This new study « Trade in Counterfeit and Pirated Goods: Mapping the Economic Impact » published today was conducted jointly by the OECD and the EU Intellectual Property Office (EUIPO - ex-OHMI), to measure and analyse the scale of counterfeit and pirated trade in order to provide policymakers with robust empirical evidence about this threat. The results show that trade in counterfeit and pirated goods amounted to up to 2.5 % of world trade in 2013. This was even higher in the EU context where counterfeit and pirated goods amounted to up to 5 % of imports.
The quantitative analysis shown in this report is based on a unique, global set of half a million customs seizure data over the period of 2011-13. It also benefitted from structured interviews with trade and customs experts. The main dataset on customs seizures of counterfeit and pirated products was provided on behalf of the global customs community by the World Customs Organization (WCO). It was complemented by data provided by the European Commission's Directorate-General for Taxation and Customs Union (DG TAXUD), and by the US data received from the United States Department of Homeland Security (DHS).
Both the dataset and the methodology developed for this report can be used for more detailed analyses in the future, for example at country or sector level. However, the current results rely on customs seizure observations and do not include domestically produced and consumed counterfeit and pirated products, and pirated digital products of the Internet, which calls for complementary analysis.
(Page 17) This study uses the term “counterfeit” to describe tangible goods that infringe trademarks, design rights or patents; and “pirated” to describe tangible goods that infringe copyright. It should be highlighted that this project does not include intangible infringements, such as online piracy, nor infringements of other intellectual property rights.
Executive summary (extract)
This study offers up-to-date analysis of the impact on global trade of counterfeit and pirated products, known as “fakes” by the general public. Using statistical analysis and drawing on a global dataset covering almost half million customs data on seizures, the study estimates the huge share of international trade commandeered by counterfeit and pirated goods.
In 2013, international trade in such products represented up to 2.5% of world trade, or as much as USD 461 billion. This is the equivalent of the GDP of Austria, or the combined GDP of Ireland and the Czech Republic. Above all, it highlights that right holders, governments and the formal economy as a whole suffer from significant economic and social losses. It also gives an idea about the potential financial revenues collected by criminal networks that are behind such trade.
More specifically, counterfeit and pirated products amounted to up to 5 % of imports in 2013 in the European Union, or as much as EUR 85 billion (USD 116 billion). This suggests that the relative impact of counterfeiting is twice as high for a group of developed countries, such as the EU, than it is for the world as a whole. The scope of the phenomenon appears to be greater than a decade ago.
Back in 2008, a previous OECD study estimated that counterfeit and pirated goods accounted for up to 1.9 % of world imports, or up to USD 200 billion, relying on the best data and more limited methods available at that time. In the context of today’s revival of international trade in the global economy, there is no shortage of opportunities for counterfeiters and criminals. Counterfeit and pirated trade is a major threat to any modern, knowledge-based economy.
(Page 69 ) Even though the current results cannot be directly compared with those from the OECD (2008) and (2009) studies, some general conclusions about the evolution of trade in counterfeit and pirated products over these years can be drawn. The current study concludes that as much as 2.5% of total world trade in 2013 was in counterfeit and pirated products. This is a significantly higher volume than the finding of the 2008 study, which concluded that counterfeit and pirated trade was up to USD 200 billion in 2005 (1.9 % of world trade) (OECD, 2008), and the 2009 update that concluded that counterfeit and pirated trade was up to USD 250 billion in 2007 (1.8 % of world trade) (OECD, 2009).
The OECD (2008) and (2009) studies represent state-of-the-art knowledge on counterfeit and pirated trade at the time and are the best that could have been assessed given the relatively poorer quality of data.
A wide range of products are affected, from luxury and business-tobusiness goods to common consumer products. Any product for which IP adds economic value to rights holders and that creates price differentials becomes a target for counterfeiters. Every IP-protected product can be counterfeited.
All market segments are targeted. Counterfeiters and pirates maximize their profits by targeting all potential market segments.
(Page 22) The analysis of how markets operate uses the distinction introduced in OECD (2008) between primary markets, where buyers of counterfeit goods are deceived and believe that they are purchasing legitimate items, and secondary markets where consumers willingly purchase infringing products from counterfeiters and pirates.
Counterfeit and pirated trade is a global and dynamic phenomenon. The post-crisis revival of trade, including growing market openings in many regions, the emergence and globalization of value chains, and booming e-commerce in global trade, underpin global market dynamics for both legitimate and counterfeit goods.
Counterfeit and pirated products originate from virtually all economies on all continents, even if middle-income and emerging economies tend to be important players. These are identified as “provenance economies”, either as important transit points in international trade, or as producing economies. China appears as the largest producing economy when relying on detailed data analysis of EU data. Middle income and emerging economies both tend to have sufficient infrastructure, productive and technological capabilities that enable large-scale trade. Yet, they may not have developed sound institutional frameworks, including IP-related legislation and enforcement practices.
A high GTRIC-e score implies either that a given economy is reported to be a provenance of high values of counterfeit and pirated products in absolute terms (e.g. USD), or that a large share of total imports from that economy are counterfeit and pirated products.
Most brands are hit by counterfeiting. While many are located in OECD countries, China has also been targeted. A detailed analysis shows that the majority of companies producing branded goods targeted by counterfeiters are registered in OECD countries – primarily the United States, Italy, France, Switzerland, Japan, Germany, the United Kingdom and Luxembourg. Emerging economies are also seeing an increase of registered rights holders that suffer from counterfeiting.
Trade routes in counterfeit and pirated goods are complex and subject to dynamic changes across transit points. An analysis of counterfeit and pirated imports into the EU identified a set of important intermediary transit points. Some of these, such as Hong Kong, China, or Singapore, are important hubs of international trade in general. Other transit points include economies with very weak governance and having a strong presence of organised criminal or even terrorist networks (e.g. Afghanistan or Syria). The analysis shows significant changes from year to year, as traffickers exploit new governance gaps. This reflects the ability of counterfeiters and criminal networks to quickly identify weak points and gaps and consequently leverage opportunities for arbitrage.
----------- Methodological aspects -------------
(Page 42) Seizure data: Contributions and limits
The DG TAXUD, CBP-ICE and WCO datasets rely on data entries collected and processed by customs officers. These data are primarily designed to improve the work of customs, e.g. prepare risk profiling processes and share national experiences. As with any other administrative data they need careful consideration before application in quantitative analysis.
The data entries are, in most cases, originally created by customs officers at checkpoints. Given their high workload and demanding time constraints, some entries may occasionally be imprecisely created. For example, some of the IP-infringing products that pose health risks (e.g. counterfeit medicines or cosmetics) may sometimes be classified as hazardous goods rather than IP-infringing goods.
A detailed analysis of data revealed a set of limitations that generally
- discrepancies between DG TAXUD, CBP-ICE and WCO datasets
- product classification levels
- outliers in terms of seized goods or provenance economies
- seizures of patent-infringing products
- valuations of seized goods
For the purpose of this study, a statistical solution was proposed and
applied for each issue.
Page 46) Methodological and statistical aspects: The GTRIC methodology
The methodology used in this exercise relies primarily on the methodology developed in OECD (2008). The core idea underlying the methodological framework is as follows: if the propensity to which different types of infringing goods are imported from different provenance economies can be established, then these propensities can be applied to existing statistics on international trade to estimate both the relative intensities of counterfeiting and the overall magnitude of counterfeiting and piracy. In this context, propensities therefore refer to the likelihood that a particular type of counterfeit or pirated goods is imported from a particular trading partner.
This methodology relies on three key econometric components:
- The General Trade-Related Index of Counterfeiting for products (GTRIC-p): an index of industry sectors (HS) according to their relative propensity of containing counterfeit products.
- The General Trade-Related Index of Counterfeiting for economies (GTRIC-e): an index of economies according to their relative propensity to be an economy of provenance for counterfeit products.
- The general matrix that assigns relative likelihood of containing counterfeit products to each pair: “product category” and “provenance economy” (GTRIC).
(Page 49) To calculate the absolute value of counterfeit and pirated products in international trade it is important to identify at least one probability of containing counterfeit and pirated products in a given product category from at least one provenance economy. This was established in a set of confidential and structured interviews with customs officials. The detailed quantitative and qualitative set of inputs on customs operations that were collected during these confidential interviews have allowed this report to determine the upper limit of the absolute number of imported counterfeit and pirated goods in a given product category for at least some EU member countries. This result could then be extrapolated onto the yearly trade flows, which will give a basis to be applied onto GTRIC.
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