The European Union should be encouraging "grey" imports, not banning them
During the French revolution, arbitrageurs sometimes paid the highest price: they were guillotined. In deciding how to deal with those who exploit differences in the prices for which branded goods sell in different markets, the European Court of Justice has not gone so far. But, with the support of the European Commission and many EU governments, the court has banned such "grey" (or "parallel") imports into the EU. Traders are no longer allowed to undercut high EU prices for branded goods, such as perfume and CDs, by importing them from cheaper markets. This is a mistake.
Grey imports from America are enormously profitable, because Europe's mark-ups are higher than can be explained by differences in taxes, transport costs and the like. So the court's judgment has met with uproar from consumer groups, as well as parallel importers and discount retailers. The commission is now investigating the ruling's economic effects. And in Britain, a parliamentary committee is to look into the issue after a surge of grey car imports from crisis-hit Asia.
The argument for restricting parallel imports come from manufacturers. They say they have a right to decide which dealers can distribute their products. They argue that cheap grey imports can damage a luxury brand in which they have invested heavily. That not only hurts them; it may also harm existing consumers, who have already paid a premium for the product, and future consumers, if it deters future investment.
Black and white
Of course, manufacturers have a right to try to convince consumers to pay more for their products. They may also have legitimate reasons for wanting to control how their goods are sold. But once a company has sold a product, it should not be able to prevent its resale, provided that the product has not been tampered with.
Manufacturers make much of the harm that parallel imports allegedly cause consumers. However, while some existing owners of prestige brands might fret if European prices fell to American levels, lower prices would benefit future buyers. Would they also undermine the snobbery of a brand? Hardly. Calvin Klein products cost less in America, but they still command a premium. Would lower profits cause brand owners to invest less in future? Probably not much; indeed, competition might spur investment to keep their brand's edge. On the other hand, the ban will ensure that Europeans will be milked, and firms will be able to cut prices elsewhere.
The commission does encourage grey markets within the EU. Cheap Levi jeans can still be freely imported into Britain from Greece - but not from America. That worrying inconsistency may provoke non-EU countries to complain of discrimination and to retaliate. First, though, they should wait for sense to prevail. Lawyers are already seeking loopholes in the European Court's judgment. In any case, some British supermarket groups are defying the ban until they are prosecuted; they are also thinking of bringing a case of their own to challenge the court's ruling. This may not be necessary. The court could conceivably overturn its earlier judgment in a forthcoming case over imports of Sebago boat shoes to Belgium.
But the European Commission should not wait until then. It can amend the relevant directive to deal with the court's decision, and even to encourage a flood af grey imports, That way, European prices might be pushed down to match those paid by lucky American consumers.