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The Economic Impact of Counterfeiting

There is a clear possibility that consumers could suffer unintentional or purposeful bodily harm as a result of purchasing counterfeit goods. The consequences can be disastrous, even lethal, and extremely upsetting. Earlier articles on Red Points have provided a further explanation of the health risks associated with purchasing fake goods. In a similar vein, the harm that counterfeiting does to legitimate brands cannot be denied. On the other hand, this investigation focuses on the economic implications that this illegal activity has had on a national and global scale. Its purpose is to shed light on the scope of the problems that are caused by illegal counterfeiting.

Lost money from taxes and activities in the economy

The absence of potentially collected taxes is a primary contributor to the negative effects that widespread counterfeiting has on society. It is improbable that a group of persons engaged in organized crime, such as counterfeiting, will report the earnings made from their unlawful company to the appropriate authorities.

It is estimated that governments worldwide lose anywhere from $70 billion to $89 billion in sales tax revenue each year. That same government also loses anywhere from $8 billion to $22 billion in revenue from other taxes. These funds, which instead end up in the hands of criminal organizations, could be used to build hospitals, roads, and schools, thereby maintaining the populace’s health, facilitating economic progress, and encouraging education and future innovation. However, these funds end up in the hands of criminal organizations.

Falsified goods are a major contributor to the growth of the black market.

The most successful organized criminal groups almost never function on their own; instead, they frequently receive support from other criminal organizations specializing in various illegal activities. Widespread criminal networks that illegally provide a variety of services and goods are formed, and these networks contribute to the maintenance and protection of interconnected criminality across the globe. Because of the organization and network support that is required to maintain these activities, counterfeiting, in particular has strong linkages to other types of criminal activity. These ties are mostly due to the fact that counterfeiting requires both.

Letโ€™s look at the mining operation controlled by a cartel and discovered in Mexico in 2013 to recover iron ore is a classic example of this phenomenon. Since China’s need for the material in the country has skyrocketed enormously in recent years to match their booming output, the ore was being purchased by and sold to China, which is the world’s powerhouse in the manufacturing of counterfeit goods.

Lost actual employment

The repercussions of counterfeiting are not merely visible from annual financial reports and through tax projections. A significant amount of people experiences direct negative consequences, and the loss of a job is one of the most disruptive things that may happen to an individual.

Recent studies have indicated that counterfeiting costs the world 2.5 million jobs, with 300,000 of those jobs lost each year in Europe alone. By 2022, 5 million more jobs are expected to have been lost as a result of the steady growth of the counterfeiting business. While the people who previously occupied these occupations go out to hunt for new employment, an estimated 160,000 fail to obtain any type of new employment. Many luckier ones who manage to locate substitute employment find themselves earning substantially less than before. Finally, upon losing legitimate employment, many people prefer to join the counterfeiting sector in quest of employment, an industry working without rules, workers’ rights, or safety norms.

Counterfeiting discourages innovation

If you Have a system of IP which is not safeguarded and also upheld by the government, it means there is a substantially diminished incentive to invent new commodities. If merely replicating the ideas of others and undercutting them on price is acceptable, or at least easy to get away with without fear of penalties, then people are incentivized to infringe on IP instead of inventing unique new items.

The tale of inventor Shane Chen is a good illustration. Having first copyrighted his design for the hoverboard in 2011, the designs were replicated almost quickly by counterfeiters, who flooded the market with inexpensive replica devices. In 2015, the USA saw 2.5 million sales of hoverboards, of which Chen saw nearly nil due to the widespread counterfeiting of his patent. Even with conservative estimates, Chen might have received $300 million revenue company from these sales. However, the money made from these sales goes to counterfeiters, who turn into other criminals. Imagine Chen and other innovators were rewarded for their work; a sizable corporation would have created high-quality jobs, generated tax revenue, and accelerated technological advancement. The lack of IP protection is detrimental to society and the economy, making everyone and not just to the inventor or the net losers.

Lost foreign investment

Foreign investment clearly suffers when counterfeiting is prevalent in a nation. Companies engaged in IPR-sensitive industries, that is to say, sectors which are influenced considerably by counterfeiting, are notably deterred from investing in nations with inadequate IP enforcement.

A report assesses the impact of counterfeiting on foreign investment by the decline in exports. The research focuses specifically on industries that are particularly sensitive to changes in IP rights in nations with high levels of counterfeiting. The ensuing drop in investment due to counterfeiting is estimated at $111BN yearly or a 5 percent reduction in exports from these nations and sectors. According to the same report, countries can anticipate a 20% rise in exports by strictly enforcing IP rights.

The reasons behind this are evident. What business wants to invest in R&D, design, manufacturing, etc. when they know that any new things they create and produce would be copied by copycats without any resistance or protection from authorities?

Staying cautious from counterfeiting

As this illicit production continues, the repercussions mentioned in this essay will only grow more compounded and touch more individuals in a more tangible way. People need to be aware of the counterfeiting trade’s destructive impacts on all tiers of society as it grows to be a more powerful force in the globe, not just the trade itself. IP Arrow is here to help you against counterfeiting. With our extreme care, you will be in great hands.