It is Not Black and White When it is Grey

In the last few months we’ve seen a real surge in work related to things such as counterfeit goods sold on line and complaints about grey imports. There appears to be a simple reason for this and that is that some of the big on-line sales platforms (think Amazon and EBay) are now allowing Chinese sellers and suppliers direct access to EU markets. This is relatively recent. The big online retailers have changed their policies to try and stem the creep of Alibaba.com (the well known Chinese e-commerce website) from entering the lucrative EU market.

Although this may seem trivial, in fact the consequences are far from minimal. Goods shipped from China are often imported at under declared values meaning that little or no VAT is paid on them. So a £100 item is declared for import purposes at less than £15 (the VAT payable threshold) and lo and behold the seller pays no VAT to the UK Government. Nor does the buyer in many cases making products look 20% cheaper! To get around a delayed delivery Chinese sellers are even setting up UK warehouses to satisfy our demand for rapid delivery.

And the problem is growing – massively. There is no obligation for sellers to put VAT details on listings on-line and if you ask for a VAT invoice, then bogus ones are often supplied. This is wholesale fraud and it is estimated that the problem is growing at around 14% per annum. HMRC and port customs and excise are struggling to cope with their current workloads trying to stem the flow of counterfeit goods and drug laundered money etc into the UK. Speaking personally as someone who runs a small business and pays their VAT, I’m just hoping mad about it!

Grey imports are another issue. In the minds of some of my contacts, grey imports are the same as counterfeit products. They are not. Grey imports are goods sold in the EU that have often come from outside the EU but have the same label on. Many large FMCG companies have international trade marks for products which are global in nature. For example Unilever’s CIF ® is available all over the World – although the packaging, labelling, ingredients and indeed standard of manufacture may vary according to the country of origin.

Companies such as Unilever use their valuable trade mark portfolio and labelling directives in the EU to stop people importing goods from outside the EU. Grey imports from outside the EU are often “included” together with genuine products by some wholesalers. So an innocent buyer can find that part of a shipment contains grey imports. This often arises where the supply chain has been interfered with and UK sellers get caught unaware. The supplier benefits as VAT is only paid on the genuine products – not on the grey imports, so more profit for the intermediary. And less for the retailer if he gets caught selling grey goods!

Counterfeiting is yet another major issue. Counterfeit goods are often well made and can even originate from the same factory as genuine goods. These can be difficult to identify in the supply chain. On the other hand they can be cheap rip offs that are badly made or even dangerous. Opening up the on-line channels means that counterfeiters have had a heyday as consumers are buying goods unseen. The big on-line retailers have rigid policies about counterfeit goods, but plenty still slip through the net.
So what can you do about it?

Here are a few ideas.

1. Ensure you properly embrace and monitor your on-line sales and competitors’ sales. Find out what your suppliers and competitors are doing and make sure that grey goods and counterfeit products don’t enter your supply chain.

2. Look to join some lobbying groups such as the Tax Fairness Campaign which lobbies Government for an equal playing field.

3. Now more than ever before YOU NEED TO CHECK YOUR IP. Registered rights such as trade marks, registered designs and patents are far easier to enforce than unregistered ones. Look at your key brands and designs and obtain registration if you can – it is relatively inexpensive to get EU cover. The on-line retailers have rigid policies about IPR and registered rights are by far and away the best route to enforcement by the Courts and by retailers. In fact we know of Chinese companies to actively target UK manufacturers with no registrations to avoid problems with enforcement.

4. You can involve trading standards and the police, but as they are already busy with other matters and have limited budgets for enforcement, a civil remedy by your solicitors is usually faster and more effective. The costs of enforcement are often modest compared to the potential exposure and losses to your business with no enforcement.

The real solution to all these problems would of course be a labelling system that allows everyone in the supply chain including the end user information about the origin and supply of goods. But one doesn’t exist – or does it?

If you wish to discuss any of the matters that affect your business in this way, then we’re happy to help.

Just call us on either 0113 2379900 or 0207 412 8372

Alternatively send your enquiry to: Enquiries@virtuosolegal.com

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