MEMO/01/157

Brussels, 26^th April 2001

Seminar of Internal Market and Consumer Affairs Ministers, Lund 27-28 April parallel imports and prices

One of the issues due to be considered at the informal seminar of Internal Market and Consumer Affairs Ministers organised by the Swedish Presidency in Lund, Sweden on 27-28 April concerns parallel imports and prices.

The Swedish Presidency is due to present a new study on price comparisons between the United States, the United Kingdom and Sweden, in the context of a debate on whether the existing trade mark exhaustion regime should be revised. Unfortunately, this study was only made available late on 26^th April.

Internal Market Commissioner Frits Bolkestein will indicate to Ministers that:

• Price differences between EU countries (between which parallel imports are possible because of Community trade mark exhaustion) often exceed price differences between EU Member States and other regions of the world. The Commission is in the process of analysing price differences as part of the forthcoming Single Market Scoreboard, due at the end of May. Although the results of these surveys are just preliminary at this stage, they indicate that price differences of 30 or 40% between the EU countries with lowest and highest prices are not exceptional, for example, for branded consumer electronics goods. "Consumer electronics" is a sector where goods flow freely within the Internal Market and there is no barrier to parallel imports due to trade marks or barriers of any other kind within the EU;

• Retail prices of consumer goods are influenced by many factors including distribution, competition, levels of indirect taxation and consumer tastes and preferences and other local conditions on particular national markets. The possibility to import goods through so-called "parallel" channels from outside the EU is just one of many influences. Policy decisions to benefit consumers must be based on careful analysis of the causes of price differences;

• The Commission considers that high prices in Sweden have little or nothing to do with the trade mark exhaustion regime. Retail prices in Sweden are higher than in comparable Member States, partly as a result of high rates of indirect taxation (e.g. VAT of 25%, joint highest rate in the EU with Denmark) and partly as a result of the structure of the distribution system. Information supplied by the Swedish authorities to the Commission indicates that retail prices are progressively decreasing and have fallen since the introduction of Community trade mark exhaustion;

• The Commission concluded in May 2000 that a change from Community exhaustion of trade mark rights to international exhaustion would not, at least in the short term, lead to a significant fall in consumer prices. This conclusion was based on an extensive study of the issue undertaken on behalf of the Commission by outside consultants in 1999 that indicated that the impact of changes to the trade mark exhaustion regime on prices would be marginal and the impact on those other variables would not be clear-cut. (This study is available on the Commission's Europa Website:

  http://ec.europa.eu/internal_market/en/intprop/indprop/tmstudy.htm)

  The Commission therefore decided that it would not be appropriate, at least for the time being, to propose to change the trade mark exhaustion regime.

• Any change to the exhaustion regime of trade mark rights should be considered from the viewpoint of their likely impact on employment, product quality and safety as well as on retail prices.

Background on exhaustion of trade mark rights

The EU trade mark regime, established by a Council Directive 89/104/EEC is based on the system of Community exhaustion, whereby a trademarked good may be sold in any Member State once it has been put on the market elsewhere within the Internal Market, as opposed to international exhaustion, whereby a trademarked good could be marketed in any Member State once it has been put on the market anywhere else in the world. Some trademark holders are using Community exhaustion to prevent "parallel" imports of their branded goods into the EU (i.e. outside official distribution channels). For some time the Commission discussed with interested parties in 1999 and 2000 whether to change the current Community-wide exhaustion regime or not.

The Commission concluded in May 2000 that a change from Community exhaustion of trade mark rights to international exhaustion will not, at least in the short term, lead to a significant fall in consumer prices. A summary of the Commission position is available on the Europa Website:

http://ec.europa.eu/internal_market/en/intprop/indprop/comexhaust.htm

Trade mark policy has only a marginal effect on parallel trade. Other elements like distribution arrangements, transport costs, health and safety legislation, technical standards and labelling differences may have a greater and more direct impact. The Commission considers that changing the exhaustion regime for trade marks would have little effect on the market place given that the large majority of products are covered by a plurality of intellectual property rights.

Moreover, a change of regime may over time inhibit investment in new brands or even make trademark holders withdraw products from the market. Trademark holders who continue to provide branded goods may choose to reduce the quality of goods or the provision of associated services.

An EU-exhaustion policy has been developed to foster integration of the internal market. If the EU were to introduce an international exhaustion policy, and its trading partners did not do likewise (as seems likely), EU companies would face a competitive disadvantage.