China continues to rule the counterfeit world as the counterfeit goods market continues to grow

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OFFICIALS from the Intellectual Property Office of the Philippines (IPO) join the Bureau of Customs in destroying counterfeit goods at a Bulacan warehouse in July 2021. Merchandise seized included counterfeit Nikes, Adidas, Lacoste, Gucci, Victoria’s Secret, Jo Malone, Clinique and Dior. PHOTO FROM THE IPO

MANILA, Philippines — The world recently commemorated World Intellectual Property Day, but a bleak scenario remains: the counterfeit goods market continues to thrive — with China still the largest distributor of counterfeit shoes, clothing, electronics and other goods.

According to the Organization for Economic Co-operation and Development (OECD), counterfeiting is a violation of the legal rights of an intellectual property owner.

Based on the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) – the most comprehensive multilateral intellectual property agreement – counterfeit branded goods refer to:

“Goods, including packaging, which are provided with an unauthorized trademark which is identical to the trademark validly registered for these goods or which is indistinguishable from such a trademark in its essential characteristics and thereby infringes the rights of the owner of the trademark in question under the law of the importing country.”

Meanwhile, pirated copies refer to “any goods which are copies made without the consent of the right holder or a person duly authorized by the right holder in the country of manufacture and which were made directly or indirectly from an article upon which the making of that copy would occur constitute an infringement of any copyright or related right under the law of the importing country.”

Trading in counterfeit and pirated goods is considered illegal and violates international intellectual property laws.

However, studies have shown that legal trade has continued to thrive in recent years despite the measures imposed by countries around the world.

Booming fake goods market

A report by the OECD and the European Union Intellectual Property Office (EUIPO) found that international trade in counterfeit and pirated goods was worth about US$449 billion, or about 2.3 trillion pesos, in 2019.

The OECD and EUIPO found that trade in counterfeit and pirated products has steadily increased in recent years, “even if the overall volume of trade has stagnated”.

Booming market for counterfeit goods

GRAPHIC: Ed Lustan

“The trade in counterfeits deprives companies and governments of revenue and feeds other criminal activities. It can also endanger the health and safety of consumers,” said Marcos Bonturi, the OECD’s director of public governance.

An analysis conducted by consumer company Statista revealed that the counterfeit goods market was worth more than the gross domestic product (GDP) of selected OECD countries and regions in 2019.

“Selling fake sneakers, watches and clothes is about as lucrative as running a mid-sized European country,” writes Florian Zandt, a data journalist, in a report published by Statista.

The market size for trade in counterfeit products in 2019 was larger than the GDP of Ireland ($431 billion), Portugal ($372 billion) and Israel ($362 billion) in the same year.

“Interestingly, the market size of trade in counterfeit goods is roughly in the same range as Hong Kong’s $466 billion GDP, which itself accounted for around 20 percent of the value of confiscated items between 2017 and 2019,” Zandt said.

READ: Counterfeit market is worth more than Ireland’s economy

Although not included in Statista’s report, the market size of trade in counterfeit goods was also larger than the Philippines’ GDP in 2019, which was around $376.8 billion, according to World Bank data.

In a report released last year, the OECD and EUIPO estimated that the volume of international trade in counterfeit and pirated products continued to rise to US$464 billion, or 24.2 trillion pesos, in 2019, accounting for 2.5 percent of world trade.

Top trader, victim

The OECD and EUIPO also found that East Asia dominated global trade in counterfeit and pirated goods in 2019 – with China and Hong Kong topping the rankings.

“In this period, [Hong Kong] and China together account for almost 80 percent of the volume and around 90 percent of the value of the counterfeit trade,” Zandt said.

In addition to China and Hong Kong, Turkey, Singapore, Malaysia, the United States, Taipei, Iran, Russia, the United Arab Emirates, Thailand and Vietnam also accounted for most of the internationally traded counterfeits and pirated goods.

Fake Commodity Sources in 2019

GRAPHIC: Ed Lustan

A separate report released by the United States Office of the Trade Representative also identified China as the world’s leading source of counterfeit products.

“China remains the number one source of counterfeit products in the world,” the US trade representative said in the 2021 Review of Notorious Markets for Counterfeiting and Piracy report.

Top fake product source

GRAPHIC: Ed Lustan

“Counterfeit and pirated goods from China, along with goods transhipped from China to Hong Kong, accounted for 83 percent of the value (measured at manufacturer’s suggested retail price) and 79 percent of the volume of counterfeit and pirated goods seized by U.S. Customs and Border Protection Protection (CBP) in 2020.”

In fact, the report identified nine physical markets in China that are considered wholesalers and sellers of counterfeit and pirated goods locally and internationally.

The US trade representative also identified the Greenhills mall in San Juan, Metro Manila, which the report said has many storefronts selling counterfeit goods such as electronics, perfumes, watches, shoes, accessories and fashion items.

“Although the Philippine government has entered into an enforcement and monitoring agreement with the City of San Juan and established a working group composed of various agencies from the National Intellectual Property Rights Board and the Department of Information and Communication Technology, sellers of counterfeit goods are being reported bolder in exposing and openly discussing the illegal nature of the counterfeit goods, rather than discreetly hiding the counterfeit goods under tables as they have done in the past,” the report said.

The OECD-EUIPO also found the location of intellectual property rights holders suffering from counterfeiting and piracy. This refers to the place where a rights holder’s head office is registered.

The study showed that the majority of companies whose IP rights were infringed by counterfeiters in 2017-2019 were from:

  • United States: 39 percent
  • France: 18 percent
  • Germany: 16 percent
  • Italy: 9.8 percent
  • Switzerland: 4 percent

Other OECD countries whose companies also suffer from counterfeiting are Denmark, Japan, Korea, Spain, Ireland and Sweden.

While China has been repeatedly identified as the main source of counterfeit and pirated goods, the OECD and EUIPO found that some IPR-holder companies in the country have also been victims of counterfeiting.

“Notably, rightsholders in China and Hong Kong-China also suffer from counterfeiting, with China and Hong Kong-China ranking 15th and 15th, respectively.

“This phenomenon is interesting because these regions are also the main source economies for counterfeit and pirated products,” she continued.

“This also points to the powerful threat that counterfeiting and piracy pose in undermining innovation in Chinese companies, as many of these companies rely on knowledge-based capital and intellectual property rights in their business strategies.”

Favorite Fakes 2019

GRAPHIC: Ed Lustan

The top product categories most affected by counterfeiting and piracy in 2019 included:

  • footwear
  • Clothing (knitted or crocheted)
  • leather goods, handbags
  • Electrical machines and electronics
  • Perfumery and cosmetics
  • toys and games
  • watches
  • jewelry
  • Optical, photographic medical apparatus
  • vehicles
  • Clothing and accessories (not knitted or crocheted)

Meanwhile, based on 2019 data, the top five industries frequently targeted by counterfeiters were perfumery and cosmetics; leather goods, handbags; clothing (knitted or crocheted); footwear; and clocks.

PH government and a mountain of counterfeit goods

In the Philippines, the value of counterfeit goods seized by the National Committee on Intellectual Property Rights (NCIPR) hit another record high at 24.9 billion pesos.

The figure was more than double the 9.8 billion pesos recorded in 2020. In 2019, the NCIPR seized 22.1 billion pesetas worth of counterfeit goods in the country.

Cost of confiscated counterfeits in the Philippines

GRAPHIC: Ed Lustan

The latest figure also surpassed the then-record 23.6 billion pesos in illegal items seized.

Figures are based on the estimated value of illegal items seized from operations and raids conducted by various agencies such as the National Bureau of Investigation (NBI), Philippine National Police (PNP), Optical Media Board (OMB), Bureau of Customs ( BOC), Food and Drug Administration (FDA).

It also included figures from joint operations by the BOC, PNP-Criminal Investigation and Detection Group (CIDG), Bureau of Internal Revenue (BIR), and Philippine Drug Enforcement Agency (PDEA).

Four months into 2022, the various government agencies in different parts of the country have already seized hundreds of millions of pesos worth of counterfeit and pirated goods.

On Tuesday April 26, BOC seized counterfeit goods worth 190 million pesetas in the city of Valenzuela.

Items seized at the warehouse included imported kitchen appliances, household goods, goods infringing intellectual property rights (IPR) and food, which were estimated to be worth P190 million.

READ: Counterfeit goods worth 190 million pesetas seized in Valenzuela

Last month, BOC seized about 100 million pesetas worth of smuggled counterfeit goods in a raid on a warehouse also located in Valenzuela City.

Among the items seized were used clothing (ukay-ukay), shoes from well-known brands such as Nike, Crocs, Sandugo and other counterfeit items.

The contraband came from China and Bangladesh, the BOC said.

The agency recently seized 690 master cases of contraband cigarettes worth 20 million pesetas during a buyout operation.

READ: BOC seizes P100-M smuggled counterfeit goods

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