What counterfeiting means for the world
By
Simon Wilson Nov 29, 2005
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Many people see counterfeiting as a ‘victimless’ crime, but its links with child labour, people trafficking and money laundering make it anything but.
How big is the problem?
According to estimates from the International Chamber of Commerce, counterfeit goods now account for 6% of world trade, or £260bn worth. Last year’s Global Congress on Counterfeiting in Rome put the figure higher, at 9%. Buying faked or bootleg copies of popular products – whether it’s a Louis Vuitton handbag, a DVD of a film showing in the cinema, a bottle of perfume, or a computer game – is seen by many people as a ‘victimless’ crime: since it doesn’t appear to harm anyone except faceless global corporations, it hardly qualifies as a crime. The result? Britain’s booming network of car-boot sales and market stalls thrive on imported counterfeit goods. In 2003, more than 1.54 million fake items were seized by customs – up from 466,000 in 2001 and an eightfold increase in five years.
What sectors does it particularly affect?
In Britain, about two-thirds of counterfeit seizures by customs are clothing and accessories from big-name brands, such as Louis Vuitton, Burberry, Nike and Prada. Counterfeits make up about 10% of the luxury goods trade, with Chinese fakers the biggest culprits. EU figures show that Chinese fakes accounted for three-fifths of the 92 million counterfeit items seized at EU borders in 2003. But there are other major global industries that are also massively affected by counterfeiting. One in every three CDs is a pirated copy, for example, and trade in illegally copied music was worth £2.6bn last year.
What other industries are affected?
The pharmaceutical and automotive sectors. The World Health Organisation reckons that about 10% of all medicines sold globally are fake, with the figure rising to 60% in the developing world. At best, these fakes are ineffective, but at worst they can kill. In addition, the industry is also damaged by the practice known as ‘parallel trading’, where medicines intended for use in developing countries are smuggled into Western countries for sale at higher prices. In the automotive industry, it is estimated that phoney car parts cost firms £7bn in lost sales – and again put consumers at risk. Things are bad in the software sector too. Industry analysts believe that more than one-third of software in use is unlicensed or counterfeit. Illegal practices range from the apparently trivial – users copying programmes for friends – to the organised, with gangs producing fake licences for the resale of software. Overall, the cost to software companies of this illicit trade is put at £23bn a year.
Why has counterfeiting increased?
Globalisation. Over the past two decades, the cost of copying and distributing counterfeit goods has plummeted. In the 1990s, the internet made international co-ordination almost costless, while governments everywhere cut tariffs, eliminated currency controls and opened up economies to foreign traders. According to Moises Naim – author of Illicit: How Smugglers, Traffickers and Copycats are Hijacking the Global Economy – all this has given a boost to illegal, as well as legal, free trade. “Chinese counterfeiters now contract with Cameroonian people-smugglers to have illegal migrants sell fake Gucci bags in Paris or New York.”
So not harmless at all, then?
Indeed not. At the immediate, practical level, some counterfeit goods can be dangerous. Pharmaceuticals and medicines are the most obvious examples, but fake perfumes can cause adverse skin reactions and counterfeit cigarettes can be ten times more toxic than the real thing. Cheap alcohol is often laced with methanol, which can cause blindness, coma and even death. At the wider level, counterfeiting costs economies thousands of jobs and millions in tax revenues. Moreover, the trade in counterfeit goods is based on sweatshops, virtual slavery and child labour in developing countries, mostly in Asia. The trade is controlled by the same criminal gangs who are involved in drug smuggling, people trafficking and money laundering. Terrorist groups are also thought to be using the sale of counterfeit goods in Western countries to fund their activities.
What is being done about it?
Some of the world’s biggest companies, including Microsoft, Nestlé and General Electric, have formed the Business Action to Stop Counterfeiting and Piracy (Bascap) – which met for the first time in London last month – with the aim of both lobbying and attacking counterfeiting at source. But according to the Anti-Counterfeiting Group, a UK industry body, the main shift that’s required is a cultural one. Their research shows that the keenest buyers of fake goods are not ‘Del Boy’ types, but well-off women earning around £35,000 a year. “Saying it’s okay to buy a fake handbag needs to be a thing of the past,” says an Anti-Counterfeiting Group spokeswoman.
The economic impact of pirated DVDs
The UK is the second-biggest market for pirated DVDs by value in the world after the US, according to the Federation Against Copyright Theft. Fake DVDs accounted for about one third of the British DVD sales and rental market last year, up from 20% in 2003 and 18% in 2002 (compared to 8% in America). There is a widespread sense that buying fake DVDs – including DVDs of films showing in cinemas but not yet available to buy legally – is not really a serious crime. In fact, according to Iain Muspratt, chairman of Home Entertainment, DVD counterfeiting is no innocent trade: it is run by organised criminal gangs and is depressing demand for film rentals, hence undermining the financial viability of the whole entertainment industry.
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