Free Trade Zones as Means to Facilitate Counterfeiting

In April 2016, the Organisation for Economic Co-operation and Development (OECD) and the European Union Intellectual Property Office (EUIPO) adopted the “General Trade-Related Index of Counterfeiting for Products” to measure and analyze the phenomenon of counterfeiting. They aimed at providing lawmakers with solid empirical evidence. The study showed that counterfeiting accounted for 2.5% of global trade OECD-EUIPO, Trade in Counterfeit and Pirated Goods, Mapping the Economic Impact, 2016.
More recently, OECD and EUIPO have continued their study of counterfeiting by focusing on the role of free trade zones (FTZs), including special economic zones.
FTZs are characterized primarily by tax benefits or exemptions. Since the goal is to streamline trade, customs procedures are simplified. Furthermore, traders have the chance to change the packaging and labeling of marketed products. In such circumstances, It counterfeiters are naturally inclined to use these channels to export and import counterfeit goods. It remained to prove it by measuring tools.
This new report by OECD and EUIPO was therefore intended to demonstrate a correlation between FTZs and counterfeiting. To this end, the report’s authors cross-tabulated the data from the 2016 report with those from institutions analyzing FTZs.
The results speak for themselves: “The larger number of firms and employees in EPZs, and the greater value of exports from the regions, the larger value of counterfeit and pirated products of the country’s economy. In other words, the larger size of FTZs within an economy, the more this economy appears to be a potential source of counterfeit and pirated products in global trade “(p.46).
Unsurprisingly, the Chinese FTZs appear as areas facilitating the trade of counterfeit products. And we should bear in mind that, in 2017, the number of FTZs has increased in China, from 4 to 11 (Shanghai, Tianjin, Guangdong, Fujian, Liaoning, Zhejiang, Henan, Hubei, Chongqing, Sichuan, and Shaanxi).
This study could foster the emergence of new regulations to improve anti-counterfeiting procedures in FTZs. It refers in particular to the practice set up in US FTZs, where controls are frequent and drastic (p. 45).