Home » Across Borders » The Global Counterfeit Business

IN the Philippines, the sale and distribution of pirated and counterfeit goods has long been a concern not only for authorities but also for the countries’ major trading partners. The US in particular has always been vocal about the rampant and uncontrolled piracy of motion pictures, sound recordings, musical compositions, business applications, computer programs (including those for entertainment software), books, shoes, clothing apparels and fashion accessories. Of recent years, even consumer electronics, auto parts, golf clubs and medicines have been the subject of knock-offs.

The Rise of Counterfeits. Recent reports indicate that the global counterfeit is really growing out of control. The World Customs Organization (WCO) has estimated that around 7% of international merchandise trade, or US$517 billion in 2004, involve counterfeit products. In many instances, the counterfeits are so excellently made that even experts have a hard time differentiating the bogus from the genuine. To address these concerns, many companies are spending more on stopping these counterfeits.

To give an idea how the counterfeit business has become global, here are just a few recent incidents. In October last year, fake Hewlett Packard inkjet cartridges worth US$1 million were found in Brazil. A year and a half ago, Pfizer reportedly had to withdraw some 16 million tablets of the cholesterol-lowering drug Lipitor from store shelves nationwide upon confirmation of fake tablets available in the market.

In China, Chinese police conducted raids, confiscating everything fake, from auto parts and luxury goods and even fake Viagra. Accordingly, products with a well-known brand will likely have a fake version – fake Sony PlayStation, Marlboro, Calloway golf clubs, Honda motorcycles, Louis Vuitton bags, car fenders and many more.

Supply Chain for Counterfeits. Experts say there has been a massive increase in counterfeits in the last five years. The production and sale of fakes is no longer a national concern but a global scourge. While the source of counterfeits comes from everywhere, it is estimated that at least 30% of fake and pirated goods comes from China. Counterfeiters have accordingly become sophisticated that production and sourcing of raw materials are diversified across borders. Two years ago, New Balance USA sued its former contract manufacturer in China for selling unauthorized productions that have been sold in Europe and in Australia.

In August last year, Philippine police authorities reportedly raided a cigarette factory in Pampanga and discovered a production base for fake Mild Seven and Davidoffs for export to Taiwan.

There is no doubt that there is big money in counterfeits. In fact, trade in counterfeits is said to be as profitable as illegal drugs, except with lesser risk. With big profit, counterfeiters are getting more entrenched and global. Some of them are of course fly-by-night operators. Others, however, are legitimate and licensed manufacturers who run extra productions for sale in the black market. In the Philippines, we now have that ubiquitous “export overruns” in our flea markets.

Tighter Border Control. Philippine customs authorities are normally wary of China-made products not only for their low value and poor quality but also because of possible counterfeits. In fact, products coming from China are almost always categorized as a “red lane” shipment, which would require the physical inspection of the importation.

As early as December 2002, local customs authorities have already recognized the need to enhance border procedures not only to conform to international standards but more importantly, to address the growing concern of legitimate business against counterfeits. Specifically, customs issued CAO 6-2002, amending CAO 7-93, which provided the definition of fakes or counterfeits as prohibited importation, the protection of trademarks, patents and copyrights, and the creation of a unit specifically to address the concern on counterfeits. The regulation also resulted in the provision for a registry on those trademarks and the like, which can be the basis for interdicting suspect importations for possible seizure.

New Rules on Import Licenses. A recent development in the customs front is the issuance of CMO 32-2004, which now requires importers to strictly comply with the Import Commodity Clearances (ICC) / Mandatory Product Certification issued by the Bureau of Product Standards, Department of Trade and Industry (DTI-BPS) for products that accordingly affect the life, safety and health of people and their environment. The issuance of the order seems to have come with the rise in consumer complaints against counterfeit products resulting in accidents and damage to life and property.

An Integrated Approach. With their financial muscle and global network, counterfeiters normally just transfer their production base to another country when authorities start cracking the whip. In addition, counterfeits, wherever produced, will always attract traders out to make a quick turnaround. While border control is one way of reducing counterfeits, governments must realize that efforts must be made both in the country of origin and the country destination. Focus must be trained on countries used as transshipment points, considering that transshipped goods are normally subject to less scrutiny by customs authorities. In the domestic market, implementation of the rules must be strictly imposed. Failing that, counterfeits will become more rampant, to the detriment of consumers and legitimate business.

So next time you buy your auto part or your medicine while wearing that fake US$20 Rolex, make sure you buy only from authorized or reputable outlets.

The author is an international trade and customs consultant, and a licensed customs broker. He is also a regular lecturer on logistics, customs and international business. Please contact aouvero@dlugms.com or (632) 4050021 / 29 for your comments.

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