6. Concluding remarks

E-commerce continues to expand globally, bringing significant benefits to business and consumers alike, providing them with opportunities to purchase a wide variety of goods at competitive prices. Continuous technological improvements that facilitate e-commerce reduce transaction costs, and provide more information to participants, boosting access to a wider array of products, leading to efficiency gains, as well as resulting in welfare improvements for the entire economy. Of particular interest is the expansion of traditional brick and mortar establishments into e-commerce. It is affecting an ever-expanding number of companies across virtually all business segments. Small businesses are taking advantage; small local proprietors are, for example, providing consumers with possibilities to order and pay for merchandise, for pick up or delivery, replacing more cumbersome transactions carried out by phone, or through physical visits to the businesses concerned.

The COVID-19 crisis accelerated an expansion of e-commerce towards new firms, customers and types of products. It has provided consumers with access to a significant variety of products from the convenience and safety of their homes, and has enabled firms to continue operation in spite of contact restrictions and other confinement measures.

At the same time, the online environment has become more intensely misused, and cyber law enforcement has reported skyrocketing volumes of various e-crimes. E-commerce is becoming an important platform for illicit products, including fake and substandard medicines, test kits and other COVID-19-related goods.

The explosive growth in e-commerce is paralleled an unprecedented increase in growth in small shipments, handled primarily through postal services.

For criminals running illicit trade networks, small parcels sent by post become an attractive way of fulfilment of on-line transaction. In addition, small shipments provide a means for counterfeiters to lower the potential losses that result from seizures. This is confirmed by observable trends. While counterfeits trafficked by container ships clearly dominate in terms of value, trafficking of fakes by small parcels, sent mostly by post, is growing and dominate in terms of number of seizures.

The quantitative analysis provided in this report employs large datasets to provide more detailed and precise information about the quantitative relationship between illicit trade in counterfeits and the indicators on e-commerce.

The analysis confirms a positive and statistically significant correlation between the indicators of e-commerce activity in an economy, and imports of counterfeits to that economy. This analysis re-confirms the intuitive claim that for criminals, e-commerce provides an increasingly attractive means to facilitate the trade in counterfeit goods for a large range of product categories.

Furthermore, the correlation becomes stronger for indicators of imports of fakes with small parcels. Countries that report high degrees of e-commerce intensity (approximated by all available indicators) tend to report higher rates of imports of fakes smuggled in small parcels. Although indirectly, it re-confirms another intuitive observation that small parcels are the preferred way of shipping of fake products ordered via e-commerce.

The subsequent analysis focused on the imports of fakes to the EU, taking into account additional information provided in the EU data.

Overall the conclusion was that a majority of seizures of goods imported to the EU from third countries refer to goods that have been purchased on-line. However, in terms of their value, only 14% of value of counterfeit goods imported to the EU referred to goods purchased on-line. Limitations of data do not allow to assess the scale of e-commerce solutions employed to sell fakes in transactions carried out entirely within the EU borders. But both the statistics indicating rapid growth of e-commerce in recent years in general and the fact that only a fraction of e-commerce B2C transactions are performed cross border indicate that the real role of e-commerce in trade in counterfeit could be considerably more important than indicated in the present study.

In terms of provenance economies, China and Hong-Kong (China) were the source of over 80% of detentions with a link to online sale, in terms of both: seizures and values.

Regarding transport modes, small parcels were the main method of transport of fakes ordered on-line to the EU. A closer look into specific streams reveals that the postal distribution channel clearly dominated. Over 90% of seizures of fakes ordered on-line were carried by post.

In terms of products, many types of fake products tend to be ordered on-line including footwear, clothes, toys, leather goods, electric equipment and watches and cosmetics. The two rankings – in terms of value and number of seizures -- are quite similar, with footwear and clothing being product categories on top of the list of products with highest shares of detentions.

The quantitative analysis presented identifies several research areas that might merit further investigation. A more in-depth analysis of these topics could be beneficial for developing efficient enforcement and governance frameworks to counter the risks posed by trade in counterfeit goods ordered on-line.

Existing qualitative information highlight that the on-line market for misuse of small parcels is very dynamic. In addition, the COVID-19 pandemic has added lots of momentum. Further investigation into how these dynamics evolve is needed – either at the industry level or through a case-by-case analysis. This investigation could take into account more nuanced aspects of the dynamic changes in industry/economy structure of use of the on-line environment.

Policy makers and the private sector are concerned about the significant scope of counterfeit trade abusing e-commerce to harm legitimate businesses and economic activity, and to cause damage to the health, safety and security of citizens. Existing legislative in the e-commerce area are being considered in the European Union and in the United States. The Digital Services Act in the EU and the SHOP SAFE Act in the US are directed at online intermediaries and platforms. They will establish a common set of rules for actors in the online ecosystem, and diminish the volume of fakes available online. It will be done through a number of mechanisms, the key one being streamlining of ecommerce platforms liability for counterfeit products, in particular those that pose health and safety risks.

The analysis presented in this report could be used to strengthen development and implementation of such actions, and to further effective cooperation between customs authorities, postal and express operators, e-commerce platforms and right holders, in particular by improving mechanisms for collecting and sharing good quality information.


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