China Association of Enterprises with Foreign Investment

Quality Brands Protection Committee

China Association of Enterprises with Foreign Investment

Quality Brands Protection Committee

Contents

1. The Problem: Counterfeiting in China

2. Introduction to the QBPC

3. 2005 Key Focus Items

4. Conclusions

The Problem: Counterfeiting in China

Scope of the Problem in China

• Counterfeiting has reached critical levels– AmCham’s survey of 450 members shows “piracy’ is “so pervasive and

serious” that 35% respondents said it has forced them to slow, decrease or consider decreasing the investments in the country (AWSJ 9/2-4/05)

Scope of the Problem in China

• Counterfeiting is #1 IPR issue for many companies• Losses are estimated to be 10-15% of annual sales for

many companies

Percent of Counterfeit Goods on Market

0%10%20%30%40%50%60%70%

< 5% 5% - 10% 11% -25%

26% -50%

> 51%

Percentage of Goods

Perc

enta

ge o

f Re

spon

dent

s 2005200420032002

60% of members believe between 5 & 10% of their goods in the market are counterfeits

Scope of the Problem in China

• Counterfeiting has reached critical levels

• It has become more organized & sophisticated

More Organized & Sophisticated

• 越打越多• 越打越大• 越打越精• 越打越难

Scope of the Problem in China

• Counterfeiting has reached critical levels • It has become more organized & sophisticated• Counterfeiting problem has not improved in the past year

It has evolved from local tradeto inter-province business to...It has evolved from local tradeto inter-province business to...

international commerceinternational commerce

Key Counterfeiting Areas

• Top Provinces: Guangdong, Zhejiang, Fujian• Top Cities: Guangzhou, Shenzhen, Beijing, Ningbo

Shenzhen (21%), Guangzhou (16%), Ningbo (16%)

Guangdong (34%), Zhejiang(26%), Jiangsu (11%)

Counterfeit Exports

Guangzhou (20%), Beijing (13%), Shenzhen (10%)

Guangdong (32%), Fujian(13%), Zhejiang (9%)

Retail of Counterfeit Goods

Guangzhou (27%), Yiwu (11%), Beijing (9%)

Guangdong (41%), Zhejiang(20%), Anhui (10%)

Wholesale of Counterfeit Goods

Guangzhou (26%), Shenzhen (18%), Ningbo (7%)

Guangdong (56%), Zhejiang(29%), Shandong (11%)

Counterfeit Manufacturing

CitiesProvincesActivity

Scope of the Problem in China

• Counterfeiting has reached critical levels • It has become more organized & sophisticated• Counterfeiting problem has not improved in the past year• Growing export of China-made fakes to countries around

the world

Scope of the Problem in China

• Counterfeiting has reached critical levels • It has become more organized & sophisticated• Counterfeiting problem has not improved in the past year• Growing export of China-made fakes to countries around

the world– 77% of members reported ‘very serious’ or ‘serious’

counterfeit export problems

Scope of the Problem in China

• Counterfeiting has reached critical levels • It has become more organized & sophisticated• Counterfeiting problem has not improved in the past year• Growing export of China-made fakes to countries around

the world• Enforcement & prosecution largely ineffective

– AmCham’s survey shows that 80% of respondents said they consider the official Chinese response to piracy “ineffective or totally ineffective” (AWSJ 9/2-4/05)

Scope of the Problem in China

• Counterfeiting has reached critical levels • It has become more organized & sophisticated• Counterfeiting problem has not improved in the past year• Growing export of China-made fakes to countries around

the world• Enforcement & prosecution largely ineffective• Burden of proof too difficult to satisfy• Criminal convictions are rare; fines are too low • Local protectionism creates serious barriers to

enforcement

Fundamental Problems

• Special to China:– Historical reliance on administrative

enforcement; light punishment– Lack of clear standards for criminal liability– Police / prosecutors new to the game

Fundamental Problems

• Same as elsewhere:– Inadequate criminal enforcement – Inadequate resources / training– Local bias (“protectionism”) and corruption

Contents

1. The Problem: Counterfeiting in China

2. Introduction to the QBPC

3. 2005 Key Focus Items

4. Conclusions

The Quality BrandsProtection Committee

(QBPC)

QBPC Voting Members (25)14. LVMH Fashion Group15. Mars16. Microsoft17. Nike18. Nokia19. Philip Morris20. Philips21. Procter & Gamble22. Qualcomm23. Sony Corporation24. Unilever25. Zippo

1. BAT2. Bosch3. Colgate-Palmolive4. Eli Lilly5. General Electric 6. General Motors7. Gillette8. Henkel9. Hewlett-Packard10. Intel11. Johnson & Johnson12. JT International S.A.13. La Chemise Lacoste

QBPC General Members (106)

25. 3Com26. ABB27. Abbott Laboratories28. Acushnet29. Adidas30. Alcatel31. Anheuser-Busch32. AstraZeneca33. BASF34. Bayer35. Beaufour Ipsen36. Beijing Mundipharma37. BIC38. BMW Group

39. BP40. Burberry41. Callaway42. Canon43. Caterpillar44. Chanel45. Cisco Systems46. Coach47. Cleveland Golf48. Coca-Cola49. Creative Technology 50. DaimlerChrysler

QBPC General Members (cont’d)

51. Danfoss52. Diageo53. Dell54. Denso Corporation55. Disney56. Dow Corning57. Emerson58. Energizer59. Epson60. Estée Lauder61. Federal-Mogul62. Ferrero63. Ford

64. Fujisawa65. GlaxoSmithKline66. Gore67. Grohe68. Gucci69. Guthy-Renker70. Hasbro71. Heineken72. Hermès73. Hitachi74. Honeywell75. Hong Kong Jockey Club76. ICI

QBPC General Members (cont’d)77. Imperial Tobacco78. Irdeto Access79. Karsten Manufacturing80. Kodak81. LEGO82. Logitech 83. L’Oréal84. Lutron85. Makita86. Mary Kay87. Matsushita Electric88. Mattel89. MeadWestvaco90. Merck

91. Michelin92. Moët Hennessy93. NBA Properties94. NEC Corporation95. Newell Rubbermaid96. Nintendo97. Nissan98. Novartis99. Nu Skin100.Perfetti Van Melle101.Pernod Ricard102.Peugeot Citroen103.Pfizer

QBPC General Members (cont’d)118.Siemens119.Syngenta120.Taiyo Yuden121.Texwood122.Tiffany & Co.123.Time Warner124.Toshiba125.Toyota126.Tyco Electronics127.Unitex128.Volkswagen129.Wrigley130.Yamaha

104.Portola105.Prada S.A106.PUMA107.Reebok108.Roche109.Rohm and Haas110.SanDisk111.SANYO112.Sara Lee113.SAP114.S.C. Johnson115.Seb Développement116.Servier117.SEIKO

The Quality Brands Protection Committee

• Beijing-based association under CAEFI/MOFCOM

• Established March 2000

• Represents 130 multinationals and their subsidiaries (mainly American, European and Japanese)

• Total China investment by members approximately US$42 billion

Mission Statement

“To work cooperatively with the Chinese central and local governments, local industry, and other organizations to make positive contributions to

anti-counterfeiting efforts in the People’s Republic of China.”

Organizational Structure

• Member driven

• Agenda pursued mainly by committees

• Industry Working Groups

• Secretariat

QBPC Organization Structure

CommitteesBest Practices / Enforcement Committee

Communications Committee

Customs Committee

Government Cooperation Committee

Legal Committee

Membership Services Committee

IWGsAutomotive

BatteryFMCG

Food & BeveragesHome Appliances

ITLuxury

PharmaceuticalSporting Goods

Sec

Steering Council (Voting Members, QBPC Chair & Vice Chairs, Committee Chairs)

retariat

Contents

1. The Problem: Counterfeiting in China

2. Introduction to the QBPC

3. 2005 Key Focus Items

4. Conclusions

2005 Key Focus Items

2005 Key Focus Items

1. Reduce cross-border trade in counterfeits2. Increase criminal enforcement against counterfeiters3. Strengthen administrative enforcement4. Build government relations5. Increase cooperation with international and domestic

organizations, foreign governments and Chinese IP owners

6. Expand the QBPC’s focus to cover IP issues other than anti-counterfeiting

7. Broaden public awareness of the problem8. Meet membership satisfaction targets

QBPC Key Focus Items

• All members agree with QBPC’s objectives• Members would like to see a continued focus on:

– Lobbying on increased criminal enforcement– Lobbying for amendments to laws and regulations– Enforcement initiatives– Legislative initiatives

• Other suggestions:– Lobbying of reforms in administrative enforcement– Supporting IWGs in conducting consumer education

initiatives

Contents

1. The Problem: Counterfeiting in China

2. Introduction to the QBPC

3. 2005 Key Focus Items

4. Conclusions

Conclusions

The Time to Act is Now

The problem persists:• Most members believe problem same or worse

compared to one year ago• Counterfeiting affects investment decisions• WTO entry may have helped to increase

counterfeiting

The government is ready to take action:• Central government is aware• Quality of support from government is improving

ResultsWinner of the Global Anti-Counterfeiting Award

2001 Best Practice by an Association&

2004 Best Practice by an Association

Awarded by the Global Anti-Counterfeiting Group (GACG)