Parallel importation refers to the importation, without authorization of the patent holder, into a country of a product from a third country, where this product has been marketed by the patent holder or in another legitimate manner. It is mainly used when the price in the third country is considerably lower than the price the patent holder charges in the country concerned. Parallel import is allowed under the TRIPs Agreement; in fact, TRIPs explicitly states that it does not address the issue of parallel import, thereby leaving countries free to determine their own policy in this respect.
At times it is being argued that allowing parallel import in developing countries will result in an increase in counterfeit and/or substandard products in the market and will therefore have a negative impact on consumers. This is speculation. However the benefits are quite clear and there is a strong economic rationale for developing countries to adopt parallel import.
A market where price discrimination is common, such as the pharmaceutical market where prices for the same product can vary considerably between countries, will fundamentally change if parallel import is allowed. The multinational pharmaceutical industry argues that parallel import will prevent preferential prices for developing countries. To the extend that developing countries do indeed benefit from preferential prices, this could be true. The drug companies’ worries are understandable since, obviously, revenues would come under pressure if ‘high-price markets’ such as the US would start parallel importation of cheaper drugs from, for instance, Canada. If this were to happen (in fact, currently there is considerable support in the US for allowing parallel import of drugs from Canada), companies would be tempted to react by harmonizing their prices across borders. The solution however seems to be to prevent parallel importation in industrialized countries, instead of putting pressure on developing countries in this respect.
It is worth noting that the US legislation on IPR allows parallel importation; however, in the US, parallel import of medicines is forbidden by regulations related to Food and Drug Control.