The proliferation of counterfeit goods has become a serious global problem that not only infringes on the rights and interests of industrial workers, but also distorts fair competition in the market. Taking the European Union as a case study, this study systematically examines the systematic labour exploitation in the counterfeiting chain and its adverse impact on the economy. By analysing the legal framework, enforcement challenges and innovative governance models, the study reveals the intrinsic link between labour rights and interests violations and unfair market competition. The study finds that producers of counterfeit goods exploit regulatory loopholes to circumvent labour regulations and gain illegal cost advantages, thereby undermining legitimate business interests and inhibiting innovation. The study proposes comprehensive policy solutions that emphasize cross-sectoral collaboration, technological interventions and enhanced international cooperation to protect labour rights and restore fairness in markets.