A panel examines the perils of the knockoff economy, and what to do about it.
Counterfeit goods make up 3.3% of all global trade, according to Business Insider. In spite of the allure of deeply discounted prices made available to consumers on e-commerce giants like SHEIN or Temu, most Americans would agree that knocking off a product or stealing intellectual property is wrong.
But counterfeits pose a myriad of dangers to those who purchase them, unwittingly or not. Not only is counterfeiting a common front for other criminal enterprises, increasing crime rates in all countries involved, counterfeit products have been shown to carry cadmium and lead — toxic heavy metals — as well as biohazardous waste including rat droppings from unsafe production environments and even horse urine. Those facts alone should be enough to ward off consumers, and that’s before the larger financial dangers are even mentioned.
A panel discussion hosted by the Information Technology & Innovation Foundation (ITIF) last week explored this topic more deeply. The panelists largely agreed with the findings of a recently released ITIF report that examines how China’s e-commerce marketplace facilitate counterfeit sales.
“I see [counterfeiting] in terms of asymmetric unconventional warfare,” said Camilla Bosanquet, Ph.D. candidate and doctoral research fellow at the Terrorism, Transnational Crime and Corruption Center at George Mason University. “It’s clear to me that the proliferation of counterfeit goods across the marketplace platforms can be understood in terms of financial, cyber, trade and legal warfare at a minimum,” Bosanquet pointed to a Chinese military strategy document that “articulates non-military approaches to weaken or defeat opponents,” and suggested that counterfeiting – which undermines consumer trust and undercuts original producers – fits such a strategy neatly.
That also jives with the ITIF report, authored by panel moderator Eli Clemens. It noted an estimate produced by the Buy Safe America Coalition, which found counterfeits caused roughly $54 billion in lost sales for domestic retailers, and that hundreds of thousand retail and wholesale jobs, “paying $13.6 billion in wages, were lost due to those counterfeit imports. [The coalition estimates] counterfeit goods cost the U.S. government $13.5 billion in lost tax revenue.”
“If you eradicate counterfeiting, you’re going to disrupt the local economy, and [China] has no interest in doing so.”
Daniel C.K. Chow
Dan Chow, a professor of law at Ohio State University in the East Asian Studies Center, highlighted that many Chinese e-commerce websites do not require business authentication to sell on the site. The ITIF report, which attempted to understand the prevalence of counterfeit goods on these platforms via a series of test purchases, was only able to verify fake products once the original manufacturer deemed it counterfeit. Companies like Alibaba have paid verification options, meaning to prove a business license’s validity, companies must first pay up. It becomes cost efficient to not pay for either, and because these companies are so influential, the Chinese government doesn’t enforce their own law. This undermines legitimate manufacturers and encourages perpetuated unethical labor standards to stay hidden.
“The fact that there’s so much social and political acceptance of counterfeiting means that counterfeiting has been completely integrated into the legitimate local economy. If you eradicate counterfeiting, you’re going to disrupt the local economy, and [China] has no interest in doing so,” said Chow.
Recently, the U.S. has taken a step in the right direction by removing the de minimis loophole, which allowed shipments into the U.S. valued under $800 to be exempt from tariffs and customs inspections. Almost 37% “of all seized shipments in 2019 were [de minimis] shipments, showing how significant the de minimis exemption was to those importing counterfeits,” said Clemens in the report.
A complete eradication of counterfeit imports is a lofty goal for any single country alone. But, with current shifts in trade negotiations with China, all panelists proposed stipulations could be put in place to combat counterfeit goods from continuing to stream into the U.S. If both countries can align on cracking down on counterfeits, the markets will slow down.
Applications for stipulations could include enforcing rigorous business and manufacturer authentication laws on e-commerce websites, re-implementing government anti-counterfeiting and intellectual property enforcement, and utilizing private sector authentication companies such as Entrupy (represented by Jake Stewart on the panel) to aid in verifying companies and products before they enter the U.S. It was a fascinating conversation; you can watch the whole thing below: