Counterfeiting and Illicit trade in ASEAN

A new report called Tackling Illicit Trade in ASEAN Advocacy Paper, 2020 by the EU-ASEAN Business Council and the Transnational Alliance to combat Illicit Trade (tracit.org) sets out some stark data on how counterfeits fit into the illicit trade world. 

Illicit trade comprises all kinds  of cross border illegal trade from smuggling, to narcotics to wildlife and of course counterfeit goods are a major part of this. The problem comprises both into ASEAN region trade and intra ASEAN member states.  Some key features of the report relevant to anti-counterfeiting are set out below:

• Covid has had an impact in 2020 – 150,000 counterfeit 3M masks were seized in July 2020 in Vietnam. Philippines Customs reports $5M of counterfeit medical and PPE products this year.
• Ecommerce is a huge driver of the counterfeit trade. The  UNODC reported 2500 websites offering counterfeit sanitizer, masks and medical supplies. Major ecommerce sites like Shopee, Lazada, Topkopedia and Bukalapak are criticized by the US and EU for failing to tackle unauthorized sellers, counterfeit goods, rogue domain names and false advertisements. Hidden trader identities are a major barrier to stopping the problem. The boom in small-parcel postal services is the main delivery mechanism.
• Pharmaceuticals – the tarde in counterfeit pharma products is estimated to be $4.5 bn today. The problem is especially bad in Indonesia, with a growing online sales challenge. The Pharmaceutical Security Institute reported on 673 cases in Philippines, Thailand and Indonesia.
• Some sectors like tobacco and alcohol are hit by the triple whammy of smuggling, counterfeiting and refilling, leading to massive government tax losses (JTI estimates Malaysia lost RM1 billion in cigarette tax in 2020). The WHO asserts that ASEAN has the highest illicit (smuggled, refilled, counterfeit) liquor consumption in the world – a massive danger to consumers.
• Particular consumer sectors suffering from counterfeits in ASEAN include toys and auto parts, with these cases almost always being imports from China – according to examples like counterfeit BMW parts in Thailand.
• Agrochemical counterfeits are largely sourced from China and India according to seizures in Cambodia, Vietnam Malaysia, Philippines and Thailand. Many are very dangerous.
• China remains the main counterfeit goods source due to its proximity and shippers’ use of Free Trade zones to support the trade. Local counterfeit manufacture occurs in Malaysia, Thailand and Vietnam, including repackaging.
• The total counterfeits market in Southeast Asia is estimated to be worth $40Bn
• Weak enforcement mechanisms, poor sanctions and low Customs seizures in ASEAN countries make counterfeiting easy and attractive for criminals

The full report is available here 

The trade in fakes from and through SE Asia

The publication of the OECD/EUIPO updated report Trends in Trade in Counterfeit and Pirated Goods provides more data and corroboration on the role of SE Asia in the global fakes trade.

 

Of course China dominates as the global source, including transited goods through Hong Kong. But the report identifies other SE Asian countries too. Malaysia, Thailand, and Vietnam are all small but important producers in many goods sectors. Singapore features as a source as a result of transhipment of fakes through its port.  The global fakes trade is valued at half a billion Euros and growing. Footwear and clothing are the largest volumes of fake goods seized, but the usual range of products from consumer and household to pharma remain common, as well as IP-infringing packaging and labels.

 

Places with weak governance attract counterfeiting. This includes bot  countries with large grey economies, and specifically Free Trade Zones. The boom in internet orders and small parcel deliveries by post or courier services is now dominating seizures. For customs and IP owners this means more work for less volumes.  Weak port systems (lack of shipment information transparency, no advance clearance systems etc) encourages the fakes trade.

 

The authors also note a change to the rights owners affected with an increasing spread to companies from all countries. In SE Asia they identify a number of Singapore IP owners as facing fake goods problems.

 

 

 

 

 

 

SEA Illicit trade report

The Economist Intelligence Unit has released its report on illicit trade in Asia. It defines illicit trade to cover many illegal acts including counterfeiting.  Illicit trade is enabled by varying combinations of corruption, incompetence and indifference. The difficulty collecting hard data makes it hard to quantify. But overall they conclude that the counterfeit and mis-declared goods along with other illicit trade is rising. Along with the European Chamber of Commerce in Singapore, the Economist Intelligence Unit has created the Illicit Trade Environment Index, which measures 17 economies in the Asia Pacific region on the extent to which they enable illicit trade.

The factors that lead to this trade's growth are plain to see. Acceptance of low level economic crimes and weak enforcement of laws are clear reasons. China is a large part of the problem but it is improving. Developed markets often score well due to their stronger legal environments. But Singapore scores badly due to its laissez fair attitude to transhipment, worth billions - implying that Singapore earns a great deal of money transhipping illicit goods. Emerging markets with weak legal environments are havens for illicit trade naturally. This applies especially to Cambodia, Laos and Myanmar but Indonesia, Philippines and Vietnam are only slightly above the bottom 3. Only 9 of 17 countries studied have proper Customs recordal system in place for IP - 20 years after the WTO TRIPS agreement too effect for most countries!

 

 

Shipment of fakes in SE Asia

The diversity of transport methods for counterfeit goods in Asia is an increasing headache for IP holders. Once upon a time, all you needed to worry about was catching containers shipped by sea. Customs enforcement involved seaport training and seizures. Now there are many more ways fake goods are shipped such as the following:

-   Some products, such as household detergents or alcohol that are large in volume but low in value are often shipped in containers to be economically viable. Malaysia's Langkawi island has a reputation for being an alcohol smuggling centre.

-   Smaller higher value products, such as luxury goods, watches or phones can be posted / couriered or airfreighted. The vast majority of customs seizures around the world these days are couriered and posted, helped by the fact that online orders for small volumes are now so easy in the age of e-commerce.

-   Many of SE Asia's land borders with China, especially Myanmar, Vietnam and Laos have road and river crossings with large numbers of people crossing daily with stocks of counterfeit goods. Last week Thai authorities arrested a Cambodian man crossing the Thai border. In his  car were 20 fake bags and 52 pairs of fake adidas shoes which he allegedly planned to deliver to a customer in Bangkok. Vietnam has a porous border with China and many people cross daily without passing through the border gates just walking over the hills, or by boat over the rivers. An entire industry of smuggled and counterfeit goods porters exist for hire.

-   Often heard also are tale of air crews and others in the transportation industry carrying fake goods with them.

All of this makes the issue of border interception much more complex than it once was. Meanwhile still SE Asia is far behind the rest of the world in terms of its Customs border protection systems, with only Thailand seizing meaningful volumes of products.

 

Thai police on the run from counterfeiters

The Department of Special Investigations tried to raid Rong Kluea market on the border with Cambodia last week. The market sells a wide variety of counterfeit goods from clothing to watches to food usually with second hand products which is its main function. It is part of the route for Chinese made fake goods via Cambodia into Thailand. Enforcement officials along with various observers representing rights holders tried to conduct enforcement of court orders to seize fake goods. These were acknowledged to be counterfeits.

 

Suddenly 400 Cambodian labourers attacked the police stoning them with various objects, overturning a car and forcing them to flee. Clearly they were resentful of the attack on their livelihoods in a very poor part of the country, in a tricky border region.  Now a war of words between the police and local officials has blown up, with a politician linked to corruption allegations in the market.

 

There are two points arising from this. The first is that counterfeiting is part of a wider spectrum of low-level criminality and this demonstrates the problem. Governments need to manage illegal activities more effectively in emerging markets, not through force, but by ensuring that everyone observes the law. This requires policies to address poverty and jobs from innovative industries and stamping out corruption. But bare enforcement in a vacuum often causes problems.

Secondly South East Asia's northern land borders are the most lawless part of the region. Vietnam's northern border with China's Guangxi and Yunnan provinces and Myanmar's infamous Muse 105 border gate are the most obvious lawless land routes. But the Laotian border with China also creates a massive trade through Laos and Cambodia into Thailand, which those two countries cannot control. South East Asia's land borders remain one of the major entry points for fakes from China, which places a huge burden on the 5 SE Asian countries involved.