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European Commission highlights world's counterfeit goods hotspots.

WITH global trade ever increasing, and the power of brands to generate massive profits made starkly clear with every company report, the counterfeiting of goods is one of international organised crime's major boom areas.

It is a serious problem for legitimate business, especially those based in developed countries with tough piracy controls, who are seeking to export to poorer countries where intellectual property crimes are a low priority.

The European Commission has long tried to fight counterfeiting and piracy and recently, its directorate general for trade undertook a comprehensive survey of all countries known to be breeding grounds for these crimes. Companies, trade federations and diplomatic missions were asked for intelligence, and they gave it up freely.

All industrial and business sectors were assessed, but naturally, some are more vulnerable to counterfeiting than others--essentially, where design, invention, and marketing provide added value to brands, counterfeiters will want to create cheap copies and sell them as the real deal.

Clothing and textiles have long been a problem sector regarding counterfeiters and respondents to the survey did not disappoint in their revelations.

Maybe unsurprisingly, Hong Kong and China were branded as the world's most serious hotspots for counterfeit clothing and accessories. Given the manufacturing capacity of these jurisdictions and the lack of political will and judicial protection for fighting counterfeiting, survey subjects told of a range of tactics used to sell pirated goods. In Hong Kong, the survey report told of "secret shops" being set up to sell fake luxury clothing and accessories. "Street hawkers cannot display a large panel of their products in the streets and the probability of being surprised and seized by official authorities remains high" said the report. "Consequently some of them rent apartments in buildings and send staff in the streets to 'invite' potential customers to visit their 'apartment store' where hundreds of counterfeit products are displayed". With only foreign tourists being targeted, the risk of being uncovered by local investigators is minimised. Another new method adopted by night markets involves counterfeiters selling clothes with labels similar enough to be compared with an original, but different enough to not be a counterfeit copy. Potential customers are then offered a visit to the warehouse, where the real identikit copies are stored.

Shell companies using names similar to famous trademarks, including those from Europe, are registered in Hong Kong, and then sell products similar to western brands in mainland China. "Legal action for trademark infringement appears unavailable since these companies have no substantive commercial activity in Hong Kong," said the report.

As regards mainland China-based counterfeiting, the survey told of how clothing and footwear companies were using security labels, re-styling, technical modifications and even holograms to make their products harder to copy. But they warned the Commission: "These technical protection methods are nevertheless often circumvented by counterfeiters or pirates and need to be constantly adapted in order to be effective".

Other countries where the clothing and textile sector has been hot hard by counterfeiters include Mexico. The report said counterfeits accounted for up to 58% of the textile and clothing market, and up to 66% for sports shoes, fuelled by price differentials that can reach 300%, it warned. Fakes were generally imported from China, with Mexico also being a "key transit country for counterfeit and pirated goods whose final destination are the United States and sometimes also the EU".

Another problem country was west Africa's Togo, where a textile company complained to the Commission about trademark and design copies for local sales, with pirates working in markets and the main harbour. It claimed that 30% of sales volumes had been lost to the "oversupply of extremely cheap counterfeit products". Some competitors had lost 50% of sales in 2004, with prices collapsing through dumped products and counterfeits of good quality being offered at 10% of normal price levels.

Turkey was also highlighted as a problem, and on Europe's doorstep. Counterfeit textile manufacturers supply local markets and "produce a substantial portion of the counterfeit products found in western European markets", said the report. Production was centred on Adana, Bursa, Istanbul, Izmir, Mersina and south-western tourist regions. A well-known (again unnamed) European textile company estimated its losses to Turkish counterfeiting at Euro 3.5 million annually, in and outside Turkey, with that estimate ignoring "damage to brand image due to bad quality of counterfeits". Will there be action? The survey was told: "There is no public awareness ... the public has a preference for what is seen as 'cheaper' products." And "police and courts frequently consider IP infringements as negligible", except for food products.

Even here, however, there are problems. Nearly a third of all confectionary sold in China are counterfeit or copycats of global brands, the European Commission survey says, with returns received from businesses, industrial federations and diplomatic missions noting "for the confectionary business, the infringement causes more than 30% loss in sales value every year". Although the Commission says that China has been very co-operative about tackling fraud, most of those who replied to the new survey complained that the measures adopted by the Chinese authorities were ineffective, and that fines did not reflect the value of the business lost. Meanwhile, Argentina was highlighted by the Commission's trade directorate general as a blackspot for drinks counterfeiting. One EU member state alone said Euro 150 million's worth counterfeits of its national drinks were sold in Argentina annually. The misuse of terms such as Scotch Whisky, Chablis and Porto by Argentine producers is widespread, said the survey report. Fellow Latin American country Peru was singled out as a global hotspot for cigarette counterfeiting and smuggling. Here, Brussels has noted claims from the tobacco industry that 50% of tobacco consumed in Peru is smuggled and 30% is counterfeit brands. "Usually the counterfeit goods are smuggled form Asia", said the survey report. Holograms are now being used to identify legitimate tobacco products in Peru, it added. Regarding cosmetics and related products, Chile and India were highlighted as international blackspots for the counterfeiting of cosmetics and related products. Cosmetics companies "invoke frequent infringements of their design rights and utility models" in Chile, said the survey report. While some of these fakes are imported, "most of the counterfeited and pirated goods are locally produced are destined to domestic consumption", said the study, which added that recently some counterfeits have been exported to neighbouring countries. Chile's federation of cosmetics importers have introduced holographic seals in a campaign against product fakes. In India, the Commission was told that: "Approximately 15% of consumables (soap, shampoo, toothpaste, perfume and cosmetics, etc) are counterfeits". Indeed a recent study by A C Nielson estimated losses incurred to counterfeiters by big brand owners in the Indian cosmetics and related sectors as "between 15% to 20% of their total turnover." The India survey report said that cosmetics were among a number of consumer products counterfeited in a thriving national black-market sector.

In the related sector of pharmaceuticals, the survey revealed concerns about Mexico being a centre for the counterfeiting of fake medicine packaging and leaflets. The study of businesses, industrial federations and diplomatic missions was told the problem is particularly rife in the large cities of Mexico City, Guadalajara, and Monterrey, along with the northern frontier zone with the United States.

In Indonesia, importing companies reported using holograms on all kinds of packaging and regular changes to pack designs in attempts to prevent counterfeit good sales. And in the Ukraine, the survey revealed concerns about counterfeit leaflets and packaging, and even the piracy of pack materials, for later assembly.

Of course, printing of all kinds is meat and drink to counterfeiters and so it is of no surprise that the book trade is a major target for intellectual property pirates. India has been branded a serious hotspot for counterfeit books in the survey. Its report said lost sales for UK publishers in India had been recently estimated at Euro 30 million, including locally published copies. "Publishers estimate that any bestseller suffers from 50% to 60% piracy, despite ... prices for legitimate titles in India [being] among the lowest in the world," said the survey. There has been a successful anti-piracy campaign in northern India, but this had led to "high quality pirated offset printed books ... being exported from the south of India to countries like Sri Lanka, Bangladesh and the Maldives". The country's problem is matched by difficulties in China, where the survey said piracy losses to legitimate foreign publishers had reached Euro 50 million annually.

Egypt was another book piracy zone. It has been identified "as a major book piracy market" by the International Intellectual Property Alliance group. There are "major losses due to the piracy of higher-education textbooks". Piracy levels for students are estimated at 50%, for the roughly 70,000 students in Egypt using English language materials. Distributors exploit non-transparent university book supply procedures to "routinely supply limited numbers of legitimate texts and fill the majority of their orders with their own pirated versions, all at the publishers' official prices," said the report.

In Turkey, compulsory security hologram 'banderols' introduced to identify legitimate books from fake copies were undermined recently when 2 million of these devices were stolen in Istanbul. "As a result, most pirated books are being sold with legal banderols, which has made the situation much worse for legal publishers", the survey was told.
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Author:Nuthall, Keith
Publication:International News
Geographic Code:1MEX
Date:Nov 1, 2006
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