Dangerous Fakes

4. Concluding Remarks

World trade continues to expand during the post-COVID recovery phase, bringing significant benefits to business and consumers alike, by providing them with opportunities to purchase a wide variety of goods at competitive prices from global suppliers. In the case of business, the development of global value chains has further enhanced the value of trade.

The revival of trade and continued efforts to lower barriers is an essential element of “building back better” policies. However, there are some risks related to the presence of illicit trade networks that pollute trade networks with counterfeit goods, generating significant health, safety and environmental threats.

Counterfeit goods have a wide range of negative consequences. Legitimate producers lose sales to counterfeiters, governments lose taxes and face corruption, while criminals thrive and expand illicit trade networks. This study highlights that in addition to these effects, counterfeits also can pose serious health, safety, environmental and other societal risks. Individuals who are unaware of the issue, can fall victim to low quality counterfeit products thereby threatening their health, and in some cases, their lives.

This study has analysed a unique international set of customs seizure data and other enforcement data, combining it with structured interviews with enforcement experts, to quantitatively assess the scope and trends of the trade in counterfeit products that can pose health, safety and environmental threats.

In terms of negative effects on health, this is particularly the case for counterfeit food, beverages, pharmaceuticals and related personal care items which have been improperly formulated or which contain ingredients that can be harmful. Such negative effects can ranging from mild inconveniences to consumers, to life-threatening situations. Moreover, in the case of pharmaceuticals, the lack of active ingredients can deprive consumers of the possibility to treat diseases effectively, thus prolonging illnesses that would otherwise be treatable.

Regarding the effects on safety, substandard counterfeit products raise serious safety concerns for a wide range of consumer products. Evidence provided by testing and certification bodies underscores that the volume of consumer products that can pose such risks (and are subject to testing and certification) is very broad, and includes toys, electronic devices, batteries, spare parts or household products.

Substandard counterfeit products often also have environmentally damaging consequences. Both the manufacture and the disposal of counterfeit items can have major impacts on the environment. In the manufacture of products, the use of toxic dyes, unlawful disposal of chemicals, and unregulated air pollution are problematic.

Importantly, many dangerous counterfeit products pose several risks at the same time. For example, a counterfeit pesticide can be harmful to the environment while at the same time posing health risks to people; fake spare parts (e.g. car battery) can pose safety and environmental risk; and a counterfeit medical device can pose both safety and health threats.

In addition, while some products could be considered relatively safe when they are manufactured, subsequent mishandling can pose problems. This is particularly the case for counterfeits and can happen for example, if goods are improperly stored or transported. For example products such as medicines often require transport and storage in special, temperature-controlled conditions in order to maintain their therapeutic value.

Of course the two sets: counterfeit goods and dangerous goods, are not perfectly overlapping. Some genuine products can also pose health, safety and environmental threats, which is why regulatory bodies are actively engaged in market surveillance. On the other hand absolute majority of fakes can pose some risks. This is because counterfeiters, have no incentives to meet any health, safety or environmental norms. While nearly all counterfeits are risky, some analytical approaches can be taken to take into account the varying degree of threats. Taking a broad approach that looks at all products that need to meet product specific health and safety requirements, before being placed on the market, one finds that apparel products, leather goods, electronics, watches and toys are the most frequently targeted products by counterfeiters.

A more focused approach that looks only at the most dangerous goods’ categories: foodstuffs, pharmaceuticals, cosmetics and products that most frequently have been subject of alerts due to health, safety or environmental risks, reveals that the most commonly traded product categories of dangerous fakes were perfumery and cosmetics, clothing, toys, automotive spare parts and pharmaceuticals.

In all cases these goods come mostly from China and Hong Kong (China) that were identified as the main exporters of dangerous fakes accounting for more than three quarters of seizures.

Postal parcels – driven by the rising popularity of e-commerce – are the most popular ways of shipping counterfeit dangerous goods, significantly complicating the screening and detection processes and lowering the risk of detection and penalties. The EU countries and the United States were the main destination economies of the small parcels of dangerous goods. However, taking into account the value of the seizures, shipment by sea cargo clearly dominates; the distribution of destinations of dangerous fakes shipped by sea varied, with Gulf countries on top.

Importantly, online sales represented 60% of global seizures of dangerous products destined to the EU. In terms of seized value, they only represented a small share. In terms of dangerous fakes ordered online cosmetics items were on top, followed by clothing, toys and automotive spare parts.

The presence of dangerous counterfeit products also damages the value of the brand and image of the producers of genuine products over time. Effects of this sort were reported to several surveys as being linked to “erosion of company name” or “destruction of brand reputation”. Such indications came from respondents across numerous sectors including consumer electronics, information and computers, electrical equipment, food and drink, luxury goods, sportswear, automotive spare parts and car accessories and pharmaceuticals (UKIPO, 2021[27]).

The COVID-19 pandemic has affected trade in dangerous fake goods, as it increased the demand of categories of products that are related to stronger health and safety standards and the original producers of those categories of goods were not able to quickly meet the higher demand. This is particularly the case for counterfeit medicines, and some other high-risk sectors such as food and alcohol, where broken supply chains and shifting demand opened new opportunities for criminals. However, the overall sharp increase in fakes concerned not only medicines and personal protective equipment (PPE) but many other goods that can also pose health and safety risks, including consumer goods and spare parts.

Health, safety and environmental risks posed by counterfeits are strong deterrents for consumers who consider purchasing counterfeit products. Consequently, precise and factual messaging on such risks could strengthen the awareness campaigns, and consequently reduce demand for fakes.

Next steps

With complex trade routes and increasingly sophisticated and flexible criminal networks, the health and safety threats posed by the counterfeit goods have become too complex to be addressed adequately by a single stakeholder, or a single country. The volume of risks posed by fakes to consumers, combined with the enormous scale of trade in counterfeits call for strengthening of international co-operation and a whole-of-governments approach.

Such approach should bring together a broad network of stakeholders from multiple countries, and from various sectors of government to foster international collaboration. Lessons learned from existing dedicated action, and special joint operations can provide examples of an effective international, whole-of-governments approach to a globally shared criminal threat.  Still, more work is needed to deepen our understanding of many aspects of the issue – including regulatory frameworks, current trends, and technological challenges, the role of mail stream and free trade zones, and the need for approaches that combine multiple points of view and areas of expertise. 

In addition, the quantitative analysis presented in this report identifies several research areas that might merit further investigation. A more in-depth analysis of these topics could be beneficial for developing efficient enforcement and governance frameworks to counter the risks posed by trade in counterfeit goods:

• Enhancing information collection. There are numerous examples of the adverse effects that counterfeit products can have on public health, safety and on the environment. These examples, however, have limited scope. A more systematic and extensive approach for developing data in this area is therefore needed. This could include application of specific systems on counterfeit medicine (see OECD/EUIPO, 2020) and their gradual adaptation towards other products. It could also include development of platforms for registering infringement-inflicted harm to consumers under public health disease classifications of unintentional injury.

• Examining governance and enforcement gaps. As highlighted by previous OECD/EUIPO studies, closing public governance and enforcement gaps are essential for effective action against illicit trade in counterfeits. Poor governance, corruption and weak intellectual property rights enforcement enable counterfeiters to misuse logistics and trade facilities. Some important provenance economies, where small parcels are very intensely used are characterised by seemingly sound governance and good quality infrastructure. It could be useful for policymakers to probe more deeply into why these economies play such important roles in trade in fake goods.

• Existing research indicates that illicit trade networks are dynamic. This is in addition complicated by the COVID-19 pandemic which has reinforced this dynamism. Further investigation into how these dynamics evolve is needed, either at the industry level or through a case-by-case analysis. This investigation should take into account the interplay between corruption, intellectual property enforcement gaps and the trade in dangerous fakes.