Select Committee on Trade and Industry Minutes of Evidence


Supplementary memorandum submitted by the Parallel Traders Association

EVIDENCE FROM DIRECT COSMETICS LTD

1.  THE EUROPEAN TRADEMARK DIRECTIVE (ETD)

  The ETD has given control of supply to Trademark owners. This allows them to control distribution and, effectively, eliminate competition and price reductions.

  It is only as a result of cheaper Parallel Imports (PI) that many groups of consumer goods have been available more cheaply throughout the year rather than at odd sale times.

  PI has also increased availability to customers by broadening the number of retail outlets offering goods.

2.  PRICING

  Many PI goods are produced in the EEA before being distributed both inside and outside of the EEA. This particularly applies to the area of perfumes and toiletries.

  As the goods are then sold at a profit into various markets, how is it that wholesale and retail prices can vary so widely?

  For Example In March 1999 we notes the following prices:

COMPARISONS OF UK Vs US WHOLESALE PRICES
  Product
UK Wholesale
  US Wholesale
  Yves St. Laurent Jazz After Shave 50ml
£11.00
  $8 (= £4.95)
  Parfums Balmain
£9.00
  $4 (= £2.50)
  Levi 501's (Retail)
£501
  $352 (= £22.00)


  1Retail Price at Selfridges, UK excluding VAT

  2Retail Price at Maceys, NY, USA excluding Sales Tax

  It should be noted that the Jazz & Balmain were both manufactured in France and sold, at a profit, before coming on sale in the UK and USA at vastly different prices.

  Furthermore, Levi's manufactured in the UK were on offer in New York at the same price as jeans produced in the USA.

  The list goes on ad infinitum.

  It is claimed that the cost of doing business in the UK accounts for the difference. This is patent nonsense.

  Whilst basic Social Security costs in the UK are 10.5 per cent against 7.5 per cent in the US, the USA has many other costs such as Health and Unemployment Insurances which reduce the difference.

  REAL ESTATE TAXES, RENTS LABOUR AND DISTRIBUTION COSTS IN COMPARABLE AREAS IN THE USA ARE SIMILAR TO THE UK.

  MOST MEDIUM PRICED DESIGNER CLOTHING SOLD WORLD-WIDE IS PRODUCED IN THE THIRD WORLD COUNTRIES EG RALPH LAUREN, CALVIN KLEIN, YSL, CLAIBORNE.

  WHY IS IT THAT THE IDENTICAL PRODUCTS THEN RETAIL IN THE USA SOME 60-70 PER CENT CHEAPER THAN THE UK?

  THE ANSWER IS SIMPLE; EXPLOITATION OF OUR MARKET TO CHARGE THE HIGHEST PRICES POSSIBLE. THE ETD HAS GIVEN BRAND OWNERS THE TOOL TO ACHIEVE THIS AIM. IT HAS IN REAL TERMS LEGALISED ANTI-COMPETITIVE PRACTICES.

  PARALLEL IMPORTERS BUY GOODS IN THE OPEN MARKET WHERE THE BRAND OWNER HAS ALREADY SOLD THE GOODS, AT A PROFIT. HOWEVER, PARALLEL IMPORTERS ARE ABLE TO BUY THE SAME PRODUCTS ABROAD AT A MUCH LOWER PRICE THAN THOSE DEMANDED IN THE UK MARKET.

  BRAND OWNERS COULD HAVE PUT PARALLEL TRADERS OUT OF BUSINESS BY MAKING PRICES COMPARABLE IN DIFFERENT MARKETS. THE ETD GIVES THEM THE PROTECTION NOT TO DO THIS AND TO CONTINUE TO EXPLOIT THE UK MARKET BY HIGH PRICING.

3.  THREATS TO JOBS

  At a recent meeting of SACIP, it was suggested that Parallel Importing threatened Levi's jobs in the UK. If one looks at their recent record, this claim does not bear examination.

  In 1997, Levis cut 7,000 jobs in the USA. They then closed four European plants at a cost of 1,560 jobs.

  In February 1999, they announced the closure of 11 of their 22 US plants with a loss of 5,900 jobs.

  At no time have Parallel Imports been mentioned as a factor. Reasons given were marketing errors and cheaper competition. They are moving production from the factory closures to "contractors around the world". By that, one assumes they mean Third World countries with cheap labour.

  We are aware of no company that has ever cut jobs because of PI.

  Parallel Imports do, in fact, create jobs by bringing new wholesalers and retailers into the distribution chain.

4.  BRANDING

  The Committee is doubtless aware, all big brand owners concentrate on Global Branding to create demand and establish brands in world-wide markets as opposed to local markets. The Yves St Laurent perfume in the UK, USA and elsewhere is identical worldwide. Only the prices differ.

5.  INNOVATION AND DEVELOPMENT

  There was no shortage of Research and Development prior to the effect of the ETD and we doubt that there can be shown to have been any quantum leap since Brand Owners gained protection of the ETD; either in product development or support of fringe activities, as claimed by the Music Industry (why are identical CD's from the same production 40 per cent cheaper in the USA?).

 6.  BIZARRE ANOMALIES CREATED BY THE ETD

  Identical products produced in the same place at the same time; some can now be illegal.

    —  Item 1—is sold in the EAA—no problem.

    —  Item 2—is exported direct from the EEA manufacturer to a buyer outside the EEA. If that product is then imported back in to the EEA it is classed as an illegal product!

    —  Item 3—In this case the goods are sold to a buyer outside the EEA, and the goods are then resold to a buyer in the EAA, without the goods ever physically moving. When the goods are subsequently shipped to the second buyer in the EEA, the goods are illegal.

  In these three cases, it is the same product with the same origin but in two out of three situations the products are illegal due to the ETD.

  This was never the intention of the ETD, but this is the effect it is having. The ETD, as incorporated into National Laws, is the most anti-competitive piece of legislation imaginable. It's effect punishes consumers interests enormously.

  We realise that these effects were unforeseen and were not the intention of the Directive.

  We earnestly request that the UK Government should press for an early and urgent amendment to the law and a return to Global Exhaustion of Brand Owners rights.

17 May 1999


 
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Prepared 8 July 1999