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Faking it Gucci
style
By Jamie Miyazaki
Japan
may not be synonymous with fake Rolexes and Levi jeans
in the same way that Southeast Asia is, but its Ministry
of Economy, Trade and Industry (METI) is taking no
chances with the rising tide of counterfeit goods
swamping Asia, and increasingly turning up on Japan's
streets. The ministry unveiled plans this week to
establish a special department to deal exclusively with
counterfeiting and aims to train 1,000 officials across
Asia to combat counterfeiting by 2008. Most of its
efforts will be focused on China and South Korea, which
account for the bulk of counterfeit goods found in
Japan.
From the night markets of Patpong in
Bangkok to the street vendors hanging around Shibuya in
Tokyo, Asia's consumer boom has brought with it a darker
face of globalization - counterfeiting. However, most
consumers throughout Asia rarely, if ever, view
counterfeiting of brand goods as criminal, and
governments, when so inclined to pursue it, have treated
counterfeiting as a "victimless" crime.
In fact,
some commentators have argued that counterfeiting brings
economic benefits to many Asian nations. The factories
that churn out counterfeit products, most often located
in the developing world where intellectual property
rights (IPR) enforcement is lax, provide valuable
employment. Pirated goods have allowed many consumers in
the developing nations of Asia to have access to goods,
such as software, that they otherwise could not afford.
In some instances, counterfeiters have pushed
brand-holders into producing new products that have
benefited customers. Apple's iTunes Music Store, for
example, was an innovative response to music piracy.
Moreover, it is claimed that multinational corporations,
the most frequent targets of piracy, are large and
profitable enough to bear the costs of losses associated
with piracy in emerging markets.
However, the
few benefits counterfeiting may bring are far outweighed
by its corrosive effects, and Asia, being at the heart
of the counterfeiting industry, feels these effects most
keenly.
Counterfeiting is big business. The
Counterfeiting Intelligence Bureau, part of the
International Chamber of Commerce, reckons that up to
5-7 percent of global trade can be attributed to
counterfeiting. According to the Organization for
Economic Cooperation and Development, that amounts to
about US$450 billion a year.
All the major
economies of Asia are members of the World Trade
Organization (WTO), which protects intellectual property
rights under the Trade-Related Aspects of Intellectual
Property Rights (TRIPS) agreement, and has passed
legislation to protect IPR. Even normally recalcitrant
North Korea has recognized individuals' intellectual
property rights. However, the problem is primarily not
one of legislation but of enforcement, successful
prosecutions and adequate fines or jail terms.
China remains the world's largest producer of
and market for counterfeit goods, and counterfeiting is
thought to employ between 3 million and 5 million people
in that country alone. But because counterfeiters
generally do not pay tax on their earnings, they end up
depriving governments of vital revenue. Beijing is
thought to lose about $3 billion a year in tax revenue
because of counterfeiting. And despite a recent
crackdown, the chances of being arrested and prosecuted
for counterfeiting - let alone being fined and sent to
jail - remain slim. Even then, penalties rarely serve as
a deterrent. When one European estimate reckons that
counterfeiters could generate up to a return of 10 euros
for every 1 euro invested, prison sentences of just a
couple of years and fines of a few thousand dollars are
clearly inadequate. The situation is similarly lax
across the Far East from South Korea to Indonesia.
The huge margins and minimal risk involved has
also attracted organized crime. R E Kendal, former
general secretary of Interpol, reckons counterfeiting is
no longer a periphery criminal enterprise but a central
activity to most underworld gangs. From Malaysian crime
syndicates to Taiwan's notorious United Bamboo Group
triad, criminal groups across Asia are busy
counterfeiting. Not to be left out, terrorist groups
have also been active in counterfeiting. A man killed by
Philippine police in a raid on pirate compact-disc (CD)
vendors last April was later identified as the son of an
alleged Moro Islamic Liberation Front (MILF) commander,
a terrorist group operating in the southern Philippines.
And it's not just Rolexes and Nike trainers that
are being counterfeited. From aircraft parts to
pharmaceuticals, anything with a brand name is fair
game. A 2001 survey by Pfizer, a US pharmaceutical firm,
found that 88 percent of the "Viagra" in China procured
through non-hospital sources was fake. Yet because of
the nature of counterfeiting, no one can be sure of the
problem's extent. Pharmaceutical-industry estimates
project that counterfeiting accounted for anywhere
between 5 and 15 percent of $423 billion worth of sales
in 2002. That puts the counterfeit-drug market's size at
anywhere from $21 billion to $63 billion.
With
pharmaceuticals being expensive to produce and purchase,
it is not surprising that many people, especially in the
developing world, look for cheap alternatives.
Unfortunately buyers of counterfeit pharmaceuticals are
rarely, if ever, aware they are buying fakes. Hence it
is impossible to gauge, for example, how many people
have died unnecessarily of malaria in Southeast Asia,
where one in three anti-malarial artesunate pills is
thought to contain no active ingredients.
However, most counterfeit pharmaceutical cases
are only reported when fatalities or casualties result.
In October 2001, one person fell into a coma and 70
people were seriously poisoned in China's Guangxi
province after taking fake traditional Chinese medicine
that had been cut with expired antibiotics.
This
problem is not just limited to the developing world. In
the United States there has been a flourishing black
market in the anti-AIDS drug Serostim and in Japan four
people died and 520 fell ill in July 2002 when
counterfeit traditional Chinese medicine was once again
the culprit. So it would seem that counterfeiting is not
a victimless crime after all.
Even more familiar
counterfeit goods such as software, watches and digital
video discs (DVDs) have a damaging effect on society as
well. Although counterfeiters tend to target brand-name
products made by multinational corporations, it is local
industries that feel the greatest impact. Rampant piracy
creates a massive barrier to entry in affected markets
for firms seeking to develop genuine products.
Blockbuster, a video-rental chain, recently decided to
withdraw from the Hong Kong market because it could not
compete against vendors of pirated video CDs, costing
200 people their jobs. Few software companies, both
local and international, are flourishing in Vietnam,
where counterfeits account for 99 percent of available
software.
Yet when countries decide to pass and
enforce robust IPR legislation, the benefits can be fast
and tangible. When Singapore introduced a modern
copyright law in the late 1980s, music companies became
more willing to nurture local talent and invest in
training local studio engineers, rather than importing
them from abroad. South Korea witnessed an upturn in the
number of patents filed after it passed a modern patent
law in 1987.
Yet many governments still see IPR
enforcement either as an unimportant or zero-sum game.
In China, a nation frightened of the impact of
dislocated, unemployed workers, lost tax revenue might
be seen as a worthwhile tradeoff - even by cash-strapped
local governments. In fact sometimes hard-pressed
authorities see counterfeiting as a valuable source of
cash to keep them solvent. Some Chinese state-owned
enterprises have engaged in counterfeiting to keep
themselves afloat in the wake of decreasing central
government subsidies. Prosecution rates tend to be low
in areas where there is official complicity in
counterfeiting.
However, companies are becoming
more pro-active and innovative in tackling theft of
intellectual property. American firms have been
particularly active in lobbying Washington and the WTO
to pressure regional governments to crack down on the
theft of intellectual property - and with some success.
Taiwan passed stricter IPR legislation last year and has
begun to make serious efforts to tackle piracy since it
joined the WTO. Microsoft has embarked on a charm
offensive in China to educate consumers about the
economic impact of piracy. Hollywood, meanwhile, has
taken to simultaneous global releases of blockbusters to
counter the pirated DVD copies that would turn up on the
streets of Malaysia as soon as - and frequently even
before - a movie had been released in the United States.
Unfortunately, Asia still has a long way to go
before it conquers the scourge of counterfeiting. Toyota
lost a lawsuit in November against Geely Group, China's
biggest private car maker, over unauthorized use of its
logo. Despite the verdict, Toyota, Japan's largest auto
maker and the world's second-biggest, plans to continue
with its plan to invest $2.5 billion in China by 2010.
China apparently is one market where foreign companies
are prepared to tolerate IPR violations, for the time
being.
The reality is that until most of Asia
has a system where the judiciary and prosecutors treat
IPR violation as a crime, and penalties actually deter
offenders, it will still be all too easy to dress in
Calvin Klein jeans and Oakley sunglasses while browsing
the 'Net on a pirated copy of Internet Explorer. Toyota
and METI may be in for a long wait before they succeed
in tackling counterfeiters.
(Copyright 2004 Asia
Times Online Co, Ltd. All rights reserved. Please
contact content@atimes.com for
information on our sales and syndication policies.)
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