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Counterfeit goods surge in Southeast Asia

By Nick Redfearn, Rouse - COVID-19 has caused some shifts in IP infringement patterns, including magnifying existing trends. As a result of changes in trade, Southeast Asia (the 10 ASEAN nations) have now become China’s largest trading partner[1]. Southeast Asia received over USD350 billion in exports in 2019 and overtook the EU in 2020. Exports to Southeast Asia have been rising every year thanks to China’s Belt & Road initiative. China’s definition of the ‘Road’ is the sea routes to Southeast Asia which is also known as the 21st Century Maritime Silk Road.

An analysis of Chinese Customs IP Enforcement data shows the same trends. China has the ability to seize exports of illegal goods and in many cases the destination country can be discovered. China publishes Customs IP data in two form

  1. Raw seizure data. About 20,000 seizures per year have been reported until 2018 when it doubled to 40,000 - 50,000 in 2018 and 2019.

  2. Punishment Decisions when each case completes (about 3,000 such Decisions per year).

Only about 15% of seizures lead to Punishment Decisions, where the rest of the seizures appear to be dropped and not pursued by IP Owners, settled, or end up in court. The Punishment Decision data is far richer data for analysis and is seen improving every year. So, assuming Punishment Decision data is representative, the true numbers below are really six to ten times higher.

The Punishment Decision data shows China’s exports of counterfeit goods to Southeast Asia rising quickly with 66 intercepted shipments in 2014 to 299 in 2018. The 2019 Punishment Decision data is expected to show around over 400 counterfeit goods shipments destined for Southeast Asia. The biggest destination markets are Philippines, Indonesia, Thailand, and Vietnam, with Singapore being the largest of all over the last 5 years. The latter is probably explained in a large part as transshipped goods, since Singapore is the largest transshipment port in the world and a well-known node in global illicit trade[2].

Most goods heading for Singapore could be heading on to other Southeast Asian markets or on to the rest of the world as well. A key trait in the Punishment Decision data is that Southeast Asia is the fastest rising destination in the world. The region surpasses US and EU which suggests that market opportunities for counterfeiters are increasingly taking.

These counterfeit export figures from China are of course, only the tip of the iceberg. The total value of counterfeit goods destined for the Southeast Asia region in Punishment Decision data was just under USD1 million in 2018 and over USD1 million in 2019. Given that the data in reality is six to ten times higher (so by now probably closer to USD10 million in value) and the fact that Customs only seize a tiny proportion of total illegal shipments, this puts the value of the vast majority of fake goods arriving in Southeast Asia amounting to hundreds of millions of US dollars.

2015 research supported by the UK government illustrated that 75% of fake goods in Southeast Asia comes from China, and depending on the sector that these counterfeits are from, comprise 15% - 40% of all those goods available[3]. The most common goods traded cross borders according to EU data are footwear, clothing, leather goods, electrical equipment, watches, medical equipment, perfumes, toys, jewellery and pharmaceuticals.[4] Imported fakes affect local Southeast Asian brands as much as foreign brands, and there are regular seizures of fake local branded products in the region[5].

Of all the countries in Southeast Asia, only Thailand has a properly functioning Customs IP border protection system with over 800 brands recorded and Thai Customs actively looking for illegal shipments. Now there are around 1,000 seizures per year (in 2019, 1,006 according to Thai Department of Intellectual Property’s official figures[6]). Thailand can seize goods for import, export or in transit. The interesting point is the exported goods. The EU has in the past cited Thailand as a major source of counterfeits (6th globally[7]) although Thailand’s Customs IP detentions out-number the entire Southeast Asian region put together. Vietnam does make a good number of seizure although they do not publish any official figures. The best estimate we can make is a few hundred seizures per year. Other Southeast Asia countries seize almost nothing. Philippines Customs claim to seize many counterfeits, but upon closer examination you can see these are not initiated from complaints by IP owners who record their brands and are not seized at ports.

So in 2020, counterfeit goods from China are flowing into Southeast Asian countries unchecked, resulting in brand owners suffering substantial loss in sales within the region. The missing jobs in large legitimate IP owing companies (local and foreign) and their myriad local importers, distributors and retailers must surely be huge. Governments in Southeast Asia tolerate huge volumes of illegal and dangerous goods to be consumed by their citizens by undertaking a lack of customs seizures. These fake goods flow mainly outside legitimate sales channels too (so the governments in Southeast Asia are losing duties, taxes, and other revenue).

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