Examining Illicit Trade Challenges in the Belt and Road Initiative

2.  The Belt and Road Initiative: Assessing the risks of illicit trade

The Belt and Road Initiative (BRI) projects offer opportunities for liberalisation and the development of cross-border trade in the economies where these projects are implemented. However, any increase in formal trade can be accompanied by related increases in illicit counterfeit trade activities. While the increasing complexity of supply chains is a key factor in this regard, numerous other factors also play a role, including governance challenges and regulatory framework issues.1

A 2022 assessment of the effects of the BRI on illicit trade notes that the impact at that time was negligible (Kupatadze and Kumar, 2022[16]), but that, as observed in studies carried out by the OECD, the expansion of trade routes increased the risk of increased movement of counterfeit and other illicit products. It is argued that the increased connectivity in global supply chains due to the BRI projects has rendered supply chains more stretched and complicated, a factor that is considered to increase opportunities for illicit trade. Examples of increased criminal activity along BRI transit routes have already been observed (Kupatadze and Kumar, 2022[16]).

Moreover, the new transport corridors established by the BRI are expected to enhance connectivity and reduce transaction costs of trade, potentially providing more developed infrastructure that could facilitate cross-border and international smuggling. Such tendencies could, however, be tempered to the extent that liberalised trade reduces the profitability of smuggling, thereby decreasing the incentive for such activities. Evidence suggests that the People’s Republic of China (hereafter “China”) has intensified its efforts to curb smuggling and illicit trade. Nevertheless, the increased connectivity from BRI investment could unintentionally create opportunities for criminals to expand their activities across more countries. The remainder of this chapter quantitatively analyses the observed parallel trends between the Belt and Road Initiative investments and indicators of illicit trade in counterfeits, though it is important to note that the results presented are simple correlations that do not establish any causal links. They aim to support countries in identifying possible increased risks of illicit trade in counterfeits and take action to strengthen their governance frameworks and institutional capacity to mitigate them.

2.1. Evolution of reported seizures of counterfeits departing from China

This section studies the evolution of reported seizures of counterfeits departing from China in the context of actions to enhance the quality of transport and logistics, including BRI investment.

To address the issue of trade routes from China passing through Hong Kong, China where seizures indicate Hong Kong, China as the origin, a pooled data set for China and Hong Kong, China was created and examined. This approach considers that most seized products from Hong Kong, China likely originate in China, as previous OECD/EUIPO analyses suggest (e.g. OECD/EUIPO (2017[17]) A similar analysis of combined seizures from China and Hong Kong, China is included in Annex A, with findings consistent with those in this section.

Figure 2.1 shows the evolution of the number and value of reported seizures of goods from China between 2015 and 2022 in the 27 EU countries, both in terms of the total number of cases of seizure by authorities and in terms of the share of seizures of counterfeit goods departing from China in total seizures. Over this period, the number of reported seizures of goods from China has increased in both absolute and relative terms, while the value of the items seized has decreased in absolute terms and compared to the share of the total value of seizures.

Figure 2.1. Evolution in number and value of reported seizures of goods departing from China, 2015-2022

Note: OECD calculations based on COPIS seizure data. Since from 2020 onwards, seizures reported by the United Kingdom are no longer included in the COPIS, UK data was removed altogether. The nominal value of seizures expressed in Euros.

Figure 2.2 suggests that those processes have to do with the changes in the distribution of the value of seized goods between various modes of transport. Until 2019, approximately 60% of the value of the seized goods was related to reported seizures of goods shipped by maritime transport. In 2020 and 2021, those reported seizures corresponded only to 30% of the total value of the reported seized goods shipped from China. At the same time, the proportion of the value of goods seized by the post office has increased. This reflects the misuse of small parcels and e-commerce, which present a lower risk of detection, to spread counterfeit goods. The OECD and EUIPO have highlighted these two specific patterns of global trade in counterfeits in (OECD/EUIPO, 2018[11]) and (OECD/EUIPO, 2021[13]).

Figure 2.2. Distribution of in the value of reported seizures of goods departing from China by transport mode, 2015-2022

Note: OECD calculations based on COPIS seizure data. Since from 2020 onwards seizures reported by the United Kingdom are no longer included in the COPIS, UK data was removed altogether. Mode of transportation refers to different ways by which goods or people are transported from one place to the other through land, air, or sea. Even though Express and Mail (postal) consignments are often shipped by airplanes, they are considered a distinct category from Air Cargo.

It is worth mentioning that in the context of transport modes for EU27 imports from China, "postal" refers to the use of postal services for the delivery of goods. This mode of transport involves shipping items through the national or international postal systems, which can include mail, packages, and parcels sent via regular postal services, express mail services, and other courier services. The “post” category typically covers smaller, lower-value, or lighter items that are suitable for postal delivery, such as e-commerce shipments, documents, and small consumer goods. This mode of transport is distinct from other modes such as maritime, air, rail, and road, which are generally used for larger, bulkier, or higher-value shipments. This mode of delivery is a significant mode of transport for imports from China, reflecting the rise of e-commerce and the increasing volume of small packages being shipped internationally.

Figure 2.3. Evolution of transport modes usage for EU27 imports from China, 2007-22

As a share of value of import from China to the European Union

Note: OECD calculations based on Comext data.

The aggregated value of seized counterfeit goods transported by maritime transport in a typical seizure is generally much higher than the value of goods in a seizure of goods transported by other modes of transport. Therefore, as illustrated in Figure 2.4, there is a high correlation between the share of reported seizures related to maritime transport and the share of the value of seized goods.

Figure 2.4. Correlation between the value of EU seizures related to maritime transport and China’s share in the total value of EU seizures, 2015-22

Note: OECD calculations based on COPIS seizures data. Since from 2020 onwards seizures reported by the United Kingdom are no longer included in the COPIS, UK data was removed altogether.

As shown in Figure 2.5, both the number and value of reported seizures of goods shipped from China and transported by sea have been declining in recent years. In 2015, the number of seizures exceeded 1 000 annually, but this number dropped over time, falling to 389 in 2022. Also, the value of the reported seizures in 2022 was only approximately 30% of the value of seizures reported in 2016.

Figure 2.5. Evolution in the number and value of reported EU seizures of goods shipped from China and transported by sea, 2015-22

Note: OECD calculations based on COPIS seizure data. Since from 2020 onwards seizures reported by the United Kingdom are no longer included in the COPIS, UK data was removed altogether. Nominal value of seizures expressed in Euros.

In comparison, as shown in Figure 2.6, the value of Chinese rail seizures is only a small portion of the value of reported seizures of goods shipped by sea; reported seizures of goods shipped from China and transported by rail increased until 2020 when they peaked at 27. However, they declined in the following years. The value of seized goods peaked in 2019, reaching over EUR 6 million, but it was less than EUR 1 million in 2021 and 2022.

Figure 2.6. Evolution in the number and value of EU seizures of goods coming from China and transported by rail, 2015-22

Note: OECD calculations based on COPIS seizure data. Since from 2020 onwards seizures reported by the United Kingdom are no longer included in the COPIS, UK data was removed altogether. Nominal value of seizures expressed in Euros.

Whereas the value of imports by sea from China to EU27 countries doubled between 2015 and 2022, the value of the seized counterfeits dropped to 40% of its 2015 value (Figure 2.7). Similar trends, although to lesser degree, can be observed in case of other modes of transport.

The discrepancy between the growing value of Chinese exports transported by sea to the EU27 and the decrease in the value of counterfeit goods seized at EU borders reflects broader trends. This pattern is also evident in other transport modalities, suggesting that the seizures of goods from China are not statistically related to the increase in legitimate imports. This could be explained in a number of ways, not mutually exclusive: 1) the proportion of counterfeit goods in exports from China could be decreasing; 2) the capacities to monitor and control for illicit goods within the burgeoning volume of imports from China might have diminished; 3) there is a possibility that counterfeit goods are being routed through more complex networks, possibly utilising infrastructure developed under the BRI in third countries, thereby obscuring their association with China as a country of origin. In the following paragraphs, each of these hypotheses is discussed.

Figure 2.7. Evolution in the value of EU imports and EU seizures related to various modes of transport from China, 2015-2022

Note: Own calculations based on COPIS reported seizures data and Comext. Statistics calculated for EU27. Since from 2020 onwards seizures reported by the United Kingdom are no longer included in the COPIS, UK data was removed altogether. Nominal value of seizures expressed in Euros; Mode of transportation refers to different ways by which goods or people are transported from one place to the other through land, air, or sea. Even though Express and Mail (postal) consignments are often shipped by airplanes, they are considered a distinct category from Air Cargo.

The first factor underlying the declining share of China in the overall value of seizures related to maritime transport may be due to increased efforts of Chinese customs to intercept counterfeits at the place of departure. It should be noted that reports from OECD WP-CIT stakeholders and reports from the Chinese Customs Authorities2 indicate that there has been an increase in the interception of infringing goods (including counterfeits) by Chinese authorities directly at the ports of departure in China. If this is the case, it could explain the difference between the growth in volume of legal trade and the decline in incoming seizures of counterfeit goods.

The analysis of the evolution of China’s share in the overall seizures by mode of transport is inconclusive. The share of goods shipped from China in the total value of seized goods dropped in recent years in sea transport. A similar trend can be observed in air transport, although there is a visible uptick from 2020 onwards. Although there are important fluctuations in the share of Chinese goods in total value of seizures in postal and express courier transport, China’s share was by and large stable during 2015-22.

Figure 2.8. Share of EU seizures of goods shipped from China in total EU seizures by mode of transport, 2015-22

Note: OECD calculations based on COPIS reported seizure data. Statistics calculated for EU27. Since from 2020 onwards seizures reported by the United Kingdom are no longer included in the COPIS, UK data was removed altogether. The nominal value of seizures is expressed in Euros. Mode of transportation refers to different ways by which goods or people are transported from one place to another through land, air, or sea. Even though Express and Mail (postal) consignments are often shipped by airplanes, they are considered a distinct category from Air Cargo.

A second explanation for lower seizures could be related to a possible decrease in the capacity of enforcement authorities to detect counterfeit goods, given the increase in volumes and value of imports in recent years. As shown in Figure 2.7, EU imports from China have increased in recent years.3 The value of EU imports from China transported by sea doubled between 2015 and 2022; and for transport by post, it quintupled in the same period. Data on seizures of goods shipped by maritime transport can be used as a case in point in this context.

A third factor that could explain the decrease in the value of seizures from China concerns the growing complexity of trade networks. This has complicated efforts to accurately track the country of origin of traded goods. The following section of the report examines this closely.

Analysis of seizure data reveals a complex situation: ports, where China has invested, are playing an increasingly important role in the volume of legal imports into the EU27 (Figure 2.9). One might therefore expect a subsequent increase in seizures of illicit goods from China, however the proportion of illicit goods seized originating from countries other than China has increased more significantly in recent years. Additionally, the data reveal a reduction in the number of ports identified as entry points for counterfeit goods, with only a limited number consistently reporting seizures through the years. These developments suggest a shift in the patterns of counterfeit goods trafficking and highlight the ongoing challenges in effectively monitoring and controlling such activities.

Figure 2.9. Share of imports transiting European ports in which Chinese parties have invested, in total volume of incoming containers, 2013-22

Note: OECD calculations based on Eurostat data. The volume of containers transported to/from main ports. Total imports include imports from other EU27 countries. China’s invested ports defined as ports where at least one container terminal has been invested by China’s firms regardless of whether those firms have majority control over the terminal.

There is a drop in the number of ports indicated as entry places in the reported seizures’ statistics in recent years, both as regards to all reported seizures, regardless of the provenance country, as well as in case of reported seizures where China has been indicated as a country of provenance. Whereas in 2016, 46 ports were indicated as places of entry of counterfeit goods from China, in 2022, there were only 32 such ports (Figure 2.10).

Figure 2.10. Number of entry ports indicated in reported seizures, 2015-2022

Note: OECD calculations based on COPIS seizures data. Since from 2020 onwards seizures reported by the United Kingdom are no longer included in the COPIS, UK data was removed altogether.

Moreover, a relatively small number of ports are systematically indicated as the ports of entry for counterfeit goods. Only 18 ports, 17 in the case of goods shipped from China, have been indicated as entry ports of counterfeit goods in at least one seizure in all years between 2015 and 2022. Close to 50% of the ports that reported having received containers from China did not report any seizures of counterfeit goods between 2015 and 2022 (Figure 2.11).

Figure 2.12 shows the growing importance of EU ports, in which China has invested in the overall volume of imports to the EU27 and the seizure of goods shipped by maritime transport (see also Figure 2.13).

Figure 2.11. Distribution of ports by the number of years they were indicated as entry ports in reported seizures, 2015-2022

Note: OECD calculations based on COPIS seizures data. Since from 2020 onwards seizures reported by the United Kingdom are no longer included in the COPIS, UK data was removed altogether.

Figure 2.12. Share of volumes of containers and seizures in EU ports in which China has invested, 2015-2022

Notes: i) OECD calculations based on COPIS reported seizures data and Comext. Statistics calculated for EU27. Since from 2020 onwards seizures reported by the United Kingdom are no longer included in the COPIS, UK data was removed altogether. ii) China’s invested ports defined as ports where at least one container terminal has been invested by China’s firms regardless of whether those firms have majority control over the terminal.

The share of seizures of goods shipped from China to foreign ports with Chinese investment evolved largely at the same pace as in the case of counterfeit goods shipped from other countries. However, in 2022, the share of seizures of goods shipped from China to those ports declined markedly in comparison with seizures of goods shipped from other countries (Figure 2.13).

Figure 2.13. Share of seizures in EU27 ports with Chinese investment in total seizures in EU27 ports, 2015-22

Note: i)OECD calculations based on COPIS seizures data. Since from 2020 onwards, seizures reported by UK are no longer included in the COPIS, UK data was removed altogether. ii) China’s invested ports are defined as ports where at least one container terminal has been invested by China’s firms regardless of whether those firms have majority control over the terminal. The numerators represent the number of seizures (value of goods seized in the bottom panel) in ports with Chinese investments. Denominators (100%) in this case represent the total number (total value) of seizures stopped in all EU27 ports and exported from all countries except China (blue line) or exported from China (green line).

2.2. Analysis of the potential links between the value of BRI investment in transport and logistics and the global export of counterfeit goods

This subsection presents a quantitative assessment of the links between the value of BRI investment in transport and logistics, and global illicit trade in counterfeit goods from countries receiving BRI investment in transport and logistics. The analysis is designed to examine the third potential explanation for the decline in seizures of Chinese counterfeits, by testing for the possibility that counterfeit goods are being routed through more complex networks for the purpose of disguising the true origin of counterfeit goods, thereby possibly misusing infrastructure developed under the BRI in third countries to carry out deceptive activities. It is important to note that the data available on a global level only extends up until 2019, which suggests that these findings may not fully capture recent developments or shifts in trends that may have occurred after this period. However, this allows to analyse the period during which the annual allocations for the BRI project were at their peak. Indeed, after 2019, BRI investment's value decreased, settling below USD 100 billion per year over the past four years.

The analysis is made at an economy level for several indicators of illicit trade in counterfeits, including the value and volume of seizures coming from a given economy. The analysis also looks separately into subsets of economies that report high or low intensity of BRI investment.

The results establish a positive correlation between the value of BRI investment in transport and logistics and the export of counterfeit goods (expressed in terms of seizures of counterfeit goods), both in terms of the value of exports of counterfeit goods (Figure 2.14) and the number of seizures of exported counterfeit goods (Figure 2.18).

2.2.1. Value of seizures

As Figure 2.15 and Figure 2.16 show, the value of exports of counterfeit goods is positively correlated with investment in transport and logistics in “BRI countries”, whatever the level of the share of investment received in GDP. However, the correlation is stronger for countries whose share of investment received is relatively high (>0.5% of GDP) (Figure 2.16). The greater the investment in BRI received by a country relative to the size of its economy, the higher the value of seizures of counterfeit goods from these countries.

Figure 2.17 shows the global value of fake exports is also positively linked to the value of BRI construction investment in transport and logistics.

The data indicate a positive correlation between the value of Chinese investment in transport and logistics in BRI countries and the export of counterfeit goods, both in terms of the value of counterfeit goods exported or the number of seizures. The correlation is stronger in countries receiving a higher share of investment relative to their GDP (more than 0.5%). This suggests that increased BRI investment, especially in significant amounts, potentially facilitates the export of counterfeit goods.

Figure 2.14. Link between the value of BRI investment in transport and logistics 2015-17 and the value of fake exports (value of global seizures), 2017-19

Note: Each point corresponds to a country that received investment in transport and logistics under the BRI. The correlation coefficient (r=0.2269) is statistically different from 0 at the 10% significance level (p-value=0.0598).

Source: OECD/EUIPO customs seizures and Global Investment Tracker (American Enterprise Institute).

Figure 2.15. Link between the value of BRI investment in transport and logistics 2015-17 and the value of fake exports (value of global customs seizures) 2017-19, for countries with a low share of BRI investment in GDP

Note: Each point corresponds to a country that received investment in transport and logistics under the Belt and Road Initiative. The correlation coefficient (r=0.3693) is statistically different from 0 at the 5% significance level (p-value=0.0375)

Source: OECD/EUIPO customs seizures and Global Investment Tracker (American Enterprise Institute).

Figure 2.16. Link between the value of BRI investment in transport and logistics 2015-17 and the value of fake exports (value of global customs seizures) 2017-19, for countries with a high share of BRI investment in GDP

Note: Each point corresponds to a country that received investment in transport and logistics under the BRI.

The correlation coefficient (r=0.5472) is statistically different from 0 at the 5% significance level (p-value=0.0069).

Source: OECD/EUIPO customs seizures and Global Investment Tracker (American Enterprise Institute).

Figure 2.17. Link between the value of BRI construction investment in transport and logistics 2013-15 and the value of fake exports (value of global seizures) 2017-19

Note: Each point corresponds to a country that received investment in transport and logistics under the Belt and Road Initiative. The correlation coefficient (r=0.3715) is statistically different from 0 at the 5% significance level (p-value=0.0014)

Source: OECD/EUIPO customs seizures and Global Investment Tracker (American Enterprise Institute).

2.2.2. Volume of seizures

Figure 2.18 presents a positive correlation between the scale of Chinese investment in BRI countries in transport and logistics from 2015 to 2017 and the frequency of global customs seizures of counterfeit goods between 2017 and 2019. This upward trend in the data points suggests that regions with higher Chinese investment may also witness a corresponding increase in the movement of counterfeit goods, captured through customs seizures. However, significant variations in investment and seizure values emphasise that even incremental increases in BRI investment are linked with substantial rises in counterfeit goods trafficking.

Figure 2.19 further reinforces the previous observation. The data show a positive correlation between Chinese construction investment in transport and logistics from 2013 to 2015 and the number of global seizures of counterfeit goods recorded between 2017 and 2019. Similar to the previous analysis, the data suggest that regions receiving earlier rounds of Chinese construction investment also experienced increased counterfeit activities as measured by seizures in subsequent years.

Figure 2.18. Link between the value of BRI investment in transport and logistics 2015-17 and the exports of fakes (in terms of number of global customs seizures), 2017-19

Note: Each point corresponds to a country that received investment in transport and logistics under the Belt and Road Initiative. The correlation coefficient (r=0.2968) is statistically different from 0 at the 5% significance level (p-value=0.035)

Source: OECD/EUIPO customs seizures and Global Investment Tracker (American Enterprise Institute).

Figure 2.19. Link between the value of BRI construction investment in transport and logistics 2013-15 and the exports of fakes (in terms of number of global seizures) 2017-19

Note: Each point corresponds to a country that received investment in transport and logistics under the Belt and Road Initiative. The correlation coefficient (r=0.4308) is statistically different from 0 at the 5% significance level (p-value=0.0003).

Source: OECD/EUIPO customs seizures and Global Investment Tracker (American Enterprise Institute).

This consistent pattern across different investment phases and timeframes suggests that infrastructure improvements under the BRI, while designed to enhance economic growth and connectivity, may have inadvertently facilitated counterfeit goods networks' operations. These networks potentially exploited the enhanced transport and logistics capabilities to distribute illicit goods more effectively in global markets through new trade routes. The link between increased counterfeit seizures and earlier investment phases also implies a lagged effect, where the impact of infrastructure investment on illicit trade becomes more apparent over time. This underscores the need for integrating stringent regulatory measures and advanced tracking systems during the initial stages of infrastructure development to pre-empt illicit traders' exploitation of these networks.

Beyond enhanced connectivity, the positive correlation between Chinese BRI investment and trade in counterfeits can also be linked to weak rule of law, inadequate governance frameworks, and insufficient anti-corruption measures observed in some BRI recipient countries.

Notes

← 1.  See Global engagement on anti-corruption and anti-bribery | OECD.

← 2.  See http://www.customs.gov.cn/customs/xwfb34/302425/6011526/index.html.

← 3.  Some OECD studies point to a “COVID effect” which boosted imports during the period.