Counterfeiting and Piracy Harm the Brazilian Economy
Economic Impact by Major Industry Sectors
Brazil-U.S. Business CouncilThe Brazil-U.S. Business Council is a private sector organization focusedon promoting the free flow of trade and investment between Brazil andthe United States. In the pursuit of this goal, our bilateral nature makesus uniquely effective. With a U.S. Section representing the largest U.S.
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This report, commissioned by the Brazil-U.S. Business Council, reviews theeconomic costs of counterfeit and pirated goods for the Brazilian economy.
Copies of software, compact discs, medicines, mobile phones, food and drink,car parts, tobacco products, and imitation designer fashions are sold every day inthe huge Brazilian market of nearly 180 million consumers. New technologymeans that more goods than ever are vulnerable to copying.
Counterfeiting and piracy hurt not only companies doing business in Brazil, but inturn, all Brazilians. Major industries, such as software and music, lose more thanhalf of their sales to these illegal activities. Consequently, there are fewer jobs forBrazilians, the government collects less tax revenue, Brazilian consumers mustpay higher prices for inferior products, and counterfeited products endanger thehealth and safety of consumers.
Measuring the full economic impact of counterfeiting and piracy is hard becausethese activities are clandestine. Even the Brazilian government lacks official dataon the economic damages caused by the sales of counterfeit or pirated goods.
Despite these limitations, a review of the best available industry estimatesindicates that at least $1.6 billion in sales are lost every year to counterfeiting andpiracy. The copyright industry alone estimates yearly losses of nearly $800 million.
Industry estimates also show that Brazil would net $500 million a year in lostcigarette tax revenue if counterfeiting or piracy were reduced or eliminated.
The data developed for this report are based on a survey of major industrysectors, interviews with trade association representatives, and a review ofexisting reports and literature.
In a typical year, millions of counterfeit cigarettes, medicines, t-shirts, toys, RayBan look-alikes, fake Nike sneakers, pirated DVDs, and software flood theBrazilian market. The costs of intellectual property rights infringementsreverberate throughout the Brazilian economy. Thousands of jobs and billionsof dollars in sales are lost every year.
Equally important, millions of dollars in annual tax revenue are lost that supportBrazil’s public services and social programs like education and health care.
This harms Brazilian consumers, entrepreneurs, workers, and ultimately, theBrazilian economy.
It is difficult to obtain a single value for all the losses associated withcounterfeiting and piracy because of the differing methodologies used tocalculate the impact by each industry sector. However, an industry-by-industryreview shows the enormous economic losses for the Brazilian economy and itspeople due to violations of intellectual property rights.
COUNTERFEITING AND PIRACYHARM THE BRAZILIAN ECONOMYDecrease in Sales and Jobs
Counterfeiting aand ppiracy ccost hhundreds oof m
The losses in sales extend from an estimated loss of $14 million frombook piracy to nearly $350 million in lost recording industry sales toalmost $520 million in software piracy losses in 2003.
Counterfeiting aand ppiracy ccost tthousands oof jjobs. Estimates of job lossvary by industry. The toy industry reports that it has lost 80,000 jobs topiracy in recent years, the recording industry estimates a loss of some55,000 jobs over three years, and the optics and lenses industry lost8,000 jobs in 2003.
Also, Brazilian consumers are harmed when they buy pirated goods orcounterfeits because they end up paying an excessive price for aninferior product. Further, the manufacturer of the genuine product isblamed when the consumer believes that he has bought a genuinearticle, creating a loss of goodwill for the company if the product fails.
Counterfeiting aand ppiracy rresult iin llost ttax rrevenue. If software piracywere reduced by 10 percentage points, an additional $335 million in taxrevenue would be generated between 2002 and 2006. The cigaretteindustry reports that the government loses $500 million a year incigarette tax revenue.
Reduction in Foreign Investment and Innovation
Counterfeiting aand ppiracy ccost fforeign iinvestment aand fforeign kknow-how. Foreign investors are reluctant to invest in Brazil if new productscan be copied easily, especially pharmaceuticals and software.
Counterfeiting aand ppiracy ssupport ccriminal aactivities. Criminals derivehuge profits from counterfeiting and piracy, as do organized criminalactivities that involve piracy as just part -- and frequently the mostlucrative part -- of a diversified criminal portfolio including trade innarcotics, money laundering, prostitution, and terrorism.
Counterfeiting aand ppiracy pproduce hhealth aand ssafety cconcerns. It is nolonger rare to find counterfeit pharmaceuticals in hospitals or counterfeitparts in aircraft and autos. These fake products can cause injuries anddeath.
PIRACY ON BRAZIL BY MAJOR INDUSTRY SECTORS
X 30 percent of all audiovisual sales are
X 52 percent of all records and music are
X $120 million a year in lost revenue due to
X 55,000 jobs lost over three years due to
X $187 million a year in lost revenue due to
COUNTERFEITING AND PIRACY COST THE BRAZILIAN
ECONOMY THOUSANDS OF JOBS, BILLIONS IN SALES,
X 80,000 jobs lost due to toy counterfeiting
X $500 million a year in lost cigarette tax
X 48 percent of all eyeglasses are lost to
X 10 percent of all auto parts sold in Brazil
X 5-7 percent of all medicines in Brazil are
This report compiles the best available economic data on intellectual
property infringements for major industry sectors. Counterfeiting and
piracy in Brazil are focused mainly on the domestic market. In fact, it is
estimated that three out of five counterfeit or pirated products are
imported into Brazil from such countries as Paraguay, China,Singapore, Korea, and Malaysia due to the large numbers of
consumers and to the difficulties that the Brazilian authorities have in
Brazil is flooded with counterfeit cigarettes. Tobacco companies lose
hundreds of millions of dollars annually to smuggled or fake cigarettes.
These illegal cigarettes now represent 34 percent of the volume ofcigarettes sold per year, jumping from 5 percent of the market in 1991
and 20 percent in 1995. Approximately 51 billion cigarettes are sold
illegally every year in the Brazilian market out of a total of 150 billioncigarettes sold per year, mainly originating in Paraguay.
Note: Data are rounded.
Source: International Intellectual Property Alliance
Brazil would net $500 million a year in lost cigarette tax revenue ifcounterfeiting were eliminated. The billions of counterfeit tobaccoproducts available in Brazil are also beyond the reach of Brazil’sNational Agency of Health Control. Thus, these products are outsidethe health agency’s scope, posing additional risks to Brazilianconsumers.
The combined total losses to the U.S. copyright-based industries inBrazil, including software, records and music, entertainment software,and motion pictures, totaled $785 million in 2003, according to theInternational Intellectual Property Alliance.
More than 60 percent of all software, covering PC software, operatingsystems, consumer-oriented software, and local language software waspirated in Brazil in 2003, according to the Business Software Alliance(BSA). Software piracy losses totaled $519 million last year, makingBrazil the 11th country worldwide by losses from piracy.
If Brazil lowered its piracy rate by 10 percentage points, its softwareservices sector could grow to nearly $17 billion by 2006, according toan economic impact study conducted for BSA by the International DataCorporation (IDC) in April 2003.
A 10 percentage point reduction in Brazil’s software piracy rate to 46
percent could add $3.2 billion to the economy, create more than 13,000
high-wage, high-tech jobs, and increase local industry revenue by more
than $2.4 billion, according to the BSA/IDC study. The cumulativeeffect of all of this growth could mean an additional $335 million in tax
Impact of lowering piracy by 10 percentage
Modern technology has enabled an unprecedented level of production
in recording piracy, decreased the costs of piracy, and improved the
quality of pirated copies. Sound recording piracy, in both compact discand audiotape format, amounted to an estimated $339 million in Brazil
Recording piracy in Brazil has grown exponentially since 1997, from 5percent of the CD market in 1997 to 52 percent in 2003. This translatesinto a volume of 94 million pirated units in 2003. Record sales revenuein Brazil dropped some 55 percent, over a five-year period ending in2002, and have continued to slide since then.
More than 2,000 stores were closed due to recording industry piracy,resulting in the loss of some 55,000 jobs over three years. Othereffects included a reduction of sales of recorded music by 55 percentbetween 1997 and 2002 due to piracy. Also, recording industry piracycosts Brazil an estimated $82 million in unpaid taxes. Theaudiocassette market in Brazil remains entirely dominated by piracy, as
it has been for the past several years.
While recording piracy often is seen as a victimless crime, the impact isfelt throughout the entire music value chain. The victims include artists
whose creativity gets no reward; the loss in hundreds of millions in taxrevenue; economies that are deprived of new investment; consumers
who get less diversity and choice; and record producers who are
forced to reduce their artistic rosters because it is impossible tocompete against theft.
Source: Association for the Protection of IntellectualRights
The predominant form of entertainment software piracy in Brazilcontinues to be CD burning, which accounts for about 80 to 90 percentof pirated product in the market. Factory produced pirated consolediscs are usually produced in Asia (e.g., Malaysia) and exported toBrazil through Paraguay, or increasingly through other trans-shippingcountries. Similarly, pirated entertainment software in cartridge formatscontinues to be shipped from Asia (primarily China) through Paraguay.
It is sometimes assembled there before being transported across theborder to Brazil.
Estimated trade losses due to entertainment software piracy in 2003reached $126 million, with an overall estimated piracy rate of 56
percent. Piracy in the audiocassette market is estimated at between 80
and 90 percent of all sound recordings in Brazil.
The piracy of foreign and Brazilian films is ubiquitous and continues toworsen. Clandestine duplication and distribution organizations sell highquality illegal copies that include counterfeit packaging. One out ofevery three home video entertainment products in Brazil last year waspirated, according to the Motion Picture Association of America (MPAA).
Optical disc piracy, which includes Laser Discs and DVDs, is increasingin Brazil and is a major threat to the audiovisual sector. It has a piracyrate approaching 15 percent of the market and accounts forapproximately 25 percent of total seizures of pirated product.
The U.S. motion picture industry loses $120 million annually due topiracy in the Brazilian market, according to the MPAA. It estimated anoverall audiovisual piracy rate of 30 percent in 2003.
The publishing industry reports that unauthorized photocopying ofEnglish language study materials and individual lessons and chaptersfrom textbooks, as well as entire books, continues to be a major form ofbook piracy in Brazil.
Estimated trade losses due to book piracy in Brazil reached $14 millionin 2003.
Brazil is known for its counterfeit pharmaceuticals and chemicals.
Pharmaceuticals are particularly susceptible to counterfeiting becausethey are a high profit and low bulk product. Brazil is the 10th largestmarket in the world for pharmaceutical products, with revenue of over$5 billion in 2001, according to Interfarma, the Brazilian association forresearch-based pharmaceutical companies.
While it is difficult to find exact statistics, Interfarma notes that thesituation in Brazil remains challenging in terms of intellectual property,pricing, and industry image. Official sources indicate that one-fifth ofall branded medications currently sold in Brazil are counterfeit.
The National Secretariat of Health estimates that five to seven percentof all medicines in Brazil are counterfeit. Such examples include:
X Anti-epileptic pills containing 25 percent of the labeled amount;X Fake penicillin and tetracycline products containing only a small
portion of the labeled amount of the antibiotic, or none at all;
X Birth control pills made with wheat, resulting in over 200 reported
X Prostate cancer drugs distributed without the active ingredient;X Diet pills containing anything and everything from laxatives and
diuretics to thyroid hormones and tranquilizers.
The Brazilian video game industry sales totaled almost $100 million in
2003, a substantial increase from just $33 million in 2001, according toABRAGAMES, Brazil’s association of video game manufacturers.
sunglasses and eyeglasses soldin Brazil are imitations
The losses in the video game industry are substantial, with illegal sales
accounting for nine out of every ten games sold in Brazil. According to
the chief executive of Vivendi Universal Games Brasil, sales volumeswould be three or four times higher if the piracy problem were taken
1 million pairs of fake Nikeathletic shoes are sold in a
Counterfeit toys make up 12 percent of the entire toy market sales in
Brazil, which means losses for this industry in the amount of $31 milliona year.
Toy piracy also resulted in the loss of some 80,000 jobs in this industryin recent years -- a large number in a country with 11 millionunemployed, according to a report by Dannemann, Siemsen.
The optics and lenses industry in Brazil also is affected by high rates ofpiracy. The Brazilian Association of Industries of Optics Productsreports that 47.5 percent of the domestic optics and lenses market islost to piracy. In some cases, bogus eyeglasses cause healthproblems. Brazilian authorities report that falsified reading glasseshave done serious harm to consumers.
The Brazilian optics and lenses industry has closed 102 companies,resulting in a loss of more than 8,000 jobs in the last 10 years.
It is estimated that 10 percent of all auto parts sold in Brazil arecounterfeit. The most commonly counterfeited parts are axles,bearings, shock absorbers, bulbs, break pads, catalytic converters,and clutches.
The legitimate clothing industry loses an estimated $1.8 million per yeardue to counterfeiting.
New technology has broadened the range of goods that are vulnerable to
copying. It has dramatically increased their quality, as well as lowering theircost of production. Where once counterfeits were cheap and shoddyimitations of the real thing, today, their packaging and contents (especially fordigital products such as software, music, CDs, and film DVDs) often renderthem almost indistinguishable from the genuine article.
, “Imitating Property Is Theft,” May 15, 2003
In addition to the enormous business losses resulting from
counterfeiting and piracy across many industries, the sale of products
on the black and gray market is an extremely serious problem for
Brazil. The Brazilian government is unable to reduce the flow of illegalgoods that are sold on the black market from entering the country. Italso is unable to prevent gray market fraud, which refers to companies
that are engaged in legitimate activities but do not fully comply with tax
Experts estimate that the Brazilian black market is worth $20 billion andover 1.5 million jobs are lost due to these illegal activities. The most
affected sectors are electronics, cigarettes, beverages, clothing, shoes,
photographic equipment, and glasses. They represent 63 percent of all
goods seized by Brazilian customs officials in 2001.
It is estimated that in Brazil 17 percent of cigarettes, 30 percent ofaudio and video equipment, 50 percent of handheld computers, 60percent of glasses, and 63 percent of personal computers are sold onthe black market. The market for PCs has been so affected by theillegal competition that IBM no longer sells PCs to retail stores. Theynow are selling directly to companies or through the web to consumers.
The gray market consists of legitimate businesses that report lowersales figures to avoid taxes. This creates a huge problem for theBrazilian economy since more than 80 percent of all tax revenue iscollected from businesses.
Recently, the McKinsey Global Institute reported that Brazil’s graymarket now employs 50 percent of nonagricultural workers, up from 40percent a decade ago. Gray market fraud is found throughout theeconomy. For example, an estimated 80 percent of retail food sales inBrazil and a quarter of soft drinks involve companies that under reportsales. Also, an estimated 60 percent of clothing stores in Brazil avoidtaxes.
Both governments should strengthen cooperative efforts aimed atcombating piracy and counterfeiting. Specifically, the followingmeasures should be taken in Brazil:
1. Full implementation of a central plan to include the authority to takeactive enforcement measures, bring more prosecutions, and strengthenboth border patrols and customs inspections. This plan should beeffected through a coordinated effort between federal, state, andmunicipal authorities responsible for combating piracy, counterfeiting,and the gray market and include a robust mechanism for consultationwith the private sector;
2. Improve judiciary performance through training and orientationaimed at deterring copyright crimes and infringement and throughspeedier prosecutions. The creation of a specialized court toadjudicate copyright enforcement cases should be considered.
Both business communities should also focus on finding a commonmethodology for measuring the impact of piracy, counterfeiting, and thegray market across industry sectors. The patchwork of differingmethodologies currently employed by affected industries makes thetask of estimating the total economic impact of the problem next toimpossible. A common methodology will lend additional credibility toindustry's efforts to illustrate the importance of the problem and helpgovernments to better understand the entire scope of the issue, definetheir enforcement strategies and measure success.
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