Illicit Trade and the Korean Economy

2.  Measuring counterfeiting and its effects

Quantitative analysis in this report relies principally on two sources of statistical information: trade statistics and seizure data. These data have been complemented with additional relevant industrial and economic data. Moreover, the quantitative analysis was completed with qualitative research based on a literature review and structured interviews with industry experts.

2.1. Trade statistics

Trade statistics are based on the United Nations (UN) Comtrade database (landed customs value). With 171 reporting economies and 247 partner economies (76 economies in addition to reporting economies), the database covers most of world trade and is considered the most comprehensive trade database available. Products are registered on a six-digit Harmonised System (HS) basis, meaning that the level of detail is high. As mentioned above, data used in this report are based on landed customs value, which is the value of merchandise assigned by customs officials for the purpose of assessing tariffs. In most instances, this is the same as the transaction value appearing on accompanying invoices. Landed customs value includes insurance and freight charges incurred when transporting goods from the economy of origin to the economy of importation.

2.1.1. Seizure data

Data on customs seizures originate from national customs administrations. These data are aggregated and harmonised at the national or regional level and then submitted to international agencies that maintain datasets on seizures. Two agencies and two datasets were used as inputs into the analysis of this report:

• The World Customs Organization (WCO)

• The EC Directorate-General for Taxation and Customs Union (DG TAXUD)

The analysis in this report focuses on global customs seizures data available from 2011 to 2021.

Global customs seizures data is generally provided every three years, which explains why the most recent data originates from 2020-2021. This latest data has been given a special focus and has been treated separately. This is because it covers the unique period of COVID-19, which was marked by a distortion in counterfeit trade. The OECD and EUIPO addressed the impact of COVID-19 on illicit trade in their report released in 2024, Illicit Trade under COVID-19.

A detailed analysis of data reveals a set of limitations due to discrepancies between DG TAXUD and WCO datasets, product classification levels, outliers in terms of seized goods or provenance economies and seizures of valuations of seized goods or patent-infringing products. These limitations are broadly discussed in the 2016 study (OECD/EUIPO, 2016[2]). However, it seems appropriate to examine the latter limitation in greater depth given that Korea is particularly active in the field of patent filing.

The share of seizures of patent-infringing goods in the total set of seizures appears relatively small. While this may be surprising given the importance of patents in modern economies, and the easily tradable nature of patent-infringing goods, differences in the way that patent-infringing goods are traded, compared to other tangible goods that infringe trademarks, copyrights or design rights may explain this under representation in the data. In particular, patent infringements are often identified for products that are already in a given economy, and thus seized within economies, so that only a small fraction is seized by customs at borders. Given that there is no robust and sound way of extrapolating the existing information on customs seizures of patent-infringing products into domestic seizures, this report conservatively and exclusively relies on customs seizures. By doing so, this analysis recognises that a large volume of traded patent-infringing products seized domestically remains outside the scope of the analysis.

2.2. What additional data are used?

A quantitative analysis of the scale, magnitude and impacts of counterfeiting needs to take the structure of an economy into account. For example, the volume of counterfeits in each sector should be presented by considering the overall flows of trade in the sectors. Industry impacts, such as job losses and foregone sales taxes should be presented in contrast with the overall volume of employment and sales of the Korean manufacturing sector.

To capture the economic context, the analysis relies on the OECD database on Structural and Demographic Business Statistics. This database provides a wide range of statistics on businesses and business activity. It features a number of key variables, such as value added, operating surplus, employment, and turnover, for example, broken down by 4-digit International Standard of Industrial Classification (ISIC Revision 4) industry groups. This enables for more precise impact estimates to be made at the manufacturing sector’s level.