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 relationship

Addresses disparities in consumer-supplier

Bargaining power Knowledge Resources

 State intervention premised on grounds of

Economic efficiency Individual rights Distributive justice Achieving bargaining equality between consumer and
Poor, elderly, children

producer interests Alleviating the problems of the particularly disadvantaged seen as a fundamental part of the strategy to eradicate poverty and to bring socio-economic justice to the underprivileged.

Consumerism, especially in the developing world, is now

 Positive communal values Right to development

Consumer Rights
John F. Kennedys Message to Congress
on March 15, 1962 Four basic rights
Right to safety Right to be informed Right to choose Right to be heard

 1982 Consumer Internationals 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 to be heard Right to redress Right to education Right to 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

Doesnt 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
Freedom and security of an individual Protection from state and public power

political rights (first generation rights)

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 In constitutions adopted since 1980s, consumer
third generation or solidarity rights

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

Fairness

Widespread publicity Cost Accessibility Independent

Scope comprehensive Procedures simple Rules of evidence relaxed Speedy Decisions binding on industry

Transparency Effectiveness

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
standards

Information on imported products Many dont comply with voluntary labeling 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

Credit often advanced to individuals with a

Ineligible for credit in many stores; thus buy shoddy goods at higher prices If credit advanced, higher rates charged

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 CEO-led business initiative

Global Business Dialog on Electronic Commerce

(GBDe)

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 citizens 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 consumers 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 worlds population has made a phone call 5% of the world uses the internet

88% of those are in developed world (15% of worlds 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 its 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 dont 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 wont 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 doesnt

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 wont 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

animals

Hormones, veterinary drugs and antibiotics in

Direct risk through application process Indirect risk through toxic residues in food

 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 Inequality
We dont know level of per capita consumption the planet can sustain Differences within and between nations make developing a common agenda difficult Existing political and economic mechanisms for addressing major international problems of the environment are inadequate

Institutions

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 Exercise leadership Reinforce values
E.g., greater efficiency in use of energy Adopt and enforce regulations 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.