The business community still anxiously awaits clear policy direction from Washington on the ambiguous, albeit very real issue of gray markets. A gray market encompasses the importation and sale of genuine trademarked goods by firms other than exclusive trademark licensees.
The value of gray markets has been estimated at $6 billion at retail. The relative strength of the dollar in the first half of the 1980s worked as a veritable locomotive in the growth of this type of market.Gray market products take market share away from their "legitimate" counterparts primarily because of a significant price difference. Since many products are priced higher in the United States than abroad, a gray marketer can purchase products cheaper from a legitimate distributor in Europe or the Far East than in the United States and can then resell them here offering discounts averaging 10 percent below list price. Some companies report having to cut domestic sales projections by as much as 50 percent due to loses to gray marketers.
Opponents and supporters of the practice disagree on whether the central issue is price or trademark rights. Detractors typically cite the following arguments:
* The gray market unduly hurts those legitimate owners of trademarks.
* Without protection, trademark owners will have little incentive to invest in product development and marketing.
* Gray marketers will "free-ride" or take unfair advantage of the trademark owners' marketing and promotional activities.
* Parallel imports can deceive consumers by not meeting U.S. product standards or their normal expectations for after-sale service.
Foreign manufacturers, U.S. companies manufacturing abroad, and authorized retailers have formed the Coalition to Preserve the Integrity of American Trademarks (COPIAT), to fight the practice and to ensure that items imported to the United States can only be sold through companies authorized by the trademark holder.
Proponents of parallel importation approach the argument of consumer protection from an altogether different viewpoint. Protecting exclusive distributors would enable manufacturers to set de facto minimum prices, which in the case of the U.S. market, generally means higher prices than anywhere else in the world.
Unauthorized dealers take advantage of this situation by buying products on the open market at lower prices, shipping them to the United States paying U.S. customs duties, and selling them to retailers for 30 percent to 40 percent less than the manufacturer's own distributors. Supporters insist on the use of the term "free market" rather than gray market in order to shed the implication that the goods in question are counterfeit.
The main beneficiaries are consumers, benefiting from lower prices, and discount distributors with whom some of the manufacturers do not want to deal and who have now, because of gray markets, found a profitable market niche. Many of the discounters have joined forces in forming the Coalition for Competitive Imports.
Republican Senators Chaffee (R.I.), Roth (Del.), and Rudman (N.H.) have introduced "The Price Competitive Products Act of 1986" that favors parallel importation by adding a new subsection to the Tariff Act of 1930, enacting into law the current customs regulations and the 50-year-old policy allowing parallel importation of genuine, trademarked articles in the case where related parties own the trademarks both in the United States and abroad.
The bill also makes clear that the Lanham Act of 1946 does not restrict the importation or sale of these goods. The bill favors the savings consumers would incur over any possible confusion or deception that may occur.
The U.S. government should not be expected to act as a policeman to enforce price discrimination, control distribution channels or support market segmentation strategies. Companies themselves should take action to change their marketing practices by adjusting prices or initiating price-related programs that would enable their offering to compete with the gray market version.
Other alternatives exist in terms of non-price competitive measures and closer monitoring of shipments and authorized dealer activities. In many cases, however, consumers prefer to pay a lower price and receive a warranty
from a distributor or retailer, than pay a higher price for the manufacturer's warranty.
Any firm has the right to attempt a segmentation of international markets. Yet, when this strategy fails there is no reason to call for government assistance.
If any regulation of the market is indeed warranted, it should be in terms of disclosure. Proponents of parallel importation submit that gray markets would not flourish if consumers are being deceived or confused by buying from these sources. If deception could be proven, retailers offering gray market goods could then be required to post notices to that effect, (for instance that the product may not be accompanied by the manufacturer's warranty valid in the United States).
Now that the dollar is at a more realistic level with respect to other currencies, parallel importation continues mainly because of market- segmentation strategies of companies that usually result in higher prices being charged in the United States. The savings provided to con sumers by offering genuine merchandise through gray markets is reason enough to accept this practice.