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Dubai Marcos Bonturi Head of theStructural Policy Division OECD

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1 Dubai Marcos Bonturi Head of theStructural Policy Division OECD
The Economic Impacts of Counterfeiting and Piracy The main findings of the OECD Study Dubai Marcos Bonturi Head of theStructural Policy Division OECD 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.

2 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).

3 Project background – Global Value Chains
The ratio of imported to domestic intermediates, 1995 and 2000.

4 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.

5 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.

6 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.

7 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

8 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

9 ► 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 An analysis of trends and developments. The changing volume and scope of counterfeiting and piracy will be examined, as will its role in international trade. Changes in the types of products being counterfeited, and the regions where counterfeiting and piracy are taking place will be highlighted. The factors driving counterfeiting and piracy will be identified and discussed, as will the role of new technologies in facilitating counterfeiting and piracy activities. An assessment of the effects on firms, consumers and governments. A methodological framework for assessing the effects of counterfeiting and piracy on stakeholders will be elaborated. In addition to economic factors, health, safety and security factors will be highlighted. The assessment will include special attention to the adverse effects that the practices can have on those countries where counterfeiting and piracy are most pronounced. A series of sectoral assessments. A number of sectoral case studies will be conducted, illustrating the various forms of counterfeiting and piracy, and the different types of effects on producers, consumers and governments. The products to be studied will include those with significant safety, health and/or social implications (in addition to economic ones), such as pharmaceuticals, food, drink and consumer products, spare parts and car accessories, aircraft components, toys and electronic equipment (e.g., mobile phones, batteries). Other consumer products with important economic, employment and innovation implications will also be covered, such as software (some with security/safety implications), electrical and optical equipment, chemicals, music recordings, motion pictures, books (especially school text books), sportswear, luxury goods and fashion clothes and perfumes. Selection will also take into account the availability of information. A description and assessment of policies and measures used to combat counterfeiting and piracy. National and multilateral policies and measures taken by governments, business and other stakeholders to combat counterfeiting and piracy will be described and assessed, with particular attention to those policies and measures which have been found to be particularly effective. To the extent possible, the policies and measures taken in key non-OECD economies will be included.

10 ► 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

11 Customs seizures Seizures of imported counterfeit and pirated
products from the top 20 source economies

12 China’s share in major markets (% of total imports)
Project background – Global Value Chains China’s share in major markets (% of total imports)

13 ► 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).

14 FTZs are having significant impact
Impact of Free Trade Zones on trade

15 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

16 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

17 ► Main Effects Counterfeiting and piracy…
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

18 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

19 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

20 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

21 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

22 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

23 Summary of Conclusions
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

24 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

25 Marcos Bonturi Head Structural Policy Division
OECD 2, rue André-Pascal 75775 Paris CEDEX 16 France Phone: (+33) Fax: (+33) Website:

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