What is parallel import and why its adoption in Ukraine is important for Internet business and final consumers

In September it was revealed that large national and international retailers appealed with an open letter to the Prime Minister, Vladimir Groysman, with a request to adopt a bill that will ensure parallel import in the country. Lawyers, representatives of retail and online commerce have repeatedly raised this topic in Uanet, but for many years the matter was numb. The AIN.UA editor found out why the introduction of parallel imports is important for the Ukrainian market, how the entrepreneurs will benefit from it in the field of e-commerce, as well as the final consumers of branded smartphones and gadgets and generally any branded goods.

What is parallel import

“Parallel import” is the import of goods with a trademark applied on them without obtaining the obligatory consent of the right holder of the trademark. Such imports are carried out “in a parallel way”, regardless of the import of this product by the right holder, and without the permission of the right holder in Ukraine.

Parallel import is possible, provided that the goods have already been put into civilian circulation. From this point on, according to the principle of exhaustion of rights to a TM, the right holder loses his exclusive right to prohibit third parties from using the trademark. That is, the product circulates freely without any restrictions and the owner of the TM cannot influence the further resale of this product.

Why parallel import does not work in Ukraine

Ukrainian legislation does not clearly define at what point the holder’s rights expire: at the time of the first sale of goods in any country of the world, regardless of where such goods were placed on the market (international principle of exhaustion of rights to TM), or at the moment when the product was imported with the permission of the right holder in a particular country (national principle).

And here comes the possibility of a variable interpretation: the existing Customs Register of Intellectual Property Rights, which is designed to prevent the import of fakes, is used by some distributors and vendors to limit the import of original products. In particular, the situation is noticeable in the consumer market of electronics, when certain companies actually receive the exclusive right to sell branded products at competitive prices.

Customs officers are also willingly exploiting this loophole. Sometimes it’s ridiculous, for example, a couple of sneakers bought by a Ukrainian at Asos were delayed at customs to check whether the buyer was not engaged in illegal import.

Earlier, the founder of Hotline.ua Sergey Arabadzhi, wrote about this issue in his column for AIN.UA. The founder of “Rozetka”, Vladislav Chechetkin, also repeatedly spoke on the topic.

How to change it

The situation can be corrected by the bill №4614 “About making changes to the Customs Code of Ukraine for protection of the rights of intellectual property while transferring the goods through a customs control of Ukraine”, which establishes the international principle of exhaustion of rights to a trademark and allows parallel import of goods. It is precisely its adoption that is insisted on by the large retail chains “METRO Cash & Carry Ukraine”, “Auchan Ukraine Hypermarket”, “Silpo-Food”, “Novus Ukraine” and “BILLA Ukraine” in their appeal to Groysman.

Earlier in Ukraine, government tried to enact laws that, on the contrary, would aggravate the situation, because they offered to consolidate the national principle of exhaustion of rights to TM. One of these attempts was the bill №5419. However, with the joint efforts of the market players, these attempts were ceased.

What will be the result of the adoption of the bill №4614 for the market and final consumers?

In the opinion of Olivier Langlet, Director General of “METRO Cash & Carry Ukraine”, the adoption of the bill №4614 will improve the level of competition and ensure free trade of original goods in the customs territory of Ukraine.

“We are convinced that parallel import can become an effective competitive tool that will change the current state of affairs when Ukrainian consumers are forced to buy goods only from “certified”/direct distributors at inflated prices, who, in fact, monopolized the market. With a parallel import model, consumers will have access to lower prices,” he commented.

At the same time, the state budget will receive additional revenues in the form of paid duties and taxes. As entrepreneurs will no longer be forced to import goods “past” the border or transport them one by one with the help of private persons in order to avoid freezing of the lot at customs control.

As a result, healthy competition will be possible in the country, and this will stimulate legal entrepreneurial activity in the country, as noted in an appeal to Groysman.

How the introduction of parallel imports will affect e-commerce and consumer market of electronics?

The initiative is also positively evaluated by ecommerce players, online hardware stores and electronics.

“I consider this initiative timely and useful for the market. Indeed, today there is a situation where some “certified” distributors feel so comfortable that prices in Ukraine are tens of percent higher than in neighboring countries.”

“I believe that the adoption of this bill will have a positive effect on the competitive environment and lead to lower prices for many products. This is good news for final consumers, says Dmitry Latansky, co-founder of Repka.ua.,  I don’t really understand how the customs officers will be able to establish the counter-factability of a particular consignment of goods. Obviously, an employee who registers the import of goods into the country cannot be an expert in thousands of groups/brands/products and “distinguish the original product from the fake, but … we will solve the problems as they come.”

The initiative was commented on by Dmitry Pokotilo, managing partner of F.ua. He noted that parallel import can significantly reduce prices in the Internet segment compared to offline.

“The situation on the market for online trading of appliances is such that offline networks put pressure on manufacturers, and as a result, other independent sellers that want to sell official merchandise are under attack now – that is, we and our colleagues in the shop.”

“Equal prices on the store shelves and on the Internet-channel is the obvious pressure on offline stores, the products of major manufacturers on the Internet are no longer cheaper, it is impossible to form their pricing strategy. There cannot be such thing as the goods on the shelves being less expensive than on the Internet, it’s a different chain of costs for merchandising.”

Also, recently, they started practicing exclusives only on the net. The market of online sellers does not receive interesting models of smartphones, for example, the Honor brand can be bought only from offline sellers – we cannot just buy it, we sell it on the terms of the marketplace with our partners. And this is true for almost all well-known brands, when interesting models go exclusively for networks, and we have to sell the rest with inflated prices, because the Internet channel receives shipments of goods at much higher prices.

At the same time, online stores are strictly controlled and punished with fines for breaking prices, while retailing is almost impossible to control. Of course, considering such kind of trading, vendors can punish the seller. However, it will be possible to sell a TV made not in Russia, to capture sales on it and earn.”