Free trade zones promote counterfeiting, new study shows

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Establishing free trade zones leads to a significant increase in illicit exports – that is a main result of a new study by the EU and OECD which examines the trade in counterfeit goods in free trade zones worldwide. Business representatives are calling on the authorities to take action.

The study Trade in Counterfeit Goods and Free Trade Zones shows a direct link between the number of free trade zones within a country and the value of exported counterfeits. According to the report, establishing a single new free trade zone in an economy is enough to increase the value of exported counterfeits by 5.9%.

The OECD (Organisation for Economic Cooperation and Development) and EUIPO (European Union Intellectual Property Office) presented the study in Paris in mid-March. In addition to specific statistics on free trade zones, it is also based on information from customs authorities in almost 100 countries worldwide.

„[Free trade zones] are routinely exploited to facilitate trade in counterfeit and pirated products, as well as smuggling and money laundering“, commented Jeffrey Hardy, Director General of the independent business initiative Transnational Alliance to Combat Illicit Trade (TRACIT). For him, the report confirms what companies have been fearing for a long time already.

The EUIPO and OECD experts consider feeble regulations and controls, which are aimed at attracting foreign investment and promoting the economy in a region, as a cause for the strong connection between free trade zones and counterfeiting. Although legitimate companies, especially in developing countries, often considerably benefit from such liberties – counterfeiters cash in on them too.

In detail, the EUIPO and OECD report sees that an increase in exports and investment in free trade zones also encourages trade in counterfeiting:

  • If the value of exports from a country’s free trade zones increases by 1%, the value of counterfeit products exported increases by 0.28%.
  • If the number of businesses operating in free trade zones or the number of persons employed in such areas increases by 1%, the value of counterfeit products exported increases by 0.29% or 0.21%, respectively.
  • If investments within a free trade zone increase by 1%, the value of counterfeit products exported increases by 0.17%.

Worldwide, there are more than 3,500 free trade zones in around 130 countries, employing around 66 million people in total. Therefore, TRACIT sees an urgent need for action. “We encourage the OECD to continue taking a leadership role in addressing transparency in [free trade zones], strengthening cooperation with stakeholders, and encouraging the development of good practices to reduce zone vulnerabilities to illicit trade,” Hardy said.

Sources: EUIPO, OECD, TRACIT, World Trademark Review

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