The Economic Impacts of
Counterfeiting and Piracy
The main findings of the OECD Study
Dubai
Marcos Bonturi
Head of theStructural Policy Division
OECD
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The views expressed are those of the author in his private capacity and do not
necessarily represent those of the OECD or its Member governments.
Project background – Global Value Chains
Fragmentation of the production process across countries
contributed to considerable changes, e.g.:

Growth of importance of outsourcing and off-shoring of certain
functions.

Relocation of firms’ activities overseas.

Growing volume of internationally traded intermediates.
In 2003, 54% of world manufactured imports were intermediate goods (including
primary goods, parts and components and semi-finished goods).
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Project background – Global Value Chains
The ratio of imported to domestic intermediates, 1995 and 2000.
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Project background – Global Value Chains
Benefits of Globalization of Value Chains:
 Growth of productivity and hence average incomes
and wages
At the economy-wide level, the OECD Growth Study estimated that an
increase in openness by 10 percentage points translates over time into
an increase of 4% in per capita income in the OECD area.
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Project background – Global Value Chains

Major challenges for policy makers
How to continue moving economic activity further up the value chain to
ensure competitivenes and prosperity in the global environment?

Globalization of value chains -- continuous process of change,
innovation and productivity growth
- Today’s most innovative products and services ultimately end up as
commodities that can be produced anywhere.
- Economies can only grow by inventing new technology, innovating
products and processes and by designing new management methods.

At the same time, the innovation process becomes more open.
- Global sources for innovation.
- Growing importance of linkages and co-operation are of for successful
innovation.
- Key sources of knowledge are in public domain.
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Rationale for the project

The problem of counterfeiting & piracy has been
growing
– both scope and magnitude;
– affects firms, consumers, governments and workers

There is a broad range of effects
– economic, social, health, safety

Concern is increasing
– About the impacts on innovation
– about economic implications for economies where there is
significant production of counterfeit goods
– over role of organised crime

But politically sensitive and even some ambivalence
among certain stakeholders.
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Structure of the project
>>> Three phases

Phase 1: Counterfeit and pirated products
– Scope: Tangible products that infringe trademarks, copyrights,
patents or design rights

Phase 2: Digital piracy
– This has been scoped, and now only needs final agreement by
member governments before moving forward

Phase 3: Other IPR infringements
– Yet to be scoped and funded and must take account of
progress in Doha Development negotiations
– If it goes ahead will cover inter alia Geographic Indications
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General outline of the study

Co-operation
between governments, business (e.g. BASCAP), civil society and international
institutions, notably WCO, WIPO, Interpol, at global and regional level

Surveys undertaken
of governments, industry, and customs authorities with the assistance of the World
Customs Organisation (WCO)

Methodology developed
to assess the magnitude of the problem in international trade, principally using
statistics on customs seizures

Analysis conducted
• of trends, developments and effects;
• drivers of consumption and production of C&P, and
• distribution channels

Country and sectoral case studies carried out
to overview country activities and to address the specific circumstances that exist in
a number of industries affected by counterfeiting and piracy
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► Magnitude of the problem

Measurement needs rigorous methodology, but data is hard to
find
• activities are illicit and clandestine
• enforcement and customs data are sparse, incomplete and inconsistent
• Enterprises may be reluctant to divulge data

Analysis suggests that international trade in counterfeit or pirated
products could have been up to US$ 200 billion (customs basis) in
2005
The figure does not include
– domestically produced and consumed products
– non-tangible pirated digital products
If added, the figure could be several hundred billion dollars higher
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► Extent of the problem

Virtually everything can (and probably has) been counterfeited,
and is taking place in virtually every economy
Analysis confirms counterfeiting of
• increasingly complex products
• sophisticated packaging
• security items (i.e. holograms)

Growing trend towards everyday products intended to deceive
consumers, many of which may affect public health and safety, eg
• car parts
• Pharmaceuticals
• food/drink

Evidence of growing infiltration of legitimate supply chains – an
area of interest to organised crime
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Customs seizures
Seizures of imported counterfeit and pirated
products from the top 20 source economies
Region of top 20
source economies
Number of source
economies in region
Seizures
(% of total)
Asia (excl. Middle East)
Middle East
Africa
Europe
North America
South America
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2
2
2
1
1
69.7
4.1
1.8
1.7
1.1
0.8
Top sources
20
79.2
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Project background – Global Value Chains
China’s share in major markets (% of total imports)
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► Distribution channels

While many counterfeited goods are smuggled, most are
transported using normal commercial transport services
-
often with appropriate documentation (such as Bills of Lading)
-
products are accurately described as it is not always clear when
these may be counterfeited
-
this places considerable onus on customs officials to determine
provenance, as many counterfeits can only be identified by
rigorous testing (eg car parts, pharmaceuticals).
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FTZs are having significant impact

Impact of Free Trade Zones on trade
Zone Exports of manufactured
goods ($US billion)
Global
Asia/Pacific
Americas
Central/E. Europe &
Central Asia
Middle East/North Africa
Sub-Saharan Africa
Percentage of total exports of
manufactured goods (%)
177.7
84.5
44.0
8.3
11.0
5.3
14.5
6.8
28.7
2.4
16.7
19.5
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Counterfeiters use FTZs

Growing use of free trade zones
- these are used as gateways and way-points where goods
can be
• broken down into smaller consignments
• Documents sanitised to disguise point of manufacture
• elaborated and repackaged (often goods only become
counterfeits at this point)
• transhipped to disguise actual origin

The lower intensity of customs surveillance in free trade
zones can be to counterfeiters’ advantage
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Counterfeiters are skilled at what they do

Transportation patterns suggest that highly
developed networks are in place to distribute
counterfeited and pirated goods

Only limited number of places can produce these
goods in quantity, while markets span the world
- therefore such networks are critical

There is evidence of growing sophistication on part of
counterfeiters, from fabrication, to labelling,
packaging and distribution
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► Main Effects
Counterfeiting and piracy…








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can impact negatively on innovation and growth
may reduce employment
can reduce foreign direct investment (FDI)
damages sales volume, profits, brand value and capitalisation of rights’
owners, and can lead to potential legal liability
can seriously affect health and safety of users
can negatively affect consumer confidence
reduce tax revenues to governments
induce high costs on governments and industry to combat C&P
encourages participation by organised crime and can be the cause of
corruption
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Importance vs. Priority

Most governments have labelled counterfeiting and piracy
as important problems.
– However, not always matched by priority. Other illicit activities
are being given first call on resources (for example, drugs, people
smuggling, gun running)

Governments may better respond to these problems if
they appreciate the corrosive effects of C&P.
– especially if they took full account of the role of organised crime,
the effects on health and safety, foregone tax revenue and
weakened incentive to innovate
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Laws & regulations often ineffective

Not properly enforced

Insufficient public enforcement resources

Low priority in courts

Protection of locals

Courts often lenient because counterfeiting
and piracy are not considered to be serious
crimes
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Penalties do not always deter

Civil remedies (including damages)
generally insufficient to deter

Criminal penalties and fines, even if
available, rarely applied to full extent

Therefore high rates of repeat offenders
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Improving data collection


This study has highlighted just how poor data really is
Governments and industry can help by maximising the
value of data by ensuring that it is
– systematically collected
– comparable
– Comprehensive

The reporting framework developed by the World
Customs Organization (WCO) offers a useful template by
other law enforcement agencies and industry
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For the attention of policymakers

Improve co-ordination amongst domestic agencies

Consider having a clear C&P policy

Have a clear and enforceable legal and regulatory framework

Ensure effective enforcement

International co-operation, bilateral, plurilateral and multilateral

Increase awareness amongst government officials and
consumers

Enhance co-operation with industry

Monitor progress through programme evaluation and
measurement
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Summary of Conclusions

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Counterfeiting and piracy is a significant and growing problem
that can affect health and safety
Counterfeiters are well organised and adept at establishing
distribution channels, and this encourages the participation of
organised crime
The infiltration of legitimate supply lines, and the potentially
harmful effects of many products is of growing concern
The very damaging effects on consumers, rights holders and
governments are now beyond dispute
More priority, co-operation and information collection is
necessary to better understand and deal with these problems
Full report is available on OECD web site
www.oecd.org/sti/counterfeiting
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Where to from here?

That counterfeiting and piracy is a significant and growing
problem that has economic, social, health and safety
consequences has been recognised at highest levels:



G8 meeting at Heiligendamm in June 2007 included Intellectual Property
generally, and Counterfeiting and Piracy specifically, in its Summit
Declaration
A Unit has been established within the OECD to steer the
implementation of the Heilingendamm Dialogue Process,
including “the Promotion and Protection of IP”
Dialogue will include the “O5” emerging economies: Brazil,
China, India, Mexico and South Africa
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Marcos Bonturi
Head
Structural Policy Division
OECD
2, rue André-Pascal
75775 Paris CEDEX 16
France
Email: marcos.bonturi@oecd.org
Phone: (+33) 1 4524 9349
Fax: (+33) 1 4430 6257
Website: www.oecd.org/sti/counterfeiting
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