During the 2011-19 period, the largest share of fake products seized for infringing on Korean intellectual property (IP) originated from Hong Kong (China) and the People’s Republic of China (hereafter “China”) (Figure 3.1). These economies represented 44% and 35% of customs seizures, respectively. They were followed by Singapore (12%) and Malaysia (3%). In terms of seized value, China and Hong Kong (China) also accounted for the largest share of counterfeit products infringing on Korean IPRs.
Illicit Trade and the Korean Economy
Illicit Trade
Source: OECD global customs seizures.
A more detailed analysis over time reveals cyclical trends, as in the case of Germany (Figure 3.2). During 2011-2013, Germany accounted for 12% of seized goods infringing Korean brand IPR in terms of value whereas its role was less important in other years. Also noteworthy is the case of India, which accounted for 5% of the value of goods violating Korean IPRs seized between 2017 and 2019, whereas it did not appear in the economies of origin in previous periods.
Source: OECD global customs seizure.
Recent data from 2020-2021 reveal how economies of origin are quite stable over time. Indeed, Hong Kong (China) continued to be the largest provenance economy for seized goods infringing Korean IPRs followed by China (Figure 3.3). Hong Kong’s (China) share of goods infringing Korean IPRs increased compared to the 2011-2019 period, accounting for almost three-quarters of customs seizures. China’s share declined, accounting for 17% of customs seizures. The United States and the United Arab Emirates followed suit, responsible for 3% and 2% of customs seizures respectively.
Source: OECD global customs seizures.
These products were mainly destined to the United States, which imported almost half of the global volume of seized goods infringing Korean IPRs (Figure 3.4). European countries (e.g. United Kingdom, Spain, Germany, Netherlands, Italy) were other popular destinations for Korean IPR-infringing goods, as well as Latin American countries (e.g. Mexico and Puerto Rico) and North African countries (e.g. Morocco, Algeria, and Tunisia).
In terms of seized value, the United States, Poland, the United Kingdom, and Argentina were the main destinations for goods that infringed Korean IPRs. Poland can be considered as a primary entry point as it received very large shipments of Korean IPR-infringing goods. Argentina, on the other hand, can be considered a one-off destination as its ranking is linked to a large seizure of games and toys.
Source: OECD global customs seizures.
Experts in trade in counterfeits infringing Korean IPRs emphasised how China continues to dominate as the origin of counterfeit goods, followed by emerging hubs like Viet Nam, known for appropriating technologies, and potentially India, due to its cheap labour costs. Weak IP enforcement laws may also explain the emergence of these countries in the trade in counterfeits.
With regard to the production, fakes infringing Korean IPRs are often manufactured in large regular factories, making it challenging to discern excess quantities or distinguish between authentic and counterfeit products. In addition, the production of counterfeits involves numerous suppliers, creating a challenge in authenticating production. The recycling of defective products and unauthorised manufacturing by small workshops have further exacerbated the issue, alongside instances of backdoor leakages.
The unified dataset on customs seizures of counterfeit and pirated goods can also be used to quantify Korean products infringing IPRs. As can be seen in Figure 3.5, over the period 2011-2019 Korean products that suffered most from counterfeiting were electrical machinery and electronics. This category – which includes mobile phones, ICT components, mobile accessories (such as chargers, earbuds, and cables) as well as electronic appliances such as TVs – represented 95% of customs seizures.
Source: OECD global customs seizures.
Apart from electrical machinery and electronics, Figure 3.6 shows that seizures of counterfeit Korean products included machinery and mechanical appliances, fashion items, leather goods, automotive spare parts, toys and games, and cosmetics.
Analysis of more recent data on customs seizures infringing Korean IPRs indicates that just over half of the goods were electrical appliances from 2020 to 2021 (Figure 3.7). Customs seizures of goods violating Korean IPRs also included textiles (20% of customs seizures) and cosmetics (15%).
In terms of seized value, the weight of electronic products is considerable, representing over two-thirds of total customs seizures. This was followed by textiles and cosmetics.
Source: OECD global customs seizures.
Source: OECD global customs seizures.
Customs data show that the seizures of machinery include counterfeit products such as LCD screens, water and air filters, while the seizures of leather goods mainly refer to leather phone cases and tablet covers. With regard to spare parts, counterfeit products such as smart keys, seat belts, windshields, and electric relay were the most frequently seized.
As for cosmetics, an interview with representatives of this sector revealed that counterfeiters typically target popular products within the Fast-Moving Consumer Goods (FMCG) sectors. The analysis indicates that counterfeiters study the market meticulously, targeting products with growing popularity. Targeting is not limited to high-end products; even everyday items like toothbrushes are counterfeited, highlighting the pervasiveness of the problem.
Although they are not among the main Korean IPR-infringing goods seized by customs, food products are also targeted. Discussions with this industry’s representatives indicate that counterfeiters primarily target room temperature food items such as sauces, which are easy to manufacture and store. In particular, regions like China have a strong presence in counterfeit food items, such as root ginseng. The COVID-19 pandemic has also seen a shift in counterfeiting strategies, with an increase in smaller products and a heightened presence of these goods online.
It is worth noting that trade in Korean IPR-infringing products includes a wide range of goods that can potentially endanger consumers’ health and safety. As a joint OECD EUIPO report on dangerous fakes (OECD/EUIPO, 2022[3]) shows, counterfeit goods pose risks for consumers as they are likely to escape health, security, and environmental regulations (Box 3.1).
A key point raised in the conversation with the delegates from the consumer goods industry, was the health and safety risks associated with counterfeit products in the healthcare sector. Though there haven’t been confirmed cases of health problems directly linked to counterfeits, the differences in ingredients and substandard production sites underscore the potential risks. The main categories of goods that infringed upon Korean IPRs include cosmetics, Fast-Moving Consumer Goods (FMCG), and beverages. Regulatory authorities, such as the Korean FDA, are closely monitoring this issue for potential human risks associated with these counterfeit products.
In particular, the counterfeiting of food items poses significant health and safety risks. For example, counterfeit food additives distributed in China have been found to contain higher quantities of sugar and salt. The production processes of these counterfeit goods are substandard, increasing the risk of contamination. Unlike legitimate goods, which undergo rigorous health and product certifications, counterfeit items lack these essential quality assurances.
Similarly, counterfeit fashion items are often of inferior quality. Even though they might not pose severe health or safety risks, they compromise the consumer experience and satisfaction. In addition, the production of textile goods, and in particular the production of counterfeit goods which are not subject to any standards, represent a real threat to the environment by wasting natural resources and potentially increasing pollution.
ICT counterfeit products also pose substantial safety risks due to their potentially significantly lower quality, leading to health hazards. Essential electronic devices like batteries and chargers, which are often of subpar quality, have reported cases of explosions and other malfunctions.
3.3.1. What are the conveyance methods used to ship counterfeit Korean goods in illicit trade?
Customs data can also be helpful to gain insights into the means of transport used to transfer counterfeit products infringing on Korean IPRs to their final destinations.
Figure 3.8 shows that postal services were the preferred transport mode for fake products violating Korean IPRs over the period 2011-2019, accounting for 43% of all seizures of Korean IPR-infringing products. It was followed by air (30%) and express courier (22%).
2011-19
Source: OECD global customs seizures.
An analysis over time shows that mail, air, and express couriers have remained the most frequently used means of transport in the trade of counterfeit goods infringing on Korean IPRs (Figure 3.9). However, several developments have occurred, notably the increased role of express couriers, whose share has risen from 11% in the period 2011-2013 to 36% in the period 2017-2019.
Source: OECD customs seizures.
The predominance of mail and express couriers is directly linked to online sales. Just as with the purchase of genuine products, online purchases of counterfeit products are steadily increasing. The digital environment is being exploited by counterfeiters, who can easily deceive consumers. The OECD and EUIPO have worked in this field and gathered evidence of the misuse of online commerce for counterfeit products (see OECD (2021[4]) and OECD/EUIPO (2021[5]).
Korean industry representatives confirmed this trend as counterfeit products are becoming more prevalent online. E-commerce platforms, social media, and dedicated online sales channels are becoming hotspots for counterfeit goods. The lack of quality checks online further compounds this issue, making it easier for counterfeit goods to flood the market.
The most recent customs data seizures indicate that mail remained the most frequently used transport mode to ship Korean IPR-violating goods to their final destinations (Figure 3.10). Indeed, during 2020-2021, 57% of seized goods infringing Korean IPRs were sent by mail. Air and sea were the two following preferred transport modes, representing respectively 25% and 7% of Korean IPR-infringing customs seizures.
In terms of number of customs seizures
Note: A change in seizure data collection in 2020-2021 does not allow for distinguishing express courier.
Source: OECD global customs seizures.
The proliferation of e-commerce, especially amid the COVID-19 pandemic, has amplified the availability and purchase of counterfeit goods online, demonstrating a discernible shift in consumer behaviour and sales channels.
E-commerce plays a pivotal role in the spread of counterfeit food products. A Korean industry representative indicated that online sales accelerated during COVID-19, with online counterfeit sales dominating over offline, reflecting a change from a previous 70/30 to 90/10 ratio.
3.3.2. What is the size of shipment of seized products violating Korean IP brand owners?
Customs data indicate that goods infringing Korean IPRs were mostly shipped through small packages. As can be seen in Figure 3.11, 56% of seizures violating Korean IPRs contained less than ten items over 2011-2019. As for the larger shipments, the customs data indicate that they contained on average 1 235 fake items.
In terms of number of customs seizures
Source: OECD customs seizures data.
A time-based analysis reveals that the size of shipments of goods infringing Korean IPRs has tended to shrink over time. Large shipments were predominant during the period 2011-2013, representing 58% of seizures (Figure 3.12). This figure declined in the 2014-16 and 2017-19 period, representing respectively 34% and 47%. This trend is in line with the shift towards an increasingly online nature of both licit and illicit trade as highlighted by the joint report by the OECD and the EUIPO (2021[5]).
2011 2019
Source: OECD global customs seizures.
3.4.1. What is the total value of counterfeit products infringing Korean IPR holders?
The estimated values of fakes infringing Korean IPRs have varied over time (Figure 3.13). Two peaks were reached in 2013 and 2017 at USD 10.7 billion and USD 10.6 billion, both of which were followed by a period of decline.
Figure 3.14 shows that since 2014, trade in Korean IPR-infringing goods and global Korean exports have followed a similar trend although at different paces. This link between licit and illicit trade may be due to the misuse of trade facilities by illegitimate actors. The OECD and EUIPO have already raised this issue of counterfeiters taking advantage of trade facilities to strengthen (licit) international trade flows in different studies such as OECD/EUIPO (2018[6]), OECD/EUIPO (2021[7]) and OECD/EUIPO (2021[5]).
Source: OECD calculations.
Source: OECD calculations
When examining Korean IPR-infringing goods consumed both domestically and abroad, the total value of this trade amounted to almost USD 9.7 billion dollars in 2021, which represented 0.96% of total sales (domestic sales plus exports) (Table 3.1). This table also indicates that the volume of trade in goods violating Korean IPRs represented 1.5% of total Korean exports in 2021. When considering only the exports of industries affected by counterfeiting, this share amounted to 3.2%.
This table also highlights how the share of trade in counterfeits violating Korean IPRs has changed over time. This trade represented up to 2% of Korean exports in 2013.
Note: Sales data for the Korean manufacturing industry are available up to 2018, and the data for 2019-20 are estimates.
Source: OECD global customs seizures and OECD Structural and Demographic Business Statistics (SDBS) database.
3.4.2. Which sectors are most affected by counterfeit trade?
Figure 3.15 shows for all sectors suffering from IP infringement the value of fake trade in 2019. Unsurprisingly, trademarks and patents of Korean residents related to electrical household appliances, electronic and telecommunications equipment were particularly targeted by counterfeiters in global trade. This sector represented 64% of the global value of trade infringing Korean IPR holders, equivalent to USD 1.7 billion in 2019.
Source: OECD calculations.
Figure 3.16 illustrates the value of fake trade in 2021 for key sectors suffering from IP infringement. Unsurprisingly, Korean IPRs related to electrical household appliances, electronic and telecommunications equipment were particularly targeted by counterfeiters in global trade. This sector represented 62% of the global value of trade infringing Korean IPR holders, equivalent to USD 6.1 billion in 2021. The Korean automotive industry was also targeted by counterfeiting with a volume of fakes reaching USD 2.5 billion in 2021.
In USD billion
Source: OECD calculations.