Certain parallel imports likely to be allowed in Russia and other Eurasian Economic Union member states

The Russian government and Eurasian Economic Commission are actively discussing the possibility of abandoning the regional principle of exhaustion of trademark rights for certain products and, consequently, lifting the ban on parallel imports. Authorities hope that the increased supply of products due to the proposed change will result in price reductions – one element in their anti-crisis plan.

The products of initial concern were pharmaceuticals, medical devices and automotive parts. At the end of May 2015, the Federal Antimonopoly Service of the Russian Federation (the “FAS”) provided the government with a revised list of goods for which it believes the international principle of exhaustion of rights should be introduced – adding to the initial list: cosmetics, perfumes, alcoholic beverages (except beer) and hygiene products. The criteria on which these additional goods were selected were not disclosed. The FAS is expected to consult with the Eurasian Economic Commission by 16 July 2015 on whether introducing such a change is appropriate. The FAS plans to allow parallel imports in stages: with imports of some goods starting at the beginning of 2016 and full implementation completed by 2020.

For the most part, the business community has reacted negatively to this new initiative – arguing that it is fraught with risk and that the potential benefits are doubtful. From their perspective, allowing parallel imports will likely result in an outflow of capital, the emergence of obstacles to the localisation of production and a shortfall of taxes. Additionally, due to the removal of existing mechanisms to identify counterfeits (which have proved quite effective) growth of the fake goods market is a significant danger.

If the initiative goes ahead, it is feared that the quality of products will go down, adversely affecting some sectors more than others – in the pharmaceutical industry, for example, the quality of goods is fundamental to both competition and social welfare. It is anticipated that the initiative will also have an adverse effect on after-sales servicing of goods and the processing of consumer claims regarding the quality of goods. Last but not least, this new measure clearly does not fit in with the Russian authorities’ import substitution policy pursued in recent times.

Implementation of the proposed changes is certain to impact the activities of brand owners. We recommend, at least initially, that companies whose activities are affected by the lift of the ban on parallel imports:

• develop a strategy on how to adapt their distribution system and network to compensate for the negative effect of unauthorised importers; and
• introduce new mechanisms to combat counterfeiting and control the quality of goods in order to maintain brand value – this can be achieved by a combination of technical and legal measures.

To discuss how a lift on the parallel import ban may affect your business, please contact: