Massive international trade center could face counterfeiting issues

By Phillip Yu

Architecture VII by Steffen Thomä

PhoenixMart, a massive, international wholesale shopping complex will open soon in Casa Grande, Arizona. This 1.7 million-square-foot business center, largely financed by Chinese investors and real-estate companies, will play host to approximately 2,000 vendors. Not only will PhoenixMart be a go-to place for businesses seeking wholesale supplies, vendors will also service the general public. As a starting point, vendors on site will sell general consumer products, automotive products, home and hotel products, and food. Approximately one third of the vendors will be foreign.

One of PhoenixMart’s primary missions is the creation of a thriving and integrated network of businesses. On-site businesses will receive discounts in legal services, counseling and comprehensive marketing services. Also, PhoenixMart will host regular trade shows to aid small businesses in promoting their products and services.

The feedback has largely been enthusiastic. Casa Grande city officials already anticipate the creation of over 7,000 jobs within Arizona.

However, an operation this massive and international in scope has its risks. One risk is the distribution of counterfeit products, which is serious concerning the high level of Chinese involvement.

China has a long history of producing counterfeit consumer goods, which has earned it a reputation for flaunting intellectual property laws. The mass production of counterfeit goods in China has an enormous impact on global trade. The Organization for Economic Cooperation and Development (OECD) estimated that, in 2007, trading in counterfeits was a $250 billion dollar industry. The International Anti-Counterfeiting Coalition estimated a staggering $600 billion dollar industry. This estimation includes online piracy and counterfeit goods sold in the same country as they are made.

Counterfeit products know no limits. The market is flooded with counterfeit bags, shoes, cell phones, computers and even medicine. In 2011, Chinese Officials discovered 22 fake Apple Stores in China. The stores replicated the sleek, modern design of the Apple store down to the displays, inner décor and ambiance. The staffers, clad in blue Apple uniforms, had no idea they weren’t working for Apple. 

Even non-consumer goods are subject to counterfeiting. In 2010, the U.S. military bought over 59,000 counterfeit microchips intended for installation in missile defense systems. These chips were determined to be vulnerable to hacking. In 2011, the Senate Armed Services Committee discovered suspect Chinese counterfeit microchips entering the Department of Defense’s supply chain. These chips were destined for thermal weapons sight devices, missile systems and military airplanes.

People create counterfeits to make money. Counterfeiters use the name recognition of other brands to sell products that are similar, but usually substandard. However, money may not be the only driving force behind counterfeiting. Some have attributed differing attitudes about intellectual property to the existence of the counterfeit market.

In China, intellectual property rights awareness is not very widespread. Many people are simply unaware that infringement is a crime. Intellectual property rights are also difficult to enforce. Oftentimes, local protectionism shields counterfeiting operations, weakening the strength of enforcement. Counterfeiters with relationships to local authorities have good chances of getting away with infringement.

Counterfeiting has already been proven to be a serious issue for large trading centers like PhoenixMart. In 2011, the government of Dubai seized 2,500 fake goods from Dragon Mart, a popular Chinese market in Dubai. The government issued fines ranging from Dh5,000 (approximately $1361) to Dh 20,000 (approximately $5445). The government also has a policy of closing down repeat offenders for up to 90 days. The fact that counterfeiters persist in the presence of these fines and closings invite the question: should these trade centers adopt a “real” zero-tolerance policy by permanently shutting down counterfeiters? Or, is it acceptable to just leverage fines and keep them running to generate commerce?

PhoenixMart faces both these complications in its attempt to create a network of international sellers that are clamoring for business. There could very well be businesses that aggressively chase business with little regard for lawfulness. Inevitably, there will be companies that have different understandings of and positions on intellectual property law.

Perhaps the advent of international mega-trade-centers like PhoenixMart and Dragon Mart are calling for greater harmonization of intellectual property laws. Or, perhaps they are just reminders that the balance between the law and business is fraught with complexity.

If the past is any indication, developers at PhoenixMart will want to remain cautious and vigilant against counterfeit products. The question is, how tolerant will PhoenixMart be and where will it strike its balance?