August 2, 2018

How Nations Facilitate Counterfeit trade

A study by OECD and EUIPO identifies five key factors that make countries attractive to counterfeiters of goods, including pharmaceuticals.

Virtually every country trades in fake goods. This is one finding of a new report issued jointly by the OECD and the European Union Intellectual Property Office (EUIPO). The authors investigate how likely a country is to become active in the trade with counterfeits, and they identify five key factors.

The OECD/EUIPO report “Why do countries export fakes?” is based on a database of global customs seizures and exports of fakes from 164 countries between 2011-2013. This data reveals that in 2013, trade in pirated goods amounted to USD 461 billion, or roughly 2.5% of world trade. The report also noted that, as in 2017, China is the largest producer of fake goods, except for pharmaceuticals, which were primarily produced in India. Also, the main transit points for fake medications – where drugs might be repackaged, or documents altered – include Albania, Belarus, Egypt, Hong Kong, Iran, Kuwait, Panama, Saudi Arabia, Turkey, Yemen.

Identifying Five Key Factors

As for the root causes of production and export of counterfeits, the most important factor is governance. Fakes flourish in countries with high levels of corruption and poor intellectual property protection. Next, free trade zones (FTZs) – major seaports including Hong Kong and Singapore, are relatively safe for counterfeiters, because goods may be handled and re-exported without customs intervention. The third factor is manufacturing capability, to produce realistic pirated goods and fake pharmaceuticals with low cost of labor and poor labor market regulations. Fourth, logistics capacities are significant, but countries without the ability to trace and track consignments have a higher share of counterfeits among their exports – on average 7.5%, compared with 0.5% for economies with sophisticated capabilities. Finally, trade facilitation policies, in particular, lack of transparency and information on trade flows, increase the number fakes crossing borders.

Closing the Governance Gap

The report concludes that most of the factors benefit trade in general, but their misuse makes it easier for criminals to produce and export fakes, whether brand-name products or bogus medications. The authors hope that their analysis “can help in designing efficient policy responses to close the governance gaps.” By understanding the causes of counterfeit trade in economies, the international community is better equipped to develop policies for effectively dealing with the threat.

Sources: EUIPO, OECD