22 November 2004 by

Richard Chirgwin

More on the Aus-US FTA as Letters Change Hands

Here’s a reference out of the dim dark past: in December 1997 (oh so long ago!), Australian Communications published a US price survey which found that country’s network kit vendors set prices (inclusive of exchange rate variations) as much as 84% higher in this country than back home.

Before anyone gives me some bromide about transport costs, I should make this clear: then, as now, most of the stuff was made in Asia, and delivered from Asia. It had nothing to do with transport: it had to do with price-fixing. Since that’s illegal, vendors had to use their control of the channel to achieve it: anoint just one importer, give it just one price, and leave the rest to the need for profit. The same survey found that countries with the most import channels also had the least “export mark-up”.

The reason I mention this is because over the years, the ACCC has worked hard on the issue of import monopolies, with some success. Sure, US vendors will still sprout the most outrageous humbug about “grey marketing”, pretending there’s something illegal or immoral about it. But parallel importation is a legal activity.

Not for long, and that’s my gripe against the time-serving circle-jerking slackers of the Canberra gallery.

In all the hundreds of thousands of words written about the Australia-US free trade agreement, you will find nearly nothing highlighting this paragraph:

Each Party shall provide that the exclusive right of the patent owner to prevent importation of a patented product, or a product that results from a patented process, without the consent of the patent owner shall not be limited by the sale or distribution of that product outside its territory, at least where the patentee has placed restrictions on importation by contract or other means.”

(Article 17.9, paragraph 4).

To boil it down to its effect: this paragraph commits the Australian government to make “grey marketing” illegal, and this paragraph has passed by the entire Canberra press gallery and (with the sole exception of Ross Gittins) every single commentator who has written about the FTA.

It’s easier to make egregiously stupid statements, like SBS’s Peter Martin who told the world that Banjo Patterson’s works will return to copyright under the FTA, than to break out of the mindset which follows the bum of the sheep in front.

Why would parallel import rules be “out of scope” for nearly every commentator on the FTA? The right of US companies of all kinds to engage in price-fixing in Australia through controlled imports reaches into every single household in the country.

Moreover: it’s open to exploitation in a modern, multinational world. The right to impose import monopolies is held by the patent owner: if patents are held by an American company, then that company sets the import rules to Australia.

In other words, an Ethernet switch vendor whose engineering is in Singapore, whose call centre is in the Philippines, and whose manufacturing plant is in Korea can still take advantage of the FTA, by setting up an office in Delaware and assigning all patents over its products to the American company. It’s an unlikely scenario for anyone whose competitive edge is low price – but in the long term, you can bet that if something is able to be exploited, it will be.

Of course, my focus has been on what such a provision would do to network equipment. But it’s not just Ethernet that could suffer from a patent migration scam: there is precious little, in the modern world, which doesn’t fit the bill of being “patented” or “the result of a patented process”.

Now, you can understand why there would be a deathly silence in any News-controlled outlet over such a point. News owns music labels and movie studios, and likes import monopolies. The business advocates of the FTA were never going to kick. They like import monopolies; it lets them blame higher price on someone upstream, while passing on those prices (with a little extra markup) to consumers.

But someone should have noticed that everything from sandshoes to ink-jet refills is swept up in the import monopoly rules.

Why do I return to the issue, given that I wrote about it to deafening silence back in August? Because this week, the group-think has been at work again. Australia and America exchanged “diplomatic notes” in which, among other things, our government made commitments to “address” America’s concerns about our FTA implementation legislation.

The group-thinkers used the occasion to justify rehashing what they’d already said about the FTA. But they didn’t go so far as to ask for the text of the letters exchanged between us and America. The same time-serving, circle-jerking slackers who didn’t read the full text of the FTA at the beginning of this year stay true to form right up to the end of the year: “he said” is more important than the text.

Richard Chirgwin