Parallel importation of books: how it works, what it means, and a round-up of the literature

What’s the hottest topic in Australian cultural policy right now?

Parallel importation of books, of course.

The controversy stems from a decision by the government’s economic reform agency, the marvellously named Productivity Commission, to review the issue of territorial copyrights as they apply to literature in Australia. Territorial copyrights are a component of Australia’s intellectual property system, governed by our various copyright laws including Section 112A of the Copyright Act of 1968.

Today I take a close look at this report and examine what it recommends. Amazingly, we’ll discover that the very same Commission which recommends removing one sort of trade barrier for publishing also recommends introducing a new form of protection to replace it.

There’s been an avalanche of anguish from authors and publishers on this issue, and a smaller but smugger outbreak of schadenfraude by neo-liberals, book chains and others who enjoy watching skivvy-wearing writers squirm. But if you delve into the Commission’s report, you can quickly find the issues as stake.

So, are you ready? Then let’s begin.

Currently, Australian publishers enjoy a special trade barrier under this section of the copyright law, which prohibits what is called “parallel importation” of a publication from an overseas territory, if an Australian publisher holds the rights to that title.

How does it work? International intellectual property law divides the world into “territories” for trade and royalty purposes. The UK is a territory, the US is a territory, Canada and Australia are separate territories, and so on. Publishers sign deals with authors (or more usually, the author’s literary agent) in a particular territory; each territory generally means a different deal unless an author is so foolish as to sign over her rights worldwide.

Now, say I am an Australian publisher and I have bought the right to publish a particular book in the Australian territory. And say another publisher has published the same book in a different territory. Parallel importatation restrictions prohibit the importation and sale of that copy of the book in Australia. If you’re a book store or wholesaler her, and you want to sell Breath by Tim Winton, you have to sell the Australian edition of Breath from Penguin; you can’t, for instance, import and sell this remaindered US edition from HarperCollins, even though it is cheaper.

A bad deal for consumers? In this case, sure. And in general, the evidence from the suprisingly thin economic literature suggests that removing parallel importation rules do make cultural goods cheaper. Yeh-ning Chen and Ivan Png wrote a paper examining the price data for CDs after parallel importation was removed in a number of jurisidctions; they found that prices fell on average by around 7.2–7.9%. Mind you, they also point out that “The price reduction was probably concentrated in relatively new, top-of-the-chart releases,” (which is what economists would expect, as these are the CDs most likely to be in global demand and therefore traded across borders). To my knowledge, little data exists for less popular cultural goods produced by independent publishers – precisely the sort of books and CDs that proponents claim are being protected by parallel importation rules.

But for mainstream economists, this is of little significance. The key author in the field is the World Bank’s Keith Maskus. His work is theoretically sophisticated but basically boils down to this point, made in his chapter on the issue in the book The World Economy: Global Trade Policy (2000: 187):

[after removing parallel imporation restrictions] there would be a redistribution from consumers in high-price countries that are net importers of intellectual property-protected goods to producers in countries that are net exporters of those goods. Seen in this light, it is easy to understand whu nations such as Australia and New Zealand fabour liberal treatment of Parallel Importation, while intellectual property developers in the United States favour restricting them.

Translation? Consumers win: they get cheaper books and CDs. Producers lose: prices for their products fall.

And that, essentially is the nub of the Productivity Commission’s argument. By recommending Australia unilaterally abandon its territorial copyright restrcitions on book importation, the Productivity Commission is arguing it is better for consumer to enjoy cheaper books than it is for Australian writers and publisher to enjoy a limited trade protection which allows them to charge slightly higher prices fopr their books and manuscripts.

Looked at this way, it’s easy to see why the Productivity Commission went for this position. Unilateral trade liberalisation is, in terms of the classical economics of trade, a no-brainer. If domestic authors and publishers suffer, so what? “The unpriced ‘externality’ component of the cultural benefits that is dependent on the Parrallel Importation Restrictions is unlikely to be large, and PIRs do not target such benefits effectively or efficiently,” it argues in section 6.1.

For those acquainted with the Productivity Commission’s ethos, the grudging admission that a vibrant local publishing industry does produce some positive “cultural externalities” is actually a big step.  But once it gets that far, the Commission appears to realise it has stepped into unfamiliar territory and effectively recommends another study to work out how to support local publishers and writers.  “Not our department,” the Productivity Commission is saying, though it does spend a rather long time canvassing the thorny issues of how to subsidise “cultural externalities,” how a government would judge them, and whether different ypes and genres of books would have different levels of “cultural externality.”

You can almost sense their annoyance at having to deal with these wishy-washy issues where there isn’t a robust price signal that lets everyone know exactly what the cultural value of a book is:

… the value of the cultural externality of any particular book is not readily quantifiable, and it can be difficult to differentiate (with much precision) between different books or even classes of books. This poses challenges for determining the eligibility of different books for subsidy, and the appropriate rate of subsidy.

Well, yes. A tricky business, this cultural externality stuff.

So what does the Productivity Commission recommend? Nothing, actually, though it does strongly hint that one way to go might be to emulate Canada’s approach and essentially pay publishers and/or authors a subsidy for each Australian-authored work they sell.

Whatever way you manage the subsidy, it should be much cheaper than Parallel Importation, according to the Commission:

Irrespective of the specific arrangements selected for the administration of a subsidy scheme, the costs of such administration would be modest relative to the costs of PIRs: indicative Commission estimates suggest that the equivalent figure for delivering assistance to copyright holders for Australian-authored trade books under the PIRs is at least 60 per cent, due mainly to the substantial leakage of assistance to foreign copyright holders that they entail.

So there you have it. According to the Productivity Commission, books are too expensive, and if cheaper books means local authors and publisher struggle, then the taxpayer should simply give money to them directly. Amazingly, the very same report which claims one form of cultural protection distorts the local books market concludes by recommending another form of cultural protection – a direct subsidy to local producers, exactly akin to a US or EU-style agricultural subsidy – as the remedy.

Or you could just leave the current system in place, as the US, UK and Europe have. For an eloquent defence of the status quo in Australian publishing trade policy, see Richard Flanagan’s speech at this year’s Sydney Writer’s Festival.

The claim that global welfare could be higher under price discrimination associated with restrictions on Parallel Importation must also face the objection that such a regime would cause a redistribution of consumer benefits in high-rpice countries to consumers in low-price countries. Even if the aggregate gain wer large enough to compensate the former consumers for their losses, such compensation could not be effected practically. Moreover, ther would be a redistribution from consumers in high-price countries that are net importers of intellectual property-prtected goods to producers in countries that are net exporters of those goods. Seen in this light, it is easy to understand whu nations such as Australia and New Zealand fabour liberal treatment of Parallel Importation, while intellectual property developers in the United STates favour restricting them.Yeh-ning Chen and Ivan Png from SIngapore’s National University
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