Counterfeit Chinese products are flooding global markets despite efforts to ban them. Representatives of American businesses say that these counterfeit products are not only damaging the commercial interests of victimized companies, but are also threatening consumer safety. Counterfeiters are now committing commercial theft by making use of the Internet.
China has the dubious honor of being both the world’s largest market and its greatest exporter of counterfeit and pirated products. During the fall conference of the International Anti-Counterfeiting Coalition, a high-level U.S. trade official discussed some of the companies victimized by Chinese counterfeits; the companies range from the very large, such as Microsoft, Nike, Disney, and Calvin Klein, or smaller businesses such as the lighter manufacturer, Zippo, which houses only about 200 employees in China. Some companies whose products have been counterfeited do not have a trade relationship with China.
The U.S. official said that both the quantity and variety of Chinese counterfeiting products are growing rapidly. Products such as wooden car parts and non-shock-resistant automobile glass are not only damaging the reputations of name-brand companies, but also threaten consumers’ lives.
The Internet has greatly facilitated the flow of information. The trade official said that a decade ago, almost all Chinese counterfeits were global name brands, but now with the Internet, anyone can download company information such as trademarks and brand designs. Some companies that have no business in China and have no plan to enter the Chinese market suddenly found their pirated products selling like hot cakes in China or even exported to the rest of the world. Counterfeiters can steal the foreign companies’ latest designs from the Internet. Sometimes counterfeits are already in containers, ready to be exported, 24 hours before the real products even appear on the market.
Intellectual Property Holders Suffer Heavy Losses
Timothy Trainer, president of the U.S.-based International Anti-Counterfeiting Coalition told VOA that the situation has been worsening, with billions of dollars siphoned away from IP holders despite increased Chinese efforts in combating counterfeiting. The coalition is the largest world organization for protecting intellectual properties (IP) with about 140 member companies.
He said, “First of all, sales of these companies drop because consumers think they are buying the real thing and only find out problems later. Secondly, some consumers ask to return the counterfeits to genuine IP-holders, who have to deal with customers or even compensate the latter for fear of losing clients. Thirdly, the victims must hire lawyers and private investigators to spend money to combat counterfeiting and thereby reducing the funds for product research and development.”
To protect their business interests, many foreign companies have hired local lawyers and private investigators to combat counterfeiting in cooperation with Chinese authorities.
Anti-Counterfeiting Efforts Ineffective
Oakley sells sunglasses, shirts, watches and other products coveted by sports fans. The company’s security chief told VOA that there are more counterfeited Oakley products than genuine ones in the Chinese market. He has hired four lawyers and six private investigators at an annual cost of half a million dollars, yet without too much success.
“The number might indicate some successes. For example, we stormed a counterfeiting factory and confiscated 100,000 pieces of counterfeited products. However, the factory reopened the very next day because according to Chinese regulations we can only confiscate counterfeited products but not counterfeiting equipment.”
He added that Chinese Customs offices are the gates at which counterfeiters could be stopped. However, Customs officials demand foreign companies pay holding fees if they wish to examine suspect products.
“Last week they notified me that Chinese Customs found 23,000 pieces of counterfeit Oakley products and asked us to pay $26,000 to hold them for investigation,” the security chief said. “Many smaller companies that cannot afford the holding fee sometimes just have to let counterfeits go through.”
According to data published by the U.S. Customs Service, 66% of the counterfeits found in U.S. ports in 2003 came from China. In the first half of 2004, 1,488 batches of counterfeit Chinese products with a combined value of over $37 million (58% of all the counterfeits found in U.S. ports) were interdicted.
In a meeting with the U.S. Commerce Secretary and Trade Representative last April, Chinese Vice-Premier Wu Yi promised to reduce IP violations in China and impose criminal penalties on those engaged in the production, storage, sales and exporting of counterfeit products. The Supreme Court and Supreme Procurators of China are expected to publish interpretations before the end of this year.
The U.S. official at the International Anti-Counterfeiting Coalition Conference said that China is the frontline for combating counterfeiting and the focus of the Office of the U.S Trade Representative (USTR). The U.S. demands that China implements the IP agreement on trade-related aspects of intellectual property rights.
In the “Special 301 Report” published by the USTR last May, China was listed because of the high amount of counterfeit products produced within its borders. The U.S. official said that they would reevaluate the special report next year to see if China has fulfilled its promises.