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Asia/South Asia
The complex trade in luxurious fakes
Andy Yeh

          Usually when phrases such as "supporting terrorists and organised crime" or "forcing little children to work in atrocious conditions" arise during discussion, they involve talks with Washington.
But these exact phrases were used in a shareholder meeting last year among French executives at Moet Hennessey Louis Vuitton (LVMH), the world's largest luxury group, as they discussed the consequences of people buying fake luxury products.
"If you buy a counterfeit product, you are in fact supporting terrorists and organised crime," says one executive of the "scourge of counterfeiting" damaging LVMH. "That is a message we try to publicise across the world.
"We do all sorts of things to fight against it," he continues. "In each and every country we have to try."
These concerns among LVMH bosses reflect the tremendous uphill battle the world's top luxury goods companies face when dealing with the highly-complex global counterfeit trade -- one that revolves around China as a production and export base.
Experts argue the problem is being exacerbated by incompetent -- and at times even complicit -- local and national Chinese officials, sophisticated criminal groups with wide distribution and consumer networks, and a failure to permanently shut-down illegal manufacturers.
While the sale of fake luxury goods in China is common, they say an even more worrying trend is that southern provinces such as Guangdong have developed into the primary source of luxury fakes -- including ready-to-wear clothing, handbags and watches-around the world.
And as some luxury groups shift part of their manufacturing to China, where costs are low, there is the added risk of new products being copied with greater efficiency.
Even now, counterfeit fashions and accessories can be available as the latest styles are debuted in Pans or Milan.
James Zimmerman, an attorney with Squire Sanders & Dempsey in Beijing who focuses on intellectual property rights cases, says the global trade in counterfeit goods in the past five years has evolved into a "highly efficient and professional" operation.
"The system is very resilient given that the operations are secretive, protected and dispersed," says Mr Zimmerman. "The better the quality of the knock-offs, the more bold counterfeiters are in placing their goods in the stream of global commerce to masquerade and compete with the real thing.
"That is why you will see the fakes going up against the real thing in Europe," he adds.
But Bernard Arnault, LVMH chairman and also France's richest man, was quoted as saying at a Beijing store opening late last year that even the best pirates are still "light years away from the real product".
LVMH -- which includes the Louis Vuitton, Fendi, Givenchy, Moet & Chandon, and Dom Perignon brands -- estimates the thousands of counterfeit complaints it received last year resulted in the arrest of nearly 1,000 counterfeiters globally.
But China is an especially big headache. Mr Arnault admitted on his trip here that they have "a lot of problems" with China's crafty counterfeiters.
"China is a big country and when the government stops a factory somewhere producing counterfeits, another one appears somewhere," he said on his visit to Beijing.
Just as China has become the world's leading assembler and exporter of manufactured goods, it is likewise dominating the underground trade in luxury knock-offs. The US and EU estimate the majority of fakes seized at their borders are made in China.
Since 2003, about two-thirds of IPR-related seizures at US borders have been China-made goods. Mainland Chinese counterfeit exports to the US accounted for 69 per cent of total seizures last year, or about $64m worth, according to US customs,
For the first time since China joined the World Trade Organisation (WTO), US customs reported that the category of fake handbags, wallets and backpacks displaced bootleg cigarettes as the largest counterfeit seizure last year from the country.
"The general problem for most [foreign] luxury goods manufacturers is still the exports," says Douglas Clark, a Shanghai-based partner at Lovells who has worked on behalf of LVMH on counterfeiting matters.
Mr Clark says Chinese fakes are often trafficked through the Middle East, and then go to third destinations such as Europe, in order to avoid detection by western customs officials.
He says traffickers may affix trademarks to products such as fake watches at the last minute, or mix shipments of counterfeit and authentic products to avoid prosecution.
The US State department has reported there is growing evidence of involvement of organised criminals in the trade of counterfeits, meaning its IPR is becoming a national security concern.
"Organised crime networks increasingly use piracy as a low-risk, high-revenue means of financing other illegal activities," it said in policy brief last year.
Interpol, the European police force, has similarly said that the worldwide counterfeit trade is now generating higher returns, offering more incentive for criminals to get involved.
At a luxury conference in Hong Kong one year, Mr Arnault even went so far as to say the purchase of luxury counterfeits is, in a way, similar to supporting mafia involved in drug trafficking.
While not as profitable as the narcotics trade, LVMH and anti-counterfeiting authorities around the world face a similarly insurmountable task in stopping the modern day trade in luxury fakes.
Under syndication arrangement with FE


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