The US decision to impose tariffs on Chinese goods points to two important yet recurrent themes in international politics. The first is an increasing tendency for the US to bypass multilateral systems – the World Trade Organization’s dispute-settlement mechanism in this case – and China’s use of covert means to strengthen the balance of trade in its favor by, for example, producing counterfeit goods and violating intellectual property rights (IPRs).
The proposed imposition of tariffs on US$50 billion worth of Chinese imports was widely criticized, including by India, the European Union, Russia, Pakistan, Norway, Brazil, Hong Kong, Taiwan and Japan. The criticism was due to unilateralism witnessed in the US decision without seeking resort to a settlement of the dispute through the WTO.
In fact, Taiwan and the EU even stated that they shared the concerns of the US regarding protection of IPRs in China, but that the best way to address the matter was through the multilateral trading system.
A similar statement was issued by Brazil that emphasized the importance of the WTO’s dispute-settlement system.
The interesting point to note is that each of the countries and territories mentioned above has their share of woes emanating from counterfeit Chinese goods and violation of IPRs. There are frequent occurrences of their customs regimes seizing counterfeit Chinese goods. As stated by a report by the Organization for Economic Cooperation and Development (OECD) and the European Union Intellectual Property Office, there is an estimated half-trillion-dollar global knockoffs market, with China taking up the lion’s share as the origin of the knockoff brands.
Knockoff brands are the bane of the Indian branded market, and the scenario has existed for decades, with India being fifth on the list of fake-goods markets.
The extensive penetration of counterfeit goods is detrimental to brand equity. Beyond this, counterfeiting in the cosmetics and pharmaceuticals industry is dangerous to the health and well being of customers.
At the macroeconomic level, fake goods pose a severe threat to India’s attempt at transitioning to a manufacturing-led economy, as exemplified by the “Make in India” policy.
According to a 2015 report by the Federation of Indian Chambers of Commerce and Industry prepared by the Committee Against Smuggling and Counterfeiting Activities (CASCADE), losses to the Indian government were close to 60 billion rupees ($880 million) due to the knockoff market in the FMCG (fast-moving consumer goods) space alone. Almost 22% of the packaged-goods industry was lost to the gray market.
In 2016, it was reported that the Indian Embassy in Beijing complainedof several Indian brands being hit by Chinese fakes. The most popular brands included Natraj, Raymond, Fevicol, Onida, Godrej, JK Files and Dabur among a long list of others.
In 2013, it was reported that complaints had been received regarding copyright and/or trademark violations by Chinese companies. The Indian brands that raised the issue included Nataraj, BoroPlus, Raymond, Onida and JK Files among others. What is noteworthy is that even after the complaints were raised, nothing changed in the span of three years, and the brands that faced IPR violations at the hands of Chinese companies were the same ones raising the issue in 2013 as well as in 2016.
Prior to this, in 2007, Nataraj had complained to the Indian Embassy in Beijing about counterfeiting of its products by Chinese companies in which the Nataraj pencils had lead-laden paint. This shows the lack of redress of companies filing complaints of counterfeiting in China. The same Indian companies’ goods in China have been counterfeited over the years despite several complaints being raised.
After the Indian Embassy raised the complaint in 2016, the Chinese side acted upon a “few cases” by allowing the Indian companies to register with the State Administration for Industry and Commerce of China, as stated by India’s commerce and industry minister at the time, Nirmala Sitharaman.
The onus of trademark registration and protection in China lies on the aggrieved enterprise, and according to the rules in that country, individual enterprises have to file a case in the relevant forum by hiring law firms on the reported instances of trademark and copyright infringements.
This is what happens when Indian brands are counterfeited in China. In addition to this, there are two other ways in which counterfeit Chinese goods hurt and threaten the health of not just the Indian economy but also that of the customers who fall prey to the goods.
The first is seen when counterfeit goods enter India routinely through ports. An example of this was when 12,000 pairs of shoes worth approximately 35 million rupees were confiscated from a container in Chennai that came from China in 2017.
The dishonest importers of such consignments purposely declare them as unbranded products, such as ladies’ purses or car hangings, for example, while the shoes are of popular brands like Adidas, Nike and Reebok. The manufacturers print a fake unique product code (UPC) that is similar to the ones the original brands have, making it difficult for customers to ascertain the authenticity of the goods.
However, in the specified case in Chennai, after the seizure, the patentholders confirmed that the UPCs of the shoes were fake. The process is tedious and it is uncommon, thereby leading to Chinese manufacturers exploiting the tediousness of the process.
In a case reported in 2009, Chinese-made anti-malarial drugs Maloxine and Amalar with “Made in India” tags were seized by the Nigerian Drug Regulatory Authority.
In 2010, complaints were made about an antiseptic cream under the BoroPlus trademark being sold in Russia and neighboring countries with the same design and packaging scheme of the original BoroPlus antiseptic company.
Beyond the health risk such counterfeiting poses, knock-off commodities from China being passed off as Indian goods pose a serious threat to Indian manufacturers, and this is the third way at the macroeconomic level that counterfeit Chinese goods are detrimental to the Indian economy.
Counterfeit Chinese goods can also pose a risk to the defense and security of the country, as exemplified by a 2017 case, wherein a Delhi-based company sold Chinese parts camouflaged as “Made in Germany” parts to the Indian Army for the manufacture of the Dhanush gun.
A new and emerging arena for counterfeit Chinese goods in India is the online market. Products sold on the Internet are generally distributed in small parcels via postal and express freight services directly to the customer, leading to an expanding role of technologies in IPR crimes.
While India has launched a scheme for IPR awareness and even has a national IPR policy, violations continue. Counterfeiting is more prevalent in rural and semi-urban areas as compared with urban areas. Companies are increasingly spending money and resources to fight counterfeiters operating in India. Some pharmaceutical companies have even started using digital authentication apps that allow users to send images of medicines available online in order to detect the genuineness of the seller.
However, the need is to increase such initiatives across all industries. While tackling IPR violations within India is still within the scope of imagination, dealing with the violations in third countries is still problematic, and the only way is to take the issue up on a repeated basis either with China or at the WTO.
For Indian companies operating within China, it is essential that a greater emphasis is placed on the companies’ awareness of the “first to file” system, which means that the rights of trademark belong to the first person or company that properly registers the trademark in China.
According to lawyers, many international companies are often too slow to register their brands in China, which gives faster-moving counterfeiters a chance to establish a legal claim first.
As stated by the Office of the US Trade Representatives’ 2016 report to the Congress on China’s WTO Compliance, IPR holders in China face an extremely complex and uncertain enforcement environment, besides a pressure to transfer IPRs to Chinese enterprises through a number of government policies and practices.
For India, which already faces several challenges in its economic relationship with China, it is pertinent that awareness creation for Indian companies seeking to operate in China is undertaken on a wider scale.
Last year, China started a nationwide campaign to protect foreign firms’ international property rights, and Premier Li Keqiang, in a speech in March 2017, even promised to protect the rights of foreign companies investing in the Chinese economy.
However, the Ministry of Commerce stated that China was a developing country and did not have a perfect system to protect IP, acknowledging that there was much work to do.
Thus for India it is pertinent to keep this in mind and while expecting a better Chinese system that respects IPRs of foreign firms, it needs to continue spreading more awareness on IPRs among its own companies, business professionals and customers.