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Inside Story

Counterfeits: Flattery or forgery?

As fake goods cost manufacturers billions in lost sales, we ask what really fuels their production.

Last Modified: 17 Apr 2013 14:04
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Imitation may be the sincerest form of flattery, but fake goods are costing manufacturers billions in lost sales. A United Nations report says the black market in counterfeit products has become as profitable as the illegal drug trade.

"I think it's  very, very important to disaggregate safety critical goods - aircraft parts, pharmaceuticals - the stuff that kills us - and that includes environmental crimes ... so, splitting those from the non-safety critical goods like the counterfeiting of luxury goods. The question all the time is whether we should be putting public resources into policing this or whether the owners of the intellectual property should be funding this themselves."

- David Wall, a professor of criminology at Durham University

The UN's first ever study on organised crime in the Asia-Pacific region through its Office on Drugs and Crime says rapid economic growth has given rise to vast criminal networks, profiting from the illegal trade in goods and people.

Overall, the agency estimates the illicit trade is worth around $90bn a year - roughly twice the size of Myanmar's gross domestic product, and eight times the economic output of Cambodia.

But drug trafficking still generates the most money with heroin and methamphetamines alone, earning criminal gangs more than $30bn.

And increasingly, counterfeiting is almost as profitable. The trade in fake designer handbags and T-shirts heading to the US and Europe as well as bogus pharmaceuticals, is worth more than $29bn.

Another area of concern is unauthorised logging. It is a $17bn business that has its roots in countries all across the world, including Papua New Guinea, Malaysia and Cambodia. Most of it is processed in China while the biggest customers are the US, Europe and the Middle East.

While it stands to reason, that if nobody was buying counterfeit goods, there would not be a market for them - but people are buying them, especially look-alike luxury brands.

"These factories that produce counterfeit goods operate very often in a clandestine regime with a complete disrespect for labour regulations. In this situation the workers in these factories are very often people who are vulnerable - especially migrants or victims of human trafficking .... Crimes often do not generate themselves in isolation and are sometimes linked with each other."

- Giovanni Broussard, UN Office on Drugs and Crime

An EU-funded report says consumers benefit from the market for knock-off goods at knock-down prices. It says losses to the makers of designer brands are vastly exaggerated, as most of those who buy fakes would never purchase the real thing.

It disputes claims that the counterfeiting of luxury brands funds organised crime and, if anything, buying fakes actually serves to promote the genuine product.

China has long been central to the trade in fake goods. Customs officers in the US say 87 percent of counterfeits seized there between 2008 and 2010 originated in China, while European customs officials put their figure at around 74 percent.

It is something Chinese authorities are aware of - a nationwide crackdown last year involving 18,000 officers seized $182m worth of counterfeit products and resulted in the arrest of 2,000 people.

So what really fuels the production of counterfeit goods? And what is at the heart of the problem?

Inside Story, with presenter Hazem Sika, is joined by guests: Giovanni Broussard, from the UN Office on Drugs and Crime which produced the report on transnational organised crime in the Asia-Pacific region; David Wall, a professor of criminology at Durham University, he also co-wrote the EU-funded report on counterfeit goods; and Athar Hussain, director of the Asia Research Centre at the London School of Economics.

"I think we have to take a measured approach; it depends on which goods are counterfeited and how much. For example counterfeiting of medicine can be an extremely dangerous and harmful process. Secondly, there is a tenuous link between sweat shops and counterfeit goods. Because sweat shops, if they exist, are used to provide a wide variety of goods and in most cases produce perfectly legitimate goods."

- Athar Hussain, director of the Asia Research Centre

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Al Jazeera
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