Parallel importation: a retrospective

The following piece by Wilkins Farago’s Andrew Wilkins appeared in the recent Summer 2009 issue of the Australian Picture and Copyright Association‘s members’ newsletter.

After 12 months of exhaustive surveys, passionate debate and deliberation, on 11 November 2009, the Federal Government announced that it was rejecting the July 2009 recommendations of its own think-tank, the Productivity Commission, on the parallel importation of books.

The Commission recommended that the parallel importation restrictions included in Australia’s Copyright Act since 1991 be removed.

Put simply, the removal would have allowed Australian booksellers to order any quantity they liked of a book published overseas from whatever source they liked, whenever they liked, even if the Australian publisher or distributor of that book had a contract with the book’s copyright holder granting them exclusive license to publish or distribute the book in Australia.

Reaction to the decision
The rejection was greeted by a collective sigh of relief by Australia’s book publishers, printers, authors and many (but not all) booksellers. Henry Rosenbloom, owner of Melbourne independent press Scribe Publications, echoed many when he blogged that the announcement represented ‘a triumph of common sense over ideology.’

However, the decision was opposed by free marketeers, including the Coalition for Cheaper Books (a coalition of large book retailers including Australia’s second-largest bookselling chain, Dymocks, and discount stores such as Kmart and Big W), who accused the Government of propping up an inefficient publishing industry hooked on price-gouging the consumer.

‘More and more booklovers will be forced to buy cheaper books online as so-called local publishers—most owned by multinationals—continue to inflate prices by more than a third for Australian consumers,’ said Dymocks’ Chief Executive Officer Don Grover, a vocal Coalition member.

So who was right and who was wrong? What does the Federal Government’s decision mean for the book industry in Australia, and how did such a debate arise in the first place? Moreover, what relevance does the whole issue have for other copyright-based industries in Australia?

A little history

In Australia, the development of a viable publishing industry is still within living memory. Most bookselling activity prior to the 1960s involved bringing books in from overseas (mostly from the United Kingdom). Australian booksellers ordered books ‘on indent’ from British suppliers. Then they would price them based on their landed cost before selling them to customers who often had ordered and paid for the book in advance. The whole process could take months.

As more and more British publishers saw the possibilities of a growing Australian market, they either sought to establish local branches in Australia, or appointed an exclusive local distributor to represent them. Soon, many Australasian branches of UK firms were publishing local books alongside the books they were importing exclusively from their UK parents.

By the end of the 1970s, Australia had a flourishing local book industry, with local warehouses full of both Australian and imported titles. Australian booksellers were finally relying to a significant extent on local suppliers to supply the books on their shelves. Ordering ‘on indent’, while still common, was no longer the norm.

Moves towards reform
But there were problems. Even accounting for the increase in the number of locally-available books, there were simply too many books published to make them all immediately available in Australia. The exclusive distribution arrangements mentioned above meant booksellers had to order from the local supplier even if the local supplier didn’t have the book in stock. This was frustrating to booksellers and consumers, who didn’t want to wait months for a book.

In 1991, a compromise was reached that effectively made it easier for booksellers to order direct from overseas when the local supplier couldn’t get the book to them quickly enough. The 30- and 90-day rules were added to the Copyright Act. The 30-day rule said that if the local publisher or distributor hadn’t made a new book available within 30 days of its first publication overseas, they lost the exclusive right to sell it in Australia and booksellers could order it in directly themselves. The 90-day rule said that if the book went out of print or out of stock in Australia, the local publisher or distributor had 90 days to get more stock or again they lost exclusive right to sell it here. These rules are still in situ today.

These rules only relate to books that are published or distributed in Australia under an exclusive license or agreement. Most of the world’s nine million books in print are published without such a license and so can be freely imported into Australia without restriction by any bookseller at any time, and frequently are. Also, Australian consumers are free to buy directly any edition of a book from wherever in the world they like—the success of Amazon is a demonstration of that. The reason why everyone is so excited by the books covered by exclusive agreements is that these tend to be the books that sell the best—the pick of the crop.

Reform back on the agenda
But many were still not happy. Booksellers still had to pay the price for imported books set by local distributors and publishers.

Those for whom price was a major part of their offering to consumers could see opportunities to sell cheaper imported editions in Australia, and negotiate better deals by ordering in bulk. Under the Copyright Act, they simply couldn’t order those books if the book was already published here.

In 2001, the Copyright Act was reviewed again (a move championed by then-Chairman of the Australian Competition and Consumer Commission, Professor Alan Fels) but the industry successfully opposed any changes.

The Productivity Commission’s enquiry and report

Clearly, the vampire wasn’t quite dead, however. In November 2008, the Federal Government announced another enquiry, this time tellingly headed by the Productivity Commission, the organisation tasked with finding ‘ways of achieving a more productive economy.’

Over a period of about nine months, the Productivity Commission received 563 separate submissions. For that alone, its enquiry was probably worthwhile. Two camps formed under opposing banners: Australians for Australian Books (against the reforms) and the Coalition for Cheaper Books (for the reforms). In the end, however, the Commission chose to ignore almost all of submissions in favour of a conclusion that seemed to most industry insiders to have a lot more to do with economic theory than it did with the real world.

What it found—in spite of a lack of reliable evidence either way—was that;

  • books were too expensive in Australia compared to other English language markets
  • publishers’ and distributors’ exclusive rights to publish and distribute books here were a key factor in keeping prices so high.

It recommended that the 30- and 90-day rules be abolished and that Australia become an open market for books. With an open market, it argued, book prices would fall. It also acknowledged that this would have a negative impact on the publishing of Australian books and suggested that subsidies be introduced to encourage the publishing of works of ‘cultural significance.’

What is noteworthy about the Commission’s proposal is the primacy it gives to the right of the consumer to cheap product over and above any cultural, legal or economic considerations. The economy is at its most productive when books are cheap, it argued, even if this makes it harder for the industry that produces them to be viable.

Arguments against the proposal
While the importing of overseas books is largely the preserve of the large multinational publishers, in the past 20 years smaller publishers (eg Text Publishing, Scribe Publications and Black Inc.) have also made a good business from publishing local editions of overseas books. By publishing overseas authors alongside their Australian ones, they have been taken more seriously by overseas publishers and have consequently been able to license more editions of their Australian books internationally.

Quite reasonably, publishers asked: if we haven’t got the exclusive right to publish a particular book in Australia, how can we afford to invest thousands of dollars in producing and marketing it? Bearing in mind that such exclusivities exist in pretty much all major overseas book markets, the Productivity Commission’s reforms would have made Australia unique among the major Western book markets, placing it at a disadvantage in rights negotiations. In this way, while territorial copyright might have still been preserved (as argued by former Managing Director of publisher John Wiley & Sons Australia Peter Donoughue—a lone voice among publishers for the reforms), the exploitation of it would have been severely undermined.

Publishers also maintained that the income generated from the sales of overseas books enabled them to invest in Australian books. Without that income, the number of locally-published books would thus inevitably decline, they argued.

Authors also had their objections. There was a danger of copies of overseas editions of their books being imported into Australia in direct competition with Australian editions. As authors are typically paid less on copies of their books sold for export, they would earn a smaller royalty on these imported copies, which would be competing directly with an edition on which they were being paid a full royalty.

Both publishers and authors also expressed a concern that there might be dumping of cheap remaindered books into Australia. Authors typically receive no royalty at all on such sales.

Book printers, through the Printing Industries Association of Australia, also vehemently opposed the reforms. Since 1991, local book printing has been sustained by the production of local editions of overseas books. Hundreds of jobs would be lost if publishers cut back on these editions and their local publishing programs, printers argued.

Booksellers (with the exception of those in the Coalition for Cheaper Books) for the most part maintained solidarity with the publishers and authors, concerned about the impact on local publishing and somewhat wary of the power of big retail. While the official position of the Australian Booksellers Association going into the Productivity Commission survey was for an open market, this position was revised once the debates got underway.

While some booksellers argued for compromises that might protect local publishing while still giving them improved access to imported books, many of these measures were seen as potentially putting Australia in breach of some of its international treaty obligations.

Rejecting the proposal
‘In the circumstances of intense competition from online books and e-books, the Government judged that changing the regulations governing book imports is unlikely to have any material effect on the availability of books in Australia,’ said Minister for Competition Policy and Consumer Affairs, Craig Emerson, in a statement in November 2009.

The Government’s rejection of the proposal was also political: there just weren’t many votes in losing printing jobs in marginal country electorates, or offending thousands of underpaid wordsmiths. In rejecting the proposal, Craig Emerson had a sting in the tale for the book industry, however:

‘If books cannot be made available in a timely fashion and at a competitive price, customers will opt for online sales and e-books,’ he said, clearly warning the industry that the consumer would vote with their computer mouse if the industry didn’t deliver lower prices and better availability.

The fallout
After the initial exclamations of triumph from opponents of the reform, there followed a realisation that the book industry was back exactly where it had been before November 2008: that is, in a small corner of an increasingly globalised book market where;

  • the internet makes territorial copyright either irrelevant or an irritant to consumers
  • online retailers like Amazon and mass market retailers like Big W and Costco are threatening traditional bricks-and-mortar booksellers
  • ebooks and digital publishing are challenging the traditional print publishing models upon which most of the Australian industry is founded
  • games, music and online content are all competing for the attention span of book readers
  • the massive carbon footprint of an industry that cuts down trees and airfreights, ships and trucks the pulp around the world (often on a sale-or-return basis) has to be addressed

The battle against parallel importation could be viewed as a distraction from these issues.

Another concern is that consumers, thanks to the campaigning of the Coalition for Cheaper Books and their fellow travelers, may
now think they’re being ripped off each time they buy a book from an Australian bookseller.

To conclude
The campaign waged against parallel importation is a textbook example of how to fight to preserve a cultural industry from the forces of economic rationalism. It also showed that political considerations are just as important in policy-making as economic ones.

However, while many jobs in publishing, printing and bookselling have probably been saved (in the short term at least) by the Federal Government’s rejection of the Productivity Commission’s proposal, the pressures that led to the enquiry in the first place have not gone away and are only likely to increase. The negative PR that the industry received from apparently opposing cheaper books will also not go away in a hurry.

Ultimately, market factors beyond Australia’s direct control may force reforms that our legislators couldn’t accomplish. The challenge to the book industry—as with all industries—is to address the underlying issues itself before the forces of reform can re-gather for another tilt.