Parallel importation of books: Cultural benefit vs consumer cost

Big changes are afoot in Australia’s lucrative book buying business. Australians currently spend $2.5 billion each year on new books at retail book chains, independent bookstores and increasingly, online and the sale of these books is governed by the Copyright Act 1968. The federal government is looking to change the law to remove the concept of “parallel importation” which was added to the act in 1991. This refers to importation of products containing copyright material made legitimately in the country of manufacture. The concept is used in the world of books, CDs, computer software and computer games but after further changes to the law in 1998 (sound recordings) and 2003 (computer games) it now only applies to books in Australia. It restricts the parallel importation of books which protects authors who own Australian rights from competition from foreign editions of that title.

Local writers, on the whole, are happy with the copyright restrictions. Author Tim Winton calls copyright “the single most important industrial fact in a writer's life, the civilising influence of a culture upon a market”. As well as giving authors a number of exclusive rights over their original material, copyright has a territorial provision. This gives creators the right to earn a premium for sales in their home country while only earning “export royalties” for overseas sales. The catch is that the Australian creator needs an Australian publisher to earn the higher royalty otherwise any local earnings is considered export. The dilemma for authors is whether to forego these local earnings in order to gain access to the greater reach provided by a London or New York publisher. Up to the 1980s, most authors went with overseas publishers.

In 1991 the Hawke Government came up with a novel solution to this problem to promote the local industry. It brought in the 30 day rule. This is “use it or lose it” legislation that allow Australian publishers 30 days to publish a version of any book that has been released anywhere in the world. If the book is published within 30 days, all booksellers are obliged to purchase the publication from the Australian publisher and cannot import the book from an overseas publisher. However this nifty solution did not envisage how the Internet would muddy the waters. Overseas online books are not subject to the order and do not incur GST at the point of sale.

The Council of Australian Governments' Meeting of 3 July 2008 discussed the import monopoly issue under the larger aegis of competition reform. The issue under discussion was whether the 30 day rule results in higher prices and less availability of books to Australian consumers. In November then Assistant Treasurer Chris Bowen requested the Productivity Commission to examine the provisions of the Act. The government called for submissions from the public and there were 272 responses.

Most authors saw the changes as “cultural suicide” and were bitterly opposed to any watering down of the 30 day rule. Peter Carey’s view was typical. “As long as we have a territorial copyright our publishers have a commercial argument to support Australian literature,” he wrote to the commission. “They will battle for the sake of our readers and our writers, even if their owners have no personal commitment to the strange loves and needs of Australian readers, or the cultural integrity and future of the Australian nation.”

Local publishers such as Allen & Unwin and McGraw-Hill are also keen to see the status quo preserved. They both say the local market is strong and competitive and this is due to the stability provided by the existing territorial copyright arrangements. Allen & Unwin said there is a cultural benefit also with 14,000 Australian books authored every year.

But the big retailers say the publishers are “showing disdain for the Australian consumer”. The so-called Coalition for Cheaper Books represent Dymocks, Coles and Woolworths. The effect of the 30 day rule, they say, is higher prices, less availability and the concentration of market power in the hands of publishers. They believe the removal of the rule will lead to lower prices and quicker availability. The problem has been brought to a head as the retailers lose $100 million of business each year to Amazon which did not exist when the 1991 policy was formulated.

The Australian Competition & Consumer Commission (ACCC) took a minimalist intervention stance in their submission. It questions whether there is quantifiable data that supports the societal benefit of the 30 day rule. “Given that the parallel import restrictions amount to a restriction on competition,” it says, “the onus of demonstrating such benefits should be on those advocating for their retention.” The ACCC said the removal of similar laws in New Zealand in 1998 resulted in lower or stable prices, improvements in supply and service and product differentiation. It also had no effect on the local creative book industry.

But although the Australian rule is contrived, it seems to work. While the Internet components need to be addressed, the question is whether we want to risk the destruction of a large and vibrant local industry in name of making books a dollar or two cheaper. The Productivity Commission sensed that concern when they released their draft findings to the Government in March. The main recommendation is that publishers still be protected from parallel importation, but only for the first 12 months.

The publishers and authors are angry with this outcome. As author Kate Grenville noted cultural externalities can’t be quantified in a way that will have any traction in a debate about economics. However, Andrew Norton sees it as largely a win for them “as most of the profits from a new release will be made in the first 12 months”. We shall soon see. The Commission has delivered its final report on 30 June (not yet in the public domain). The changes, whatever they will be, should make their way in Australian law later this year. The economic benefits might kick in immediately, but the cultural consequences will take a lot longer to be felt.

UPDATE (Tuesday 14 July): The Productivity Commission has released its final report. It has gone further than the interim version and called for the 30 rule to be scrapped. Quote: "From the available quantitative and qualitative evidence, the Commission has concluded that the PIRs [parallel import restrictions] place upward pressure on book prices and that, at times, the price effect is likely to be substantial."