China leads the global market for counterfeit goods

The Office of the U.S. Trade Representative USTR released its annual review of the market for counterfeiting and piracy on Tuesday, which found that China led the world in producing bootlegged goods in violation of intellectual property laws.

The USTR report found that China continues to be the number one source of counterfeit products in the world. Counterfeit and pirated goods from China, together with transshipped goods from China to Hong Kong, made up 75% of the value measured by the suggested retail price of counterfeit and pirated goods seized by U.S. Customs and Border Protection in 2021. The health and safety of consumers can be seriously affected by counterfeit and pirated products. Phony products can cost the legitimate holders of intellectual property IP rights a lot of money and lead to job losses at affected companies.

The USTR points to a 2019 analysis by the U.S. Chamber of Commerce's Global Innovation Policy Center, which shows that digital video piracy alone leads to the loss of $29.2 billion in domestic revenues in the U.S. economy.

It found that illegal downloads and streaming of movies and TV shows cause an estimated loss of over $45 billion in gross domestic product GDP and up to 230,000 jobs, as IP-holding employers have to trim their budgets to account for less returns on their investment.

The USTR report notes that sellers of counterfeit merchandise often use brick and mortar storefronts in marketplaces as fulfillment centers for online sales, as well as serving as a place to make sales directly to customers or conduct product testing.

It identified several markets in China that serve as hubs for counterfeit goods, including a group of 20 malls in Guangdong Province that holders of IP rights described as the epicenter of the counterfeit electronics trade, where computer chips and other components are distributed to counterfeiters in China and abroad. Vendors at the malls sell counterfeit phones, tablets, earbuds, and other similar items.

USTR notes that as foot traffic in malls and markets in China decreased due to the pandemic-related restrictions, many counterfeiters switched to online sales.

The agency warns that there could be an increase in the volume of counterfeits without more enforcement as China loosens those restrictions and foot traffic returns. Many people move their focus on online sales or shift their business hours to when the raid doesn't occur, even though some local authorities have raided counterfeiters' shops.

The USTR's report on the notorious markets for counterfeit and pirated goods noted that multiple locations in Argentina, India, Mexico, Russia and Vietnam were flagged by IP rights holders for selling and distributing goods.