What are parallel imports?

8/20/2019 What are parallel imports?

http://slidepdf.com/reader/full/what-are-parallel-imports 1/7

What are parallel imports?

According to Wikipedia

"A parallel import is a noncounterfeit product imported from another country without the

permission of the intellectual property owner."

According to World Trade Organization

"

When a product made legally (i.e. not pirated) abroad is imported without the permission of the

intellectual property right-holder (e.g. the trademark or patent owner). Some countries allow

this, others do not.

According to World Health Organization

" !arallel imports are imports of a patented or trademarked product from a

a country where it is already marketed.

Parallel imports (sometimes referred to as gray market goods) refer to branded goods that are imported into a

market and sold there without the consent of the owner of the trademark in that market

parallel imports often take place when there is the differential pricing of the same product either brandname or

generic products in different markets (usually owing to local manufacturing costs or market conditions)

The process of parallel imports

Case 1

Parallel imports affect a wide range of industries! spreading f from traditional lu"ury and brand#name consumer

products (wines! cameras! and watches) to industrial products $ndustry sources estimate that parallel imports

account for %&' of $*s P+ sales! ,&' of -harp*s copier sales! and ,&' to .&' of the world cosmetics and

fragrances sales

elgium! for e"ample! despite the fact that it has no automobile industry is a ma/or car e"porter in 0urope1

more than ,2!&&& cars some years This e"port success story is because cars are cheaper in elgium than in

nearby countries! due to ta" differences

The following graph may help you to understand the scenario properly#



Case 2

A second method (3igure ,) of parallel importing is when a foreign manufacturer (eg 4erman) licenses a

company to be the e"clusi5e importer of a product bearing a foreign name or trademark

supply chains in different countries! creating tension between the manufacturer and different distributors! which

affects the manufacturer*s o5erall profitability

The following graph may help you to understand the scenario properly#

Case 3

Another way of parallel imports is the use of mail orders This type of unauthorized channel is emerging with

$nternet de5elopment and is a 5ery important source of parallel trade 6etailers and consumers can currently

purchase products either from catalogs from large! local retailers or going directly to mail order houses in the



different market Anyone with a credit card and access to an $nternet#linked computer can order +7s! software!

books and whate5er from o5erseas suppliers

e#commerce can be a good e"ample of that As we can download music! books! mo5ies from the sites and the

manufacturer of that product is being depri5ed of fair prices

What is Exhaustion of Intellectual Property (IP) rights?

Again! According to World Trade Organization

" When a product made legally (i.e. not pirated) abroad is imported without the permission of

the intellectual property right-holder (e.g. the trademark or patent owner). Some countries

allow this, others do not .

$n this definition! “intellectual property” word used by the WTO! which brings up the matter of Exhaustion

of IP rights!" esides! they also mentioned that Some countries allow this, others do not . -o $*d like to clear

the air a bit

Exhaustion of IP rights refers to the e"tent to which $P rights holders can control the distribution of their

branded goods According to the concept of e"haustion! once $P right holders sell in a particular /urisdiction a

product to which their $P rights are attached! they must allow the resale of that product in that /urisdiction The

$P rights co5ering the product ha5e been 8e"hausted9 by the first sale

There are two types of e"haustion regimes: national (or regional) and international The debate between which

is preferable has been highly contro5ersial

#ational (or $egional) Exhaustion

These regimes are followed by countries and regions that only allow trademarked goods that ha5e been

e"hausted to be resold in the national or! in the case of the 0uropean ;nion (0;)! a regional area that the goods

are from $t does not allow for goods to be sold outside of those areas

International Exhaustion

This regime is followed by countries and regions that allow trademarked goods that ha5e been e"hausted to be

resold in regions other than the country or region of origin

-ome countries use a hybrid approach that modifies one of the two basic types of e"haustion 3or e"ample! a

country nominally applies the principle of international e"haustion but does place some limits on the goods that

may be imported

The Trade 6elated Aspects of $ntellectual Property 6ights (T6$P-) agreement e"plicitly states that this practice

cannot be challenged under the World Trade Organization (WTO) dispute settlement system and so neither

effecti5ely a matter of national discretion



%e&ate on parallel imports

Once Again! According to World Trade Organization

" When a product made legally (i.e. not pirated) abroad is imported without the permission of the

intellectual property right-holder (e.g. the trademark or patent owner). Some countries allow

this, others do not .

Once again $*d like to denote the definition pro5ided by the WTO! as we are going to discuss the impacts of

Parallel $mporting in $nternational Trade $n their definition! the last part! they mentioned that Some countries

allow this, others do not . -o $*d like to focus on this burning issue < pro5ide a realistic /udgment on the topic

Of course! the /udgment will be from my own point of 5iew

$t has been argued that parallel import restrictions (P$6s) strengthen $P holders* control o5er distribution

channels! thereby permitting market segmentation and leading to price discrimination The third party

(unauthorized) has an incenti5e to operate parallel imports due to the feasibility of price arbitrage Producers

ha5e argued that price discrimination! as compared with uniform price! benefits consumers because it

encourages production in different segmented markets Price discrimination permits access to the consumer who

could ha5e been depri5ed of the uniform (relati5ely high) price mechanism Also! higher output allows

producers to reap economies of scale and! thus! lower the costs onopoly profit is used to finance further

research and de5elopment Thus! parallel import restrictions (P$6s) benefit consumers

Howe5er! restrictions on parallel imports go against the spirit of free trade that has been the core principle of

multilateral and regional trade treaties Trade restrictions lead to undesirable economic side effects =arket

democracy rather than entrepreneurial dictatorship should be the rule of the future* (WHO! %>>>) The principle

of international e"haustion opens up trade channels that benefit consumers 3urther! P$6s ad5ersely affect the

operations of authorized $P licensees in de5eloping countries because they are not permitted to e"port their

production to other countries Producers do not prefer such international trade since it affects their geographic

market segmentation and limits their ability to charge different prices in different markets arket segmentation

is likely to increase producer surplus but lower consumer welfare

$P6 matters are practiced differently across countries and also across types of $P products There ha5e been

confusing /udgments in the case of the ;nited -tates! although the most recent one on arch %>! ,&%.! has

spoken in fa5or of parallel imports

Term 'eaning Countries

lloe* Parallel imports are permitted

;nited -tates! Argentina! +hile! +osta 6ica!

e"ico! ongolia! -ingapore! -outh ?orea!

razil

+anne* Parallel imports are not permitted 0cuador! Paraguay! Per Partly

lloe*

Parallel imports are generally not

permitted but are permitted in a few

instances

Armenia! Australia! +ameroon! +hina! 0gypt!

Hong ?ong! @ew ealand! Philippines! Bietnam

Partly

$estricte*

Parallel imports are generally permitted

and are restricted in a few instances

oli5ia! +olombia! 4uyana! $srael! Capan!

alaysia! -witzerland! Benezuela

Presuma&ly

alloe*

6estrictions on parallel importation are

not mentioned in the copyright law or in

any other law and hence are presumably

allowed

Pakistan! ;ruguay



Source: Centre for Internet and Society, Bangalore.

Those fa5oring parallel imports argue that international price discrimination restricts competition to the

disad5antage of consumers in countries ha5ing higher prices They say that parallel imports foster competition

and efficiency! thus benefiting consumers in importing countries

Impacts of Parallel Importing in International +usiness

There are a number of impacts of all of this parallel importing acti5ity Here! the predicaments and opportunities

created by these parallel distribution channels are discussed in more detail

-o there are both positi5e and negati5e aspects of parallel importing in $nternational usiness -o $t seems like

we*ll ha5e to discuss the both sides of the coin! as usual

Parallel Imports n* Their Effect ,n Prices

Parallel imports can reduce the price of products by introducing competition Howe5er! they can also affect the

negotiation of tiered pricing regimes with companies $f a pri5ate company agrees to sell a product at a lower

price in poor countries! it will need some assurance that the cheaper product will not be imported back into its

rich country markets! undercutting its profits (product di5ersion)

ostly! students and tourists bring many things from their host countries and sell to the other country ecause

these are goods are not those risky and not more chances to pay customs duty on them -or example! the Top

4ear agazine of ;? is allowed to sell in the ;? and the Top 4ear agazine Australia is allowed to sell in

Australia but few unofficial dealer in Australia also sells Top 4ear agazine (;? 5ersion) The cigarette is also

the parallel import e5erywhere in the world

To decide a price of anything is complicated and research sensiti5e process $t is not easy for any

company to launch the price of any product and especially internationally They launch the price after the

market research of their international competitors When parallel imports occur in any country the goods which

are already in the market are e"pensi5e that is why people would like to buy the parallel import goods because

they are cheap Therefore! they would reduce the price of their goods to compete for the parallel imports goods

$t will cause losses to the home goods makers

%irect sa.ings

0conomic theory suggests that the short#term effects of allowing parallel trade of products would stimulate

direct sa5ings to purchasers of products in importing countries as parallel imports would be sold at a lower price

than the originator price

ut this is also a fact that economic theory is less clear as to what e"tent any competiti5e pressure will besufficient to result in lower originator prices! especially if the parallel traders e"perience supply restrictions and

the market is characterized by one large manufacturer and one or a few parallel importers

In*irect sa.ings

$ndirect sa5ings may arise either because competition results in price decreases (or reduces the price increases

below the le5el e"pected without competition) or because the potential competition leads to limit pricing (where

the manufacturer chooses to reduce the domestic price to a le5el at which it is less profitable for parallel

importers to enter the market)



$n principle! indirect sa5ings are calculated from the Duantity sold of the original product multiplied by the price

differential between the original manufacturers* product as it would ha5e de5eloped in the absence of

competition from parallel imports and the actual de5elopment after the introduction of parallel imports in the

market $t is not known! howe5er! how prices would ha5e de5eloped in the absence of parallel imports

/uality -actors

consumers may be pre/udiced against buying products which ha5e been parallel imported because sometimes

they cannot be properly ser5iced or maintained They also may be worried that the so#called technica

reDuirements for certain products may not meet by gray importers

The 8Duality function9 of the trademark does not replace the 8source function9 but stands alongside it as a

8guarantee9 of consistent Duality $n the gray market! genuine trademarked goods possess identical product

Duality when shipped from the factory Product Duality! howe5er! is not simply measured at the factoryE it is also

determined at the time of retail sale any trademark owners thus in5est in their product by careful

shipping! storage! in5entory control! and Duality management This in5estment is a a natural ad/unct of their

desire to build and protect the reputation of their product $n contrast! gray marketers may unknowingly or

unknowingly sell inferior products because they pro5ide less Duality control and ha5e less incenti5e to make

these e"penditures $nferior products! howe5er! confuse and decei5e consumers and may negati5ely impact

genuine products and their image

+ran* Image

$t needs to be made clear that parallel imports are n of counterfeits but genuine products that are often sold at a

lower price to consumers than these distributed by regular channels Howe5er! these may not necessarily ha5e a

lower profit margin because they can free ride on the promotional efforts of authorized dealers

+onseDuently parallel imports may undermine authorized dealers* selling efforts 3or e"ample! by discouraging

their in5estment in a sales#force or shelf#space

The 8source function9 of a trademark encompasses more than the geographic origin of goods As a result of

modern marketing and distribution techniDues! consumers percei5e a 8genuine9 article to be those from the

wholesaler! retailer or ser5icing company they ha5e been able to rely on in the past The authorized distributor is

in effect the 8sponsor9 of the trademarked good! pro5iding many ancillary ser5ices +onsumer confusion is

possible if the parallel importer does not disclose that they are not the authorized distributors or they do not

offer the same warranty protection or ser5ices! which the consumer has come to e"pect

-inancial $is0s

parallel imports may ha5e financial conseDuences for licensed distributors if they do not deri5e sufficientre5enue from the sale of these branded goods $n such instances! they may not be able to continue with their

ad5ertising and promotional efforts

nconcerne* Customers

Parallel importing of trademarked goods may also create confusion for consumers Howe5er! some authors

argue that because parallel importers sell genuine trademarked goods there is no possibility of confusion about

the origin or source of the goods Although modern trademark law does not support this 5iew! in5ol5ing an



unauthorized channel or outlet increases the likelihood of consumer confusion about product source

and Duality

Customer $elation

anufacturer#distributor relations can also be strained by the appearance of parallel imports 7istributors feel

frustrated by ha5ing them in their markets and look to the manufacturer to reduce or eliminate this unforeseen

competition anufacturers profits also may decrease because of parallel imports -ometimes they may be

forced to buy back old stock from authorized distributors because parallel importers create an o5ersupply in the

market

Customer +enefits

7espite the problems caused by parallel imports! there are also opportunities for consumers and for

manufacturers as well

Conclu*ing $emar0sThe theoretical literature recognizes the short#term benefits of parallel trade to importing countries in terms of

lower products e"penditures! pro5ided that lower costs are transferred to the consumers of products There are

likely to be direct effects through lower drug e"penditures due to parallel imports entering the market at prices

lower than the originator price The le5el of such sa5ings is a realistic Duestion

$mportant factors in the le5el and distribution of any sa5ings and resulting welfare effects are the regulatory

conditions of the market and the payment mechanisms in place To the e"tent that parallel trade puts

competiti5e pressure on the originator price! thus producing price decreases or a deceleration of price increases!

there will be indirect sa5ings in products e"penditures

3rom a theoretical point of 5iew! howe5er! the response to parallel importing in the market may not necessarily

be to enter into the competition To what e"tent that happens is a realistic issue

$n the longer term! it has been argued that research and de5elopment could suffer from reduced profits in the

$nternational usiness sector! but it has also been shown that this is not necessarily the case under all

circumstances

What are parallel imports?

Documents

Transcript of What are parallel imports?