The economic impacts of counterfeiting Presentation for BASCAP congress December 2009

Understanding economic costs is complex ●Transparent results ●Results which follow from the data ●Conservative results …we developed simple bottom-up model ●Clear objectives □Understanding costs to consumers and government ●Robust methods □Bottom up, start with the micro level ●Use transparent assumptions and best data □Always conservative ●Txt Text ●Txt Text

Overall approach ●Two countries: □UK □Mexico ●Grossed up to economy level ●Grossed up to G20 ●Four sectors: □Food and drink □Luxury goods □Pharmaceuticals □Software ●Five outcomes □Tax and benefits □Employment □Health □Crime □FDI …methods experimental, results preliminary ●Txt Text ●Txt Text

●Objectives ●Methods ●Results

OECD recognises four issues ●Counterfeit and pirated goods moving through international trade ●Domestically produced and consumed counterfeit and pirated goods ●Pirated digital products distributed via the internet ●Broader economy wide effects

Trying to measure loss to economy Proportion of counterfeit goods consumed is the counterfeiting rate Measuring the effect of counterfeit consumption on domestic production The impact on domestic production traced through to tax receipts, benefit payments Domestic consumption Consumption of counterfeits Domestic production Imports Our analysis is focused here Domestic production Tax lost, benefit paid

●Objectives ●Methods ●Results

Aim for best estimate based on bottom up modelling ●Be clear about counterfactual ●Estimate level of counterfeiting ●Luxury goods ●Food ●Pharma ●Software … not a macro model ●Txt Text ●Txt Text ●Impact on firm output and pricing ●Model economic costs

Five modules Health Industry impact FDICrime Tax, benefits Total costs … make up the economic model ●Txt Text ●Txt Text

The UK industry impact calculation ●Reduced industry turnover ●Reduced profits ●Job losses and long term unemployment …feeds into tax and benefit calculations ●Assume only 2% of food and luxury goods counterfeit 40% of those purchasing counterfeit luxury goods would shift to real thing ●Data on industry specific turnover, profits and employment ●Unemployment data □By length of time unemployed ●Txt Text ●Txt Text

Tax and benefits module ●Estimated impact on: □Turnover □Profits □Employment ●Estimated reduction in tax receipts ●Estimated increase in benefit payments ●Apply rates of: □Sales tax □Corporation tax □Income tax ●Estimate □Additional benefit payments ●Txt Text ●Txt Text

Crime Crime, health and FDI HealthFDI ●Total cost in UK €150 bn ●3.6% GDP estimate for Mexico □Can assume counterfeiting increases it by small percentage ●Calculated for G20 ●Review 30+ studies of deaths related to counterfeiting ●Develop annual estimate of deaths – 3,0000 ●conservative value to each premature death ●NBER estimates poor IPR enforcement reduces exports from poorer countries by 20% □We assume 5% impact on Mexico ●Txt Text ●Txt Text

●Objectives ●Methods ●Results

Mexico UK UK and Mexico results ●Four sectors: □€500 million in lost taxes □15,000 jobs lost,1,200 long term ●Economy wide □€4 billion lost tax □380,000 jobs lost □31,000 long term ●Four sectors □€220 million lost taxes □10,000 jobs lost, 500 long term ●Economy wide □€1.4 billion lost tax □480,000 jobs lost, 26,000 long term □520 million tax lost from lost FDI ●Txt Text ●Txt Text

Illustrative extrapolation to G20 ●€60 billion lost in tax revenue ●2.5 million jobs lost, 160,000 long term ●Very big economic costs of crime and health ●Extrapolate tax losses □With 50% discount ●Extrapolate employment losses ●€20 billion cost for every 1% increase in crime rate caused by counterfeiting ●Perhaps 3,000 lives lost from exposure to counterfeit food and medicines ●Txt Text ●Txt Text

A lot more still to do to understand economic effects ●Improve methodology ●Improve data ●Better evidence ●Better policy ●Txt Text ●Txt Text ●Implement in other sectors and countries ●Carry out CBAs of regulatory responses

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