Benefits from legalization of parallel imports are obvious

13 august 2014 | Expert

Importers, manufacturers, experts and authorities still cannot agree on what the economy will get from the legalization of parallel imports in Russia. Import of fashion brand clothes without permission of the manufacturer can flood consumer market with cheap goods. At the same time there is a risk that leading global investors who have placed their production in Russia will withdraw from the market.

Tatyana Radchenko
Tatyana Radchenko
Deputy Head

“On one side, the benefits from the legalization of parallel imports are obvious: lower prices on consumer goods, accelerated delivery, and incentives for the use of new technologies by domestic companies,” - Tatyana Radchenko, Head of the Directorate for Competition Policy of the Analytical Center, commented on the situation to “Expert Online”. “On the other side, our analysis of the effects of changing withdrawal modes in different countries showed that the decline in prices does not necessarily occur for many product groups, as being influenced by other factors. For example, the legalization of imported vehicles in Israel has not led to the expected decline in prices, as other factors, including the global financial crisis, also played a role.”

However, according to the expert, there was no increase in prices for some groups of goods after the introduction of a national standard of intellectual property rights withdrawal. “In Russia we studied the changes in prices on perfumes and beer after the abolition of the international principle of withdrawal in 2002,” - Ms. Radchenko said. “Despite the negative expectations of market players, there was no sharp rise in commodity prices. And the prices on imported perfumes declined even lower as compared to the domestic in 2003, although the import duty had not changed. Here the factors not depending on the Russian law played a role as well. However, in 2005, imports of perfumes plummeted due to the fact that since 2004 importers of branded perfumes started to register their trade marks in the Customs Intellectual Property Registry. Then import outside official channels decreased and the prices actually grew up.”

According to the expert, one of the main arguments of the opponents of parallel imports legalization is that it can stimulate the flow of fakes. “On average, companies expect that the proportion of counterfeit goods will grow by 10-30% depending on the segment. However, other experts believe that this issue can be addressed by improving the efficiency of customs control, as well as by introducing, for example, mechanisms of insurance of importers’ liability for damage in intellectual property,” - Ms. Radchenko added.

“It's unlikely that revision of investments into Russian production will happen, and the goal of reducing prices on branded products due to the legalization of parallel imports is also unlikely to be achieved,” Ms. Radchenko believes. At the same time, foreign producers, who placed their production in Russia, strongly oppose the introduction of an international regime of withdrawal. According to the expert, they fear that the flooding of the market by parallel imports of their own brands will provide fewer incentives for domestic production, less tax payments, etc. “In the meantime, we found out that most of those who participated in our surveys, placed their production before 2002, when the global withdrawal mode remained in force. So, then they did not fear entering our market and did not ask for special protection,” - Ms. Radchenko said.

The debate on the legalization of parallel imports has been going on for a long time. Discussion shows that there is no consensus in the Government, the expert community and business circles. There are a number of pros and cons, but the recent trend shows the inevitability of legalization. Experts are going to find ways to assess and minimize risks for investors. Legalization of parallel imports and measures to be taken were discussed at the round table at the Analytical Center a year ago, in July 2013.