China continues to lead world in counterfeit and pirated products: USTR report

The Office of the U.S. Trade Representative (USTR) released its annual review of notorious markets for counterfeiting and piracy on Tuesday, which found that China led the world in producing bootlegged goods in violation of intellectual property laws.

"China continues to be the number one source of counterfeit products in the world," the USTR report found. "Counterfeit and pirated goods from China, together with transshipped goods from China to Hong Kong, accounted for 75% of the value (measured by manufacturer's suggested retail price) of counterfeit and pirated goods seized by U.S. Customs and Border Protection in 2021."

Counterfeit and pirated products can pose significant risks to the health and safety of consumers around the world. Phony products can also cost the legitimate holders of intellectual property (IP) rights substantial amounts of money and lead to job losses at affected companies.

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The USTR points to a 2019 analysis by the U.S. Chamber of Commerce's Global Innovation Policy Center, which found that digital video piracy alone causes the loss of at least $29.2 billion in domestic revenues in the U.S. economy each year. 

Further, it found that illegal downloads and streaming of movies and TV shows cause an estimated annual loss of over $45 billion in gross domestic product and up to 230,000 jobs, as IP-holding employers have to trim their budgets to account for diminished returns on their investment.

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Regarding counterfeiting and piracy in China, the USTR report notes that sellers of counterfeit merchandise often use brick-and-mortar storefronts in marketplaces as fulfillment centers for online sales in addition to serving as a place to make sales directly to customers or conduct product testing.

It identified several specific markets in China that serve as hubs for counterfeit goods, including a group of 20 malls in Guangdong Province that holders of IP rights described as "the epicenter of the counterfeit electronics trade," where computer chips and other components are distributed to counterfeiters in China and abroad. Vendors at those malls also sell counterfeit smartphones, tablets, earbuds and other similar items.

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USTR noted that as foot traffic at malls and markets in China declined due to pandemic-related restrictions, many counterfeiters shifted to online sales. 

As China loosens those restrictions and foot traffic returns, the agency warns that there could be a corresponding uptick in the volume of counterfeits without more enforcement. Although some local authorities have raided counterfeiters' shops, many simply move the illicit goods to offsite warehouses, increase their focus on online sales, or shift their business hours to when raids don't occur.

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Aside from China, the USTR's report on notorious markets for counterfeit and pirated goods noted that multiple locations in Argentina, India, Mexico, Russia and Vietnam were flagged by IP rights holders for selling and distributing goods.

Fox Business' Edward Lawrence contributed to this report.