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Consumer Protection

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Consumer Protection
Source: Manual on Consumer Protection
United Nations Conference on Trade and
Development (UNCTAD)
2004
Overview: Three broad categories
• 1. Consumer Protection System
– Policies, laws, institutions and structures
that form the framework for a consumer
protection system
• UN Guidelines
• Consumer Protection Agencies/Organizations
• Consumer Protection Law
• Consumer Redress
• 2. Consumer Protection in the Marketplace
– Various transactions that consumers enter in a
market economy
• Consumer information
• Product safety and liability
• Consumer credit
• Insurance
• Electronic commerce
• 3. Consumer Protection and Basic Needs
– Consumer education
– The provision of utilities
– Food
– Health care delivery
– Sustainable consumption
Part I. Consumer Protection System
Rationale for consumer protection
• Addresses disparities in consumer-supplier
relationship
– Bargaining power
– Knowledge
– Resources
• State intervention premised on grounds of
– Economic efficiency
– Individual rights
– Distributive justice
• Achieving bargaining equality between consumer and
producer interests
• Alleviating the problems of the particularly disadvantaged
– Poor, elderly, children
• “Consumerism, especially in the developing world, is now
seen as a fundamental part of the strategy to eradicate
poverty and to bring socio-economic justice to the
underprivileged.”
– Positive communal values
– Right to development
Consumer Rights
• John F. Kennedy’s Message to Congress on
March 15, 1962
• Four basic rights
– Right
– Right
– Right
– Right
to
to
to
to
safety
be informed
choose
be heard
• 1982 Consumer International’s Charter of
Consumer Rights
• Eight rights
– Right to basic needs
• Food, clothing, shelter, health care, education,
water and sanitation
– Right to safety
– Right to information
– Right to choice
– Right
– Right
– Right
– Right
to
to
to
to
be heard
redress
education
healthy environment
• Rights further re-enforced by adoption of
UN Guidelines on Consumer Protection in
1985 and 1999
Who is the “consumer”?
• Original definition limited to purchases for
“personal consumption”
• More recently includes small operators
– Applies to farmers
– Assures reasonable prices and quality of farm
inputs
Who is responsible for consumer
protection?
• Government agencies
– Ministry of Commerce, Investment and
Consumer Affairs
• Professional/Industry associations
• Consumer organizations
– St. Lucia Consumer Association
U.N. Guidelines on Consumer
Protection (UNGCP)
• Provide a framework for governments to
develop and strengthen consumer
protection policies and legislation
• Minimum guarantee by governments that
the measures will be undertaken
Obligations imposed on
governments by the UNGCP
• 1. Physical Safety
– Assure that products are safe and conform to
safety standards
– Consumers receive information on proper use
of goods and risks involved
– Measures are in place for notification and
recall of unsafe goods
• 2. Consumers’ economic interests
– Consumers obtain optimum benefit from their
economic resources
• Ensuring that goods meet production and performance
•
•
•
•
standards
Adequate distribution channels and after sales services
Fair business practices are employed
Protection against contractual abuses
Information is adequate for consumers to make informed
decisions and exercise choice
• 3. Standards for safety and quality of
goods and services
– Ensure there are national standards for safety
and quality of goods and services
– Such standards conform to international
standards
– Facilities to test and certify goods and services
are encouraged
• 4. Distribution facilities for essential goods
and services
– Especially to consumers who are
disadvantaged, e.g., in rural areas
• 5. Redress
– Establish and publicize mechanisms that are
fair, affordable and accessible
• Especially taking into consideration the needs of
low-income consumers
• 6. Education and information programs
– Should involve consumer and business groups
– Particular attention to disadvantaged
consumers in urban and rural areas
– Should be included in school curriculum
– Training programs for educators, mass media
professionals and consumer advocates
• 7. Promotion of sustainable consumption
– Should be done in conjunction with civil
society organizations and business groups
– Sustainable consumption practices within
government, by business enterprises and by
consumers
• 8. Measures relating to food, water and
pharmaceuticals
– Prioritizes these areas
– Should ensure quality control, adequate
distribution and standardized information
• Food production
– Sustainable agricultural polices and practices
– Conservation of biodiversity
– Traditional knowledge
• Drinking water
– National policies should be developed to
improve supply, distribution and quality of
water for drinking and other purposes
• Pharmaceuticals
– Develop national policies to ensure
appropriate use, procurement, distribution,
production, licensing arrangements,
registration systems and information to
consumers
Current status of UNGCP
• UN is surveying countries’ adoption
• Many LDCs have nothing in place
– No laws or consumer organizations
• Doesn’t fully account for globalization and
other changes in marketplace
Functions of a consumer protection
agency
• Advise the government on consumer issues
• Represent the consumer interest in other
•
•
•
governmental committees
Enforce consumer protection and competition
law
Conduct market surveys and research into
consumer protection problems
Conduct product testing for safety and quality
Consumer organizations
• Need for an independent party that is non-
•
•
•
political and non-commercial
Need for views of the under-represented and
vulnerable groups
Some have wide membership and broad
spectrum of concerns
Democracy involves participatory decisionmaking ; consultation with these groups is part
of the nation-building process
Role of consumer organizations
• Provide independent information on
products and services
• Organize mass action, such as letterwriting campaigns, boycotts, rallies, etc.
• Advise and act on consumer complaints
and obtain redress for consumers
• Organize workshops and seminars on
particular issues
• Engage in public interest litigation on behalf of
•
•
consumers
Conduct surveys and research to study problems
faced by consumers or the impact of
government policies on consumers
Engage in dialogue with government and
business to inform, persuade or negotiate on
behalf of consumers
• Consult with stakeholders to understand
consumer issues and develop policy to
address problem areas
• Organize public education programs
• Register and issue licenses for certain
business activities
• Issue administrative rules to regulate
business entities
Consumer Law: Constitutions
• Early constitutions focused on civil and
political rights (“first generation rights”)
– Freedom and security of an individual
– Protection from state and public power
• More recent constitutions confer wider
range of human rights
– Economic, social and cultural rights
– “second generation rights”
• Trend is to include the right to development
– “third generation” or “solidarity” rights
• In constitutions adopted since 1980’s, consumer
•
•
rights recognized as human rights
Thus included in the constitutions of many
countries
Recognize disparity of knowledge, resources and
bargaining power and provide for consumer
rights
Consumer Law: Framework
• Cover a broad range of practices, goods and
•
•
•
•
•
services
Create consultative bodies
Vest agencies with rule-making powers
Create special tribunals with simplified
procedures and rules of evidence
Confer on consumer groups the right to
represent individuals
Provide for a range of remedies
Consumer Redress
• Problems include:
– Expense
– Length of time
– Alienation
– Adversarial
• Alternatives
– Facilitating access to courts
• Legal aid for the needy
• Contingent fee system
• Permit paralegals to perform attorney functions
– Court substitutes (ADR)
• Statute-based tribunals
• Arbitration
• Ombudsman
• Assessing efficacy of ADRs
– Access
• Widespread publicity
• Cost
• Accessibility
– Fairness
• Independent
– Transparency
– Effectiveness
•
•
•
•
•
Scope comprehensive
Procedures simple
Rules of evidence relaxed
Speedy
Decisions binding on industry
Part II: Consumer Protection in the
Marketplace
Consumer Information and Choice
• “Consumer information ideally is meant to
provide standardized, objective and
impartial information direct to consumers
at the point of sale, in order for them to
decide which of the many branded
products and services available will best
suit their own needs.”
• Consumer information is especially needed
where
– Products and services are high priced
– Products and services are technically complex
– No basis of assessment at point of sale
– Little consumer knowledge of required
performance before purchase
• Where information is regulated (e.g.,
labels subject to mandatory labeling laws,
such as pharmaceuticals) consumers have
relatively few problems
• Where information is unregulated (e.g.,
advertising or unregulated labels)
consumers have more problems
– Sometimes offset by information from
independent consumer groups
• Additional problems arising from
expansion of international trade
– Information on imported products
• Many don’t comply with voluntary labeling
standards
– Information provided electronically over the
internet (later)
Critical issues related to advertising
• “Commercial advertising, when it is practiced
fairly and responsibly, serves a useful function,
informing the public about the existence of a
product and the characteristics of the product.
In order to be a positive influence,
advertisements must be truthful and informative,
must not exaggerate the usefulness or qualities
of the product and should not play on the
emotional needs of the consumer so as to create
artificial needs.”
• Consumer concerns with advertising
– Ads for products proven to be unsafe and/or addictive
(e.g., alcohol and tobacco)
– Ads that target and mislead vulnerable communities
about the product
– Ads that aggressively target children to consumer
foods high in fat, sugar and salt
– Ads for products that contain toxic or cancer-causing
chemicals for which there is no scientific proof of
safety levels (e.g., pesticides, aspartame, etc.)
• International codes on advertising
– WHO/UNICEF Code of Marketing of Breastmilk
Substitutes 1981
– FAO International Code of Conduct on the
Distribution and Use of Pesticides 1985
– Framework Convention on Tobacco Control
2003
Product Safety Laws
• Rationale for product safety laws
– Products are increasing in complexity and
sophistication; reasonable inspection will not reveal
latent defects or hazards
– Minimum and uniform standards ensure developing
countries do not become dumping grounds for substandard products rejected in the country of origin
– International standards will provide for unimpeded
access to overseas markets
• Components (5) of a comprehensive product
safety policy:
• 1. Preparatory action
– Surveillance of products in the market
– Data collection (local and foreign sources)
• “Consolidated List of Products Whose Consumption and/or
Sale Have Been Banned, Withdrawn, Severely Restricted, or
Not Approved by Governments”
• 2. Regulatory action
– Development of product safety standards
• 3. Monitoring action
– Testing by government or reliable
independent consumer organizations
• 4. Corrective action
– Impose product bans
– Warning notices
– Product recalls
– Seize stocks
– Destroy stocks
– Require modifications of the product
• 5. Compensatory actions
– Compensate consumers for loss
– Deter future wrongdoing
Consumer Credit
• Credit increases demand for and
consumption of goods and services
• Critical to economic growth
• Unfettered growth of credit has negative
consequences
– Impulse buying
– Extra costs associated with credit
– Excessive debt
• The poor pay more
– Ineligible for credit in many stores; thus buy shoddy
goods at higher prices
– If credit advanced, higher rates charged
• Credit often advanced to individuals with a
•
history of default
Increased complexity of transactions (e.g. home
equity loans/lines of credit) require more
complex documents
– More difficult to understand and compare terms,
including cost of credit
• Consumer credit laws should
– Require lenders to provide consumers with copies of
all documents
– Establish a single method of calculating interest rates
– Conspicuously disclose the rate
– Control the price of credit
– Regulate credit-related insurance
– Provide right to cancel (“cooling off” period)
Electronic commerce
• 1996 fewer than 40 million connected to internet
• 1997 number increased to 96 million
• 2005 predicted to be nearly 1 billion
• 1998 27.6 million buying goods and services
•
online worth $32 million
2002 more than 128 million spending over $425
million
• Issues:
– Consumer redress in cyberspace disputes
– Privacy
– Identification of provider
– Security of payments
– Fraud
• Organization for Economic Cooperation and
•
•
Development (OECD)
United Nations Commission on International
Trade Law (UNCITRAL)
Alliance for Global Business (AGB)
– International trade associations
• Global Business Dialog on Electronic Commerce
(GBDe)
– CEO-led business initiative
• International Chamber of Commerce (ICC)
Part III: Consumer Protection and
Basic Needs
Consumer Education
• Objectives of consumer education are:
• Develop skills to make informed decisions in the
purchase of goods and services in light of
–
–
–
–
–
Personal values
Maximum utilization of resources
Available alternatives
Ecological considerations
Changing economic conditions
• Become knowledgeable about the law and
•
consumer rights, in order to participate
effectively and confidently in the marketplace
and take appropriate action to seek redress
Develop an understanding of the citizen’s role in
the economic, social and government systems
and to influence those systems to make them
responsive to consumer needs
• Consumer education is not the same thing
as consumer information
– Consumer education improves consumer’s
ability to use information
• “By exercising free choice, based on knowledge
of the facts, the consumer will be able to make
the best use of his resources, money, time,
knowledge and ability. He will thereby contribute
to the proper functioning of the economy and
stimulating effective and fair competition and he
will thereby contribute to social and economic
development.”
– Council of Europe (1981)
• Modern conception of consumer education
•
•
reflects the inter-relationship between the
private household and societal responsibilities
Concepts such as sustainable consumption are
woven into education about the impact of
modern consumer lifestyles on the environment
In developing countries, consumer education is
a tool to ensure that scarce resources of poorer
consumers are not fritted away by unethical
business practices
• Strategies for implementing consumer
education
• A comprehensive program is directed to all
consumers
– Schools
• Skills to make informed decisions
• Skills to understand the impact of decisions of
individuals, businesses and governments on the
lives of others
– Those outside formal education
• Mass media
• Trade associations
• Trade unions
• Resident associations
– Special focus on
• Rural areas
• Low income
• Vulnerable groups (seniors; disabled)
• Six fields of content suggested by the
Nordic Council of Ministers (1999)
– Personal finances
– Rights and obligations
– Commercial persuasion
– Consumption, environment and ethics
– Food
– Safety
Utilities
• Utilities are considered basic needs
• Universal Declaration of Human Rights
states that everyone has the right of equal
access to public services in his/her country
• 1.6 billion do not have access to energy
supply
• Over 1 billion lack access to clean water
• One half of the world’s population has
made a phone call
• 5% of the world uses the internet
– 88% of those are in developed world (15% of
world’s population)
• Utilities present unique problems for consumers
– Generally involve basic and essential services
– Peculiar economic characteristics that make
competition difficult
• Public policy has focused on regulating
monopolies for public protection
– Price and other controls
– Public ownership
• Support for privatization based on
– Inefficiency of government ownership
– Corruption
– Failures in developing countries to provide
adequate levels of service
The special case of water
• One reason for problems stemming from state
•
ownership of water is that it’s too cheap
Prices are kept artificially low
– On average, price covers 1/3 of cost
– Shortfall made up by government subsidies
• Consequences
–
–
–
–
Consumption is encouraged
No incentive to conserve
shortages
Governments don’t have the money to invest in
infrastructure improvements or pay off debts
• Response of IMF and World Bank is
privatization
– Introduce market discipline
– Give access to financial capital necessary for
infrastructure expansion
• Built into loan conditionality agreements
or structural adjustment programs
• Privatization is controversial
– Results in increased cost to consumers
– Some consumers may not be able to afford it
• Governments must raise prices to make sale possible; profit
of buyers factored in
– Potential abuses of monopoly power
– Improvements to infrastructure and potential
extension of service to additional consumers may be
offset by refusal to extend to non-profitable areas
– Buyers tend to be western multi-nationals
• Loss of economic independence
• Foreign owners dictating terms
• Concentration of developing world resources in
western ownership
• Privatized systems must include:
– Guaranteed universal access
– Fair pricing structure
– Uniform quality standards
– Protection from termination of service
Food: Security and Safety
• International law recognizes the right to food
– Physical and economic access to food
– Access to food of adequate quality and quantity
– Having the means to obtain it
• By way of production or procurement
• Food security defined by FAO as food that is
“safe, nutritious and culturally acceptable and is
available, accessible and affordable to all
people”
• Over 800 million people suffer from
hunger and food insecurity
– 99% are in the developing world
• 21% of population of India
• 11% of population of China
• 58% of population of Central Africa
• 1996 World Food Summit, 185 countries and the
•
•
•
EC made a commitment to achieve universal
food security.
Pledged to reduce number of hungry people in
world to half (to 400 million) by 2015
According to FAO, number of undernourished
falling at rate of 8 million per year (target of 20)
Thus goal won’t be reached until 2030
Hunger Facts
• There is enough food to feed all the
people in the world
– 4.5 pounds per person per day
• Real causes of hunger are poverty,
inequality and lack of access
• Rapid increase in food production doesn’t
necessarily result in food security
– 78% of countries reporting child
malnourishment export food!
• India had 42 million ton grain surplus in 2000
• 5,000 Indian children die each day of malnutrition
• Prosperity of a country no guarantee that
citizens won’t go hungry
– US has highest GDP in world
– 4.2 million households (4.1%) experience
hunger at least part of the year
Role of food imports
• Removal of import restrictions and lower food
•
tariffs make importation of highly subsidized
food an attractive alternative
Potential problems:
– Vulnerability to price and supply fluctuations and
political upheaval
– Subject to manipulation by transnational corporations
– Undermine livelihood of farmers
• Consumer groups should focus government attention on:
• Promoting food security and improved access to food
• Reconciling demand for cheap food with adequate
compensation to farmers
– Often involves scrutiny of middlemen
• Address underlying causes of poverty
• Give priority to production of staple foods for domestic
•
consumption
Address issues that contribute to food security
– Urbanization
– Land degradation
– Water scarcity
Food safety
• Food safety risks are increasing
– Movement of food and live animals across borders
– Changes in food handling
– Emergence of new pathogens
• Risks greater in developing countries
• Pesticide risks
– Direct risk through application process
– Indirect risk through toxic residues in food
• Hormones, veterinary drugs and antibiotics in
animals
• Building food safety capacity is essential,
especially in developing countries
– Food borne disease has significant impact on
both health and development
• Many developing countries lack the
resources and expertise to implement food
safety policies
Codex Alimentarius Commission
• Established by FAO and WHO in 1962
• Harmonize food standards between
countries
• Protect health of consumers and ensure
fair practices in food trade
• Membership of 165 countries representing
98% of world population
• Codex committees
– Meat and poultry hygiene
– Food additives and contaminants
– Pesticide residues
– Residues of veterinary drugs in foods
– Food hygiene
– Animal feeding
– Biotechnology
Consumer concerns with genetic
engineering
• Concerns about GE relate to
–
–
–
–
–
Sustainability of biodiversity
Ecological balance of life support systems
Wildlife
Environment
Health problems
• Groups have called for moratorium on planting
GE crops until safety concerns are addressed
and appropriate controls put in place
• Appropriate controls include
– Labeling of GE imports
– Banning of unlabeled GE foods
• Some countries already have labeling laws
in place
Sustainable Consumption
The concept of sustainable consumption
• Ever-increasing consumption is putting a
strain the environment
• Outcome of the development model the
North follows and the South emulates
• Sustainable consumption is viewed as the
only long-term strategy for survival
• Many definitions of sustainable consumption
• All share these basic principles:
– Satisfaction of basic needs to improve quality of life
– Improving efficiency in resource use
– Minimizing emissions of wastes taking into
consideration the capacity of the earth to assimilate
the wastes
– Adopting consumption patterns that will not
jeopardize the needs of current and future
generations
– Ensuring equity in consumption within countries and
between countries
Obstacles
• Ignorance
– We don’t know level of per capita consumption the
planet can sustain
• Inequality
– Differences within and between nations make
developing a common agenda difficult
• Institutions
– Existing political and economic mechanisms for
addressing major international problems of the
environment are inadequate
Successes
• Growth in use of material resources has
slowed as a result of shifts in demand
towards less material-intensive products
• Emissions have been reduced as a result
of tighter regulations and incentives
• Municipal waste growth has slowed or
declined
Obligations of government
• UN Guidelines on Consumer Protection:
• Minimize resource utilization
– E.g., greater efficiency in use of energy
• Exercise leadership
– Adopt and enforce regulations
• Reinforce values
– Consumer education programs for consumers
on impacts of their choices and behavior
Obligations of the corporate sector
• World Business Council for Sustainable
Development in 2001 proposed a seven-point
blueprint for corporations; include:
– Develop technological and social innovations to
improve quality of life and tackle depletion of
resources
– Use media and advertising to promote sustainability
– Create markets that reflect real economic, social and
environmental costs
– Create opportunities for the poorest segments of
society
Obligations of consumers
• CI urges consumer organizations to:
– Educate members on sustainable consumption in
order to change attitudes and behavior
– Provide information to consumers on products and
services and demand that same be provided by
merchants
– Regularly assess environmental aspects of products
– Represent the environmental interests of consumers
at all relevant national and international forums
• Consumers are encouraged to avoid products
that
– Cause environmental degradation during the
extraction of natural resources or during their
manufacture, use and disposal
– Utilize large amounts of energy during their
manufacture, use or disposal
– Cause unnecessary waste, due to over-packaging or
unduly short life span
– Utilize materials derived from threatened species or
environments
– Adversely affect other countries and communities,
especially those in the South
• “Consumers may be willing to take easy steps
that benefit the environment; but may not make
significant changes in buying habits, pay
markedly higher costs, or make changes in basic
lifestyles. Yet sustainable consumption calls for
such effective approaches. Consumer conscience
has to be sufficiently modified such as to effect
changes in behavior. This is the ultimate
challenge for the consumer movement.
Consumers have to be convinced that when they
vote with their pockets they are in fact
exercising a social, moral and political
responsibility that goes beyond their own
parochial interests and their present generation.”
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