Countering Counterfeit Trade - Assignment Example

ABSTRACT Counterfeit auto parts are available in large quantities in the UAE. It causes economic, health, and emotional costs to various sections like the government, the consumers, the dealers, and manufactures. In spite of efforts by various sections mentioned above, the treat still remains. Experts argue that as long as demand for counterfeit products is eliminated, such products will be available in the market. Education and training campaigns, stricter laws, stronger enforcement, and cooperation among various stakeholders can bring down this menace to a large extent Introduction: Counterfeiting is a big business in the world today. It is so big that the total volume of counterfeit (and pirated) goods in the world exceeds the GDP of certain countries. The International Ant-counterfeiting Coalition (IACC) estimates this figure at around 600billion dollars per year. The sad fact is that the menace is growing and many countries and organizations negatively affected by it are quite helpless to find a solution to the menace. The IACC says that the growth of counterfeiting over the last twenty years has been about ten thousand percent. Astonishingly, one of the reasons behind this growth is the consumer demand for counterfeit goods. This paper is an assessment of the counterfeit auto parts industry in the United Arab Emirates in particular and the other countries in the GCC in general. In the process the nature of the industry, costs to consumers and affected organizations, the reason why people buy counterfeit products (auto parts), some statistics, anti-counterfeiting groups, etc will also be reviewed. This will be followed by some recommendations on how this can be brought down (if not eliminated altogether) and a conclusion summing up the paper. It should be noted that most of what has been written here has been sourced from articles that appeared in the Gulf News and Khaleej Times. Nature of the industry: There are three types of auto parts available in the UAE namely original equipment, legitimate parts and counterfeit parts. Original equipments are those made by auto manufactures or by approved original equipment suppliers. Legitimate equipments are those made by other companies sold in their own brand names and will usually be of good quality. They are not intended to cheat the customer. Counterfeit products are usually meant to cheat the customer into thinking that they are genuine. So, in order for goods to be called counterfeit, it should bear the name of any legitimate entity so that the customer thinks that the product is made or appears to be made by them. According to the Agreement on Trade Related Aspects of Intellectual Property Rights, counterfeit products should display the trademark of any other legal entity without its permission. The World Intellectual Property Organization defined counterfeiting of products as products “intended to appear to be so similar to the original as to be passed off as genuine items” (Staake & Fleisch 17). A sizable market in counterfeit auto parts exists in the UAE. One positive aspect is that the affected parties (manufacturers and authorized dealers) are making concerted efforts in tackling the issue. For example, Al Futtaim Motors and Toyota Motor Corporation had undertaken an awareness campaign for such segments as customers, employees and other related section that are a part of the network in auto parts. According to an article in the Gulf News, “the most-commonly produced counterfeit parts are high volume items such as wheel covers, oil and air filters, shock absorbers, fan belts, disc-brake pads and shoes, air-conditioning compressors, starters, spark plugs and oxygen sensors” (Mathew). The following products, according to the article, also made as counterfeit include filters, valves, caps, and all type of fluids used in automobiles (brake fluid, oil, anti-freeze etc). Outwardly, many counterfeit products look and feel exactly alike as genuine and fails miserable only when it comes to actual performance or fit. Counterfeit products can enter a market in two ways. One is where such products are illegally manufactured within the country itself. The other is when they are imported into the UAE from other countries. In both cases the process can happen either with connivance with corrupt officials or in secret without the knowledge of government authorities and other genuine stakeholders. Even though strict laws exist, it is seen as time consuming and expensive to register a complaint. For example, in Dubai, an aggrieved party has to provide the invoice for the fake products, present both genuine and counterfeit samples, provide the name of the importer, and also pay a fee of 2,000 dirham to the concerned authority (Dubai Department of Economic Development). Most new reports say that China (the biggest), Singapore, Malaysia, India, and countries in Africa are the main hubs of counterfeit goods seen in UAE. Another factor is that the UAE (mainly Dubai) is a transit hub of goods. It is estimated to the biggest transit hub of counterfeit goods in the world. Some of the goods can find its way into the country through this way also. The general opinion of experts is that counterfeit parts become available simply because there are enough customers to purchase them (for whatever reasons). Unless the buying stops, counterfeit auto parts will continue to be present in the market. Costs to consumers, economy, government, society: It appears that the only advantage of counterfeit products is to those who manufacture and sell them. Otherwise it can negatively affect many sections like consumers, the economy, the government, and the society as a whole. The consequences of counterfeit products vary depending on the end use of the product. A personal opinion is that it can be classified into financial, emotional, and safety costs. As mentioned earlier auto parts are used for a variety of functions in an automobile, some critical and others not so critical. A counterfeit mirror or horn purchased by a customer will not affect the safety aspect of the occupants of an automobile. At most, it can affect the customer emotionally and financially. The feeling of being cheated can affect the customer emotionally. The cost of purchasing a new replacement can result in additional financial burden to the customer. In other words, counterfeit products may be perceived as cheap initially, but can prove costly to the customer through replacements and other factors mentioned below. The financial costs will be more in the case of say, spurious engine oil. It can affect the life of the engine resulting in higher repair expenses. Moreover, the warranty on the vehicle can be cancelled in case counterfeit parts are detected on the vehicle. But for critical parts, like for example, brake linings. The Motor and Equipment Manufacturers Association has “cited safety violations due to counterfeit auto parts: brake linings made of compressed grass, sawdust or cardboard” (“GET REAL - The Truth About Counterfeiting”). Such a lining can at any point of time result in accidents, injury, and even loss of lives. According to an article titled ‘Fake spares, a major cause of automobile accidents’, in the Gulf News dated November 2000, bursting of tyre while on the road and failure of breaks are major causes of accidents in UAE. Both these can result in causalities and serious damages to automobiles involved in the accident. It can also result in an automobile losing control and hitting innocent pedestrians. Counterfeiting can also result in loss of legitimate employment. Companies loose revenue due to loss of sales which will result in loss of jobs. Loss of revenue by itself is a serious consequence. Manufacturers spend a lot of money and time on developing products. Counterfeiters simply copy the product which results in wastage of resources of the manufacturers. Legitimate manufacturers can also be affected by loss of goodwill. Customers who are affected by counterfeit products will only blame the manufacturer believing that the product was genuine. Counterfeit products do not collect statutory government duties and taxes. The government will lose on these areas of revenue in case of manufacture and sale of such products. Reasons for buying: Counterfeit products are meant to cheat the customer into thinking that the product is an original one. The customer then buys it in good faith. Alternatively, the customer wants a cheap part and does not really care whether the product is genuine or not. If may also happen that the customer knows that it is counterfeit, but buys it for the satisfaction of displaying in front of others a well-known brand (even if it is fake).It should be noted that auto parts are inside the vehicle and not usually visible to outsiders. Hence, customers who buy fake auto parts will not buy them for boosting their ego by displaying well-known brands (counterfeit) like for example watches or clothes. Most customers will be genuinely concerned about their vehicles and safely and will not intentionally buy counterfeit. This will be especially true for parts that are intended for the engine, braking, and other critical components in an automobile. But some may go in for less critical counterfeit parts like dashboard meters, wipers, windshield or mirrors, in order to save some money. Dishonest drivers and employees may buy such products in order to make some money. They will buy counterfeit parts at lower costs, but present a fake invoice to their employers which show that the products are genuine and be priced higher. The difference will go into the pockets of the conniving employees. What customers who buy counterfeit to save money do not realize is the difference between price and cost. The price is what a person pays for a product. The cost is what results from using such a product. A customer who buys a genuine product will have to pay a higher price, but will not be troubled by the product. But a person who buys counterfeit will have to bear additional costs. If counterfeit engine oil is used, it will result in damage which will result in needless repairs and additional costs. In more serious situations costs can occur in the form of damage to health or even loss of lives. Once the customer realizes this, intentional buying of counterfeit products (at least for critical areas) will come down. Another cost that can negatively affect the governments in UAE is the perception of multinationals and other manufactures. If they feel that the UAE is not able to protect the intellectual property rights, the reputation of the regions as a major transit hub will be negatively affected. In the long run, the shipment of legitimate goods through this area may come down which will damage the economy of the region. For most states, oil is still the major source of revenue. But for states like Dubai which is dependent on trade, this will be a major economic blow. Industry statistics: It is estimated by experts that authorized and original manufacturers lose around fifteen and twenty percent of their total revenue due to the presence of counterfeit auto parts. The article in Gulf News titled ‘Fake spare parts a major cause of auto accidents’ in 2000, states that up to eighty percent of auto parts fitted as replacements may be counterfeit. This could be an exaggeration, but serves to highlight the extent of the seriousness of the situation. According to news reports, seizures usually occur in airports, ports, and warehouses. Most of the counterfeit products sold are through independent auto spare shops. Overall, counterfeiting (of all products) costs the UAE in the following manner. A 2008 KPMG study of the situation in the UAE states that, without the presence of counterfeit and pirated products, “the UAE would have increased its non-oil GDP by $1,726.9 million, its tax collection by over $110 million and its employment level by around 31,000 positions” (Maceda). The study also states that auto parts form the biggest component in counterfeits, followed by cigarettes and cosmetics. It is of great concern that nearly seventy percent of the counterfeit goods seen in the market are auto parts. Protection groups: Such groups are formed for organized actions against counterfeiters. Some examples of such groups apart from the IACC and WIPO are the Consumer Protection Directorate (Sharjah), Brand Owners Protection Group (BPG), Arabian Anti-Piracy Alliance (AAA), Emirates Society for Consumer Protection, and the Trade Mark Owners Council. Examples of incidents/seizures: A disturbing fact is that counterfeit products are still available in UAE even though regular raids and seizures take place in the region. A few instances are given below One of the biggest seizure of counterfeit auto parts worth around 36 millions dirham happened in 2005. The seizure by Dubai police included 3 million dirham worth of auto parts bearing the trademark of General Motors. Reports state that these were meant to be exported to other countries in the UAE and elsewhere. It should be remembered that Dubai is a major transit hub for manufactured goods. The seizure of counterfeit products in 2006 showed that compact disks followed by auto parts form a major part of such products. Again in 2005, nearly forty five thousand oil and fuel filters were seized from a warehouse in Dubai. In 2004, Sharjah authorities seized sixty thousand dollars worth of counterfeit auto parts comprising mainly of battery sleeves and oil filters. The raid was done in collaboration with General Motors. Counterfeit auto parts of Toyota worth nearly half a million dirham was identified and seized in 2003. Counterfeit Mercedes and Lexus parts were seized in 2002 and 2001 respectively. In the case of the Lexus parts, officials of Al Futtaim Motors say that they were a perfect match to the originals and it was impossible to distinguish between the fake and genuine parts. Nearly 70,000 fake auto parts were seized in 2006 by Sharjah authorities according to a report by Khaleej Times. The above are some representative examples based on newspaper reports and not a comprehensive report on seizures. Attempted strategies/campaigns to stop counterfeiting: The UAE and its independent states have laws for punishing counterfeiters and those engaged in the trade of fake products. For example, Dubai has a three tier structure of fines in case a person is caught selling, making, or importing fake products. If caught for the 1st time, a fine of 5,000 dirham is collected. This goes up to 15,000 and 200,000 dirham for second and third violations. As mentioned earlier regular raids and inspections also take place. Groups like the ones mentioned above also take an active part in helping to bring down this menace. Regular training and education seminars to educate people are also done. But this section does not warrant too much of space since counterfeit products are still very much present in the UAE indicating that anti-counterfeiting efforts are not very effective. Recommendations: It is essential that customers buy from dealers authorized by manufacturers. This is not to say that non-authorized dealers are crooks. But there is no way that a customer can make sure if the product is genuine since most customers are not familiar with mechanics and repairs. Even those who are familiar, like mechanics and professional drivers may not be able to identify a fake if appears similar in look and feel to the original product. Only the performance of the product will show whether it is genuine or a badly made counterfeit. Steps should be taken in stages. One way is to categorize auto parts as critical (brake liners, tires etc) and non-critical. Educating consumers on the hazards of critical items should be done first. This will at least help to bring down accidents and loss of lives. Seizures should also focus on these items first. Consumers should be urged to buy such critical items from authorized dealers only. The next stage can include non-critical items. Laws should be made stricter and should not just include fines and imprisonment. Cancellation of license and deportation should also form part of the punishment. The procedure for reporting of fake items should also be made easier and less cumbersome.. Strong interstate cooperation among member countries will also help to a large extent. The concerned agencies (police, customs, groups etc) of all member states should work in close cooperation with each other. But in the end, if consumers still demand fake products, it will always be present in the market. The only way by which it will be disappear is when the demand for fake products come down and finally stop altogether Conclusions: Counterfeit auto parts in the UAE are a major economic, emotional, and health problem. Economic loss occurs to manufactures, users, and government agencies. Emotional and personal loss occurs to those who feel cheated and to those who are involved in accidents. Loss of lives due to accidents also leave and emotional trauma among relatives and friends. It is no doubt that counterfeiting is a major menace in the UAE. Steps through enforcement of law, seizures, training, and education are regularly taking place. But the threat still remains. Following the recommendations can bring down the menace to a large extent. But it has to said that unless people stop buying counterfeit products for whatever reason, this menace will never be totally eliminated. Massive education and self-restraint by customers is the solution. Works Cited “GET REAL - The Truth About Counterfeiting”. The International AntiCounterfeiting Coaltion, 2009. 19 June 2009 < http://www.iacc.org/counterfeiting/counterfeiting.php> Maceda, Cleofe. “Fake products boom fuels concern”. Gulfnews.com. January 18, 2008. Al Nisr Publishing LLC, 2007. 19 June 2009 < http://archive.gulfnews.com/articles/08/01/18/10182773.html> Mathew, Leena. “Gulfnews: Fakes put lives at stake...” Gulfnews.com. March 28, 2004. Al Nisr Publishing LLC, 2007. 19 June 2009 < http://archive.gulfnews.com/articles/04/03/28/116129.html> Staake, Thorsten & Fleisch, Elgar. Countering Counterfeit Trade: Illicit Market Insights, Best-Practice Strategies, and Management Toolbox. Illustrated Edition: Springer, 2008. Read More