Parallel Imports Undercutting an Appointed Distributor in Its Own Territory
Parallel imports undercut appointed distributors when wholesale pricing gaps across territories exceed landed transport and tariff costs.
Parallel Import
Meaning
The commercial import of genuine goods into a country without the authorization of the local trademark owner occurs when regional pricing disparities are large. These products, known as parallel import goods, are original products purchased legally in one country and then exported to another where the retail price is higher. This practice bypasses the authorized local distributor, introducing direct competition from the same brand.
Price Arbitrage
Independent traders exploit the difference in wholesale prices between different nations. By acquiring inventory in a low-cost market, they can pay for shipping and tariffs and still sell the product below the local distributor’s recommended price in the target market. This undercutting reduces the sales volume of authorized dealers and erodes the brand’s premium image.
The authorized dealer is often left with the burden of supporting a product they did not sell.
Contractual Protection
Manufacturers use strict distribution agreements to prevent their wholesale partners from exporting to other territories. These clauses forbid active sales outside the assigned region and allow the manufacturer to audit the distributor’s sales records to trace the origin of parallel shipments. If a distributor is found to be supplying the parallel trade, they can face reductions in their allocation or contract termination.
Regulatory Status
Legal frameworks governing this trade vary significantly between regions. In some jurisdictions, the trademark right is exhausted upon the first sale anywhere in the world, making the import of these goods entirely legal. Other regions restrict these imports to protect domestic distribution networks and safety standards.