This OECD/EUIPO study maps counterfeit trade routes, and they’re complicated, writes Bill Below from the OECD Directorate for Public Governance
The world may be getting smaller, but for counterfeiters, there are still plenty of places to hide, suggests a new joint study from the OECD/EUIPO, Mapping the Real Trade Routes of Fake Goods. Globalisation, free trade zones, an interconnected planet and vastly uneven governance arrangements are boons for counterfeiters.
Adept at exploiting failures of international co-operation and the limits of enforcement, counterfeiters game the vulnerabilities at transit points and destinations. They are capable of transforming criminal activity into an illicit mass production and distribution enterprise whose complexity is intended to obfuscate and conceal. Counterfeiters have learned to multiply in-transit operations, consolidating shipments and assembling and re-labelling products at distribution centres and in the safe havens of free-trade zones. The steady growth of these zones has equally been a boon to legitimate trade as it has been to counterfeiters and pirates.
To some, it’s considered a victimless crime, an innocent chance to sport top brands, and perhaps even a sort of comeuppance for those brands that command huge premiums. Tips on Yelp and Trip Advisor recommend the “best” places to buy fakes in any city. But those who buy them rarely imagine the reality behind their purchase.
Counterfeit trade brings with it severe economic, health, safety, security and revenue impacts. Poor and dangerous working conditions, human trafficking, money laundering, terrorist financing, environmental degradation and economic hardship characterise the economy of fakes.
Yet, with weak criminal penalties in many countries and the lure of handsome financial rewards from high demand, there is little to discourage the counterfeiter. In fact, the market is huge and growing fast. Imports of counterfeit and pirated goods were worth USD 461 billion in 2013, or around 2.5% of global trade. Developed economies are especially targeted, with fake goods amounting to up to 5% of the value of overall imports to the European Union (EU).
Estimated value of global trade in counterfeit goods, 2013
In 2015, nearly three quarters of all seized goods destined for the EU arrived by maritime routes. These seizures represented a retail value of EUR 325 million for 30 million intercepted items. For counterfeiters, container ships offer a high-volume, high-reward option, albeit not without risk. Maritime seizures accounted for just 3% of total seizures of EU imports, but netted over 50% of the total retail value for goods seized. With one estimate placing the number of shipping containers in service at about 23 million, that’s still a drop in the bucket.
Counterfeiters have also been quick to exploit the global explosion in e-commerce and the accompanying drop in delivery costs. In 2015, postal and express services accounted for 23% of the total retail value of all imports seized entering the EU, or EUR145 million. That number is growing, says the OECD’s Piotr Stryszowski: “Fakes concern just about any product that can be ordered on line and shipped by mail. It allows counterfeiters to distribute the risk.” Indeed, parcels containing less than ten items account for about 43% of all shipments of counterfeit goods today.
Much of what we know about fakes comes from data on seizures. But, like the skin sloughed off by a snake, this only offers a snapshot of a past that counterfeiters may have long left behind.
To shine a light on new potential routes, the OECD/EUIPO have created an index (called GTRIC-e) that ranks a country’s propensity to manufacture fake goods. To each of these economies they applied a statistical filter called RCAP-e, evaluating its comparative advantage as a producer of a given good (ten categories were selected for the study–see table above). A second filter was then applied, called RCAT-e, to calculate a given economy’s comparative advantage—and thus likeliness—of being a transit point.
For example, results point to Yemen as a primary transit point for fake pharmaceuticals entering north and east Africa via air from China, India, Saudi Arabia, Singapore and the United Arab Emirates. Macau, China is a likely transit point for fake jewellery originating in mainland China, Indonesia, Malaysia, Thailand and Viet Nam and headed to the US by mail. Counterfeit footwear manufactured in China and a number of Southeast Asian countries is likely to transit Hong Kong, China towards the EU and the US by land mail and air mail.
A comprehensive picture of geographies, product types, routes, modes of transport and destinations begins to emerge, giving experts a new window into counterfeiters’ probable movements. The authors are hopeful that their methodology will help inform policy decisions among individual governments or on a regional or global level. They also hope it can help in designing more tailored policy responses to strengthen governance frameworks.
Obviously, half a trillion dollars of fake goods translates into a lot of shipments. Identifying at least a portion of them, without bringing legitimate trade to a halt, will require more smart, targeted actions. The savvy use of statistics such as GTRIC-e, RCAT-e and RCAP-e, might just be the breakthrough the fight against fakes has been waiting for.
Originally posted on the OECD Insights Blog