirated goods with US, Italian and French brands the hardest hit and many of the proceeds going to organised crime in violation to the trade related aspects of intellectual property rights (TRIPS) Agreement of the World Trade Organisation (WTO).

Turkey, Singapore, Thailand and India follow China among the top-five countries from where most fake goods originate, as per a new study released by the Organisation Economic Cooperation and Development (OECD) and the European Union's Intellectual Property Rights (EUIPR) Office on 18 April 2016.

China-made products accounted for 63.2 per cent of total seizures of fake imported goods globally, while the second-ranked Turkey's share was just 3.3 per cent followed by Singapore, Thailand and India stood at 1.9 per cent, 1.6 per cent and 1.2 per cent, respectively.

Among the countries hit hardest by the global trade in fake foods, the US comes on the top and is followed by Italy, France, Switzerland and Japan in the top-five. "Imports of counterfeit and pirated goods are worth nearly half a trillion dollars a year, or around 2.5 per cent of global imports, with US, Italian and French brands the hardest hit and many of the proceeds going to organised crime," OECD said about the new study that takes into account the latest available figures till the year 2013.

The study puts the value of imported fake goods worldwide at $461 billion in 2013, compared with total imports in world trade of $17.9 trillion. "Up to five per cent of goods imported into the European Union are fakes. Most originate in middle income or emerging countries, with China the top producer," it added.

The report, which analysed nearly half a million customs seizures around the world over 2011-13, further said that its findings contradict the image that counterfeiters only hurt big companies and luxury goods manufacturers.

Fake products crop up in everything from handbags and perfumes to machine parts and chemicals, while footwear is the most-copied item though trademarks are infringed even on strawberries and bananas. "Counterfeiting also produces knockoffs that endanger lives – auto parts that fail, pharmaceuticals that make people sick, toys that harm children, baby formula that provides no nourishment and medical instruments that deliver false readings," it added.

OECD said emerging economies tend to have the infrastructure for large-scale trade but often suffer from governance gaps and may lack the institutions and enforcement capacity to effectively tackle counterfeiting. "While China is the top provenance of fake goods, its most innovative companies also fall victim to counterfeiters," it said.

Postal parcels are the top method of shipping bogus goods, accounting for 62 per cent of seizures, reflecting the growing importance of online commerce in international trade. "The traffic goes through complex routes via major trade hubs like Hong Kong and Singapore and free trade zones such as those in the United Arab Emirates. Other transit points include countries with weak governance and widespread organised crime such as Afghanistan and Syria," it said.

Amidst ongoing concerns about an undervalued Yuan, growing Chinese military presence in the Pacific, and suspicions about Beijing-sponsored hacking into western computer networks, add this one to the list: China has been confirmed in its position as the world’s leading counterfeiting superpower.

US Customs say that in the same period 87% of the value of counterfeits seized originated in China. Since the WTO estimates that 2% of all world trade is in counterfeit goods, the value of counterfeit goods imported into the US and EU from East Asia (the bulk of which come from China) is thought to be on the order of $25 billion annually.

It’s not hard to see this firsthand on any visit to China. Legions of tourists and business people have visited the new Silk Street Market in Beijing and marveled at the plethora of counterfeit goods on sale—many of a quality that matches the original product. Most large Chinese cities have their version of this market, which for the most part are conducted in the open without much embarrassment—they have become in a sense tourist destinations in their own right. On a recent flight from Beijing the flight attendants discussed their purchases of high-priced branded merchandise at knockdown prices: “and the quality looks good!”

The Chinese authorities are aware of the problem, and periodically stage raids, seizures, and shut down illicit factories. In 2011 the Chinese government conducted a yearlong enforcement drive, arresting thousands of suspected counterfeiters and closing numerous factories. This was followed by a similar effort in 2012.

But the scale of the central government enforcement efforts pales before the loose control the central government in Beijing has over regional and city governments, and the fact remains that many counterfeiters have successfully bribed or otherwise coopted local law officials into allowing them to continue to operate. In some cities in China, counterfeiters number amongst the larger employers as well. Meanwhile, the Chinese government itself is fighting the use of counterfeit software by its own bureaucracy, a fact openly discussed in the Chinese press.

The US and the EU continue to view counterfeiting as a “soft crime” relatively low on the list of law enforcement or trade policy priorities. Against the $25 billion in estimated counterfeit products imported into those countries in 2010, the EU seized a paltry $161 million in counterfeit goods, and the US seized $155 million. Counterfeiters who are caught infrequently face jail time, and as a criminal enterprise it is thought to be relatively low risk enterprise. Against real criminal penalties for drug and human trafficking (also covered in the UN report), counterfeiting looks a good bet—if you caught at all.

Addressing this issue will require a renewed focus by the US government on counterfeiting as a priority. Trade policy needs to account for the scale of the problem with China in particular, and the fact that in spite of enforcement efforts by the Chinese central government, counterfeiting persists on an epic scale. US customs efforts to seize counterfeit products need to be smarter, and better funded. More sustained efforts need to be made to address online sales of counterfeit goods direct to Western consumers. And yes, criminal penalties need to be strengthened to make counterfeiting pay.

All countries especially the top five including India must stop exporting fake goods as the image of these countries will further get tarnished in the global market and there will be a serious loss of credibility in the international trade.

(Dr P.K. author is retired Senior Professor International Trade.)