Parallel Imports

On the way to Four Seasons to meet assorted amiable ambassadors and have tea and scones with the aunties, we swung by Chinatown to grab a handful of parallel import CDs for some anti-somnambulic sampling.

Some people gawked at the cheap dirty-pink plastic bag that held the sweeties and asked incredulously,"You meet ambassador, carry fake CDs, not scared mata catch ah?"

Fortunately, without going into the legal technicalities of false imprisonment and circumstances in which arrest warrants are not required, parallel imports are not on par with pirated (ie. copyright-infringing and therefore illegal) CDs under Singapore law.

A long long time ago, in the last decade of the last millenium, when mata wore shorts and R.E.M. wasn't considered pop yet that sort of thing, parallel imports were held by the High Court of Singapore to be illegal. The very next year, Parliament swiftly reversed this sorry state of affairs by amending legislation to allow such imports.

So all the parallel importers of CDs lived happily ever after, legally selling and distributing their cheap wares in Singapore? Not quite. Although we don't have to navigate a maze of dodgy Chinatown shops to get our paws on parallel import CDs, and Gramophone and That CD Shop carry them openly, parallel import CDs still have a bad rep.

The Bad Rep of Parallel Imports
This may, in part, be due to the protectionist spew tendencies of the local distributors.

See, for example, this article from The New Paper (1 October 2004), reproduced here for educational purposes because the original url is no longer valid:

CD War: Parallel imports make local record companies see red
By Wendy Teo

Piracy and free music downloads are no longer the only enemies of the local music industry.

There is a new nemesis in town, and it's proving to be an even bigger threat than the other two.

The onslaught of parallel-imported CDs from China - on the local market since last year - are making record companies here reach for aspirins, in what they see as the biggest problem facing the industry now.

These made-in-China CDs - mostly from Shanghai - are retailing at nearly half the price of the local versions, and their comparable quality are making them a very attractive alternative to consumers here.

The difference between the two types of CDs is slight, with the parallel imports coming in a no-frills package, while the local ones usually come with a free disc. (See report on facing page.)

Most record companies that The New Paper spoke to reported at least a 20 per cent dip in sales as a result of the parallel imports.

Warner Music Singapore, which released Taiwanese band F.I.R's debut album in May, was expecting sales to have hit the 40,000 mark by now.

But it has barely sold 25,000 copies, a problem Warner's promotions manager Tan Puay Hoon puts down to the stiff competition from the parallel imports.

'Consumers tend to compare prices. If they just want the songs, they will go for the cheaper alternative.

'More over, while the price is as low as that of a pirated disc, it is not a pirated disc but an original one.'

SALES AFFECTED
Miss Gillian Tan, marketing manager of EMI Singapore, also lamented the less-than-spectacular sales of Elva Hsiao, Penny Tai and Chiang Mei-chi's recent greatest hits albums.

She told The New Paper: 'We were targeting for each of the albums to reach double platinum, which is 30,000 CDs. But, so far, we've only reached platinum, which is 15,000 CDs.'

Even the God Of Songs has not been spared.

According to Universal Music Singapore, Jacky Cheung's Cantonese album, Life Is Like A Dream, released in May, has fallen '30 to 40 per cent' short of target sales.

While record companies can take comfort that they usually have the market to themselves for one week before the parallel imports start flooding, the more popular artistes do not enjoy this time lag.

Especially badly hit is R&B darling Jay Chou.

Thanks to his popularity in the region, the parallel imports of his latest album, Common Jasmine Orange, arrived here within a couple of days of its local launch, posing head-on competition to the locally-distributed CDs.

Not only are these parallel imports driving the already-declining CD sales down further but, for local record companies, the bigger frustration is the inability to do anything about it.

Whereas the industry has been protected by the law against piracy and downloads, parallel imports are legal.

Even though it is specified on the CDs that they are 'for sale in China only', the Media Development Authority says that they 'are considered legal for retail in Singapore provided they have been submitted to the Board of Film Censors (BFC) and have the BFC certificates affixed to them'.

And retailers are cashing in. When The New Paper visited CD shops at Toa Payoh Central, four out of five were selling the parallel-imported CDs.

TS Group, one of the biggest video and audio chains here, currently stocks a 70:30 proportion of parallel imports to local versions.

CHEAP IMPORTS
Marketing manager Joseph Toh told The New Paper that the sales of the cheaper parallel imports has been rising fast since TS Group started to bring them in earlier this year.

Mr Toh also claimed that the profits margins from the imports are 20 per cent higher.

Consumers like engineer Tommy Lim, 26, are rejoicing.

He said: 'Why buy the more expensive one when you have the cheaper version? No doubt it comes with less frills, but I don't care because I'm just going for the songs.'

But there are hardcore fans like Sandra Chen, who insists on buying the locally-packaged version.

The 18-year-old student said: 'I believe that I'm paying more for the quality, as I've heard from friends that the parallel-imported CDs scratch easily after a few spins.'

Administrative officer Christine Tan, 21, agreed.

She said: 'If you buy the cheap one and you ask Jay Chou to sign on it, do you think he will sign?'

GOODWILL GESTURE
Like these fans, some retailers, like CD-Rama and Music Junction, have chosen to stick by the locally-manufactured CDs.

According to Music Junction manager Lenz Neo, the company's decision not to stock parallel-imported CDs was a gesture of goodwill towards the record companies.

Mr Neo is standing by the decision even though he admitted that sales have taken a dip after 'losing a share of customers' who go for parallel imports.

He said: 'There's no point in us stocking parallel imports now. We will only be creating trouble for ourselves (by offending the record companies).

'The profit margin used to be larger for such CDs but no longer, since everyone's bringing them in.'

On their part, record companies here have also been trying to make their product more attractive by bundling free posters, premiums or VCDs with the CDs, and even bringing artistes down more often to do promotions.

Universal Music's product manager Connie Low, who has artistes like boy band Energy and Wilber Pan in her stable, says her company has been absorbing the additional cost of such promotions, leading to a 10 per cent dip in profits.

Even then, the benefits of the promotions may not be reaped solely by the record companies.

Play Music's marketing director James Kang lamented: 'Every time we bring an artiste down, we have to hope and pray that people will buy our CDs, and not go straight for the parallel imports.'

The Recording Industry Association of Singapore (Rias) is aware of the problems that its members are facing.

Its CEO, Mr Edward Neubronner, told The New Paper: 'Since the start of this year, we noticed that there's been an even more significant increase in these (parallel) imports, especially from China.'

Mr Neubronner says that the association had submitted a proposal to the Intellectual Property Office Of Singapore (Ipos) for amendments to the copyright law when the Ipos called for public consultation on the Copyright (Amendment) Bill 2004 earlier this year.

However, in an e-mail reply, Ipos said: 'Parallel importing of goods of legitimate origin is allowed in Singapore. The US-Singapore Free Trade Agreement, with the exception of the provision on parallel importation of pharmaceutical products, does not require Singapore to alter this position. Therefore, the impending law changes to our Copyright legislation will not affect this regime.'

Record companies here are still hoping for the Government to help them.

But in an e-mail reply, the Ministry Of Trade And Industry said that the Government does not intervene in the economic decision of companies, unless there are 'overriding social or political considerations'.

'We operate a free market system which allows open competition among not only domestic firms and products, but also foreign firms and products. Consumers stand to benefit from wider choices and lower prices from such open competition.'

TIP-OFFS AND POLICE RAIDS
THE parallel imports may be legal. But record labels here are crying foul over counterfeit CDs trying to pass off as parallel imports.

Sony Music Singapore's marketing director Paul Khor is one of those who are hopping mad.

He said: 'In China, pirates are very rampant. So it's difficult to tell whether the parallel imports are real or fake. I've seen these CDs. They have ridiculous details, for example, putting the Polygram Music label on the album of an artiste who is under the Sony Music label.'

According to the Rias, it has received tip-offs about such goods, and are aware of a few successful raids conducted by the police.

'We have written to retailers informing them of the presence of such products and how to identify them. We are also working with the Intellectual Property Office of Singapore (Ipos) to organise seminars, to educate them and the consumers too, ' said Rias CEO Edward Neubronner.

He said the counterfeits are sometimes very well-made, and the difference boils down to technical specifications, like the absence of the manufacturer's code on the discs.

If you are unsure of whether your CD is a counterfeit product, you can visit the Rias website at www.rias.org.sg/piracytype.html or call it on 6220-4166.

Note the vague reporting about how parallel imports are the biggest threat to the "local music industry". Note also the suggestion that parallel importers are cheating the copyright holders of their royalties. This is completely untrue. The threat is not to the singers or musicians or producers. The threat is to the profits of the middlemen, the local record distributors. Jacky, Jay and F.I.R. still continue to get whatever money they are supposed to receive from record sales.

What Parallel Imports Are
Assume that the copyright owner resides in the United States. He gives an exclusive licence to A, a record company in Singapore to copy and distribute his music in Singapore (that is, he will not give a licence to anyone else in Singapore to copy and distribute his music in Singapore). At the same time, he gives a licence to B, a record company in China to copy and distribute his music in China. B or some other enterprising soul purchases and ships the authorised Chinese copies to Singapore and sells them in Singapore. They are imported in parallel to those sold by local Singapore record companies, hence, "parallel imports".

What Parallel Imports Are Not
Parallel Imports Not A Breach of Contract
No wrong is done contractually since the copyright owner has kept his part of the contract: he has given the licence only to A in Singapore to copy and distribute in Singapore. That copies under B's China licence have been shipped into Singapore and sold has nothing to do with A's contract with the copyright owner. And the copyright owner has no power/authority to prevent the importation of Chinese copies, only Singapore law can. And Singapore legislation was specifically amended to allow such importation.

Parallel Imports Don't Harm Copyright Owners
The ultimate copyright owners (the singers, musicians, producers) don't lose out. They continue to receive their royalties from sale of the products from the Chinese record company.

Parallel Imports Only Harm the Greedy Middlemen
It is only the local record companies that lose out because consumer demand leans, almost topples over, towards the cheaper parallel imports.

Ban on Parallel Imports Would Hurt Consumers
By petitioning the government to make parallel imports illegal, these local record companies are essentially asking for protection against competition and for a monopoly in the Singapore market.

A monopoly without competition can never be good for consumers like us. It would mean that local record companies would be able to set any price for a CD because consumers would have no (legal) alternative but to purchase their products (counting mp3 downloads as different products).

As the quoted email reply from MTI rightly pointed out,

"We operate a free market system which allows open competition among not only domestic firms and products, but also foreign firms and products. Consumers stand to benefit from wider choices and lower prices from such open competition."

In any case, it is already commonly argued that with the globalisation of markets being facilitated by the development of a global communication system (aiyah, the internet lor) envisages the end to domestic territoriality because of the rise of global competition. So all these artificial barriers to trade are like, so ten minutes ago darlinks!

Get with the times! Instead of resorting to seeking restrictive trade practices and against-public-interest types of market dominance to be entrenched in law, local record companies should make use of the evidence that consumer demand for CDs is highly price elastic to lower their prices. That would most likely result in a disproportionate increase in demand for their licensed products (which don't have those strange Chinese hieroglyphics on them), in turn translating to a higher revenue flow for them.

Meanwhile, however, we can continue to enjoy the benefits of parallel imports (like being forced to improve our Chinese) with clear consciences and without stumbling others. :-)

PS: Actually, have thought of some ways that local record companies can get around this, and certain judges have concurred that it's possible. But let's not give anyone any ideas now. ;-)

PPS: I was advised to put in disclaimer/caveat/qualification/don't-sue-me statement. Here we go: I not lawyer, therefore this post does not constitute legal advice and should not be relied upon. It's just my layman take on the law that I rely on myself. Go pay a lawyer for his legal opinion. Or write an email to the nice people at IPOS yourself.

Related post: Copyright and the Christian