Parallel Universe

How ending parallel import restrictions cuts costs for British consumers

By Matthew Lesh and Martin Howe KC

• Parallel imports are genuine products imported into the United Kingdom without the consent of the intellectual property (IP) rights holder, often taking place when there is a price or availability difference between markets.

• Parallel import restrictions (PIRs) allow producers to control distribution across borders and price-discriminate between different national markets.

• The UK historically allowed parallel imports based on a principle of international exhaustion of rights. This changed following the harmonisation of EU trademark rules in the late 20th century, with the European Court of Justice (ECJ) requiring member states to block imports of genuine goods from outside the EU without rights holder permission.

• Brexit has provided an opportunity to diverge from the EU approach and abolish an effective trade barrier. The previous government consulted on the future parallel import regime in 2021 but did not make a final decision prior to the election. There is therefore an opportunity for the new government to take action.

• Since Brexit, the UK has continued allowing parallel imports from the EU/EEA while restricting imports from the rest of the world. This approach is arbitrary, inconsistent, and may violate World Trade Organization (WTO) obligations.

• Removing PIRs would intensify competition, lower consumer prices, expand consumer choice and improve supply chain flexibility.

• Academic evidence from Australia, New Zealand and within the EU suggests benefits to consumers from allowing parallel imports. The NHS, for example, is estimated to save hundreds of millions of pounds each year as a result of parallel imports from the EU.

• Arguments from rights holders against removing restrictions – such as harming domestic creative industries, reducing investment incentives, impacting product quality, distorting retail competition, and environmental/ethical concerns – are not well supported by evidence. There may be limited exceptional cases, such as low-cost pharmaceuticals for developing countries, warranting continued restriction.

• The UK should revert to its historical stance by allowing parallel imports from all countries with narrow exceptions as needed. This would be consistent with the approach taken by many other nations globally.

Brits are paying too much for electronics, beauty products, pharmaceuticals and books, according to a new discussion paper from the Institute of Economic Affairs.

Under current rules, British consumers are banned from accessing cheaper, branded goods from outside of the European Union. These rules restrict parallel imports, which are goods brought into the UK by third party traders, normally without the consent of the intellectual property rights holder. Parallel import restrictions (PIRs) allow manufacturers to segment markets and maintain higher prices.

According to the paper’s authors, leading intellectual property barrister Martin Howe KC and policy analyst Matthew Lesh, allowing these imports would lower prices, boost consumer choice, and help security of supply, including for essential medicines. It would save money for both consumers and public services like the NHS.

They quote a range of evidence that shows cutting these rules would intensify competition, lower prices, expand consumer choice, and improve supply chain flexibility. One study found that where they are not restricted, parallel imports had saved the NHS €986.2m (£819.3m) over five years through lower prices for pharmaceuticals.

Until 2021, the UK was compelled to abide by EU rules that banned most parallel imports from outside the European Economic Area (EEA). This stems from a 2001 ruling by the European Court of Justice that blocked Tesco from importing Levi’s jeans to the United Kingdom from the United States for breach of Levi’s trade mark rights, even though the jeans imported by Tesco were genuine Levi products.

Howe and Lesh say this approach is now anachronistic: post-Brexit, the UK is no longer bound by EU law, yet it persists with a policy that allows parallel imports only from the EEA, excluding the rest of the world. The paper suggests that this may even be unlawful under WTO rules, which generally require the UK to treat imports similarly.

The paper highlights several cases of consumer products – such as diapers, Levis jeans, and iPhones – being cheaper in the US than in the UK. Some can cost over 250% more in the UK. Many factors, such as local taxes, can cause these higher prices, but removing parallel import restrictions would go some way to lowering prices for consumers.

While the paper suggests possible narrow exceptions — particularly around pharmaceuticals sold at cost to developing countries — the primary recommendation is the full liberalisation of parallel trade.

The previous government consulted on the future parallel import regime in 2021 but did not make a final decision before the election. The authors note that abolishing PIRs would align the UK with other major economies like the United States, Japan, and India, that allow parallel imports with limited caveats.

Martin Howe KC, report co-author and leading intellectual property barrister said:

“Trade mark rights are meant to allow brand owners to stop deception or confusion in the market place. But an EU rule we still haven't reformed 5 years after leaving lets brand owners use these rights to keep their own genuine goods from coming into the UK market from the rest of the world. This allows multinationals to overcharge UK consumers compared with elsewhere and we should not allow our intellectual property laws to be used to suppress a freely competitive market."

Matthew Lesh, report co-author and Public Policy Fellow at the Institute of Economic Affairs said:

"Brits have been paying far too much for Levi's jeans, Chanel No. 5 and iPhones for too long. Outdated import restrictions act as an artificial tax, inflating prices and boosting corporate profits at our expense. Now, after Brexit, it makes no sense to welcome imports from the EU while blocking them from elsewhere. It's high time we level the playing field, let competition work for us, and put money back in people's pockets."