Booming SEA economies plagued by counterfeit problem

IP border protection in South East Asia

South-East Asia (SEA) is a rising star in the global economy, a region of 11 countries between China and Australia that is fighting for more recognition than just cheap travel and great food. The SEA economy is worth US$2.6 trillion[1], it is the world’s fastest growing internet region[2], 4 SEA countries (Cambodia, Laos, Myanmar and Vietnam) are the world’s top 10 fastest growing economies[3], and it is set to become the world’s 5th largest economy by 2020[4]. Its enviable growth is fuelled by its large population of over 620 million, the majority of which are of working age, and an emerging middle class with a growing appetite for quality consumer products from all around the world, which are now accessible at their digital fingertips. E-commerce sales in SEA grew at an astounding 41% in CAGR (Compound Annual Growth Rate) just between 2015-7[5]

However, one of the problems of this impressive consumer sector boom is the equally booming trade in counterfeit goods in SEA. Counterfeiting is a complex problem that not only undermines the innovation of IP owners but also bears negative social, economical and political consequences for the countries and stakeholders involved.

The China problem  

China and SEA have been co-dependent for centuries, due to geographical proximity and trade history. China remains ASEAN’s largest trade partner for the 9th consecutive year[6], with over US$500 billion in trade volume last year. This is also true for the lucrative illicit trade. Counterfeits have long been imported from China into SEA via porous land and sea borders, underpinning SEA’s longstanding reputation as a shopping haven for consumer fakes from designer goods to electronics, with dedicated counterfeit hotspots in most major cities. While precise data is unavailable, IP owners estimate 50-80% of fakes sold in SEA are made in China[7].

SEA’s growing consumer and e-commerce demand, China’s supply of higher quality counterfeits, and the ease of import into SEA, continue to fuel the booming counterfeit trade. Most SEA countries (except Singapore) have relatively weak rule of law and less mature legal systems so are not able to provide effective deterrent against counterfeit trade both inland and at borders. Customs authorities are still largely ineffective, due to corruption, lack of manpower, resources and skills to control their vast land and sea borders.

 

SEA borders  

The vast boundaries and coastlines of SEA countries remain a major challenge for IP border protection in SEA. Goods are frequently smuggled through the porous land borders between China and its bordering SEA countries, and between SEA countries. One very problematic land border is the southern land border between Vietnam and China, a major entry point for Chinese goods entering Vietnam. The border is very long and geographically complex (combination of land, rivers and forests), which means only limited parts are monitored. Newly opened Myanmar is increasingly a worry with its long border with China. Laos also has borders with China where goods cross into SEA before continuing into Indochina.  Meanwhile, Indonesia, the world’s largest archipelago and Philippines struggle to police their thousands of sea ports which are frequently used to transport illegal goods.

Free Trade Zones (FTZs) are also often involved in the transport of fake goods, where goods are later assembled, branded and smuggled into other markets[8]. The fundamental problem is that although FTZs are technically subject to national laws, Customs are often prevented from policing FTZs. There are many FTZs in SEA, and many of them are infamous for this, for example Port Klang in Peninsula Malaysia, Labuan in East Malaysia, Cavite in Manila and Batam in Indonesia (a short 30km hop from Singapore and Johor state in Malaysia, with preferential treatment for freight forwarders from Singapore who can use Batam for storage, change of shipments, product assembly, branding and packaging). 

Individual countries

The political state determines enforcement commitment levels, and this applies to IP border protection in SEA countries. It is fair to say political inaction is one reason SEA countries have not been able to provide an effective deterrent to illicit trade. Emerging democracies have other more important issues to focus on[9].

Indonesia

SEA’s largest economy, Indonesia has come a long way in the past 20 years as a maturing democracy, however corruption, weak institutions and identity politics continue to hold Indonesia back from realising its huge potential. The current president Jokowi is generally popular and lauded for his commitment to structural reforms and foreign investments[10], however often at the expense of foreign businesses, as illustrated by the protectionist measures in new laws including the new Customs IP recordal system[11]. Presidential and legislative elections take place in 2019, which will impact investment and business climate, and the use of the new Customs IP system.

Thailand

Thailand’s IP border protection system operates reasonably well; it is the only SEA country that makes meaningful numbers of seizures. Thailand will also head to the polls next year, so time will tell if the new government will continue to improve Customs IP enforcement. Thailand is an important exporter of clothing and textile goods[12] so controlling fake exports through Customs is as important as imports.

Malaysia

Following Malaysia’s historic government change in May, the new government appears to be committed to addressing the country’s fiscal position and reducing corruption[13], priorities which can drive an effective IP border protection with the promise of increased tax revenue from legitimate trade and increased foreign investment from an improved business environment. Malaysia suffers from export of some counterfeits which is not addressed yet.

Myanmar

Myanmar is in the final stage of introducing its IP laws[14] so it will take some time for the country to implement them before it gets to adequate IP border protection. Customs can seize goods under the old laws, but the massive lawless land border with China is causing widespread concern as a major illicit goods entry point.

Laos

Laos has recently amended its IP laws, and has provided for ex-officio customs IP enforcement although more rules are required[15]. It is too closed to be of commercial interest to most IP holders but some worry it is a transit for goods over its border with China.

Singapore

Singapore is the largest transhipment hub in the world, and while it has the strongest Customs environment in SEA for goods entering Singapore, lawsuits against shippers are expensive and rarely yield any useful remedy. Singapore has been called out for its failure to monitor illicit trade[16]. IP holders argue that Singapore has an ethical responsibility to do more than collect container fees without regard to the goods inside, as illicit goods pass through to other destinations.

Philippines

Philippines has had a Customs recordal system for many years. Customs routinely make seizures of fake goods in Manila. But this masks a serious problem. Almost no border seizure is made at the ports. Customs monitor shipments into the country then occasionally seize random fake goods inland. The belief is that the importer has failed to pay whatever duties were asked of him. IP holders often don’t bother to record IP now as no seizures will result.

Vietnam

Vietnam has a porous land border with China, with unique problems. It also has major shipping ports in Haiphong and Ho Chinh Minh among others. Land and sea shipments are occasionally seized.

ASEAN’s role

The Association of SEA nations, ASEAN has a Strategic Plan for Customs Development to improve intra-regional collaboration in fighting transnational crime and illicit trade, and to promote trade facilitation[17]. Its IPR Action Plan 2016-2025 focuses on IP enforcement for the first time. It is not yet clear how Customs will fit into this. SEA Customs officials do participate in knowledge sharing workshops[18]; and Singapore and Thailand have recently signed a Mutual Recognition Agreement (MRA) to improve their risks assessments of shipments and to facilitate trade by expediting Customs clearance for low risk shipments[19]. Long term commitment and investment are required from all SEA governments before the full benefits of an effective Customs IP system can be realised.

Summary table of SEA Customs

Country

Recordal system

No. of recordals

No. of Customs seizures p.a.

Type of Customs seizures

Comments

Myanmar

 

Yes

(ad hoc application under current system)

20

1 or 2

(2014 -2018)

Imports

Customs action is possible under the old laws. This system will be carried into the new Trademark Law once it enters into force but recordal validity is limited to 6 months.

Thailand

 

Yes

1,077 recordals per Customs database

763 cases (717,925 items in 2017)

 

425 cases (9,806,959 items Jan – May 2018)

Imports, exports and transshipped goods

Recordals of marks with verification guides/brand training for Customs can help ensure Customs seizures are done efficiently.      

Vietnam

 

Yes

68 (2015)

20 (2016)

32 (2017)

No official published data

Imports; few exports and transshipped goods

Many counterfeits come over the northern land border or are smuggled via unofficial borders. In practice Vietnam Customs is cooperative, but these border issue transcend IP. Customs is willing to escalate high volume seizures to criminal prosecutions if it meets criminal thresholds.

Philippines

 

Yes

Est. 83 recordals as of mid-2018

No official published data; customs reports fakes seized inland in 2017 at Php 5.8 billion (~USD108 Million)

Imports

IP recordal is possible but in practice few border seizures for recorded IP occurs. Customs prefer inland seizures only when duty is unpaid.  

Indonesia

 

Yes

0

No official data but there was 1 reported Customs seizure in 2017

Imports

A new recordal system was introduced in late June 2018, but no recordal has been filed at the time of writing. Major protectionist barriers exist (only companies with local subsidiaries can record).

Singapore

 

No

0

A handful of cases per year

Imports

No recordal system but Customs can seize based on information on a specific shipment provided by the IP owner.

Malaysia

No

0

A handful of cases per year, but no official published data

Imports

No recordal system but Customs can seize based on information on a specific shipment provided by the IP owner. The requirements and procedures are impractical so seizures are rare.

Cambodia

No

No

No official published data

Imports and exports

Customs has limited resources to suspend clearance of goods and inspect cargoes. Corruption is a risk, and the IP owner has to apply for detention of suspected fakes.

 

This article was first published by Intellectual Property Magazine in August 2018.

[1] https://www.bloomberg.com/news/articles/2017-08-06/fifty-years-on-southeast-asia-emerges-as-global-growth-leader

[2] Google-Temasek’s eConomy SEA Spotlight 2017 report.

[3] https://www.economist.com/graphic-detail/2018/01/05/the-fastest-growing-and-shrinking-economies-in-2018

[4] https://www.bloomberg.com/news/articles/2017-08-06/fifty-years-on-southeast-asia-emerges-as-global-growth-leader

[5] Google-Temasek’s eConomy SEA Spotlight 2017 report.

[6] http://www.chinadaily.com.cn/a/201807/18/WS5b4eb49ea310796df4df72d8.html

[7] UKIPO 2015 Report on China-SEA Counterfeiting

[8] UKIPO 2015 Report on China-SEA Counterfeiting.

[9] UKIPO 2015 Report on China-SEA Counterfeiting.

[10] https://www.indonesia-investments.com/news/news-columns/business-politics-eyeing-indonesia-s-2019-presidential-election/item8432?

[11] https://www.rouse.com/magazine/news/indonesia-customs-implementing-regulations-for-ip-recordal-and-seizure-passed/

[12] EU Customs seizures data.

[13] https://www.channelnewsasia.com/news/asia/malaysian-pm-mahathir-lays-out-priorities-for-new-government-10222400

[14] http://ipkomododragon.blogspot.com/2018/03/myanmars-patent-designs-copyright-and.html

[15] http://ipkomododragon.blogspot.com/search/label/Myanmar%20IP

[16] https://www.straitstimes.com/singapore/spore-ranks-7th-in-index-on-illicit-trade-environment

[17] http://asean.org/storage/2012/05/Consolidated-Strategic-Action-Plan-endorsed-060217rev.pdf

[18] http://www.wcoomd.org/en/media/newsroom/2018/july/wco-supports-the-asean-member-states-to-strengthen-their-ipr-border-enforcement.aspx

[19] http://www.wcoomd.org/en/media/newsroom/2018/july/singapore-and-thailand-sign-an-aeo-mutual-recognition-arrangement.aspx