BEIJING — It’s the first thing that greets customers as they stream
into the new Silk Street market here: a selection of brightly colored
North Face jackets, their signature logos prominently displayed,
hanging in neat rows in one of the building’s most high-traffic stalls.
They’re
alongside an assortment of brightly colored Columbia ski jackets. The
stall next door is stocked with Tommy Hilfiger corduroys and Lee jeans.
Down the hall, customers look over Ralph Lauren polo shirts and Sean
John T-shirts. And elsewhere in the shiny five-floor shopping center,
there are plenty of Quiksilver Hawaiian-print bathing suits, Nike
running shoes and even the Gucci floral handbag line from the brand’s
recent cruise collection.
And they’re all counterfeit.
When
Beijing officials closed down the former Silk Alley in January and
prepared to open a megamall right next door, they vowed the new
shopping spot would be better monitored against China’s counterfeiting
problem. But less than two weeks after its grand opening, the massive
Silk Street mall is proving to have a bigger counterfeiting problem
than its former incarnation ever did.
Even the shoppers are
amazed. “I can’t believe how much larger and nicer this place is now,”
said one recent American customer. “I didn’t know it was possible, but
they seem to have even more fakes than before.”
The new Silk
Street has 1,500 stalls spread over about 300,000 square feet of space
— more than triple the amount of stalls in the old location. In
addition to more clothing and accessories, the mall has expanded its
offerings to include jewelry, electronics and tailor-made clothes.
It
was only a few months ago that Beijing officials practically patted
themselves on the backs in the government-owned China Daily newspaper
for their increasing crackdown on counterfeit goods, particularly in
the notorious spot of Silk Alley. In the past six months, there had
been a significant decrease of fakes from some brands in the market, as
well as in nearby markets like Hong Qiao and Ya Xiu, both spots in
Beijing that also sold an abundance of counterfeit products. That
crackdown was the result of efforts by lawyers for the Industry Working
Group, a coalition of LVMH Moët Hennessy Louis Vuitton, Chanel, Prada
and Burberry, who had joined forces to combat the open selling of
copies of their namesake brands as well as their subsidiary labels.
Lawyers
for the coalition had introduced the issue of landlord liability to
hold the property owners — companies owned by district governments in
Beijing — accountable for the counterfeit items being sold. After the
IWG received backing from local and national governments and the leases
of over 40 problem vendors were suspended or terminated, more than 25
IWG-affiliated brands began quickly disappearing from the shelves.
In
the past, companies had been less worried about counterfeit sales
within China and more concerned with combating the export of such fakes
overseas. But Joseph Simone, a lawyer who represents the coalition,
said the brands are happy with the positive movements in Beijing’s
markets. “People had given up on Silk Alley,” said Simone, a partner
with Baker & McKenzie in China. “We’ve found a new way to reduce
the visibility of fakes in some of the key retail and wholesale markets
in Beijing. For companies who are now developing a legitimate retail
presence in China, this is very important.”
In the new Silk
Alley, the IWG’s work seems to be sticking, at least on the surface.
There are almost no Louis Vuitton products on display — though if you
directly request it from most vendors, they’re happy to pull out a full
Louis Vuitton catalogue and promise they can have any style delivered
to the stall within minutes.
In the old Silk Alley, the Beijing
Administration of Industry and Commerce had hung prominent signs around
the market clearly listing the brands that had been banned. Now, those
signs are nowhere to be found. The AIC announced late last month that
it has increased that forbidden brand list to 48 well-known labels,
including Gucci and North Face — though both brands are still widely on
display in the market. It’s hard to believe such measures are making
much of a difference, especially as most of the investigation and
enforcement thus far has had to be directly funded by the brands.
“The
only reason that we saw results is that the brands themselves did
surveys and reported the violations,” Simone said. “The notice [from
the AIC] let the sellers know the government was behind us, but we did
not see the authorities themselves conduct serious surveys or sweeps.
Some of the landlords claim to have conducted some surveys and
terminated some leases of problem outlets, but this was not done on a
regular basis in most markets.
“A lot of companies were
interested in being on the new AIC list because they’ve seen the work
that was done in Silk Alley. But the benefits of inclusion have
depended on the willingness of the brand owners to fund investigative
surveys. This new list is not going to be particularly useful to the
companies until they jointly work together to hire investigators who
can identify the outlets still dealing in fakes and report them to the
AIC and the landlords. A company can try to do that on its own, but
there are too many markets to monitor.”
The poor state of Silk
Street’s intellectual property issues comes as a real blow to
anticounterfeiting advocates, who have spent significant time over the
past year helping China meet its World Trade Organization commitments
to curb the counterfeiting problem. Last fall, as expected, the Chinese
released new judicial interpretations for counterfeiting and copyright
piracy offenses, an important step in improving intellectual property
issues but one that also left many unresolved gaps.
The primary
positive in the judicial changes was a mandatory three-year minimum
jail sentence for individuals caught with more than $18,000 in
counterfeit goods, Simone said. However, the new provisions are
ambiguous about how to calculate that monetary threshold for criminal
prosecution and, in particular, whether values should be determined by
the actual price of the legitimate product or the infringer’s own
price, which is generally much lower.
“They definitely split the
baby on some of the critical legal issues we have been facing,” said
Simone. “The industry was very happy to have the chance to provide
input and recommendations on the new judicial interpretation, but in
the end, the final draft contained some gaping loopholes. It was a real
disappointment for many of the companies involved in lobbying the
issue.”
This ongoing crisis with China’s counterfeiting may
soon be brought to an international level. By the beginning of May, the
United States Trade Representative will decide whether to elevate
China’s counterfeiting and copyright piracy problems to a WTO dispute.
Doing so would force the Chinese to go to the WTO headquarters in
Geneva to conduct consultations and negotiations with the U.S. In
January, the USTR invited companies to offer more evidence of China’s
increasing problem with fakes. They are currently reviewing this
information before announcing their decision later this month.
While
it remains to be seen whether the USTR will take the issue to the WTO
or give the Chinese more time to tackle the problem themselves, it is
clear that China’s counterfeiting plague is a growing issue. The annual
report issued earlier this year by the Quality Brands Protection
Committee, an industry group of more than 100 multinational companies
concerned with intellectual property issues in China, said that members
are worried about both the increasing sophistication in the technology
used by counterfeiters and the alarming increase of fake goods exported
from China. In the U.S. alone in 2004, Customs officials made 7,255
seizures of counterfeit goods worth $138 million, nearly 70 percent of
which came from Hong Kong and mainland China. It is a significant
monetary increase from 2003, when about 6,500 seizures were made worth
$94 million.
“Companies [we work with] are saying that sales of
fakes on the streets in other countries are getting much worse, and the
products are mainly coming from China,” said Simone, who also serves as
vice chairman for the QBPC. “Chinese people are now getting visas more
easily and moving everywhere in the world. So, you’ve got more Chinese
getting involved, as well as more foreigners coming to China who are
looking to buy.”
There’s only one group who doesn’t seem to be
bothered with the issue at all: Silk Street’s busy sellers, who could
be found aggressively reeling in both foreign and Chinese customers
flooding the market on a recent weekday night.
The merchants,
many of whom were displaced for more than two months between the
demolition of the old market and the opening of the new one, have long
been protesting the high rents and open layout of their brand-new home.
But as the crowds continued to pour in, they didn’t seem to be
complaining at all.
“It’s been a good week,” said one
shopkeeper, whose first-floor stall sold Ralph Lauren- and Yves Saint
Laurent-labeled shirts. “I thought it wouldn’t be busy, but I was
wrong.”
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Outside and in Beijing's new Silk Alley, despite the government's intervention, is still filled with counterfeit goods.
Photo by Doug Kanter
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