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Beer, conflict and compensation: Heineken-Congo agreement

15 September 2017

Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct

Heineken’s agreement with Congolese workers sets excellent example of dispute settlement on responsible business conduct.

Doing business in conflict areas is challenging for everyone, whether you are talking about mining or even brewing beer. In 2015 a group of 168 former workers of Heineken’s subsidiary Bralima in the Democratic Republic of Congo submitted a complaint to the Dutch National Contact Point (NCP), a grievance mechanism set up under the OECD Guidelines for Multinational Enterprises, about the company’s conduct during the civil war in that country (1999-2003). The complaint concerned allegations of Bralima unjustly dismissing its workers and co-operating with the rebel movement in RCD-Goma, and the negative consequences this had for the firm’s workers and their families.

The complaint was successfully resolved recently. Details of the agreement between Heineken and the former Congolese workers, facilitated by the Dutch NCP, are confidential, but the overall outcome is public. All parties describe it as satisfactory and civil society even hailed it as “historic”.

This is good news. Heineken, their former workers and the Dutch NCP deserve praise for solving this highly complex corporate responsibility issue. Why?

One key reason lies in the fact that monetary compensation was awarded, according to reports. Although there have been many different sorts of remedy through the NCP system, monetary compensation has been rare.

Still, it is important to manage expectations. For a start, NCPs are a non-judicial grievance mechanism, meaning that the NCPs cannot legally enforce remedy. However, the NCP process can facilitate remedy, including compensation, as part of a mediation or conciliation process. NCPs can also recommend remedy, including financial compensation, in their final statements. The Heineken agreement illustrates that NCP processes are not exclusively forward-looking, but can also function retroactively.

Another reason why this is a historic agreement is that it shows that longstanding issues such as the Heineken case, that took place 15 years ago, can still be solved by an NCP process today. NCPs are known to get a lot of complex cases that often have already been in courts for years. This case demonstrates that even human rights issues that go back many years can still be solved if the conditions are in place.

The case is also a landmark because it shows that NCPs, when properly organised, can deal with human and labour rights issues in conflict areas. Indeed, Heineken has committed to improving its policy and practices on doing business in volatile and conflict-affected countries. Other companies should now follow Heineken’s example.

Make no mistake: a critical factor in this case was that Heineken and the complainants engaged fully and responsibly with the process. In many cases, using this problem-solving approach is more effective in addressing corporate responsibility issues than legalistic ones. Another reason for success was that the NCP was positioned to handle the case professionally. As the NCP is an adequately resourced, independent responsible business authority, which made it possible to be accessible and equitable towards all parties in a remote area ravaged by civil war. The mediation could rely on government support too, as it was facilitated by Dutch embassies in France and Uganda.

In short, several lessons on different levels can be drawn from the resolution of this business and human rights case. Above all, it should inspire other governments and NCPs, and businesses too. It shows that with the right mind-set, companies can successfully turn human rights issues into opportunities for improving corporate responsibility.

See also:

OECD Guidelines for Multinational Enterprises

Olivier van Beemen (2017), En RDC, une poignée d’ouvriers fait plier le géant Heineken, Le Monde

Olivier van Beemen (2017), Heineken betaalt Congolezen na klacht mensenrechtenschending, NRC

 

A portrait of family migration

1 August 2017
tags:
by Guest author

Jonathan Chaloff and Friedrich Poeschel, OECD Directorate for Employment, Labour and Social Affairs

© Shutterstock/Nowik Sylwia

Migration is all over the news in Europe, North America and Australia. When people think about migration, they tend to picture either refugees driven to undertake dangerous journeys in order to escape threatening situations or people coming to a new country to pursue studies or work. Yet there is a large category of migrants all too often overlooked: family migrants. Such migrants accounted for 40% of migration to the OECD area in 2015 and they typically make up 25-50% of an OECD country’s foreign-born population – and as much as 70% in the United States.

 

Why is family migration receiving so little attention? In part because family migration is often seen as a natural derivative of other categories of migration, one that takes place automatically based on international conventions and human rights. The lack of attention may also be due to the diversity of family migrants as a group: they migrate for various family-related reasons and have diverse demographic profiles. One family migrant may be an infant, moving with his or her parents or as part of an international adoption. Another may be a parent or grandparent, rejoining an adult migrant who moved to the destination country long ago. And there are also those who migrate to “follow their heart” – forming a family with a native-born partner (in many OECD countries, at least 10% of marriages are between a citizen and a foreigner), joining a partner who has already migrated or accompanying a spouse who is a labour migrant.

A closer look at family migrants does reveal some common characteristics, however. If family migrants are predominantly female, men typically comprise at least 40%. Family also tend to be younger than labour migrants, and are more likely to settle permanently in their new countries. Their education level tends to be related to that of their spouse, with those who come to join a citizen of the destination country, or who arrive together with a labour migrant, better educated, on average, than those who reunite with partners or marry a migrant later on. In most countries however the education of family migrants has been increasing recently. Once arrived, family migrants generally struggle to enter the labour market, taking 15 to 20 years, notably in Europe, to reach the same employment rate as native-born people. This may be due to the fact that family migrants do not come with a job offer in hand but also to family migrants’ often limited abilities in the host-country language.

What does this mean for governments and migrants alike? Whenever close family relationships are involved, stakes are high. It’s true that family migration levels can, to a certain extent, be anticipated more than other migration flows, and immigration authorities thus can be prepared to deal with them. And family ties are not automatic grounds for migration: in practice, family migration is subject to restrictions and requirements.But establishing the right mix of requirements is challenging and policy makers have to balance different priorities and constraints. How long should family migrants have to wait to be reunited? On the one hand, short waits accelerate the integration of children in schools and allow families to be together; on the other, longer waits may be needed to ensure income and housing requirements are met. Yet restrictions may make a country less attractive for sought-after labour migrants, who want to bring their families. And while language requirements and other conditions may effectively speed up the integration of family migrants, they may also delay or prevent it. Finally, what about migrants who are joining citizens to form a family? Should the same conditions apply to them?

With migration comes family! This is a simple fact of life and it is time to give family migration more attention. This may be a difficult area for policy makers, but it cannot be ignored. Further analysis of policy trade-offs and bottlenecks, as well as better data, will go a long way to providing a firm basis for future family migration policies.

Links and further reading

European Commission (2016), European Migration Network report on practices in family reunification

International Forum on Migration Statistics 2018

OECD work on migration

OECD webinar on migration (July 2017)

OECD (2017), A portrait of family migration in OECD countries (International Migration Outlook 2017)

OECD (2016), Family migration channels for refugees (International Migration Outlook 2016)

 

Beyond the numbers: The qualitative research behind our reports

20 July 2017

Tamara Krawchenko, Regional Development Policy Division, Centre for Entrepreneurship, SMEs, Local Development and Tourism

Brainstorming ideas at a public event in Prague (7 June 2016) that was held as part of our work on the Governance of Land Use in the Czech Republic.

The OECD is known for data and numbers. Indeed, providing high quality comparative indicators for better policy making is our bread and butter. But, what is less known is the extent to which we are a “listening” organisation, and how this improves the qualitative research that goes into our work. While the sources behind the OECD’s statistical data are critical, they become alive thanks to the rich opinions and experiences of real people.

Drawing on my own experiences conducting OECD reports I can say that they include rigorous qualitative data collection from unstructured or semi-structured interviews, focus groups and even public engagement events. In our work, we have the chance to meet a wide range of people at the local level—from farmers in Podlaskie in eastern Poland, to urban bike activists in Amsterdam and property developers in Prague—these local interviews give us data on the conditions that people experience, how institutions structure individual behaviour and how people would like to influence or change policy themselves. Experts from other countries also take part as peers to review our studies, providing another source of knowledge and policy learning.

At our public events we talk and listen to people from all backgrounds about the key challenges they face and we ask them for their ideas on how to improve everything from building approval processes to the quality of public space. In Prague, for instance, about 50 people from the community came out to speak with us one night. We took a hard look at the low levels of trust between community members, developers, and city officials and we brainstormed ways to rebuild it. In Amsterdam we had lively discussions about the redevelopment of disused brownfield sites within the city,  and their ambitions to embrace a “circular economy” in which materials would be reused or recycled rather than creating new goods or disposing of old ones. We heard about non-government organisations (NGOs) that have worked between developers and residents on big projects that have the potential to transform whole neighbourhoods. These in-depth discussions, which are all non-attributable, have nevertheless enriched our reports and even helped shape our arguments.

These encounters make a real difference to our work. While quantitative data gives a bird’s eye view and helps to monitor change over time, our research interviews provide context (including historical context) and help us better understand general trends, missing links and political debates. Interviews help us see how policy unfolds and where improvements can be made. They also give us insights into reform agendas and their implementation on the ground. Finally, they show us how different interests intersect and affect the policy-making process. Given the importance of this knowledge to our work, the OECD should be known for more than just numbers.

For more information about the OECD’s work on this topic see:
www.oecd.org/cfe/regional-policy/governance-of-land-use.htm 

 

 

 

 

 

State-owned enterprises, international investment and national security: The way forward

19 July 2017

Frédéric Wehrlé and Hans Christiansen, OECD Directorate for Financial and Enterprise Affairs

For most of the past half century, countries around the world have gradually opened up to foreign investment, and with good effect. Investment from other countries has supported growth and development, created jobs and enhanced welfare. Today, as our data show, OECD economies retain only limited traditional regulatory restrictions to inward foreign investment in the form of foreign ownership ceilings and other discriminatory conditions. While many emerging economies are generally less open, they have made their legal regimes for foreign direct investment less restrictive. Ongoing monitoring by the OECD shows that these liberalisation efforts continued after the 2008 financial crisis.

However, since the 2000s, a new and opposing trend has emerged: the screening and review of foreign investment projects, particularly those by state-owned enterprises (SOEs), to mitigate risks to national security. In fact, a recent survey shows that more and more governments are introducing or enhancing screening mechanisms for inbound investment projects to identify and address perceived threats. A third of the 59 advanced and emerging economies that participate in our investment policy dialogue now operate such mechanisms. Several governments are now subjecting investment proposals involving SOEs to greater scrutiny, and at times prohibiting these investments. Some countries have established special rules for the review and admission of investments by SOEs or are considering new policies to address the issue.

Could the precedent offered by the Santiago Principles help to point a way forward? In 2008, following widely publicised concerns in some large OECD countries regarding high profile investment projects by non-OECD sovereign wealth funds (SWFs), the community of SWFs and their government owners adopted a code of good conduct, the Santiago Principles, that was motivated by a desire to ensure that countries would not use national security arguments as a cover for protectionism against foreign SWFs. A decade later, the upsurge of SOEs in global investment and related national security concerns expressed by recipient countries could motivate similar arrangements with respect to investment by foreign SOEs.

International investment by SOEs is a growing concern

The increasing participation of SOEs in the global marketplace, particularly as international investors, makes it all the more important to balance concerns about the good governance of SOEs and to maintain a level playing field. As bearers of state as well as commercial interests, SOEs may place their emphasis on strategic acquisitions, such as advanced technologies for example, on non-market terms. It is fitting therefore that the rise of SOEs should revive interest in investment policies related to national security.

Australia, for instance, screens all SOE investments, whereas it screens private investments only when they exceed a value threshold. Canada applies different trigger thresholds for the application of its net-benefit test if the investor is state-owned. The United States has established specific rules regarding SOEs as part of its national security review mechanism (CFIUS), which require investigation of all government-controlled investments concerning US businesses. Germany has just strengthened its review mechanism. France, Germany and Italy have called for EU policies to address the issue. Strengthening screening of foreign direct investment (FDI) on national security grounds is also under consideration in the Netherlands, the United Kingdom and the United States.

Heightened awareness of the implications of SOE investment has also been evident in more recent international investment agreements. The Trans-Pacific Partnership agreement (TPP), for example, dedicates an entire chapter to SOE investments, whereas in older agreements SOEs were effectively afforded a status broadly similar to that of private investors.

Governments have always been careful to secure policy space to safeguard national security needs. The OECD Codes of Liberalisation, for instance, just as many investment treaties, contain corresponding national security exceptions. These exceptions are typically self-judging, and the term “national security” is intentionally broad.

Because of the discretionary nature of invoking national security as a ground for restricting foreign investment, the OECD Guidelines for Recipient Country Investment Policies relating to National Security were issued as an OECD Recommendation in 2009. These guidelines offer a set of specific recommendations providing for non-discrimination, transparency and predictability, as well as regulatory proportionality and accountability, including effective safeguards against undue influence and conflict of interest.

Internationally agreed rules on SOEs would bring benefits

While concerns relating to SOE investments are legitimate–and many SOEs are less transparent than private firms–the imposition of outright or unqualified restrictions on SOE investments in recipient countries benefit neither host nor home countries as opportunities for mutually beneficial international investment are forgone.

Applying internationally agreed commitments to SOEs and their government owners would help reassure recipient country regulators by offering greater transparency, addressing potential distortions that may arise from state ownership, and ensuring that the SOE owners also observe high standards of governance, disclosure and accountability. In turn, these regulators could be expected to apply the same conditions to SOEs that they apply to investment proposals by privately-owned companies.

A similar outcome to that agreed by SWFs can be achieved for SOE investments today. After all, recommendations on good practices for governance, disclosure accountability and transparency of SOEs have already been agreed under the OECD Guidelines on Corporate Governance of State-Owned Enterprises. These guidelines include specific provisions by which the legal and regulatory framework for SOEs, as well as their practices, should ensure a level playing field and fair competition in the marketplace when SOEs engage in economic activities. If translated to an international market context, and if fully implemented, these provisions could fully address the concerns of investment regulators. The last element required to emulate the “Santiago arrangement” would be to secure a commitment by SOEs to abide by these standards.

This could help convince recipient countries to keep their economies open and to uphold both the letter and the spirit of the principles of OECD guidance on national security.

The OECD stands ready to help forge a mutually beneficial and trusted arrangement for SOEs so that home and host societies can reap the benefits of international investment, while addressing important security concerns that inhibit certain investments proposed by SOEs today.

References and further reading

International Forum of Sovereign Wealth Funds (2008), the Santiago Principles

OECD (2016), State-Owned Enterprises as Global Competitors: A Challenge or an Opportunity?

OECD, OECD Codes of Liberalisation of Capital Movements and of Current Invisible Operations, 2012-2017

OECD, Corporate governance of SOEs: Guidance and research, 2011-2017

OECD, Monitoring investment and trade measures, 2008-2017

OECD, Freedom of investment at the OECD, 2007-2017

OECD (2015), OECD Guidelines on Corporate Governance of State-Owned Enterprises

OECD (2009), OECD Guidelines for Recipient Country Investment Policies Relating to National Security, Recommendation adopted by the OECD Council on 25 May 2009

OECD, FDI Regulatory Restrictiveness Index, 1997-2017

Shima, Y. (2015), The Policy Landscape for International Investment by Government-controlled Investors: A Fact Finding Survey, OECD Working Papers on International Investment, No. 2015/01, OECD Publishing, Paris.

Wehrlé, F. and J. Pohl (2016), Investment Policies Related to National Security: A Survey of Country Practices, OECD Working Papers on International Investment, No. 2016/02, OECD Publishing, Paris.

Germany’s successful G20 presidency

13 July 2017
tags:
by Guest author

Noe van Hulst, Ambassador of the Netherlands to the OECD, Chair of the IEA Governing Board

OECD Secretary-General Angel Gurría with German Chancellor Angela Merkel at the G20 Summit 2017 in Hamburg; ©Christian Charisius/AFP

How should we assess the German presidency of the G20? Despite a complicated political situation, Chancellor Angela Merkel’s team worked with their characteristic determination or Ausdauer to achieve concrete actions and advance their three aims of building resilience, improving sustainability and assuming responsibility. The Leaders’ Declaration, Shaping an interconnected world, rightly sends the message that “we can achieve more together than by acting alone”.

 

But while the presidency was a success, it was hardly a walk in the park. Obviously, there were difficult and profound discussions on trade and investment, but isn’t that what the G20 is for? Exactly when perspectives are diverging, there is an urgent need for open and frank talks in the G20, and in the OECD for that matter. Given that background it was even more important for the communiqué to state that “we commit to further strengthen G20 trade and investment co-operation”. As I wrote in my last post, to us it is critical that G20 countries remain committed to keep markets open and fight protectionism. At the same time, we must all do much more domestically to ensure that the benefits of trade and investment are shared more widely, and internationally to achieve a more level playing field.

With respect to the last point, the G20 calls for stronger action to tackle market-distorting subsidies and excess capacities in industrial sectors. The recently created Global Forum on Steel Excess Capacity, facilitated by the OECD, is pressed to come up with concrete policy solutions by November 2017 “as a basis for tangible and swift policy action”. It’s time to deliver in this key area, and to set an example to follow for other industrial sectors with excess capacities.

As for levelling the global playing field and making supply chains more responsible and sustainable, the OECD Guidelines for Multinational Enterprises held much of the limelight as an instrument for upholding high labour, environmental and human rights standards. Important elements like exercising due diligence, access to remedy and grievance mechanisms are extensively mentioned in the G20 communiqué. Another area the G20 continues good work on is international standards on tax transparency and implementing measures to tackle Base Erosion and Profit Shifting (BEPS). This remains one of the most game-changing OECD contributions to the G20’s efforts to fix globalisation, with more to come in the future, for instance on the tax challenges raised by digitalisation.

On climate change, a lot has been said and written about the US decision to withdraw from the Paris Agreement. But we should not forget that the US is continuing its work on clean energy (including renewables), as was recently reaffirmed in Beijing at the Clean Energy Ministerial (CEM) meeting, the Secretariat of which is housed at the IEA. Meanwhile, the other G20 countries reaffirmed their strong commitment to the Paris Agreement, so the global energy transition will keep moving forward.

All in all, the German presidency was in my view a success. Germany navigated some very difficult political waters with aplomb and achieved meaningful results. The OECD’s work and standards also received a deserved boost. As for the Netherlands, we were happy to be a “wild card” participant of this G20 and supporter of the German G20 presidency, and now look forward to supporting those of Argentina in 2018, Japan in 2019 and Saudi Arabia in 2020 in any way we can.

References and further reading:

Clean Energy Ministerial 8 (CEM8), 6–8 June 2017, Beijing, China, http://www.cleanenergyministerial.org/Events/CEM8

German G20 Presidency, https://www.g20.org/Webs/G20/EN/Home/home_node.html

Van Hulst, Noe (2017), “A new network for open economies and inclusive societies”, OECD Observerhttp://oecdobserver.org/news/fullstory.php/aid/5884/

Aid for Trade’s 2.0 upgrade

12 July 2017
tags:
by Guest author

Access to global digital trade can give the development agenda the boost it needs, writes Jorge Moreira da Silva, Director, OECD Development Co-operation Directorate (DCD)

What does digital connectivity for sustainable development actually look like? Take the case of business owner, Praew from Thailand, who travelled 15 km each day to sell her clothes at the Chiang Mai night bazaar. At first, her attempts to move her small women-led business online to meet customers’ demands met with barriers that prevented access to the global market. In 2015, she learned how to utilise Amazon to ship worldwide and saw her profits grow by 70%, allowing her to employ others in her community. Or consider Clotel, who grew his small perfume shop to be the top online perfume retailer in Cameroon after receiving digital and management skills training. His sales went up fivefold. Chinese entrepreneur Du Qianli is another case in point: he uses his online Taobao shop to sell natural plants gathered from villagers in the Taihang Mountains, helping farmers earn extra income to send their children to school. By harnessing the power of digital connectivity, these entrepreneurs now have the power to help themselves and others in their communities out of poverty.

These are just three of 145 Aid for Trade case studies the OECD collected for the 2017 OECD-WTO Aid for Trade at a Glance. They demonstrate the aim that is at the heart of the financing for development agenda: to ensure that EVERYONE is lifted up by the mobilisation of unprecedented levels of public and private resources. Aid for Trade that supports access to digital markets is in line with the 2030 Sustainable Development Agenda, which calls for a more inclusive and interconnected world.

The joint publication casts a spotlight on how digital and physical connectivity is transforming societies, and contributing to inclusive trade and sustainable growth. Better connectivity offers more business opportunities by making it easier and less costly for business people in micro, small and medium sized enterprises (MSMEs) in developing countries to access markets.

Capitalising on connectivity to bridge the digital divide

Accessible and affordable internet connections are necessary for creating an interconnected global market in which no one is left behind. But they are not enough. To leverage the digital economy for developing countries, digital literacy, identity and financial inclusion also need to be improved.

In developing countries, information and communications technology (ICT) infrastructure continues to lag, which makes it harder to overcome the digital divide not just between developed and developing countries, but between cities and rural areas, women and men, and the educated and uneducated. Some 3.9 billion people remain offline, with only a quarter of people in Africa using the internet and only one in seven in least developed countries.

Since the launch of the Aid for Trade Initiative, a total of USD 155 billion has been disbursed for trade-related infrastructure and energy supply. Both sectors are essential for turning digital opportunities into trade realities. Cumulative disbursements in programmes to improve economic infrastructure, build productive capacity and support capacity-building in trade policies reached almost USD 300 billion since 2006. Aid for Trade commitments have increased annually by more than 10% and now stand at USD 54 billion.

While the imperative of bridging the digital divide has support among development partners, we have yet to see a concomitant rise in concessional financing for ICT projects. Official development assistance (ODA) for digital development has remained relatively stable over the last ten years at an annual average of around USD 600 million. This must change.

This underscores the need for coordination with the private sector. The most active donors work closely with the private sector to focus their support on helping developing countries create a regulatory framework that is conducive to attract private investment in building the physical ICT infrastructure. The Addis Ababa Action Agenda (AAAA) recognises the key role that broader sources of development finance will play in reaching the Sustainable Development Goals (SDGs). More synergy between the public and private sector will be needed to lift resources from billions to trillions in support of the SDGs, and to leverage investment in ways that can truly lead to better lives for all.

The OECD is supporting implementation of the Addis Ababa agreement through transformational financing for development, such as blending aid money with private finance and developing new ways of measuring official support. While discussions about how to do this are ongoing among OECD-DAC members, what is important is that we attract additional investment for sustainable development and work together to mobilise these resources effectively, ensuring financing for development is both “fit-for-purpose” and “fit-for-future.”

References and further reading

OECD/WTO (2017), Aid for Trade at a Glance 2017: Promoting Trade, Inclusiveness and Connectivity for Sustainable Development, WTO, Geneva/OECD Publishing, Paris. http://dx.doi.org/10.1787/aid_glance-2017-en

Alibaba (2012), Alizila News: E-commerce in Rural China, https://www.youtube.com/watch?v=LKSxZZk6y28

Nkoth Bisseck, Candace (2016),Changing traders’ lives via eCommerce in Africa, https://www.youtube.com/watch?v=WsuaeYdSXjQ

Roth, David K. (2016), Aid for Trade–Case Story: Lanna Clothes Design, http://www.oecd.org/aidfortrade/casestories/casestories-2017/CS-88-Amazon-How-a-small-rural-business-in-a-developing-country-was-empowered.pdf

Third International Conference on Financing for Development (2015), Countries reach historic agreement to generate financing for new sustainable development agenda, http://www.un.org/esa/ffd/ffd3/press-release/countries-reach-historic-agreement.html

Want to catch a counterfeiter? Check your filter

11 July 2017
by Guest author

A new OECD/EUIPO study maps counterfeit trade routes, and they’re complicated, writes Bill Below from the OECD Directorate for Public Governance

The world may be getting smaller, but for counterfeiters, there are still plenty of places to hide, suggests a new joint study from the OECD/EUIPO, Mapping the Real Trade Routes of Fake Goods. Globalisation, free trade zones, an interconnected planet and vastly uneven governance arrangements are boons for counterfeiters.

Adept at exploiting failures of international co-operation and the limits of enforcement, counterfeiters game the vulnerabilities at transit points and destinations. They are capable of transforming criminal activity into an illicit mass production and distribution enterprise whose complexity is intended to obfuscate and conceal. Counterfeiters have learned to multiply in-transit operations, consolidating shipments and assembling and re-labelling products at distribution centres and in the safe havens of free-trade zones. The steady growth of these zones has equally been a boon to legitimate trade as it has been to counterfeiters and pirates.

To some, it’s considered a victimless crime, an innocent chance to sport top brands, and perhaps even a sort of comeuppance for those brands that command huge premiums. Tips on Yelp and Trip Advisor recommend the “best” places to buy fakes in any city. But those who buy them rarely imagine the reality behind their purchase.

Counterfeit trade brings with it severe economic, health, safety, security and revenue impacts. Poor and dangerous working conditions, human trafficking, money laundering, terrorist financing, environmental degradation and economic hardship characterise the economy of fakes.

Yet, with weak criminal penalties in many countries and the lure of handsome financial rewards from high demand, there is little to discourage the counterfeiter. In fact, the market is huge and growing fast. Imports of counterfeit and pirated goods were worth USD 461 billion in 2013, or around 2.5% of global trade. Developed economies are especially targeted, with fake goods amounting to up to 5% of the value of overall imports to the European Union (EU).

 

Estimated value of global trade in counterfeit goods, 2013

In 2015, nearly three quarters of all seized goods destined for the EU arrived by maritime routes. These seizures represented a retail value of EUR 325 million for 30 million intercepted items. For counterfeiters, container ships offer a high-volume, high-reward option, albeit not without risk. Maritime seizures accounted for just 3% of total seizures of EU imports, but netted over 50% of the total retail value for goods seized. With one estimate placing the number of shipping containers in service at about 23 million, that’s still a drop in the bucket.

Counterfeiters have also been quick to exploit the global explosion in e-commerce and the accompanying drop in delivery costs. In 2015, postal and express services accounted for 23% of the total retail value of all imports seized entering the EU, or EUR145 million. That number is growing, says the OECD’s Piotr Stryszowski: “Fakes concern just about any product that can be ordered on line and shipped by mail. It allows counterfeiters to distribute the risk.” Indeed, parcels containing less than ten items account for about 43% of all shipments of counterfeit goods today.

Much of what we know about fakes comes from data on seizures. But, like the skin sloughed off by a snake, this only offers a snapshot of a past that counterfeiters may have long left behind.

To shine a light on new potential routes, the OECD/EUIPO have created an index (called GTRIC-e) that ranks a country’s propensity to manufacture fake goods. To each of these economies they applied a statistical filter called RCAP-e, evaluating its comparative advantage as a producer of a given good (ten categories were selected for the study–see table above). A second filter was then applied, called RCAT-e, to calculate a given economy’s comparative advantage—and thus likeliness—of being a transit point.

For example, results point to Yemen as a primary transit point for fake pharmaceuticals entering north and east Africa via air from China, India, Saudi Arabia, Singapore and the United Arab Emirates. Macau, China is a likely transit point for fake jewellery originating in mainland China, Indonesia, Malaysia, Thailand and Viet Nam and headed to the US by mail. Counterfeit footwear manufactured in China and a number of Southeast Asian countries is likely to transit Hong Kong, China towards the EU and the US by land mail and air mail.

A comprehensive picture of geographies, product types, routes, modes of transport and destinations begins to emerge, giving experts a new window into counterfeiters’ probable movements. The authors are hopeful that their methodology will help inform policy decisions among individual governments or on a regional or global level. They also hope it can help in designing more tailored policy responses to strengthen governance frameworks.

Obviously, half a trillion dollars of fake goods translates into a lot of shipments. Identifying at least a portion of them, without bringing legitimate trade to a halt, will require more smart, targeted actions. The savvy use of statistics such as GTRIC-e, RCAT-e and RCAP-e, might just be the breakthrough the fight against fakes has been waiting for.

References and further reading

OECD/EUIPO (2016), Trade in Counterfeit and Pirated Goods: Mapping the Economic Impact, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264252653-en.

OECD/EUIPO (2017), Mapping the Real Routes of Trade in Fake Goods, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264278349-en. Click here for more information on the publication, plus a map and infographics: http://www.oecd.org/gov/risk/mapping-the-real-routes-of-trade-in-fake-goods-9789264278349-en.htm

OECD Task Force on Countering Illicit Trade (TF-CIT):

http://www.oecd.org/gov/risk/ oecdtaskforceoncounteringillicittrade.htm

OECD work on Risk Governance:

http://www.oecd.org/gov/risk/