Curbing the counterfeiting and smuggling of goods has become such a pressing concern for international businesses that last year 19 companies teamed together to create a Brand Owners’ Protection Group (BPG) in the Middle East to tackle the region’s part in the $500 billion global counterfeit trade.
According to the Dubai Economic Department between 2000 and 2004 the GCC authorities seized fake products worth $50 million, of which $35 million was confiscated in Saudi Arabia alone. In a raid on a warehouse in October last year, the Saudi authorities seized 90 tons of copycat Unilever products, worth $1 million.
Along with Saudi Arabia, the UAE has become a focus point for the BPG as the Emirates’ main port, in Dubai, is a major regional export hub.
“More than 7 million containers pass through Dubai with 20% annual growth according to Dubai Ports, so it is very important for brand owners to be protected,” said Omar Shteiwi, chairman of the BPG and regional intellectual property advisor for Nestlé Middle East in Dubai.
The BPG has been working closely with Dubai Customs, which has established an Intellectual Property Unit (IPU) and been on the offensive, seizing counterfeit goods estimated at $3.9 million between February and June last year. The IPU has the right to seize and destroy goods that are entering or in transit.
By comparison to Dubai’s IPU, set up in December 2005, seizing goods in other countries is not as easy said Shteiwi, despite trade, patent and customs laws in the GCC area.
To improve seizures at the point of entry, the BPG is providing educational workshops to inform customs what to look for in shipments. “Hopefully we will have a kind of engagement with the customs to train inspectors to differentiate between genuine and real products,” he said.
Robert Taylor-Hughes, CEO of Beiersdorf Middle East, said finding the source of the fake goods was the best chance of nipping the problem in the bud, but added that the judiciary system in the UAE lacked appropriate penalties.
“One seizure took place over a 10 month period where we found a ring that had been taking in goods from China. We allowed them to enter the Dubai Free Zone, leave and enter the warehouses of counterfeit traders to trace the distribution network. The downside was the judiciary system. Our legal and investigative costs were about 80,000 euro but when he appeared in court was fined $817. The threat of the deterrent is simply not large enough,” he added.
To try and improve legislation, the BPG has organized a one-day seminar with the UAE Ministry of Economy and Trademark Office to exchange information, come up with recommendations, and involve the enforcement agencies.
Although the UAE still has a way to go in handing out tougher sentences, some countries’ judiciaries are taking the issues more seriously, such as in Saudi Arabia and Iran.
Saudi Arabia carried out 100,831 inspections last year at stores selling foods and fast moving consumer goods (FMCGs) that resulted in the seize of 798 tons and 943,231 small pieces of food unfit for human consumption, according to the Saudi Ministry of Economy and Trade.
Iran has a massive problem with counterfeit goods entering the country, largely from China and Central Asia.
Taylor-Hughes said that last year, the Iranian authorities worked closely with Beiersdorf investigators to seize fake goods. “They not only work quickly but are very severe. Both violators were fined $50,000, the message got out, and (illicit activity) quietened down for a year,” he said.
Cosmetics and toiletries firms such as Beiersdorf have been particularly affected by the counterfeit trade, estimated as high as $210 million in the GCC last year—which could be as much as 10% of the overall Gulf market for cosmetics and toiletries.
In Egypt, the company had to pull its whole line of sun-creams following email complaints from customers that got badly sunburned in Sharm El Sheikh after using counterfeit lotions.
“We removed all goods from the market and are now holo-spotting in Egypt—you need a special eye glass to read the code, and counterfeiters can’t duplicate this new technology so far,” said Taylor-Hughes.
The holo-spot, which costs half a euro per spot, is solely being used in areas where the company has had problems, such as Egypt and in Russia, where Beiersdorf found counterfeit shampoos on sale.
A further issue brand owners face is the lack of statistics and data about the extent of the counterfeit trade in the region. To address this the BPG has commissioned international auditing firm KPMG to carry out an economic study on the counterfeit trade in the UAE that will focus on FMCGs, pharmaceuticals, cosmetics, and automotive spare parts.
“The added value of this study will be a roadmap for us and the government as to whether to adopt new intellectual property laws, improve existing laws, give more authority to customs, and enable brand owners to carry out investigations,” said Shteiwi.
The size of the Saudi market is a strong selling point and local banks will in any case make it a matter of their pride to be present and very visible in KAFD and later on in KAEC financial center. That will widen the Saudi financial scene and elevate its profile but it will not by itself fulfill the vision for the two huge projects. Then again, it must be true for new financial districts what is true for the whole world of finance: without risk, no profit.
