Tuesday, November 27, 2007

Thailand's counterfeit pipeline

Porous borders, government inaction allow bogus goods to travel the world

Monday, November 26, 2007; Posted: 03:20 PM

ARANYAPRATHET, Thailand, Nov 26, 2007 (The Columbus Dispatch - If not for the deep-fried scorpions on the dusty food court's menu, you might think you were at Easton Town Center.

The sprawling, open-air Rong Kluea market has all of the familiar clothing brands found at any top-flight U.S. mall: Abercrombie & Fitch, Aeropostale, American Eagle, Gap, Hollister, J.Crew, Justice, Victoria's Secret Pink and more.

But take a good look, because what you see is rarely what you get in this backwater bazaar along Thailand's border with Cambodia.

Over there, twisting on a hanger in a shop with folding tables on a dirt floor, is a green Abercrombie hoodie. From a distance, it's unremarkable. But up close, it's clear the garment has no sewn-in labels and is finished with a Puma-brand zipper.

"In this whole market, there's nothing legal," says a woman hawking rack upon rack of questionable Abercrombie & Fitch merchandise. As if to prove the point, she's wearing a baggy Gap T-shirt, an obvious no-no for a real Abercrombie salesperson.

To lend an air of authenticity to her wares, she keeps a loose-leaf binder with color images printed from the Abercrombie Web site. They look good. Through an interpreter, she says her merchandise is the real thing, stolen from authorized Abercrombie factories in Cambodia.

She could be telling the truth, but none of these customers -- a combination of Asians and Western tourists -- seems to know, or care.

What's undeniable is that Thailand is awash in counterfeit goods, the production and sale of which cost legitimate companies $600 billion a year in lost sales.

Experts consider Thailand, a country of 65 million, to be the primary staging point for counterfeit goods produced in China, where up to 90 percent of the world's knockoffs are made. Organized gangs with financial ties to Hong Kong and Taiwan are behind much of Asia's trade in fakes.

Before communist China opened its borders to extensive trade with the outside world, Thailand was a regional center in the production of counterfeit goods, especially clothing. But counterfeiters are subject to the same market forces that draw legitimate manufacturers to China -- low wages, a huge work force and undervalued currency.

With a central location and modern ports and airports, Thailand remains an ideal transit hub for black-market goods. It also helps that Thailand shares borders with countries that don't place a premium on intellectual property rights: Cambodia, Laos, Malaysia and Myanmar, formerly Burma.

Observers said that officials in Thailand's military-led government are looking the other way.

"Stopping counterfeiting is a difficult proposition in any case, but adding in corruption makes some producers virtually untouchable," said a Western diplomatic source in Thailand who asked not to be named for fear of political retribution.

Rong Kluea and similar markets in the capital, Bangkok, cater to tourists and middlemen from Europe, Asia, North America and elsewhere. What's not purchased in Thailand is shipped to distributors in third countries or sold piecemeal to consumers over the Internet.

Abercrombie & Fitch, which has no stores in Asia and only one in Europe, is blatantly knocked off here. The New Albany company, whose brands include Hollister and Ruehl, says eight of the top 10 resellers of its goods on eBay are likely based in Thailand, peddling fakes made in China.

Thailand's central role in the fakes trade earned it a place of dishonor on the U.S. government's 2007 survey of intellectual property-rights violators worldwide. After 14 years off the list, Thailand was labeled one of the world's worst offenders last spring, joining perennial pirates China and Russia, and nine other nations.

"We agree that we have a problem with intellectual property; if you walk the streets, you can see it," said Woranuj Maneerungsee, a reporter with the Bangkok Post. Her newspaper editorialized last spring that Thailand deserved its ranking and needed to clean up the counterfeit markets.

In Thailand's huge open-air markets, knockoffs aren't even being swept under the rug, let alone cleaned up.

Rong Kluea rivals a state fair in scale, with hundreds of vendors in semi-permanent stalls hawking clothes and household goods. Farm animals and wooden pushcarts add ambience and serve as the primary means for moving illicit goods in and out.

There's little pretense or effort to create the illusion of legitimacy. In one vendor's pushcart, phony Rolex and Omega watches compete for space with dried mushrooms and Thai spices.

Ever wonder where a knockoff Burberry purse might come from? Quite possibly this market, in stalls with tarps for walls, where children eat lunch off mats on the ground while women sew copies of the designer brand's distinctive plaid fabric onto generic Chinese-made bags.

Prices are less than a fourth of what legitimate designer goods would cost in the States. Tour buses from all over Thailand and Cambodia -- adorned with unlicensed Disney characters Mickey, Donald and Piglet -- ply the dusty parking lots on both sides of the border, unloading eager bargain hunters.

There's no sign of Jiminy Cricket. He could be among the bucketfuls of insects and small reptiles destined for the food court's deep fryer.

Dangerous products

Counterfeiting does more than rob companies of sales and support organized crime, child labor and terrorism.

Knockoffs also can damage brand images and hurt consumers.

Fakes sold as real products frequently are made from outdated, dangerous, leftover or stolen components that convey just enough legitimacy to fool unwary -- or indifferent -- consumers.

And while it's one thing for a pair of fake Nike shoes to fall apart prematurely, the stakes are much higher when products can harm consumers.

"It's a real problem when you're talking about safety," said Robert Crane, lead enforcement specialist of anti-counterfeiting operations for Underwriters Laboratories Inc. in Chapel Hill, N.C.

"You can be electrocuted or your house can burn down," he said. "You can die."

Underwriters Laboratories, a nonprofit testing service known by its UL mark on a variety of electrical products, maintains a force of 1,800 inspectors who do nothing but monitor factories around the world.

Their weapon of choice is a high-tech tag, and all Chinese-made lighting products sold in the United States, including extension cords and holiday light strands, must have one affixed to the product itself.

The tags are made in one secure U.S. location, display a hologram and have other internal security features, said Brian Monks, UL's vice president of anti-counterfeiting operations.

Even so, counterfeiters slap phony UL labels on electrical products made with insufficient amounts of copper. Fake circuit breakers look like the real thing but may not trip when overloaded. All of these products can and have burst into flames, Crane said.

While consumers may not be able to tell a real label or product from a fake, he said, be wary of:

--Any product that mentions UL on the carton or product but gives no company name or address.

--Any product with UL on the packaging but not the product itself.

--Shoddy workmanship or cheap packaging.

--Any electrical product significantly marked down and sold by street vendors or at flea markets and deep discount stores.

Counterfeiters also knock off millions of batteries in China for export around the world, said Donna Frazier Schmitt, senior trademark counsel for Energizer, based in St. Louis.

They frequently contain high levels of mercury, and many don't have the built-in ventilation that keeps branded batteries from overheating or exploding, she said.

The logo on Energizer's popular Eveready brand is a black cat jumping through a 9. The company has been fighting a Chinese imitator using the Everpower name. Its batteries feature a skinny black jaguar jumping through an 8.

A busy consumer might not notice the difference.

Most Everpowers are sold in Asia and the Middle East, but some reach the United States every year.

"It can be really hard to tell a real from a fake, but we pursue counterfeits wherever we find them," Frazier Schmitt said. "Consumers can be disappointed with counterfeits, and that translates to disappointment with our brand."

Wild West of fakes

Rusty Lerner is one of Southeast Asia's top private eyes and an expert on counterfeiting. The former Houston resident, who has an Asian studies degree from Yale, has lived in Bangkok for 18 years. Today, he runs Quantico Ltd., one of the largest private investigation shops in the region.

With 35 employees, his business is booming.

"China has taken over most of the manufacturing (of legitimate and illicit goods) because the labor there is just so cheap," he said.

While Cambodia, Laos and Myanmar have plenty of factories, those countries increasingly serve as conduits for Chinese-made goods pouring into Thailand.

Ray Tai, a Hong Kong-based lawyer responsible for policing adidas brands in Asia, can attest to the recent change. "They all have their counterfeit goods, but in the past couple of years, the Chinese counterfeiting machine has basically wiped them off the map."

Lax border controls and little or no enforcement of intellectual property rights by Thailand's neighbors ensure a steady supply of goods. Lerner says dozens of rural villages make their living from the counterfeit trade.

Quantico advises companies with factories in the region on "supply-chain management." It involves knowing who makes your product, their suppliers and anyone involved in distribution. Mattel's recent problems with lead paint on Chinese-made toys underscored the need for strict controls of supply chains.

In addition to apparel, Quantico tracks fake food products, cell phones, printer components and auto parts.

Criminals throughout Asia fool consumers by filling used ink cartridges with generic ink and putting them in Hewlett-Packard boxes.

"The profit margin on ink cartridges is better than heroin," Lerner said.

And they're a safer bet for criminals. Counterfeiters in Thailand, China and other parts of Asia rarely get jail time.

"The penalty is often death for narcotics, whereas if you're a counterfeiter, people say, 'OK, you're just a businessman,' " said Daniel C.K. Chow, an Ohio State University law professor and a counterfeiting expert. The lack of enforcement is the main reason the trade flourishes as never before, he said.

In an effort to boost tourism, Thailand has liberalized visa procedures, allowing foreign nationals from 154 countries to easily enter the country without a visa or to obtain one on arrival.

People certainly come and go with ease along the Thai-Cambodian border, and they know how to work the system.

"It's like a flow of ants," Lerner says. "People cross the border all day with two fake cell phones at a time. Two phones are considered personal use."

For those who want to minimize trips, it's not hard to slip through holes in the border fence. Conveniently, border guards patrol the area just twice a day.

"People know when that is," he said, "and they just go back and forth."

Lerner can make the drive from his office in Bangkok to the Rong Kluea market in just over three hours. On one recent visit, he was flagged down for speeding and solicited for a bribe by the police officer. Lerner declined to pay. After some back and forth, he was allowed to proceed without a ticket.

"He didn't want to do the paperwork," Lerner said.

That attitude is typical of what Western companies face in the fight to protect intellectual property in a country where law enforcement can be sporadic and arbitrary.

"We don't expect piracy to be wiped out overnight; however, we would like the Thai government to have a plan for how to better protect intellectual property and make a greater effort to enforce their laws," the Western diplomatic official said.

On the return trip from Rong Kluea to Bangkok, Lerner pulled off the highway to see what two smiling boys were cooking up in their pushcart: grilled field rat.

"It tastes better than chicken," one said. Lerner politely passed.

Not far from the boys, in the middle of rice paddies and forests in Thailand, he happened upon a little restaurant in the courtyard of a private home. On the other side of a dirt road, two oxen lounged in a bog.

A waitress approached, wearing a Louis Vuitton fanny pack. Either tips are quite good in this remote outpost, or it's a fake.



Abercrombie & Fitch, which has no stores in Asia and only one in Europe, is blatantly knocked off in Asia. The New Albany company, whose brands include Hollister and Ruehl, says eight of the top 10 resellers of its goods on eBay are likely based in Thailand, peddling fakes made in China.

No comments: