Online trading offers ready market for duty-free fakes

PUBLISHED : Tuesday, 04 September, 2007, 12:00am
UPDATED : Tuesday, 04 September, 2007, 12:00am

Mainland deals growing but customs charges often not paid

Trading online, already set to be worth more than 40 billion yuan annually in the mainland, is a convenient way for residents to buy bargains from overseas.

It also offers a ready market for counterfeit brand name items and transactions where proper customs duties are not paid.

A search on Taobao, the mainland's largest online auction site, easily throws up 'Rolex' watches for sale at 300 yuan each and 'LV' handbags marked at 580 yuan apiece.

A genuine Louis Vuitton handbag of the same model is sold at about HK$6,500 in the French-based company's own store in Hong Kong, while retail shops in the city sell real Swiss-made Rolex watches at about HK$25,000 for a steel-case model and HK$150,000 for an 18CT-gold model.

Even if the product bought online in the mainland is genuine, it is doubtful whether customs duties have been paid.

A Taobao listing of an SK-II face cream and on sale from Hong Kong to any mainland city gives every detail of the product and delivery terms, yet gives no mention of customs duty.

Cosmetics imported into the mainland are charged about 30 per cent import duty.

'We leave buyers and sellers to figure out how to pay the customs duties,' said Jonathan Luk, the president of Alipay, the mainland's most popular online payment service which is used to support transactions done on Taobao.

Taobao held an 83 per cent market share, ahead of Paipai and eBay, according to Beijing-based researcher Analysys, which estimated the mainland online auction market to be worth 10.56 billion yuan in the second quarter.

Taobao and Alipay are operated by Alibaba group, the largest mainland e-commerce company.

'Anyway, if duties are not paid, the parcel will probably be stopped at the customs,' Mr Luk said. 'I remember that once my friend in the US sent me a gift and the customs called me to collect it at their office because some taxes had to be paid.'

Even so, the chances of such a call from a customs office are low, with the volume of parcels that have to be processed minimising the number that are checked for a proper tax declaration.

'There are a lot of counterfeits of brand name items available online in China,' said Jacky Huang, a senior analyst of cross-product research of IDC China. 'And there are a lot of transactions where proper customs duties are not paid.'

Illegal use of Alibaba's trading platform, including avoidance of taxes, ran contrary to company policy and mechanisms are in place to trace businesses that attempt to evade their obligations, according to its vice-president of corporate affairs, Porter Erisman.

'It is against Taobao's rules to trade counterfeit goods, and we urge all our members to obey regulations, including laws concerning the custom duties,' Mr Erisman said.

'Further, it will be difficult for our sellers to cheat because we ask them for their business certificate and bank account when they register as sellers in Taobao and Alipay. If they do anything illegal, their transaction can be traced easily.'

Even so, all the items mentioned above - the 'Rolex' watches, the 'LV' handbag and the SK-II face cream - are sold by Taobao sellers with excellent ratings, and they all support Alipay as a payment option.

Both the 'Rolex' and the SK-II vendors have done more than 7,000 transactions so far and the 'LV' handbag seller has had at least 100 customers.

Alibaba argues that its role in curbing such activity goes only so far.

'Ultimately, it is the buyers' and sellers' responsibilities not to break any laws,' Mr Erisman said. 'And it is the government's duty to crack down on illegal activities.'

Alibaba has a special task force for monitoring its marketplace, said Mr Erisman, but he declined to indicate its size.

Its US-based rival, eBay, appears to take a more active role in policing its online marketplace. The company has more than 2,000 people monitoring its website for dubious transactions, according to Benjamin Grubbs, the marketing director of eBay Hong Kong.

It also relied on members to self-police the site, pointing out counterfeit goods and problems such as customs duties, said Mr Grubbs. 'We understand that if our online market is frequently used for illegal activities, eventually the authorities will shut us down,' he said.

While online trading is increasingly popular - Taobao increased sales 100 per cent to seven billion yuan in the first quarter compared with a year earlier - that in part reflected government inaction compared with its treatment of such goods in the mainland retail market, according to Mr Huang.

'What happens in the real world is mirrored in the online world. Shops selling counterfeits goods were everywhere in Beijing, but as the government has increased its efforts in fighting fake products, there are fewer of them nowadays.

'Online shopping is the new frontier, and the government has yet to take enough action on cracking down the illegal activities there,' Mr Huang said.

He said it was hard to estimate how much money was involved in online trading of counterfeit goods and the related loss of customs duties.

The mainland customs bureau did not reply to a request for comment in time for publication.