What Are Parallel Imports?

16 May 2016
As trade borders continue to evaporate, we’re hearing the term “parallel imports” more often in relation to a range of goods – cars, motorbikes, pharmaceuticals, computers, cameras, ski equipment, musical instruments and a whole lot more – but what does it all mean?

In a nutshell, a parallel import is an item that’s brought into another country where the seller of the product hasn’t sought permission from the trademark owner. For example, if you’re selling Nike trainers on your Amazon page and you haven’t gotten permission from Nike — the owner of the Nike trademark — and you ship a pair of shoes to someone in another country, you’re selling a parallel import.

It’s important to note that a parallel import does not include counterfeit goods, like bootleg copies of things like DVDs or electronic products. Parallel imports are only goods that are genuine and authentic. That’s why they are referred to as a “grey market” product, as opposed to a black market product. The importation and sale of genuine goods by unauthorised dealers is unofficial but not illegal.

Traditionally, government policy has supported parallel importing, save for certain categories of protected products. In theory, parallel importation increases competition and forces prices down for consumers. Brand owners, manufacturers and suppliers have typically resisted parallel imports because they undermine existing distribution channels and result in products tailored and priced for a specific overseas market being distributed in a different region, where they may not meet local regulations or consumer expectations.

Your business obligations

If you sell, or plan to sell, any sort of parallel import in Australia, the ACCC recommends you understand your obligations to consumers.

You need to:

  • be aware of, and comply with, product safety and labelling requirements
  • provide accurate information to consumers about the products you sell
  • ensure that you do not mislead consumers about their refund, return and warranty rights, and
  • understand your general obligations under the Australian Consumer Law (ACL) when selling these products

The ACCC suggests you may also want to establish a formal record keeping system (compliance system) to ensure you are meeting your obligations and can appropriately address any consumer concerns or complaints.

Swings and roundabouts

While there are potential benefits to consumers in being able to access products that are cheaper or otherwise not available in Australia, parallel imports can be a problem if the consumer experiences difficulties with the product. In relation to refunds, returns and warranties, the ACCC emphasizes that you, as the seller of the parallel product, will be responsible if something goes wrong. For example, if a product develops a fault, you will be responsible for addressing the problem including providing a repair, replacement or refund within a reasonable time under the consumer guarantee provisions of the ACL.

You will be responsible for providing an appropriate remedy, not only as a supplier of the product but also potentially as the deemed manufacturer/distributor, placing additional responsibilities on you. There is no obligation on the local manufacturer or authorised distributor as they will not be considered connected to the supply of the products in Australia.

Two sides to the parallel imports coin

With the impact of changing technology and shifting consumer purchasing practices (such as online buying), it’s not surprising that every country has trade in parallel imports. Restrictions on parallel imports are similar to other import restrictions (such as tariffs) in that they benefit local producers by shielding them from international competition.

Those favouring parallel imports argue that international price discrimination or distribution inefficiencies in authorised distribution channels artificially restrict competition to the disadvantage of consumers in countries having higher prices. They say that parallel imports foster competition and efficiency, thus benefiting consumers in importing countries.

The seller can make a tidy profit because of the price differentials between countries – in fact, parallel imports cannot exist without these price differences. Manufacturers and authorized distributors point out that there are often sound reasons for price differences between countries, such as (in the case of cars and motorbikes) all-inclusive costs of servicing the product after the sale. It is also a point of contention that certain products have not been built for Australian conditions and may not perform to expectation.

A more questionable strategy in regard to parallel imports, is free riding or the practice of selling goods identical to those sold by full-service dealers without incurring the expenses of promoting and servicing the product. Such free riding falls into two categories: advertising free riding and point-of-sale free riding. An advertising free rider takes advantage of the advertising and marketing efforts of authorised sellers, reaping consumer recognition and other benefits that flow from this advertising without incurring the attendant expense. The second but distinct form of free riding, point-of-sale free riding refers to the failure of an importer to provide various ancillary services that consumers desire. Such services range from product instruction, to the maintenance of an inventory of spare and auxiliary parts, or the provision of warranty or repair services. Another type of free rider may also sell trademarked goods without taking sufficient safeguards to ensure product integrity. For example, by compromising on packing, transportation, storage, or inspection costs in order to keep the price of goods lower.

Buyer beware

Parallel imports are here to stay. At their best the consumer can save heaps on such things as brand-name pharmacueticals, electrical goods and even grocery items. But at worst, you can be stuck with a big-ticket item such as boat, car or bike that no-one wants to repair in the event of a problem. The usual buyer safeguards apply to purchases of every kind, whether they are parallel imports or not. Needless to say, consumers should research the product thoroughly before making a decision. And sellers of parallel imports should be honest and upfront for the sake of their continued business growth.

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