Turkey needs to get serious about its counterfeit boom

Turkey needs to get serious about its counterfeit boom
Kapali Carsi Grand Bazar in Istanbul. Photo by espiritu protector/CC
By Menekse Tokyay in Ankara January 28, 2016

Turkey’s evergrowing industry of counterfeit and smuggled goods, worth $17.2bn according to the latest data from the Istanbul-based Brand Protection Group (MKG), has turned the country into one of the leading bridges for this trade between Asia and Europe, as well as the second largest market in the world after China.

But what might be good for local fashionistas on modest means and bargain-hunting tourists is less beneficial for Turkey. Experts say protecting intellectual property rights (IPR) is central to a well-functioning economy and sustaining the trust of foreign investors, which is crucial for a country like Turkey that is so reliant on foreign direct investment to cover its huge current account deficit – the economy’s biggest weakness.

The lack of deterring penalties and effective monitoring despite legal measures being available to the authorities feeds the appetite of the counterfeiters and sellers of fake brands, while simultaneously damaging the investment appeal of the country and leading to losses in foreign capital because counterfeiting incurs financial losses to the international right holders.

Istanbul’s Grand Bazaar is probably one of the best-known destinations for selling and buying fake goods in Turkey and in the region. In the crowded stores of the Bazaar, the smell of soaps and Turkish coffee wafts through the air above piles of imitation Channel handbags, Dior fragrances, Versace shirts and Rolex watches. “It is the rule of the free market: supply and demand. People want to use the same products as the celebrities, but they are unaffordable for them, so they go after cheaper substitutes that we provide with a modest price tag,” said one shopper who wouldn't give his name. “It is a huge sector that cannot be abolished overnight. It attracts many foreign tourists to visit Istanbul.”

The counterfeit products, which range from textiles to jewelry, medicines to alcohol, perfumes to cosmetics, mainly come from China, which makes Turkey a key entry and transit point for the externally as well as domestically produced counterfeit goods.

These products, which are often ironically subject to huge taxes levied by the Turkish government, are sometimes the cause of fatalities, such as when in November some 26 people died after drinking bootleg raki. The tax on alcohol in Turkey reaches up to 80% of the price.

The illegal manufacturing facilities and distribution networks for the fake brands are mainly concentrated in Turkish cities relatively open to international trade, like Istanbul, Izmir and Antalya. Turkish police regularly carry out raids and seize fake products, but it is far from enough to put enough a dent in the industry.

Worryingly, the industry has now moved into more dangerous waters such as printing counterfeit money. In September a significant amount of Germany-bound euros and dollars were seized in Istanbul in a police operation.

Good intentions not enough

Ali Ercan Ozgur, spokesperson for MKG, underlines that the new government appears eager to crack down on the shadow economy, including counterfeiting, which is included in the current programme of the government to follow during its term. “International investors and national companies want to see a predictable market in Turkey where IPR is respected and the government takes effective steps to overcome counterfeiting,” he tells bne IntelliNews. 

“The rising digitalization at the custom gates over the recent years is a good step toward blocking the entry of counterfeit goods produced abroad, especially tobacco and fuel. But now an effective system should be implemented to impede the domestically produced ones whose volume has reached $5.4bn,” he adds.

According to the MKG data, about 45% of smuggled products seized by Turkish officials were electronic goods, followed by transport vehicles (22%), chemicals (5.9%), fuel (9.8%) and cigarettes and alcohol (4.1%).

Turkey aims to become one of the top ten economies of the world by 2023, but it ranks 58th out of 129 countries in the 2015 Intellectual Property Rights Protection Index, below countries like Bahrain, Botswana and Chile. But experts say the protection of intellectual property and trademark rights is key to raising the country’s competitiveness and ability to draw in and keep foreign investors. Research shows that an increase of only one point in this index results in the inflow of nearly $1.9bn of foreign investment into a country.

The 2015 annual report of the Office of the United States Trade Representative (Special 301 Report) that assesses intellectual property laws in some countries reveals that, “Turkey remains one of the leading points of entry for counterfeit products into the EU, ranking fourth in the number of items seized and third in terms of the value of infringing goods.”

“Given Turkey’s prominent role as a source and transshipment point of counterfeit goods, the government must make fundamental improvements in the country’s IPR and enforcement regimes, including enhancing Turkey’s border control measures,” it says.

Under existing law, the penalty for counterfeiting ranges from between one and three years' imprisonment and a fine. Ezgi Baklaci, counsel at Istanbul-based Moroglu-Arseven Law Firm, says that Turkey’s legislation in this field conforms to EU legislation to a great extent, but the main problem lies in the enforcement and implementation of the law. “There are legal loopholes which are exploited by the counterfeiters. In the case of trademark infringements, the culprit is not given a prison sentence if he or she has a clean criminal record. If the counterfeiter doesn't commit any crime for five years thereafter, the sentence is annulled,” Baklaci tells bne IntelliNews.

“The political instability in the country, especially the continuous election periods, also undermines the monitoring of such crimes, the deterrence of the law implementation, which leads to the extension of the lawsuits,” she adds. 

For Baklaci, the solution would be to appoint specifically tasked judges and prosecutors for dealing with such crimes to prove to international investors that Turkey considers counterfeiting as an equally important as terror and other crimes. “Otherwise, international investors and rights holders would continue categorizing a vast trade market like Turkey at the same level with China in terms of counterfeiting networks, which has inevitable repercussions over its global image,” she says.

The accession negotiation chapter on intellectual property rights with the EU, which was opened in 2008, is expected to offer Turkey a chance to address any shortcomings in the present legislation and its enforcement. The negotiations over that chapter are still ongoing, though the recent push by the EU to reinvigorate Turkey's EU accession talks as reward for help in dealing with the migrant crisis could give those talks a boost.