PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

The Enormous Scale of Global Counterfeiting

By at 24 June, 2016, 2:56 pm

Counterfeiting from China represents 80% of global counterfeiting

China is the source for more than 70% of global physical trade-related counterfeiting, according to  a new Global IP Center report. This amounts to more than $285 billion in goods each year.

by Raymond J. Keating-

“Counterfeiting today represents a tremendous and ever-increasing global threat. Counterfeit products— from goods and merchandise, tobacco products, and industrial parts to banknotes and medicines— circulate across the globe. These products cause real damage to consumers, industries, and economies.”

That’s the opening statement from a new report just published by the U.S. Chamber of Commerce’s Global Intellectual Property Center. In “Measuring the Magnitude of Global Counterfeiting: Creation of a Contemporary Global Measure of Physical Counterfeiting,” an analysis is provided on the level and share of counterfeiting among the 38 economies included in the 2016 U.S. Chamber of Commerce’s GIPC International IP Index.

Counterfeiting from China is Stunning

While even a casual observer of the counterfeiting issue is aware of the problem China presents, the key finding is nothing less than stunning: “China alone is estimated to be the source for more than 70% [i.e., 72%] of global physical trade-related counterfeiting, amounting to more than 285 billion USD. Physical counterfeiting accounts for the equivalent of 12.5% of China’s exports of goods and over 1.5% of its GDP. China and Hong Kong together are estimated as the source for 86% of global physical counterfeiting, which translates into 396.5 billion USD worth of counterfeit goods each year.”

Number two on the list? That would be Ukraine at 0.43% of global physical counterfeiting, valued at $1.98 billion.

By the way, this analysis, as noted in the report, “refers to global distribution of counterfeit goods, and … does not account for counterfeit goods that are produced and consumed locally.”

Among the particular ills noted in the study regarding counterfeiting are:

– Counterfeit goods present serious health and safety risks: “For example, counterfeit automotive parts are often of very poor quality and lead to failure, fake batteries and chargers may explode or catch re, counterfeit clothes and alcohol contain excessive levels of dangerous chemicals, and fake toys may contain hazardous and prohibited chemicals. In addition, counterfeit medicines may be composed of dangerous or contaminated substances and sometimes do not even contain an active ingredient.”

– Counterfeiting translates into serious costs to businesses and the economy. For example: “The economic damage sustained from counterfeit goods is significant. This damage affects consumers, trademark owners, companies, and sectors associated with the brand, including wholesalers and retailers, as well as the economy at large… Specifically, IP owners sustain not only direct losses due to decreased market share, but also irreparable damage to the brand’s reputation and dilution of the brand, as along with costs related to defending their intellectual property rights… In recent testimony before the Subcommittee on Oversight and Investigations, the U.S. Government Accountability Office reported that counterfeiting had slowed the growth of the U.S. economy and had resulted in decreased innovation, loss of revenue and taxation, and higher unemployment rates. The Business Action to Stop Counterfeiting and Piracy initiative estimates that global counterfeiting results in the loss of 2.5 million jobs and over $125 billion annually among the G20 economies.”

– And then there is the link between counterfeiting, and organized crime and terrorism. It’s pointed out, “Moreover, counterfeiting is increasingly linked to terrorist groups. Interpol and Federal Bureau of Investigation seizure records suggest that millions of U.S. dollars in proceeds from counterfeit goods (e.g., brake pads and cigarettes) have been destined for terrorist organizations, such as Hezbollah and Al-Qaeda.”

Regarding China and counterfeiting, it also was explained in the report: “China’s share as economy of origin of seized counterfeit goods by the U.S. Customs and Border Protection (CBP) increased from 12.5% in 1995 to 73.6% in 2005… For comparison, the third-largest counterfeit goods exporter to the United States—India—holds a share of only 0.84% in average of annual seizures by the CBP. As aforementioned, these figures are also likely underestimates of the actual share and level of exporting by China and Hong Kong, since counterfeiters often use sophisticated means of smuggling their counterfeit products through several ports, thus obscuring the products’ true origin.”

Efforts to Combat Counterfeiting Need to Be Stepped Up

Indeed, the challenges in fighting counterfeiting are substantial, but it’s vital to continue working to undermine and reduce counterfeiting. As summed up in the report, even given the enormous challenges on the counterfeiting front, “This does not mean to say that economies should not continue to step up efforts to combat counterfeiting. Recent actions taken by economies include enhancing customs authorities’ scope of action, strengthening IP protection, introducing targeted measures aimed at deterring counterfeiting, and joining international trade and enforcement initiatives. Taken together, these steps are expected to increase economies’ ability to limit counterfeiting activities both domestically and globally over time.”

In the end, government has a clear responsibility to establish, protect and enforce property rights, and that includes intellectual property rights. And given their limited resources, governmental efforts to stop counterfeiting arguably are more vital for smaller businesses. Indeed, counterfeiting can sink a small business.

As explained in SBE Council’s new book  “Unleashing Small Business Through IP:  The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment,” we noted: “The entire entrepreneurial process is dependent upon strong property rights and protections, including intellectual property. Without strong IP rights, entrepreneurs, innovators and investors simply would be far less likely to undertake the tremendous risks involved with creating, and bringing a new or improved good or service to the marketplace. In turn, of course, consumers wind up with fewer choices and benefits, economic growth falters, and workers face reduced job opportunities and lower incomes.”

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP:  The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.

 

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