What should the ACCC do about ‘blocked’ parallel imports in fashion?

by

It is amazing how a fifteen minute chat on parallel imports and an earlier e-mail ends up with a one-liner that gets it wrong. But that was the case in an article in the Age today. Let me summarise my views and for those interested, the full e-mail to the journalist is below.

  • On the information in the article, there is no issue of ‘price fixing’ (or collusion) but may be issues of resale price maintenance (RPM) depending on the actual contracts or agreements. The ACCC has been following this closely for internet sales generally;
  • There is almost certainly no issue of abuse of market power with the sort of businesses (small fashion houses) referred to in the article;
  • Exclusive distribution licenses for Australia are not illegal but can raise competition law issues if businesses abuse market power or ‘substantially lessen competition’. For a summary of a previous related decision see here.
  • The Bricks and Mortar complainants are like children putting a finger in the dyke that is about to breach. Unless they get business models to compete with on-line businesses they will be swept away. Attempts to block parallel importing just hurts consumers and will be ‘avoided’ by clever entrepreneurs. The government should act to assist this form of competition, not to block it, despite the squeals from the vested interests in the retail sector.

So what should the ACCC do? Keep a look out for RPM (and I would be surprised if they were not doing that already).

(Original e-mail to journalist)

Hi Rachel

 Let’s talk in the morning. My number is (deleted). I can ring or vice versa. let me know what time suits you.
 A couple of ‘off the top of my head’ thoughts below:
Really interesting issue! While you are looking at fashion the same issue is meant to be the basis of a parliamentary inquiry for electronic products (e.g. software).
The technology case raises the issue of parallel importing. While not an area of the law I know well, my understanding is that there is nothing stopping an Australian from legally buying a product overseas and then shipping it to Australia for resale. For example, Aldi does this with coffee (if you look on the shelves Aldi has Nescafe from Brazil and Indonesia). Of course the issue is whether the company will sell it to you overseas. You could go to an overseas shop and buy it and then resell it (and for some of the small fashion labels I suspect that is exactly what will happen. Websites will set up simply arbitraging the price. “Tell us what you like from the J.C.Penney or Macy’s website, tell us your size and we will buy it and ship it to you.”). But if you want to buy wholesale overseas the (overseas) supplier could stop you. That would not be illegal although it MAY be illegal if the Australian arm of a company puts pressure on overseas affiliates not to sell product to Australian resellers. Universal music ended up in court when it tried to stop parallel imports of music a decade or more ago (when people listened to CDs!).
A small overseas fashion house is unlikely to end up in legal trouble by refusing to sell to Australians if it thinks they will parallel import. If they have an Australian presence (which many will not have) then they are unlikely to have any market power – and the relevant bit of the law requires that the business have ‘market power’.
The fashion case also raises issues of resale price maintenance. This is illegal – so if the supplier is putting pressure on (some) sellers to not price below a certain level then they are probably breaking the law. But that doesn’t stop exclusive distribution licenses.
I guess what we are seeing is long-term price discrimination against Australia becoming transparent and people working around it. We seem to have paid rather high prices in Australia for a variety of products for a long time. To say that it is due to our taxes is complete nonsense. Differences of 50% are not explained by a 10% GST – particularly when Bricks and Mortar stores in the US and Europe often have equivalent taxes that are even higher (the US has state sales taxes – which is why low tax states have factory outlet malls just across the border from high tax states). I am not sure what causes our high prices – but when I can walk into a store in Picadilly Circus in January and buy sports shoes for the equivalent of $120 when they sell for $250 in Australia – there is something really odd going on!
I suspect that the main thing the government needs to do is not to set up new laws but to avoid laws that impede parallel imports. And if it is not obvious already, I have no troubles with international competition pushing down Australian prices and benefitting consumers. The Bricks and Mortar stores are like the blacksmiths facing the advent of the car (or a bit earlier, like the Luddites breaking the machines that raised productivity because they feared that they would lose their jobs).
Cheers
Stephen
5 Responses to "What should the ACCC do about ‘blocked’ parallel imports in fashion?"
  1. Stephen,
    I have the same reaction toward these types of squeals from the retailers. Seems like in some situations an alternative could also be to just switch from attempting to screw consumers, to attempting to win them back… But suppose this report is true, and the attempt is to prevent parallel importing. Isn’t it true that whether this is achieved via RPM or exclusive licensing, the economic impacts are essentially the same. The additional profits from either would be eroded by parallel importing (and the rise of online shopping), to the benefit of consumers. So if one of these practices is illegal and the other is not, do you think the law does a good job here?

  2. CraigM,
    My brief response: I think the current laws are being stretched and will be inadequate in the future. The challenge is to think how to adapt competition laws to global internet competition.

    The long response: I think there is a broader issue here about competition laws. These laws were designed pre-internet and they have adapted well (remember the original Sherman Act was in the 1880s). But do we need a rethink for an age of global trade facilitated by the internet? In the Productivity Commissions retail report they only highlight a relatively minor issue in copyright law as a barrier. But do we need a broader approach. For example, perhaps the law should be that while an exclusive physical distribution license in Australia is legal, it is illegal for a company to prevent a legitimate seller based anywhere in the world selling to an Australian via the internet or in person. So, if I walk into a store in London and buy a product on an Australian credit card or if I contact a London store via the internet and buy that same product on the same card there is no legal difference (from a competition law perspective – obviously there is a tax difference).
    Clearly the relevant law would go past RPM. It is more a ‘freedom to buy’ law. So: “It is illegal for a company to block or otherwise constrain another company or person from purchasing and transporting a good or service to Australia for own use or resale so long as:
    1. the purchase complies with all relevant laws of the country of purchase; and
    2. the good or service is a product that is not banned or restricted under any relevant Australian law”.

    Thoughts?

  3. I like it Stephen. How might it apply to IP intensive products like movies, games, or even live sports broadcasts? My first thought is that freeing up all three would be excellent outcomes for consumers and efficiency, but the vested interests who would lose are unlikely to be overcome any time soon.

  4. This seems like a great idea. Thinking through what economic theory would predict, (as I’m sure you have) I’d agreed this might be the best way forward. A ‘freedom to buy’ law would effectively limit the scope of exclusivity manufacturers can grant to domestic only. Whatever benefits arise from exclusive licenses would be eroded by the overseas competition from online. But perhaps manufacturers are already seeking these benefits other ways? Think of the big brands who now retail products themselves – Apple is the obvious example, but there are many more who are moving to retail directly, mostly online, but with a few loss-making bricks and mortar stores to allow customers to experience their products. So perhaps competition from online is already rendering useless many benefits from retail exclusivity? In which case a ‘freedom to buy’ law (the ‘King Amendment’?!) might impact mainly on country-based price discrimination? (except if it is done with technological features eg. DVD region coding, but not much we can do about that!)

  5. I have a business that imports from America and frankly by the time that freight is paid ,taxes,and relevent duties, you do infact come up nearly 50% more expensive what you guys have failed to calculate is the advetising budget etc that our Australian companies are putting into the product lines. Parallel imports are and always will be money that keeps Australian people in jobs gone. Do you people want to live in a third world civilisation? Get real government and impose tougher regulations online eliminate online RESELLERS that have no legal obligations overheads or staff.

%d bloggers like this:
PageLines