Mr. Wolfgang Hubner, Counsellor Directorate for Science, Technology and Industry, OECD: „Analysis carried out in this report indicates that international trade in counterfeit and pirated products could have been up to usd 200 bilion in 2005“

Organization for Economic Co-operation and Development (OECD) is an organization of 30 member countries committed to democracy and the market economy. It is also a provider of comparative data, analysis and forecasts so that governments can compare policy experience, seek answers to common problems, identify good practice and co-ordinate policies. The organization is established in 1961 and is located in Paris, France

The report „The Economic Impact of Counterfeiting and Piracy“ aims to raise the understanding and awareness of society about the harmful effect of counterfeiting and pirated goods and their negative impact on the international economy.

Mr. Wolfgang Hubner, Counsellor Directorate for Science, Technology and Industry, OECD and leader of the team which carried out the research, explains more about the main purpose of this report, the new econometric method applied for, the magnitude and scope of this illicit business in an exclusive interview for

Could you tell us more about the people in your team? What is its structure?

The study was undertaken by a small team of economists of the Structural Policy Division of the Directorate for Science Technology and Industry of the OECD.

What is the main purpose of this report and what kind of effects do you expect to see in the foreseeable future?

Protection of intellectual property rights (IPR) is an issue of high importance and increasing priority for governments. Its importance reflects the growing recognition of the key role that intellectual property (IP) plays in promoting innovation and growth on the one hand, and, on the other, increasing concern with the adverse effects that counterfeiting and piracy are having on economies and society as a whole.

The objective of the study is to improve factual understanding and awareness of the harmful effects that infringements of intellectual property rights, as described and defined in the WTO TRIPS Agreement, have on governments, business and consumers in OECD member countries and non-member economies. It aims to lay the basis for a more informed dealing with the phenomenon of counterfeiting and piracy in the future.The study focuses on counterfeit and pirated products (i.e. tangible products that infringe trademarks or copyrights) as well as patent and design infringements.

What were the most substantial difficulties you encountered while gathering this valuable information?

The lack of information on the magnitude, scope and effects of counterfeiting and piracy worldwide have been the main factor hampering the investigations

It is said in the report that the potential magnitude counterfeited and pirated goods has been estimated with a new econometric model. Could you tell us more about this model and its advantages?

The overall degree to which products are being counterfeited and pirated is unknown, and there do not appear to be any methodologies which could be employed to develop an acceptable overall estimate. The clandestine nature of many counterfeiting/piracy activities, the general lack of indicative data and the difficulty in detecting counterfeit/products contribute to difficulties in this regard. Analysis has therefore focused on international trade, where data, from customs authorities, are more abundant.

A model was developed which using the customs seizure/interception data (adjusted for known biases) to establish an indirect estimation framework. Running the model resulted in the development of two sets of data which established (i) the product categories in international trade that were most likely to be counterfeit/pirated and (ii) the economies that were most likely to be sources of such goods. The results indicated that the likelihoods were highest in the case of (i) imports of textiles, articles of leather, and tobacco and (ii) imports from Asian economies.

The two sets of data were then combined to develop a matrix indicating the relative likelihoods that imports of specific products from specific economies would be counterfeit/ pirated. Further analysis led to the conclusion that up to USD 200 billion of international trade could be in counterfeit/pirated products. , which is higher than the GDP of close to 150 of the world’s economies. This estimate further implies that customs authorities are only intercepting a small fraction of the actual trade in counterfeit and pirated products; this is not unexpected in light of the (i) difficulty in detecting counterfeit/pirated products, (ii) the high volume of international trade and (iii) the limited ability of customs to screen shipments.

The estimate of magnitude should be viewed as a crude indicator, which would greatly benefit from improved information on interceptions/seizures. The customs data used had significant shortcomings as the number of governments providing information was limited and the completeness of the responses varied considerably.

It is emphasised that the estimate only relates to international trade in counterfeit/pirated products. It is therefore only a piece, albeit an important one, of the total picture, as a large volume of counterfeit/pirated products never enters into international trade.

Do you have any data about the scale of this illicit industry in Bulgaria?

No, we have no specific information on counterfeiting and piracy in Bulgaria, the OECD analysis is a global one, no country specific investigations were undertaken.

What are the most dangerous and risky counterfeited and pirated goods? Which trademark is counterfeited most often?

Of increasing concern is the growing incidence of counterfeits found in common food, drink, pharmaceutical, automotive and household products, where these could pose significant health and safety risks to consumers. A relatively recent phenomenon is that these products find their way into legitimate distribution systems, and thus on to shelves in shops right next to genuine goods.

Automotive parts such as brake pads, engine and chassis parts and airbag mechanisms are among the items that have been counterfeited. In some instances the deficiencies of these products seriously impair the safety of vehicles. Pharmaceuticals used for treating a wide range of ailments from cancer, HIV, to cardiovascular disease have also been counterfeited. These products may be manufactured and produced in the most dismal and unsanitary conditions and can according to the formula or ingredients used leave patients at risk of going untreated, or worsening, and even dying. Normal household products also pose a risk. For example the popular household batteries used in toys and products used by children have been known to leak or explode. Food and drink products such as fake baby formula and poorly distilled raw spirits have also had devastating effects on consumers.

It is underlined in the report that cooperation between governments, industry and consumers is essential in the combat with piracy. What are the preventive actions that every country must undertake in order to narrow the illegal export and import in its territory?

The overall complexity of the problem means there is no single remedy. Governments, industry and consumers need to take broad and comprehensive action to reverse the tendency:

This includes:

· More effective enforcement of existing legislation

· Improved information and analysis to provide governments and other stakeholders with a firmer basis for developing more informed and effective policies and programmes

· Increased co-operation between governments, and with industry

· Improving supply chain management

· Building public awareness of the problem and support to combat counterfeiting and piracy

The OECD report suggests ways to develop information and analysis, strengthen legal and regulatory frameworks, enhance enforcement and deepen the evaluation of policies programs and practices. It outlines some important initiatives taken by governments, at national and international level, and industry that have yielded results. These initiatives include seizing the profits of criminal activities and redirecting a proportion of them back into law enforcement, increased government/industry co-operation in enforcement, training programs, education programs in schools and consumer awareness campaigns.

Undoubtedly, governments and industry have been doing a lot to limit the problem. Despite these efforts the illicit industry is still thriving. In your opinion, where is the weakest point in the strategy they have applied to overcome the problem?

Two points:

i) The enforcement of existing legislation is the key challenge and could be improved in all markets. Strengthened regulatory frameworks are important complements to these efforts

ii) Increased efforts are needed to educate consumers of the problem and its far reaching consequences

Do you think that the existing international legislation is sufficient and would you like to see any improvements in it?

A quite common view is that the international normative framework against counterfeiting and piracy is sufficient and that effectiveness depends exclusively on proper implementation of the existing rules. However, in recent years, the IP enforcement norms agreed at the regional and bilateral levels, developed on the basis of the TRIPS, have surpassed the TRIPS itself.

In a number of cases, the obligations contained in these agreements go beyond those contained in TRIPS, suggesting that there may be areas in which WTO disciplines could be strengthened. Consideration could be given, for example, to:

(i) expanding civil remedies in ways that would increase the cost to infringing parties;

(ii) expanding the scope of border measures to cover exports as well as goods in transit or transhipment;

(iii) expanding the scope of the application of criminal sanctions; and (iv) requiring that certain types of information related to counterfeiting and piracy be made available to the public.

Continued study by national experts is needed to determine whether and how global IPR enforcement efforts could be enhanced by strengthening the international legal framework or harmonization of enforcement measures