The  Organisation for Economic Co-operation and Development (OECD) and the European Union’s intellectual property office (EUIPO) have released a report titled Trends in Trade in Counterfeit and Pirated Goods which outlines that fake and pirated goods accounted for 3.3% of the global trade in the last few years. Note that all figures are for the year 2016 unless stated otherwise. This report also does not touch on fake goods in ecommerce, “which is a further drain on the formal economy.”

According to the OECD and EUIPO, fake goods trade infringes on copyrights and trademarks, creates profits for organised crime gangs, and can become a significant health and safety risk. The report adds that ‘insufficient screening of small parcels, policy gaps like inconsistent penalties on traffickers and the special rules governing free trade zones’ can lead to facilitating this fake goods trade.

Top traded fake goods for 2016

  • Footwear was the topmost traded fake item at 22%, followed by clothing at 16%
  • Leather goods accounted for 13%
  • Electrical equipment for 12%
  • Watches at 7%
  • Medical equipment for 5%
  • Toys at 3%, jewellery at 2% and pharmaceuticals at 2%
  • Other industries accounted for 12% of the total fake traded goods

Origins, destinations and means

  • Majority of fake goods picked up by customs originated in mainland China and Hong Kong, along with the UAE, Turkey, Singapore, Thailand and India.
  • Countries most affected by counterfeiting were the US, France, Italy, Switzerland and Germany, with targets growing in Singapore, Hong Kong, Brazil and China.
  • Small parcels were 69% of the total customs seized parcels by volume from 2014-16 (57% via post and 12% via courier), up from 63% over the 2011-2013 period.

Value highlights

  • The value of imported fake goods globally is $509 billion, based on 2016 customs data. This is up from $ 461 billion in 2013, when it accounted for 2.5 of the global trade (excluding domestically produced and used fake goods, or pirated goods distributed online).
  • In the EU, fake goods trade accounted for 6.8% of the imports from non-EU countries, up from 5% in 2013 (excluding domestically produced and used fake goods, or pirated goods distributed online).

Why and how counterfeiting is done

  • Governance: high levels of corruption and poor IP protection influence the degree of exports of fake goods from an economy
  • Free trade zones (FTZs) offer a relatively safe environment for counterfeiters. The existence, number and size of FTZs in a country co-relate with increases in the value of counterfeit and pirated products exported by that country’s economy.
  • Low labour costs and poor labour market regulations
  • Logistics capacities and facilities: the ability to trace and track consignments is the key factor for reducing the share of counterfeit and pirated products in exports. Other factors increase this trade, including: low shipping charges; fast, simple and predictable customs formalities; and good quality trade and transport-related infrastructure (e.g. ports, railroads, roads and information technology) in economies that are highly corrupt.
  • “Trade facilitation policies that refer to the fact that enhancing transparency is likely to reduce the likelihood that an economy will export fakes”

Counterfeit products markets affected by

  • Reduction in volumes of manufactured trade in recent years
  • Rapid growth of trade in small parcels
  • Strengthening of the role of FTZs

How counterfeit products move

  • Postal parcels are the most popular way of shipping counterfeit and pirated products
  • Between 2014 and 2016, 57% of global seizures were postal shipments and 12% express courier.
  • Air transport and sea transport were next with 15% and 10% of seizures respectively.
  • Vehicle transport amounted to about 5%.
  • Other modes were carriage by pedestrians or by rail

Counterfeiters and pirates ship counterfeit products via complex trade routes, to

  • “Cleanse” all the documents and camouflage the original point of production and departure.
  • Establishing distribution centres for counterfeit and pirated goods and for transhipping them in smaller orders to their final destination points.
  • Processing of products in free trade areas by adding counterfeit trademarks and/or repackaging or re-labelling goods.