Ensuring a fair market place

David Lindsay recently spoke to Marcel Pizzuto, Director General of the Consumer and Competition Division about the Division’s brief of ensuring fair competition, consumer rights and transposing directives within these spheres

What were the founding concepts behind the Division and what are its responsibilities?

The Consumer and Competition Division came into force last December following an operations review carried out by at the Economic Services Ministry following which the Consumer and Competition Division was set up, which consolidated the former Consumer Affairs Department and the Office for Fair Competition into one division.

Now we have a single division made up of three different directorates: the Policy and Regulatory Services Directorate, the Operations Directorate and the Information and Client Affairs Directorate.

The Operations Directorate is responsible for market surveillance and for intervening to withdraw products from the market if need be and to verify whether unfair trading practices are taking place such as cartels and abuses from dominant positions. Its main function is to monitor the market and we send people regularly out onto the market for that explicit purpose both in Malta and Gozo.

Following the coming into force of the Product Safety Act this year, we are setting up a market surveillance unit for which officials are being trained and it will be our responsibility to ensure that only safe products are put on the market.

In this sphere we will be responsible for certain products in ensuring that they conform to EU standards or standards established by the Malta Standards Authority. As a start we will be concentrating on four products: toys, cosmetics, detergents and low voltage equipment. Of course we will gradually be expanding on the number of products monitored.

The market surveillance directorate in the Economic Planning Division will be co-ordinating the surveillance activities of the different entities that will be responsible for ensuring that products meet established standards and do not constitute a safety hazard to the public so as to ensure there will be no overlapping of the responsibilities of these different authorities. For example, the health department would be responsible for food items, while transmitting equipment would fall under the communications authority so that particular areas will be covered by technical people who are experts in their fields.

What progress has the Division made in terms of transposing legislations?

As far as the consumer legislation is concerned, last year we transposed a number of EU directives, some of which have come into force already while others will come into force next year.

One of those already in force that I consider very important are that concerning misleading and comparative advertising. Actually very recently we had to intervene in the market because there was a product that was misleading the consumer in that it was giving the idea that the product was Maltese when it wasn’t actually Maltese at all. Tourists were being easily taken in because they thought they were buying a real Maltese product when that wasn’t the case.

We have two different legislations covering misleading advertising. These are the Trade Descriptions Act and the Misleading Advertising provision under the Consumer Affairs Act,. However we will be acting under the latter legislation which is more modern and gives the director more power to intervene effectively by issuing compliance orders. We issue compliance orders when we find an infringement of the law taking place and instead of instituting court proceedings, we order the traders to conform to the particular provisions of the legislation. Failure to do so will subject trader to daily fines. However, if they disagree, they do have every right to appeal against the decision.

Two important directives which have also been transposed but which will be coming into force next year are those dealing with unfair contract terms and that dealing with product liability.

Apart from that, the directive dealing with door to door contracts were transposed under Doorstep Contracts Act which gives the consumer the right to cancel a doorstep contract within 15 days. Sometimes a consumer would feel pressured with someone at the door making an hour’s demonstration and one may feel awkward if they choose not to buy anything.

These amendments that have been introduced in the revised Consumer legislation are putting our consumer on a par with their European counterparts. Previously Maltese consumers did not enjoy many of these rights, which left them lagging in this respect with consumers in other countries.

Unfortunately, the local consumer is not yet fully aware of these rights. We carry out a lot of work trying to divulge information, such as holding seminars participating regularly on TV and radio programmes, issuing a Fair Deal magazine every three months and holding competitions for our youngsters on competition issues but unfortunately people tend to complain about a particular case but are not interested in knowing all their rights. It is only when they are faced with a personal problem that they take the trouble to find out about their rights.

Other directives that we have transposed are those dealing with travel package and those dealing timeshare. These directives were transposed under the Tourism Act and have granted the consumer some important rights as far as this sector is concerned.

We then have the distance selling regulation, most common being teleshopping, which again came into force last September and form an important part of consumer legislation.

Two other important provisions that are being drafted refer to consumer credit and price indication. As far as the latter is concerned, we already have some control under the Supplies and Services Act, whereby the director of trade is empowered to enforce price indication. However, we intend to move those provisions from the Supplies and Services Act to under the umbrella of the Consumer Affairs Act, of course in line with the EU directive. That should be done by early next year.

Presently Consumers sometimes find it difficult to compare product prices. For example, you might have cheeses displaying prices such as 200 grams for 40c for a particular type, and then you might have the same particular cheese but of a different origin selling for 220 grams for 43c. In such a situation it is difficult for a consumer to compare prices of the same type of cheese originating from different countries. What the consumer really needs to know is how much that particular cheese costs per kiloso as to enable the consumer to make his choice.after comparing prices and quality.

How important is it to have these directives in place - irrespective of EU membership?

Of course, many of the directives that we are transposing most probably would have eventually found themselves in our consumer legislation. What is happening now is, with the accession process, things have been sped up greatly. I would say that the directives concerned are giving the consumer a great deal of rights that they deserve to have in any case.

How does the Division monitor the market?

As I mentioned earlier, the Division has a small unit, which I am trying to beef up and which regularly visits retail outlets. For the time being we are basing our investigations mainly on what we consider as essential items such as those that feature prominently in housewives shopping lists.

The idea was to establish the trends of prices taking place, whether that actually reflects what is going on in the international market and whether there are cartels in action. An indication of a cartel would be, for example, when a product that comes from both America and France. You could have the US dollar going up and the French Franc declining in strength. However, you realise that on the market both the French and the American product are going up. That rings an alarm bell because if the dollar is gaining strength then one might expect the price of American product to rise but why is the French product also rising? That could give an indication that something abnormal is going on - some sideline agreement or something else that would point to a price fixing cartel.

There could also be a product that enjoys such strength in the market that it might abuse from its position since it knows that there is no elasticity in demand in that if the price goes up, the consumer would continue buying the product because there is no other option. In that case we would investigate such a particular case to ensure that there is no abuse taking place. The fact that an undertaking is in a dominant position doesn’t necessarily mean that there is an abuse taking place, it could also very well be a success story. But of course this dominant player must be careful not to abuse that position.

Does the office receive many complaints each month and how are they dealt with?

Consumer complaints are dealt with by the Information and Client Affairs Directorate, which, as the name indicates, is in charge of the dissemination of information and the educational campaign we are undertaking, and also dealing with the small claims of the consumer. These claims can be up to Lm1,500 while those exceeding that amount are not within the competence of this office. Some 3,000 complaints per year are handled.

What happens is that a consumer can come to this office in Santa Venera or to the front office in Old Mint Street Valletta and lodge his complaint. Once the complaint is lodged, we try to reach an amicable settlement within 15 working days, by serving as an in between for client and the trader. If a settlement does not materialise within that period, the consumer then has every right to submit his case in front of the consumer claims tribunal, which is made up of an arbiter whose decision is final and legally binding.

The trader would have a set period of time whereby he could lodge an appeal against the tribunal’s decision – but only on points of natural justice such as being prevented from having a fair hearing.

The problem is that you have some traders that may not conform to the decisions of the tribunal, but I would say that this is not very widespread. Between January and October, the tribunal heard 182 cases. 132 of the cases were decided, while 25 are still sub judice. There are another 24 that still need to be appointed. Out of these 132 cases that were decided, 18 have not yet been honoured. In that case the consumer then has the option to go to court and have the decision enforced. Once a decision has been taken by the tribunal and the period for appeal has elapsed, the consumer can proceed to court and have the decision enforced.

However, sometimes a decision may only involve a small amount of money and the consumer finds it difficult to bring the matter to court. At the moment we are studying ways how to help the consumer in such cases. If it is a large claim they would undoubtedly follow it up. Moreover many times the consumer is not aware that if he seeks court proceedings, he is also going to have his legal expenses reimbursed.

What are the most problematic sector of goods within this sphere?

Recently we have had many complaints about mobile phones, but I would say that the most complaints concern household goods, followed closely by by textiles, – clothing and footwear – then construction goods – painting, plastering and then public utilities.

However, we do not deal directly with all of these complaints. For example, if we have a complaint about a public utility we would pass it to them. We are also develpoing software which we will enable us follow the complaints received by this office even when forwarded to other authorities. We need to know if those authorities are dealing correctly and the tracking software should go a long way to help us know whether the consumer is being efficiently dealt with.

So far we have dealt with the consumer-related aspects of the division, what about fair competition?

Regarding the competition aspect, we have more serious cases as we are dealing with undertakings and not with the consumer as such, although fair competition in the market is of course to the consumer’s benefit. It is through fair competition that better efficiency is generated and the consumer stands to benefit from the most competitive prices possible. The consumer at the moment is not aware of the benefits of competition as far as he is concerned but the problem is not particular to Malta as such. Even the EU Commission has embarked on a campaign to make the consumer aware of the benefits of competition in the marketplace.

So this is not a problem limited to Malta and we’re trying to let the consumer know how important it is to shop around because its through pressure by the consumer that benefits of competition can be reaped. Sometimes, under the old system of price control, the consumer would buy a product and ring up the Department of Trade to check whether they had been overcharged, without bothering to shop around.

The consumer, even these days, is still under the same impression that the government has to protect him all the time, but the government does not to be involved that muchnow that a liberalised market has been ushered in. Previously price control may have made sense when the market was protected and competition was non-existent because an import substitution policy was being adopted. But nowadays, apart from the agricultural sector, the consumer can shop around and use his purchasing power accordingly. It is important that the consumer realizes the power he wields in a liberalized market and uses to the full to his benefit.

Turning back to fair competition, how do you go about investigating infringements, is that a proactive process?

For the time being it’s more a case of reacting to complaints as the division has only recently been strengthening its administrative framework. In fact, just recently we employed two more lawyers and we will be employing two economists in the coming month. We will, however, need more lawyers when the merger regulations come into force, which will fall under our jurisdiction, so I think we will be issuing an additional call for lawyers.

Once those people are in place, we will be able to become more proactive than we are at the moment.

Following the recent amendments made to the Competition Act, when we have finished investigating an issue of fair trading we have two options, I can either issue what’s called a cease and desist order, which means that the infringing party can be ordered to immediately stop the activity causing the infringement.

Otherwise, if it’s a very serious infringement, such as price fixing, then I would proceed with the matter in front of the commission for fair trading, which is made up of a magistrate – Silvio Meli as its President and - an economist – Profs Lino Briguglio - and an accountant – Karm Farrugia as its members. The Commission has the powers vested in the in the Civil Court, First Hall exercisable through its President.

Witnesses and lawyers are brought in and the commission takes the decision after hearing submissions of all parties concerned.

One case that occurred during the initial phases of this office and which is not very well-known, took place in the cinema industry. At the time we had, and still have, a company that distributes films into Malta and that company had an exclusive contract with Eden Century, whereby first run films could only be run at Eden Century and only after a certain number of weeks or months could they pass on the first runs to other cinemas. Of course there was a complaint from one of the other cinema complexes that came into being and they questioned how they could compete under the circumstances. We intervened and now one can see first runs at the same period and even at different prices. However the Office since then dealt with various complaints including abuse of a dominant position in the dairy sector, a cartel in the road surfacing sector, restrictive agreement in the insurance sector, target sales in the sift drinks industry amongst others. This Office also cleared a number of mergers which took place recently involving undertakings which, through the concentration, strenghtened their already dominant position.