Harm to National Economy
The taxation authorities failed to collect 520 billion won (US$507 million) in tax from the domestic counterfeit product market last year. The amount is equivalent to 0.3 percent of the national tax income for 2012, when Korea recorded a tax income loss of 2.8 trillion won (US$2.7 billion). Experts point out that the tax sources in the fake product market should be brought to light as early as possible, with the tax revenue expected to record a loss of 10 trillion won (US$9.9 billion) this year due to the economic slump.
The Hyundai Research Institute announced on July 22 that the imitation market in Korea is estimated to have reached 5.2 trillion won (US$5.1 billion) in size last year, which is equal to 0.4 percent of the nominal GDP for 2013. Earlier than that, the OECD mentioned that fake products accounted for 2 percent of the total international trade as of the end of 2007. The United Nations Office on Drugs and Crime (UNODC) also quoted it to say that a total of US$25.2 billion worth of imitation products, equivalent to 2 percent of the gross imports, were exported from Southeast Asia to the U.S. and Europe in 2010.
“Based on the OECD data, fake products imported into Korea are estimated at 11.4 trillion won [US$11.3 billion], or 2 percent of its total imports, and the size of such products produced in Korea is expected to be around 14.8 trillion won [US$14.7 billion],” said Hyundai Research Institute analyst Baek da-mi, adding, “The actual size of the domestic imitation market is predicted at 5.2 trillion won [US$5.1 billion], 2.3 trillion won [US$2.2 billion] of it on the import side, and the rest relating to domestic production, given that such products are distributed at prices lower than those of the others.” She continued, “It is impossible to predict how much cheaper a fake product is than its genuine counterpart and, although we used a ratio of 20 percent in the calculation, the market size could increase to 7.8 trillion won [US$7.7 billion] if a price ratio of 30 percent is adopted.”
The problem is that the market is severely affecting the national economy. First of all, tax evasion is estimated to be 520 billion won (US$508 million) a year on the assumption of a price ratio of 20 percent and a value added tax rate of 10 percent.
In addition, the consumption of products similar to genuine goods declines when fake products’ popularity goes up. In particular, imitated foreign brand products take the place of domestically-produced ones having similar price ranges, which means local industries could lose a chance to grow themselves.
Korea ranked 15th in 2011 on the list of countries engaged in counterfeit product transactions. According to the Korea Customs Service, an average of 497 fake products worth 754.8 billion won (US$737 million) were imported into Korea each year between 2011 and 2013. Up to 90 percent of them, costing 635.6 billion won (US$621 million), infringed upon trademark rights.
Handbags and leather goods (24.4 percent) were on top of the list on a money basis, which were followed by watches (22.2 percent), medicine (17.9 percent), garments and textiles (10.7 percent), and shoes (5.2 percent). The most frequently uncovered ones were garments and textiles (190 times), handbags and leather goods (144 times), and shoes (90 times). 96.8 percent, or 701.4 billion won (US$684.9 million), of the exposed counterfeit products were from China.