EPI Study: Economic Impact of IPR Infringement in Georgia

This study focuses on the economic costs of infringement of Intellectual Rights in Georgia. Whereas the country is not commonly known for counterfeiting, Georgia ranks poorly in terms of protection of IPR. The presence of counterfeit goods and, piracy over Internet, are visible in the economy.

Four dimensions of impact have been analyzed: Consumer Surplus, Producer Surplus, Government Revenue, and Externalities. The availability of counterfeit goods generates welfare for the consumer. However, to manufacturers and distributors of branded goods, the existence of trade in counterfeits and piracy causes losses. Government tax revenue is also lower when lower-priced counterfeits are traded. Externalities include such effects as there are lower investment and increased health and safety risks resulting from the consumption of lower-quality products (medicines, cosmetics, spirits, automotive spare parts).

The analysis integrates data obtained from observations in the local markets, from meetings with private sector representatives as well as the results of a Household Expenditure Survey commissioned for the purpose. The data have been used under various scenarios.

Findings confirm that the economic impact is significant in relative terms within the twenty risk categories studied, though not significant in absolute terms when related to GDP, total imports and total Government revenue. The prevalence of counterfeits and pirated material is relevant for consumer welfare; the Consumer Surplus is indeed sizeable because of the significant price difference between original branded goods and counterfeit “equivalents.”

If remaining unchecked, the issue of counterfeits is expected to become more important in the future with rising household incomes, as higher income households consume relatively more counterfeit goods – in most risk if not all risk categories — than low income households do. The purchasing power of higher income households also means that in absolute terms, the dimension of the counterfeit market will only increase in the future.

The fact that Consumers benefit from a non-cash transfer – virtually a subsidy – through the Consumer Welfare generated by the prevalence of counterfeits and pirated material is NOT an argument in se to abandon efforts of combating counterfeit markets and piracy. The study concludes with a strategic approach to reduce the phenomenon.