Parallel Imports Must be Legalized in Stages

12 january 2018 | Vedomosti

Parallel imports need to be legalized by gradually, in several stages, according to the Deputy Head of the Analytical Center Tatiana Radchenko. "We need to trial it on several products and see what the effect is going to be," she stressed in an interview with a Vedomosti journalist.

Tatiana Radchenko
Tatiana Radchenko
Deputy Head

The expert believes that parallel imports could first be tried on such product categories as clothes, footwear, bags and headgear, accessories, print, paper, textiles and textile products, optical tools and equipment and photo and motion picture products. These are mass market products and piloting parallel imports in these categories would help identify effects on prices, specifically, it would help see what parallel imports can do to retail and wholesale prices. There is a lot of investment by foreign rights holders in these product categories in Russia, meaning that the risks of a negative impact on the payback periods of projects would be lower. In addition, the expert believes that product categories with a large share of protected imports in total imports should be selected. In effect, tests should be run in imports-dependent markets.

"There is a risk, however, that the incentives for investing in brand development will decline and there will be growth in the black market sector," Ms. Radchenko adds. "For example, legalization of parallel imports in the pharmaceutical markets of the EU was successful but in Israel it failed."

In the meantime, foreign investors are doing everything they can to protect their positions: the Analytical Center estimates that in 2014-2015 some USD 64 billion worth of products was imported into Russia under protected brands, and just USD 3.2 billion worth of protected brand products were exported in the same period. In money terms the share of protected imports exceeded 13% of total imports while in total exports only 0.4% were under protected brands.

The latest studies conducted by the Analytical Center found that investment solutions implemented in Russia are not in any way related to whether parallel imports are legal or not. Prior to 2002 Russia applied the international exhaustion of trademark rights regime. Analysis of how the amounts of investments were changing found that the bulk of investments made by companies that hold various intellectual properties in the non-banking sector occurred prior to the introduction of the national trademark rights exhaustion regime (i.e. prior to 2003). Between 1999 and 2002 the share of investments by right holders in production capacity in Russia made up at least 5.1% of the total investments in that period. The share of investments by rights holders that have their products in the customs registry of protected IP is estimated to have been no more than 3.5%. of the total investments between 2003 and 2016. Thus, the investment behavior of rights-holding companies can be put down to improvements in the overall economic situation in Russia, rising household income, emergence of mass demand for products as well as the devaluation of the ruble resulting in a relative fall in production costs in Russia rather than to the rights exhaustion regime that has been in effect at any given time.

Source: The Vedomosti

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