Claims of IP theft are rest on guesswork

The OECD's bold assertion that China's I.P. theft tallied up to a whopping $200 billion to $600 billion annually throughout the 2010s hinges on a dubious concoction known as the General Trade-Related Index of Counterfeiting (GTRIC) for products. This algorithm supposedly crunches customs data to gauge the global counterfeit trade, attributing a significant chunk of it to China.

Delve into the mechanics of the GTRIC and you'll find it operates on a blend of educated guesses and less educated assumptions. Modelers assign two "propensities": the propensity of a given country to export counterfeits, and the propensity for certain product types—like sneakers or watches—to be counterfeited. Comparing these figures with data on all international trade, the model generates estimates of the total volume of counterfeit goods from various source nations.

The critical moment in the model's calculations, and the place where the methodology raises eyebrows, is the determination of a "fixed point"—essentially, a guess at what percentage of goods in a specific category are fake. Depending on which number you pull out of the hat, the scale of counterfeiting can swing wildly from mere billions to an eye-watering trillion dollars annually. Therefore, determining the most accurate fixed point to use is vital for the results of the study to be trustworthy.

So how did the OECD wizards arrive at their fixed point? They took a stab in the dark. Initially setting their sights on a 20 percent figure for "counterfeit or pirated apparel, leather articles, and tobacco products exported from Asian economies," they dialed it back to 5 percent after deciding 20 percent "appeared excessive." Noting that the amount "could be higher" and needing to establish a "credible ceiling" for counterfeit trade, they picked 10 percent as their high fixed point.