Author: Henry

The Chengdu Wine and Food Fair is one of China’s oldest wine-trade shows—more than 100,000 wine importers and buyers filled the exhibition halls at this year’s edition in March. And some were treated to an unusual sight: a phalanx of security guards escorting Bordeaux wine-trade officials to booths, looking for counterfeit wines. The Chengdu festival has been notorious for blatant trade in fake wine in recent years, but Bordeaux’s CIVB wine council had government permission to crack down on counterfeit Bordeaux this time.

The move is part of an encouraging trend in China: Over the past nine months, Bordeaux has scored two major victories in China and, coupled with an anticipated change in e-commerce legislation, there’s a potential turning point in the long, complex war on counterfeiting in this lucrative market.

Last December, the CIVB won the first known criminal conviction defending a Geographical Indication (an appellation rather than a specific brand) in China. In July, the CIVB won another case defending Bordeaux appellations. In both cases—two different cities, two different courts—the culprits received hefty fines and stiff prison sentences.

This is not the first time wine counterfeiters have landed in Chinese prisons, but previous guilty verdicts were handed down for counterfeiting privately-owned trademarked brands, explained CIVB China representative Thomas Jullien.

“Geographical Indications are registered as collective trademarks,” Jullien told Wine Spectator via email. “Prior to CIVB’s two wins, no criminal conviction was ever pronounced in China based on a collective trademark-rights violation—Chinese or foreign [Geographical Indication], wine nor any other category.”

This is big news for wine regions around the world which have suffered the frustration of having little recourse against Chinese counterfeiters usurping their appellation names, and denying them possible sales in the rapidly growing wine market. “It’s really very encouraging for us, as we’ve been working at this for six or seven years—not just these cases but the whole setup,” CIVB president Allan Sichel told Wine Spectator.

China is Bordeaux’s biggest foreign market: Of the 24.2 million cases exported last year, 7 million cases went to mainland China and nearly 1 million cases went to Hong Kong, worth a combined $824.5 million. Quantifying counterfeiting is difficult, but a 2015 government report estimated that there is at least one fake bottle of French wine for every real bottle of French wine sold in China.

Fighting the counterfeits has required the CIVB to develop a strategy, one that is both pragmatic and market-specific. Officials have had to learn Chinese laws and determine what is and isn’t legal, rather than try to change the Chinese judicial system. Second, they have pushed wine producers to register their trademarks in China. Third, as a collective organization, they have worked to protect Geographical Indications, such as Bordeaux and Médoc, under Chinese law.

But it doesn’t stop there. When there’s evidence of counterfeiting, the wine council, or in the case of a private trademark, the importer or grower, must undertake a costly investigation to track down the illicit supply chain, collecting evidence of the crimes to provide to Chinese authorities, often the Administration of Commerce and Industry.

It’s important to demonstrate that the crimes involve more than RMB 150,000 (about $22,000), the threshold for a criminal charge and prison sentence. Below this amount is considered an administrative penalty and the guilty party receives a fine.

Other China-savvy wine professionals have used this method as well. At Shanghai-based Torres China, managing director Alberto Fernandez told Wine Spectator that they rely on intellectual property lawyers and a team of investigators to build the dossiers. Fernandez reports that counterfeiters have shifted from faking wine to legitimately importing foreign wine, then packaging in such a way as to imitate other well-known brands. “The wines are legally imported but they misuse or misappropriate the intellectual property,” said Fernandez. “It takes a lot of work to chase them.”

Fighting counterfeiters is a cat-and-mouse game. A winery or importer must trace the supply chain to find the original seller. But the information on the back label, including the company’s contact details, is usually false. If they do manage to track down the suppliers, the companies—facing fines and forfeiture of their assets as punishment for their crimes—declare bankruptcy. “Then they start under a new company,” said Fernandez. “It’s hide and seek.”

Chinese inspectors have long relied on foreign experts to help them identify fake goods. The CIVB, as well as importers like ASC Fine Wines and Torres China, have invested time in training customs officials and other inspectors to spot fakes.

The CIVB’s victories come in a wider context of Chinese authorities clamping down on economic crimes that deprive the government of tax revenue, and in the case of wine (or food or pharmaceuticals), pose the additional threat of a health risk. “You don’t know what they put in it,” said Fernandez.

Regulation has increased in China under President Xi Jinping. “The big change in the last five years is the amount of regulation in every single thing—everything—restaurants, electronic money, tax controls: This is on a national level,” said Fernandez, who arrived in China in 2000.

Under Xi, the Chinese have upped their regulation of the Internet, and next spring a new law targeting fake goods sold on China’s e-commerce sites is scheduled to go into effect. “As a consumer you will be able to hold the online operator responsible for selling you a fake, so the platform will be responsible,” said Fernandez. “Companies like Tmall.com and JD.com will have to work very closely with foreign brands.”

While a great deal of wine is sold directly by the importer to consumers and corporate clients, approximately half of all retail sales are estimated to be online. “Online sales will be one of the main drivers for wine sales,” said Fernandez.

But he remained doubtful that the fake wine trade would dry up. “There are more controls on the exhibitions. You won’t find them there, but you will find them in ballrooms at nearby hotels, some selling fakes, some selling imitations,” he said. “It’s not possible to eradicate fake wine in China. It’s so big and there’s always someone who will try it.”

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