An Assessment of Consumer Protection and Consumer ... - Springer Link

J Consum Policy (2013) 36:59–86 DOI 10.1007/s10603-012-9206-9 ORIGINAL PAPER

An Assessment of Consumer Protection and Consumer Empowerment in Costa Rica Lucy M. Delgadillo

Received: 23 January 2012 / Accepted: 3 July 2012 / Published online: 30 July 2012 # Springer Science+Business Media, LLC. 2012

Abstract The present exploratory study aims to describe and assess Costa Rica’s regime for protecting and empowering consumers. As the general framework, this study used research conducted in the USA, in Europe—specifically studies conducted by the Organization for Economic Co-operation and Development (OECD) partners—and studies sponsored by the European Union (EU) in Central America. This paper, however, is not intended to provide an exhaustive analysis or to answer all questions and issues related to consumer protection in Costa Rica; rather, it is to identify the main components of the consumer protection framework, its strategies, consumer redress mechanisms, remedies, and consumer protection challenges faced by the country. The last section outlines a conclusion and presents recommendations for improvement. Keywords Costa Rica . Consumer protection . Consumer policy . Consumer empowerment To assess the level and efforts of consumer protection in a country is not an easy task. At every juncture of a consumer transaction, consumer problems and issues can be exacerbated by the asymmetry of resources that favor businesses over consumers, and by the role of the government [or lack thereof] in facilitating a legal framework in which transactions will be made. Given the complexity of consumer policy, this paper used a systematic method to guide the assessment by examining three different areas: (1) the legal and institutional framework (laws and enforcement agencies), (2) the market place constituents (the role of the private sector and non-government agencies), (3) the remedies available to Costa Rica consumers, empowerment efforts, and consumer education, and (4) a typology of the consumer protection regime in Costa Rica. This study drew information from different sources including literature on consumer policy published in the USA and in Europe (Asher 1998; McGregor 1996; OECD 2010; Rock et al. 1980), a seminal study by the United

L. M. Delgadillo (*) Utah State University, 2905 Old Main Hill, Logan, UT 84322-2905, USA e-mail: [email protected]

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Kingdom Department of Trade and Industry (UKDTI) titled, Comparative Report on Consumer Policy Regimes (2003), a study financed by the European Union through its Support Program for Regional Integration in Central America for the Central America Council of Consumer Protection (CONCADECO), and other documents provided to the principal investigator during interviews conducted in Costa Rica. The literature review, section two, presents the theoretical framework used in this analysis as well as other relevant concepts and definitions associated with consumer protection. The third section describes the methodology. Before the fourth section, which encompasses the analysis and discussion of consumer protection in Costa Rica, a brief background concerning the socioeconomic conditions of the country will be presented to facilitate the interpretation of the data and analysis reported. The last section outlines a conclusion and recommendations for improvement.

Theoretical Framework The Legal and Institutional Framework The identification of laws and institutional framework allows one to examine the legal and constitutional environment in which consumer protection is conceptualized and defined within the socioeconomic and cultural framework of a country. The legal framework identifies the core legislation in the consumer policy arena, as well as the existing policy tools to achieve consumer policy goals. The institutional framework consists of existing government bodies responsible for enforcement and coordination of efforts in different layers of government. In many instances, the coordination of efforts among the different agencies is lacking, which leads to the creation of gaps and overlaps in consumer protection. It is important to not only consider the availability of resources for each enforcing agency, but also to determine the political importance attached to consumer protection and consumer issues in the national agenda. Government has long been interested in protecting consumer interests in a number of respects, most fundamentally by promoting consumer safety, preventing fraud, and maintaining competition. National enforcement bodies (both administrative and court systems) prioritize cases that have a perceived national impact, e.g., an impactful new market issue might have an immediate public detriment, educational effect, and/or large effect on vulnerable consumers (McGregor 1996). Market Place Constituents and Consumer Issues Market failures have been identified as the main justification for consumer policy intervention (OECD 2010). In a perfect competitive market, prices are determined by vigorous competition based on the demand and supply of services. Of course, this perfect scenario only exists in a utopian world in which consumer and sellers have perfect information; there would be no negative externalities, and there would be a market for all goods and services. Real world and market conditions indeed depart from perfect competition. The reality of the markets encompasses lack of competition, information asymmetries, and negative externalities (Meier et al. 2003). In market economies, the interest of business, government, and consumers converge in the market place. The business sector, for example, can define and abide by voluntary industry codes of conduct and compliance, which in turn, may have the desirable effect of reducing the need to spend public money aimed at observance and compliance of the law.

An Assessment of Consumer Protection and Consumer Empowerment

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The most common form of regulation used by businesses to encourage consumer protection is voluntary industry codes and certifications, also known as self-regulation. Although many codes regulating business and products are voluntary, in general, there may be a lack of industry-wide focus of consumer protection. This myopic condition would make government intervention necessary. Several mandatory codes are in place in some countries and the process of formally creating a code is part of governmental regulation. Codes are generally approved by both governments and businesses because it avoids the need for legal regulation through a governmental organization. This model assumes a relationship of cooperation between both parties rather than a compulsory action by the government (Rotfeld 1992; UKDTI 2003). The presence of consumer advocacy groups in the political arena enhances and complements the job of public enforcement agencies. Advocacy groups are part of the civil society and are situated between the government, market, and businesses. These groups can be influential in public debates and agenda setting. As Kingdon (1995) explains, even if these groups do not affect the political agenda directly, they affect the alternatives considered by proposing amendments to or substitutions for proposals already on the agenda. Remedies Available to Consumers and Their Empowerment Role Directly or indirectly, consumer policy can also be enforced by consumers via procedures they could employ to seek redress, e.g., consumer dispute resolutions and small-claims court (UKDTI 2003). Consumer disputes have a function in society. When consumers do not complain, firms are deprived of valuable feedback about the quality of their products or services (Stephens and Gwinner 1988). The majority of consumer complaints are resolved by direct resolution (e.g., refund of product or service). This is the least costly solution to the business and provides the fastest recompense for the consumer. In this sense, businesses are incentivized to keep customers content. In fact, retailers compete in their ability to accept returns and correct faults because of its importance in obtaining and maintaining a large customer base. A good reputation for superior service and customer support is vital to brandbuilding and creating a profitable company. Several countries, including the UK, USA, Canada, and Australia, have small-claims courts which are moderately effective in providing a forum for consumer redress (especially on the local level) (UKDTI 2003). These low-cost courts create an open and encouraging forum for redress. However, in the past, success was limited because it was difficult for consumers to identify and contact the company at fault. It was overly easy for these traders to simply change location or company name and completely avoid having to appear in court. Besides this concern, however, the UKDTI study (2003) found that among the studied countries, small-claims courts were not overly complicated or full of unresolved complaints. While one perspective would claim that this is a sign of an efficient system, it is also possible that complaints are at a minimum because of the difficulty of tracking down traders, low levels of trust in the courts, and/or low levels of education among consumers. It is common knowledge that competition benefits consumers. In order to support this belief, consumers must be willing to look after their own interests. The surveyed countries in the UKDTI study (2003) understood that to do this, consumers must have the required knowledge, the confidence to act, and the government must be willing to act on their behalf. Facilitating proactive education and informing consumers of their rights is commonly viewed as a prime responsibility of consumer agencies as well as enforcing governmental bodies (OECD 2010). Ultimately, prevention, not enforcement was considered superior because it is more cost effective. Consumer Empowerment encompasses: (a) consumer

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education, (b) awareness of consumer rights, and (c) who is protected by those policies (an average or a vulnerable consumer). Consumer education is one of the first steps leading to general consumer empowerment. If knowledge is power, then an educated consumer would most certainly have an advantage in the marketplace. A widespread increase in consumer education is likely to see broad improvements in the overall efficiency of the marketplace, as each actor participates to his/her fullest potential. Although “perfect information” is not truly a reality, it may be assumed that the more access consumers have to plentiful and accurate information, the more efficiently they can utilize it within an economic structure (Greenwald and Stigitz 1986). Nevertheless, as behavioural economics has enlightened us, too much information may have a counterproductive effect in the consumer by creating consumer information overload that may either cause the consumer to become inactive or to choose actions detrimental to his/her economic welfare. On an individual level, education provides skills that consumers utilize in their own wellbeing. An informed consumer is better able to weigh options, seek out alternatives, and make optimal choices for his/her own interests. Several of the surveyed countries had consumer education programmes at the local level in place, such as financial counseling and debt counseling. However, consumer education programmes did not appear to exist at the national level. Some schools may lightly touch on the subject, but nothing to suggest widespread impact. One key concern that determines consumer empowerment is how aware consumers are of their rights. The value that a country places on consumer protection and policy will directly impact the level of empowerment that consumers experience. The idea of empowerment is rooted in concepts of enabling, authority, and power. An empowered group of consumers will know their rights. Empowered consumers often band together in order to secure fair prices and conditions, thus enhancing overall well-being (Cattaneo and Chapman 2010). When united together, consumers are better able to demonstrate their needs, wants, and demands to other individuals or organizations in the marketplace. Empowered consumers are those who are well-informed and adept at functioning in the larger economy (Bone 2008). In any country's consumer policy arena, a greatly contested issue is concerning whom consumer policy should protect. Given ever-tightening budgets and unstable regulatory policies, the issue has become even more heatedly contested (Meier et al. 2003). Should policy be aimed toward the average consumer, as this may incorporate the largest number of citizens; or should more vulnerable groups be given special attention from policymakers? These groups may consist of fewer citizens, but those it does include may be in greater need to assistance. Some may argue that directing policy to a wide breadth of average consumers is the most equitable and efficient way to strengthen the overall economy; others believe vulnerable groups are in greater need and that pulling up the bottom will bring greater overall efficiency. Still others believe that directing policy to a mix of vulnerable and average consumers is best (UKDTI 2003). Each country's views on this issue will differ with time, context, and legislation. At its core, consumer policy is implicitly designed to meet the needs of the average consumer. While consumer policies address the need for protection of vulnerable consumers, few explicit definitions exist as to who the vulnerable are and how they will be protected. The UKDTI study (2003) found that in some cases, legislation protected all consumers but was specifically designed to protect vulnerable consumers (e.g., laws of cooling off periods for large purchases).


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Typologies of Consumer Protection Regimes According to the UKDTI study (2003), countries can be grouped into three models according to their consumer protection regime. The three models presented in this study are: Model 1: Consensual and interventionist. In a consensual and interventionist state, the approach to consumer protection is to avoid detriment through more extensive regulation, and to resolve problems when things go wrong through state-led dispute settlement procedures. Most cases would be settled without a need to go to court, which would be seen as an unusual outcome. Such systems rely on bureaucracy, with high costs to the state and potentially more barriers to traders entering the market. Examples of countries with a consensual and interventionist model are Denmark and France. Model 2: Mixed. In mixed-model countries, there is a mix of private and public efforts for consumer protection and enforcement of a considerable body of law in the criminal and civil courts. There exist contractual arrangements for alternative forms of dispute resolution (ADR), but small-claims court ensures easier access to justice for private individuals. The real possibility of court action improves the bargaining position of the consumer. An example of a mixed-model country is the USA. Model 3: Non-interventionist. In countries classified as non-interventionist, most of the consumer protection relies on private action, mainly by individuals. Consumer protection is weak because the framework of law and institutions may be lacking. Dispute resolution procedures are not comprehensive. Consumers are mostly left to resolve consumer problems themselves. Example of noninterventionist states are Germany and Japan.

Methodology The basic approach for this study was to understand Costa Rican consumer policy issues from multiple perspectives. For that purpose, the first task was to create a questionnaire that would consider not only general consumer issues, but would also seek to capture the idiosyncrasies of the Costa Rica's legal system and consumer policy culture. An extensive review of consumer protection and policies bibliography from the USA and EU was considered to be the most efficient way to undertake that first task. Once this information was collected, a questionnaire was drafted and submitted to the Institutional Review Board for approval in the respective academic institution. A copy of the questionnaire is included in the Appendix. In order to present an in-depth, unbiased examination of the issue from multiple perspectives, six key participants were interviewed in Costa Rica—three from government offices, two from consumer advocacy groups, and one contract law attorney (see list of interviewees and their titles in the Appendix). Semi-structured interviews were used for data collection. Interviews were conducted in the interviewee's natural setting as suggested by Creswell (2003). Thus, participants were asked to choose the location of the interview, which in most cases was their primary place of business. The contract law attorney preferred to respond to the questions via email. The validation of the literature used to develop the questionnaire involved two steps: (1) checking with the informants about the accuracy of previous publications regarding consumer policy in Central America (CONCADECO 2009), and (2) querying about the

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reasonableness of the interpretations drawn from it. The multiple methods of collecting data as well as multiple data sources provided basis for the triangulation of data thus increasing the credibility and validity of the results.

Socioeconomic Conditions in Costa Rica Costa Rica is one of the most developed countries in Central America. It is wellknown for being a country of peace and democracy. It has never experienced extended wars, as in other Central American countries, and because of its geographic location, it is less prone to natural disasters. This has allowed the country to devote more resources to economic development and improvement of socioeconomic conditions. With no military spending, the government has been able to devote more resources to social programmes such as health care, education, housing, education, and transportation, as well as potable water and sanitation systems (CIA n.d.). As of July 2012, Costa Rica is home to 4636348 people. Costa Rica's population is relatively young, with 93.6% under 65 years old. Over 64% of the total population lives in urban areas, the largest of which is the capital, San José that houses about 1.5 million people. The Costa Rican government is a democratic republic divided into seven provinces. Its legal system is based on the Spanish civil code—Roman Law— and its government is divided into three branches: executive, legislative, and judicial (CIA n.d.). Costa Rica's economy was not immune to the global economic crisis; however, it has maintained modest growth. Its main exports have remained agricultural products, but they have broadened to include industrial and technological goods. Tourism also represents a large portion of Costa Rica's economy. Poverty in Costa Rica has remained between 15% and 20% for about 20 years, which has caused the substantial social safety net to become strained. In 2009, 10% of the country's GDP went to health expenditures, ranking 25th in the world. Costa Rica spends 6.3% of its GDP on education, and 94.9% of the population is literate. Unemployment averages at about 6%, and average yearly inflation rate is about 5%. Labour force by occupation is broken down into agriculture (14%), industry (22%) and services (64%). Costa Rica's total estimated GDP for 2011 was $54.47 billion, ranking 90th in the world; whereas, its debt load was $9.445 billion, ranking 94th in the world (see Table 3 in Appendix) (CIA n.d.).

Analysis and Discussion Legal and Institutional Framework As most nations agree, the level of consumer protection in a country is measured by the degree to which the fundamental rights of consumers' protection are incorporated into their legal framework. The protection of consumer rights in Costa Rica is under Title IV (Individual Rights and Guarantees) Article 46 of the Constitution, which gives explicit recognition of the rights of consumers. Article 46 states that “consumers and users have the right to health protection, environment, security, and economic interests; to receive adequate and truthful information, to freedom of choice, and to equal treatment. The state will support the bodies established to defend their rights. The law shall regulate these matters.” (Costa Rica Constitution 2010).


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Table 1 Degree of adoption of United Nations' guideline by Costa Rica Government Physical safety

83%

Promotion and protection of consumers' economic interests

60%

Standards for the safety and quality of consumer goods and services Distribution facilities for essential consumer goods and services

100% 100%

Measures enabling consumers to obtain redress

25%

Education and information programmes

18%

Promotion of sustainable consumption

20%

Measures relating to specific areas (food, water, and pharmaceuticals)

20%

Source: CONCADECO 2009, p. 89

Consumer rights in Costa Rica, as in many Central American countries, have been slow to develop, in part due to the absence of the fiscal resources necessary to properly execute legal protection of consumer interests. Moreover, the efforts have been undermined by the widespread poverty and deteriorating living standards (Cook and Musante 1997). If this study would have been conducted 30 years ago, consumer protection would have been absent from the political dialogue, the legal framework, and the collective consciousness of consumers. Nevertheless, over the last 20 years, Costa Rica's government has shown a greater interest in consumer protection. The current consumer bill of rights in Costa Rica is not based on the consumer rights in the USA, but on the United Nations' Guidelines for Consumer Protection, passed in 1985 and expanded in 2003 (United Nations 2003). The United Nations (UN)' Guidelines served as a guide for governments, primarily in developing countries, that wanted to enact suitable legislation for consumer protection within the prevailing economic conditions of each country. The eight consumer rights in the USA are: (1) right to choose; (2) right to information; (3) right to safety; (4) right to voice; (5) right to redress or remedy; (6) right to environmental health; (7) right to service; and (8) right to consumer education (Garman 2009). The UN consumer rights have some overlap with the US consumer rights in terms of right to safety, voice, remedy, service, and education. The UN list of consumer rights, however, does not explicitly mention the right to choose or right to voice, but it adds the right to promote sustainable consumption. Costa Rica list of consumer rights resembles more the United Nations' list than the USA one. According to the CONCADECO report (2009), Costa Rica, El Salvador, and Panamá have incorporated 100%, of the consumer rights into their constitutional law. For a list of the guidelines set forth to maintain a strong consumer policy and the degree of adoption for various countries, see Table 1. One major milestone that took place in 1994 in Costa Rica was Law 7472, which became effective in 1995. Law 7472, known as Promotion of Competition and Consumer Advocacy, aims to effectively protect the rights and legitimate interests of consumer protection. It promotes the process of free competition by preventing and prohibiting monopolies,1 monopolistic practices, and other restrictions in the marketplace. It also eliminates unnecessary regulations affecting economic activities. It provides the delegation of administrative rules to the different bureaus in charge of consumer protection. This act also includes the 1

It is interesting to observe that the Costa Rica Constitution forbids private monopolies or any monopolistic acts. Nevertheless, it grants the right to establish new monopolies in favor of the state or municipal governments, if approved by two thirds of all members of the Legislative Assembly.

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definition of trader, consumer, seller, and supplier, among others. Some other specific legislation related to consumer protection includes: Decree No. 25234-MEIC, Regulations for the Promotion of Competition and Effective Consumer (July 1, 1996); Decree No. 30267-MEIC, Regulation Fair (March 15, 2002); and Decree No. 28712-MEIC Regulation Credit Cards (August 20, 2003) (CONCADECO 2009, p. 25). Enforcement Agencies, Coordination of Efforts, and Accountability The Ministry of Economy, Industry and Commerce (MEIC) is the cabinet level agencies with the most active role in regulating economic and consumer protection activities in Costa Rica. MEIC provides regulations and programmes with the purpose of removing obstacles to investment and trade in general. Within the legal jurisdiction of MEIC exists the National Consumer Commission (NCC) and the Consumer Support Directorate (CSD). The NCC is the major enforcer of Law 7242. The main objective of the CSD is to ensure the effective protection of the rights and interests of consumers while respecting the rights of the trader. The CSD has three administrative units: (1) the Consumer's National Commission Technical Department, (2) the Consumer Service Platform (PACO, acronym in Spanish), and (3) the Department of Consumer Policies and Analysis (Fig. 1). Homologous to the US Federal Trade Commission, the National Consumer Commission (NCC), (NCC n.d.) is a quasi-independent cabinet agency that aims to provide effective protection of the rights and legitimate interests of consumers (Article 1) as stated in Law 7472. This protection is manifested in the investigation and punishment for obligation breaches of the merchant set out in Article 34 of the policy. NCC sanctions acts of unfair competition that may harm the consumer. NCC has a punitive role, and it can also take precautionary measures, such as the freezing or seizure of property, suspension of services, or the temporary cessation of the events that violate the provisions of the Law 7472. NCC

National Consumer Commission

Minister of Economy, Industry and Commerce

Vice Minister

Consumer Support Directorate

National Consumer Commission Technical Department

Consumer Protection Structural Organization

Department of Consumer Policies and Analysis

Fig. 1 Consumer support offices within the Ministry of Economy, Industry and Commerce


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has neither jurisdiction over the annulment of unfair terms in contracts (Article 42, Law 7472), nor for the compensation of damages. These cases are dealt with only by the judicial branch of government through the courts. The NCC board is composed of a president and five commissioners, appointed by the Minister of Economy, Trade, and Industry. Members must have a law degree and proven experience in the field. They remain in office four years and may be reappointed. Commission members must elect their president. To convene, NCC requires the presence of all its members. Decisions can be taken with a vote of two. The member who does not match the majority vote must explain his dissenting vote. The procedure to remove the members of NCC should follow the procedures and principles established for such cases in the Costa Rica General Law of Public Administration. One way the NCC uses to achieve accountability and transparency is through the submission of an annual final report to both the MEIC and the National Legislative Assembly. The report presents three measurable outcomes: strategic objectives, units of measurement, and annual target-goals set in accord with the MEIC Annual Operating Plan. The annual final report is used by the National Assembly to evaluate the performance of the agencies and to allocate the budget for the following fiscal year. Examples of measurable outcomes are as follows: In 2009, a strategic goal was to conduct 10 studies of market surveillance. At the end of 2009, it was reported that the agency met the target at 180%, which corresponded to 18 market research studies. The same goal was set for 2010 to conduct 10 market surveillance studies; however, at the end of the year, it was reported meeting the goal at only 80%, which corresponded to a total of eight studies conducted. Another example of a strategic goal set in 2009 was to recover US$733918 in profits by attending and resolving complaints submitted by consumers. The goal was achieved with a target of 196%, which corresponded to the recovery of US$1442157 (exchange rate in 2009 US$1 0 545 colones). In 2010, the objective was to recover US$1083793. A total of $1546 232 (exchange rate US$10498 Colones) were recovered, which corresponded to 143% of the target (MEIC 2009, 2010). The Consumer Support Directorate (CSD) is seen as a bureau of the Ministry of Economy, Trade, and Industry. It is led by the principles of transparency, efficiency, and effectiveness, and aims to promote a cultural change for both the consumer and the merchant in order to achieve a balance between the two sectors and their social environment. Their main objective is to ensure the effective protection of the rights and interests of consumers while respecting the rights of the trader (CSD n.d.). The National Consumer Commission Technical Department serves as technical support unit of the National Consumer Commission, under the terms described in Article 22 of the Law 7472, which includes but is not limited to:

& & & &

Act as a Technical Support Unit of the National Consumer Commission in the terms outlined by Law 7472. Process and investigate all complaints filed with the National Consumer Commission for breach of consumer rights and duties of the traders named in the Law 7472. Handle collection efforts or compliance with the resolutions of the National Consumer Commission, before the respective bodies to enforce the execution of the orders of the National Consumer Commission in its resolutions. Respond to inquiries from public bodies, judicial and administrative proceedings held before the Technical Unit or the National Consumer on topics of interest pertaining to consumer protection.

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The Department of Consumer Policy and Analysis was created by Article 23 of Law 7472, DCPA is responsible for the development and promotion of a consumer culture, seeking to promote critical thinking among the rational civil society regarding their consumption decisions (DCPA n.d.). Some of the duties of this unit are:

& & & & &

Promote, support, and implement education programmes for consumers and other operators involved in the market. Assist the Ministry of Public Education in the integration of consumer protection issues in the curriculum for elementary and middle schools. Promote the organization of forums, workshops, and lectures in academic programmes offered by higher education institutions and technical colleges. Keep a record of consumer organizations in the country. Conduct research and market checks either ex officio or at the request of the minister's office or other agencies to protect the rights and interests of consumers.

The Department of Consumer Service Platform (DCSP, or PACO in Spanish) was created by Article 24 of Law 7472, PACO is responsible for managing the consumer service platform and for comprehensively addressing consumers' concerns by reporting and resolving complaints (DCSP n.d.). Among its duties are:

&

& & & &

Develop, promote, support, and implement ongoing activities and specific information for the consumer and other economic agents, in order to achieve a better dissemination of a consumer culture geared towards protecting the legitimate rights and interests of consumers. Managing information tools and general communication to the consumer, such as statistics, results of monitoring, and verification of market data, case law numbers, references in consumer documentaries, records of businesses, etc. Ensure symmetry in the marketplace so that consumers have timely and accurate information on the elements that directly affect consumer decisions. Promote the development of mechanisms for alternative dispute resolution and, in particular, prior to the formal administrative procedure before the National Consumer Commission. Maintain information and documentation about the checks and investigations conducted and coordinated by the Office of Consumer Advocacy. Such data should remain accessible to stakeholders through various means, including the website. Legal and Institutional Framework Outstanding Challenges:

&

& &

The National Consumer Commission (NCC) has limited functions as stated in the 7242 Law. This law limits the NCC functions to actions and complaints initiated by an individual, without giving the power to operate proactively for cases where there is more than one affected consumer or where collective interests of consumers are in jeopardy. In this sense, NCC is a reactive office that deals mostly with individual cases. As shown in Table 2, the NCC office has been experiencing an increase in the number of complaints, which coupled with limited resources—it is making NCC less effective in reaching settlement on behalf of the consumer within a short period of time. The types of sanctions that the NCC can impose are mostly punitive and limited in scope. The law provides that when a wrong doing has occurred, NCC must always impose a pecuniary action, which is proportionate to a predetermined scale of fines based on the type of offense committed. Penalties and fines can run from US$300 to US $12000 (2010 conversion rates) (MEIC n.d.). NCC has no authority to utilize resources


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Table 2 Number of appointments via hotline, walk-in, email, fax, and postal service type of queries for 2008, 2009, and 2010 Form of communication

1-800 hotline

Number of appointments 2008



13599 (57%)

10238 (45%)

28191 (71%)

Walk-in's

6902 (30%)

7204 (31%)

5841 (15%)

Email

2301 (10%)

4611 (20%)

5193 (13%)

591 (3%) 23393 (100%)

833 (4%) 22886 (100%)

Incompliant guarantees

8267

9247

n.a.

Incompliant contracts

4816

5810

n.a.

User's general information

3556

4238

n.a.

Damages

381

502

n.a

Public services

313

455

n.a

Repair services Right to retract

184 343

268 213

n.a. n.a.

Fax and postal service Total

715 (2%) 39940 (100%)

Type of query

Lack of information

201

182

n.a.

Non-regulated prices

168

162

n.a. n.a.

Misleading advertising

124

143

Other

5040

1666

n.a

Total

23393

22886

39940

Source: MEIC 2008, 2009, 2010

&

as persuasion (or moral suasion), warnings letters or cease-and-desist orders. Warning letters, for example, would be a more expedite procedure and would have less damaging effect to the supplier in terms of their performance and reputation. An admonition letter will work better in cases where suppliers, by not having a full appreciation of the normative, violate its provisions but acting in good faith, could immediately correct their wrong doing. The collected monies from penalties and fines do not go directly to the operating budget of the NCC, but directly to the Ministry of Economy, Industry and Commerce. This lack of revenue jeopardizes the economic autonomy of the agency. In a report generated from the Central American Integration System by the Central American Council of Consumer Protection (CONCADECO) in 2009, three indicators were used to assess the extent to which the consumer protection agency in a country has economic, administrative, and functional autonomy for the development and proper projection of their duties under the regulations. Unfortunately, the CONCADECO report does not provide methodological details on how they calculated their numbers. CONCADECO explains that conceptually, economic autonomy includes: (a) the ability to have their own revenues, and (b) the capacity to charge fines to companies, and (c) the ability to have appropriations from the National Budget. Administrative autonomy refers to the degree of independence of the agency from other public entities. Functional autonomy refers to a system of competitive election of officers (CONCADECO 2009; Maguina 2008). According to the CONCADECO report, the degree of institutional autonomy of the consumer

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&

&

&

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protection agencies in Costa Rica was as follows: economic, 67%; administrative, 67%; and functional. 75% (CONCADECO 2009, p. 34). The averages for the rest of Central American Countries were: economic, 67%; administrative, 60%; and functional, 40%. Although not specified in the CONCADECO report, those scores could be driven by the fact that the NCC in Costa Rica has the authority to charge fines, but it does not have the ability to generate their own resources. NCC has semi-autonomous jurisdiction as it is part of the MEIC ministry but cannot initiate investigative process on its own. Finally, by CONCADECO definition, NCC does not have functional autonomy because it does not have a system of competitive election of officers. All officers are appointed. The NCC board lacks diversity. As it is mandated on the regulation, all the members are appointed and they must hold a law degree. NCC will be more effective if board members would represent the different stake holders involved in consumer protection, which includes consumer organizations, policy makers, affected firms, and industry organizations, as well as representatives from the public-at-large. A group of commissioners from diverse academic and professional backgrounds will offer varying viewpoints. Their input will help better understand consumers' needs and to create more suitable policies. In many aspects, the government institutions in charge of implementing the rules for consumer policy are reactive, rather than proactive, to consumer issues and consumer problems. This may not be necessarily wrong at this stage of development of consumer protection in the country, but it definitively poses some challenges. For example, within a context of limited budgets, an immediate product ban following a death or serious detriment to consumers is cheaper to implement than conducting an ex ante cost–benefit analysis. Being proactive will be more expensive in the short term, but in the long run, it offers a more comprehensive and holistic approach to consumer protection. In most cases, cost–benefit analysis includes both quantitative and qualitative research for areas in which clear measures are nonexistent. This kind of research is quite expensive and would require different levels of expertise and money. Lastly, there are not enough resources to adequately cover all aspects of consumer protection in the country. The operating budget for the NCC has not increased in proportion to the demand of services by the public (see Table 2). The whole budget for the MEIC in 2010–2012 represented about 0.1% of the national budget (approximately US$9 million) which represents the lowest allocation given to an executive office; but at the same time, it must be recognized that the MEIC enjoyed an increase of about 13% from 2011 to 2012. Other offices that get as little as 0.1% are the Ministry of Foreign Trade (0.1%), and the National Office of the Ombudsman (0.1%; the other main consumer protection office) (National Legislative Assembly 2012). The National Consumer Commission office works with an annual budget of a little bit less than $2 million (2010 dollars) from the country's national budget (Zapata, personal communication via email, July 21, 2010).2

It is noteworthy that Costa Rica as a country has a social market economy and its national budget allocation reflects this paradigm. For example, Costa Rica ranks education as a top social priority. The Ministry of Education received a budget equivalent to 28.1 % of the national budget, followed by the Ministry of Public Works and Transportation (6.9 %), Ministry of Labour and Social Security (5.4 %), Ministry of Health (2.7), and Ministry of Public Security (2.5 %).


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Market Place Constituents and Consumer Issues The Ministry of Economy, Industry, and Commerce (MEIC) has established agreements with the private sector and chambers of commerce to educate the private sector to a faithful compliance with the legally established Promotion of Competition and Effective Defense of Consumers initiative. Likewise, the State of Costa Rica, through the MEIC, bears the rectory in the process of information, development and promotion of consumer organizations, education for consumers and traders, as well as the pursuit of regulatory and corrective character, to ensure the proper implementation of existing legislation. The MEIC coordinates with the National Directorate of Community Development (DINADECO in Spanish) for the use of the structure of these development organizations to make them available to consumers. The Business Sector and Its Participation in Consumer Protection In an effort to promote self-regulation among the private sector, MEIC has emitted a Manual of Good Practices of Consumer Protection. This manual was issued as “a mechanism to facilitate the effective implementation of a culture of consumer protection and to encourage traders to voluntarily comply with certain standards of conduct in order to benefit the consumers in terms of safety, quality, and service without the need to activate the sanction of the state.” (Fundacionambio n.d., p. 1) The document is a clear message as to the type of behaviour desired by the authorities responsible for protecting the interests of consumers. The manual facilitates a responsible approach to protect consumers. Companies that wish to adopt it do so knowing that it will reduce the chances of a possible pecuniary sanction. All suppliers and retailers can adopt this manual of good practice on a voluntary basis. However, once the suppliers or merchants accept all the practices outlined in this document, they are obliged to respect all the clauses. The most common form of self-regulation by businesses was the adoption of quality measurements beyond what is needed for the national market. With Law 8279 published in May 2002, the whole national quality system in Costa Rica has been set to a new and solid legal basis. This law provides a bridge between the national and international standards. Creating awareness among all interested parties, including small- and medium-size enterprises, is seen as a key component. Many companies that are certified with technical standards have the domestic market as a secondary market for their products. Most of the companies are certified under a technical standard suitable for exports. For example, “Dos Pinos” (the biggest dairy industry) is certified with more than 20 technical standards, but they have done this in order to please more consumers and to create an international market for its products. As of 2010, 90–95% of companies that have adopted voluntary technical standards do so to export their products (MEIC 2010). Cinthya Zapata explains that self-regulation has been very efficient for two reasons. One reason is the intent of MEIC to coordinate and not to concentrate efforts. MEIC coordinates efforts in health and safety by promoting adoption of voluntary quality standards beyond the minimum required levels. MEIC also coordinates efforts with the Chamber of Commerce to promote good business practices and trade. Boosting shareholder participants in civil society and ultimately promoting self-regulation allows the state to concentrate efforts on those companies that are outside the law (Zapata personal communication, June 2, 2010). In this sense, self-regulation mirrors the analysis presented by Rotfeld (1992). He described that self-regulation should not replace government involvement, but it should be structured to complement the compulsory effort of the government towards the private sector.

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According to Zapata, in Costa Rica, formal companies are more likely to comply with self-regulation. Formal companies—defined as registered companies that have a minimum number of employers and pay taxes—are willing to adopt new standards because their businesses are there to stay. In Costa Rica, there is a joint effort to make even small companies formal companies. Costa Rica does not have the problem other countries in Latin America do, where 80% of firms are informal enterprises because the costs of formalization are so high (Zapata, personal communication, June 2, 2010). Participation of the Non-Government Sector: Consumer Advocacy Groups and Consumer Organizations The level of participation of organized civil society in Costa Rica is significant, but it is losing strength. According to MEIC, there were 86 grassroots level consumer organizations registered in 2006, out of which, only 16 were active in 2010 (DCSP n.d.). Among the most significant achievements of these grass-root organizations include: educational campaigns, effective defense of individual consumers in their demands to the authorities, training of community leaders and consumers in understanding their rights and utilizing their resources available, and publishing of various educational materials and legislative proposals in the field of consumer rights. Two of the most politically active groups at the national level were: (a) Consumers of Costa Rica, and (b) Association of Free Consumers. Consumers of Costa Rica (CONCORI) is a nonprofit association that promotes solidarity in relationships that exist between the state, consumer users of public utilities and commerce, and citizens. They proceed from the necessity of transforming the citizen through the empowerment of their rights and awareness of their obligations. Consumer activism is promoted through the development of a new consumer culture of informed and proactive consumers. CONCORI is part of the technical committees created by the government, including the Committee on the Nutritional Value of Food; the Committee on Rules of Taximeters; the Committee on Rules of Meat Labeling; and the Standardization and Technical Committee (STC) of fruits and vegetables, STC on sausages, and STC on coffee. Within these political spaces, CONCORI struggles for transparency in the processes of technical regulations so that they do not become technical barriers to trade and, at the same time, allow consumers to purchase goods and services with the best quality and price available on the market (CONCORI n.d.). Erick Ulate, president of CONCORI, provided an example of how active this advocacy group has been in helping regulate the food market (specifically sausage products and derivatives). Ulate noted that consumer rights to information were not met in the sausage market, and that only clear labelling would ensure that consumers can know what kind of product they are buying. Previously, there was no existing regulation to define the different products. Sausage/chorizo producers did not have oversight over the quality and characteristics of its products. The government made it a priority to regulate this sector of the food market. Therefore, to develop this regulation, government officials called a technical working group that included academics, the private sector (Chamber of Commerce), consumer advocates (CONCORI group), staff from the Ministry of Agriculture, and from the Ministry of Health. The drafting of the bill to regulate sausage production is the result of the joint efforts of the government, the civil society, and the private sector (Ulate, personal communication, May 5, 2010). Free Consumers of Costa Rica (http://www.consumidoreslibres.org/index.htm) is a nonprofit organization created to defend the right of consumers to choose freely. Their goal is to defend “to death” the rights of consumers, producers, and manufacturers. They defend the


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right to trade, which includes the right to purchase goods and services from any bidder without regard to race, religion, nationality, sexual orientation, or any other characteristic. The Free Consumers of Costa Rica association has been very active in drafting a bill for the credit and debit cards market. This bill seeks to strengthen the market for credit cards in the country so that its use is characterized by the spirit of promoting competition and consumer protection clearly established by Law No. 7472 of 20 December 1994 and Law No. 7854 of December 14, 1998. Juan Ricardo Fernandez, Executive Director from Free Consumers of Costa Rica, explained that the use of credit cards is becoming increasingly common for citizens. However, this action is flawed by the lack of safety devices on the same card, computational errors, and the lack of controls on purchases via the internet (Fernandez, personal communication June 17, 2010). Both of the above-mentioned advocacy groups lobby in the Legislative Assembly on the issues that affect the consuming population. They also lobby before the Executive branch of government. In a similar way, both groups maintain a constant monitoring on guidelines, executive decrees, and resolutions of the bodies of the executive branch. Business and Consumers' Associations Outstanding Challenges:

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Although self-regulation is promoted and seems to be working, many small and medium enterprises in rural areas do not have a vast knowledge of the 7472 Act and their obligations as providers that are established in the legislation. This shows the need to implement awareness campaigns and training activities for suppliers. Many small businesses would need implementation of specific programmes that allow them to internalize, through market tools, the profits they may generate by respecting the rights of consumers and the principles of fair competition. The state has as an unfunded mandate to promote the development of consumer organizations. Most consumer associations, particularly in the rural areas, operate without the minimum resources necessary to perform their work (computers, printers, furniture, telephone lines, etc.). The biggest associations, like the ones mentioned in this study, have been able to secure funding from a membership fee through different enterprises and the chamber of commerce, or by submitting grants to international funding agencies. The smallest, local consumer associations work with minimum resources and provide labour on voluntary basis. If the MEIC cannot provide grants to consumer organizations, they could do in-kind contributions through the support of education activities, dissemination, publications, and research. It is widely recognized that consumer associations contribute significantly not only in the work of education and disclosure of consumer rights, but also in resolving conflicts between individual consumers and suppliers. To reinforce the work of consumer advocacy groups, additional mechanisms should be incorporated into the legal framework. For example, consumer groups should be granted the authority to represent collective interests in administrative proceedings. The existence of state monopolies is very predominant in several markets and it curtails the spirit of the law in regard to free competition. In many sectors of the economy, such as energy, electricity, insurance, water, and telecommunications (including landline phone and cell phones), the Costa Rican government has been very paternalistic and it has acted as the major employer and provider of services. Recently, the government has

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announced repeatedly that breaking the monopoly in the area of telecommunications is not negotiable under the Free Trade Agreement USA–Costa Rica (FTA USA–CR). For some consumer activists, like Juan Ricardo Fernandez, this position is totally unjustifiable, both morally as well as economically. He said that by monopolizing markets, the government committed a violation of one of their fundamental human rights: economic freedom. Government officials argue that the state plays a social function in providing services to a sector of the population who cannot pay their entire cost and, therefore, cannot be served by private enterprise. And the monopoly status allows it to cover these losses with gains from a lucrative market. According to Fernandez, this argument has one main flaw. By monopolizing the market, many citizens are left without true choices, either because the state did not provide a sufficient quantity (of course there are people who must wait monthsto get the service), or because the service is too expensive in the hands of state. The result is that rather than the market, politicians are the ones who end up deciding who deserves the service (Fernandez, personal communication, June 17, 2010). Remedies Available to Consumers and Their Empowerment Roles Consumer disputes and resolutions: Within the NCC is the jurisdiction of three Executive Orders (Executive Order No. 32741-MEIC; No. 32742 and No. 32743). These executive orders created a centre to carry out specific procedures and ethic guidelines for Alternative Dispute Resolution (ADR) as an alternative to litigation through the judicial system. The Center for Alternative Dispute Resolution for Consumer (known as the Houses of Justice Program, or “Programa Casas de Justicia” in Spanish) acquired the character of public entity within the MEIC and as such, must abide by the provisions of the General Law of Public Administration, the Law of Promotion of Competition and Effective Consumer, the Law on Alternative Resolution of Conflicts and Social Peace and other special laws (MEIC-Law, n.d.). The system of ADR in terms of consumption is referred to in Article 55 of Law 7472, as a right available to both the consumer and the merchant. The issue of consumer rights and disputes constitutes an important aspect in the solution of ADR, because they drive an attitudinal change in society, aimed at seeking peaceful solutions to problems in all their forms. The ADR process emphasizes self-responsibility of the participants in making the settlements; therefore, it is a process that confers the authority of the decisions on each of the parties, and not on the mediator, and which provides benefits to both the consumer and the merchant. According to the ADR rules, a consumer with a consumer issue may choose between a mediator or an advisor/negotiator. A mediator shall be an official from the centre who manages and processes suitable records for conciliation and direct conciliation hearings. An advisor/negotiator is the official name given to a person who helps users in the Department of Consumer Service Platform (PACO) to participate in the telephone negotiation process immediately. In 2008, the number of personal reconciliation cases that entered in ADR was 1807, of which 774 were reconciled (43%). In 2009, there were 2230 cases, of which 876 (39%) were reconciled. And in 2010, the equivalent numbers were 2155 and 716 (33%) respectively (MEIC 2008, 2009, 2010). Although personal reconciliation is an ADR mechanism that has allowed the successful conclusion of conflicts in terms of time and money, the decreasing number of successful reconciled cases (43%, 39%, and 33%) might show initial signs of agency saturation.


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Consumer Complaints and Small Claim Courts Costa Ricans can go directly to the Department of Consumer Service Platform (PACO) for queries and complaints. They have a toll-free number (1-800-CONSUMO) they can call for information and advice before submitting a consumer complaint. They can also go in person to the National Consumer Commission offices located in San José and submit a report, or send an email or fax. Complainants must submit their claims along with pertinent information regarding the contract, warranty certificates, full names of the company or person, the complainant's telephone numbers, mail addresses to notify the parties (consumer and merchant), a brief description of the facts, and any other document relating to their case (DCSP n.d.). Depending on the issue, there are different deadlines to file a consumer complaint. For example, when it comes to matters relating to the guarantee of a good or service, the deadline for claims is 30 days (minimum time limit prescribed by law); or alternatively, the date the merchant has provided in writing, either on the invoice or a separate document, granting a longer period. For other violations, such as breach of contract, the act establishes a period of two months from when the facts were known. In addition to the above-mentioned resources, there are other entities where consumers can go. The Office of the Ombudsman, Defensoria de los Habitantes (DH in Spanish) was created to protect the rights of a citizen before any state agency. Complaining customers can visit their offices located in San José or call a toll-free number (800-258-7474) (DH n.d.). The Utility Regulatory Authority, known as ARESEP (http://www.aresep.go.cr), is an institution where consumers can go when they are interested in filing a grievance against a public service under the 7593 Act (public utility rates, electric power generation, public transportation, mail service, toll, fuel, gas, granting other publications, among others) (ARESEP n.d.) Public service institutions (including water [Acueductos y Alcantarrillados (AyA)], and electricity (Instituto Costarricense de Electricidad (ICE)) have comptrollers of services, where a consumer can go to file any claim in respect of relevant services. The last resource Costa Rica consumers have is the judiciary branch. Consumers may file their claims before the Courts of Justice. It is recommended that consumers take appropriate legal advice before opting for this option. If this option is pursued, they cannot use the National Consumer Commission for disputes and personal resolutions. Therefore, it is always best to investigate the most appropriate way to proceed. In order to discern whether to file in small-claims court or just file a complaint with the National Consumer Commission, Costa Ricans have a toll-free hotline: 800-CONSUMO (NCC n.d.). Class action suits are almost nonexistent in Costa Rica. Juan Marco Rivera claimed that one reason for this is rooted in the fact that the legal system in Costa Rica, unlike the legal system in the USA, is based on civil law, not common law. The common law system, which is the legal system of England and most of the former colonies of the British Empire, places great weight on court decisions. These court rulings are considered “law” with the same force of law as statutes (Rivera, personal communication via email June 18, 2010). Court decisions can also serve as “precedents” for future similar cases, except in cases in which the current dispute is fundamentally distinct from all previous cases. In this case, judges have the authority and duty to make law by creating precedents. In the civil law system, which is based on Roman law and the Napoleonic Code, judicial precedent is given less interpretive weight and has less predictability.

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Another reason for the lack of class action suits in Costa Rica is that unlike class actions in the USA, civil lawsuits in Costa Rica only apply to parties who filed suit. It does not allow a claim to be brought in the name of an unknown group of claimants, or to have absent parties received compensations. Consumer Education (Informal and Formal) The MEIC implements a national consumer education programme. MEIC provides formal and informal education for both traders and consumers at the national level. To this effect, MEIC promotes the creation of forums, workshops, conferences, and lectures in coordination with chambers of commerce, technical colleges, and higher education institutions (public and private). Business education (training for traders) has an objective to empower traders on the obligations and prohibitions to be observed and enforced in the exercise of their economic activities. It also promotes a corporate social responsibility as a competitive advantage. Traders get familiarized with the rights enjoyed by consumers, the importance of proper customer service policy in a context of strong competition, and the advantages of alternative dispute resolution. In regard to formal education, the Costa Rican government has included issues of consumer rights in the curricula of primary and secondary schools. MEIC has developed guides for teachers to teach such rights to students. Since 1996, the Public Education Ministry (MEP) and MEIC have been conducting a series of joint activities to strengthen the commitment to encourage consumer educational programmes in elementary and middle schools. With these joint efforts, both institutions explicitly recognize that consumer education is a qualitative process that allows every citizen to acquire skills and knowledge needed to make wise consumer decisions. As stated in the Teaching Tutorial, “consumer education in schools is very important because it allows children acquire knowledge and skills regarding their rights and duties.” (MEIC 2005 p. 9). It has been claimed that the Ministry of Public Education conducted evaluations of the teaching guides in 2005 with the aim of providing recommendations and suggestions to the authorities of the government for better implementation. Nevertheless, no evidence of the mentioned evaluation was found. Consumer Empowerment Although not formally measured, the interviewees believed that Costa Rica is experiencing more consumer empowerment. Zapata explained that “We have detected a more active consumer behaviour over 10 years. We have seen an increase in complaints. Consumers have better information. Our civil society is very aware of their rights and has less and less tolerance for their violations. We have become more assertive. Before it was not considered polite to claim your rights, to have your voice heard, but there has been a change in the Costa Rica idiosyncrasy. Nowadays, consumers are less likely to stay silent about abuses.” (Zapata, personal communication, June 2, 2010). Likewise, Ulate added, “we are moving toward a consumer educated society. This has changed considerably in the last 10 years. 10 years ago, consumers would have been rationalizing a consumer problem as ‘bad luck’; but now people are starting to complain more. Consumers are more aware of their individual rights, but we have had little progress in creating a collective and proactive


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participation. Very few people come to the ARESEP hearings for [public services] rate increases. For example, in the last ARESEP hearing CONCORI showed that a fare increase was not needed, but some people were in favor of the increase because the bus company that served their community has bought coffins for low income people who passed away in those communities,” (Personal communication, May 5, 2010). Vulnerable or Average Consumers? Although Costa Rica consumer law does not specifically define what an average or vulnerable consumer is, it recognizes that consumers require special protection as they are in the weakest position relative to other players in the marketplace. MEIC provides the definition of a reasonable consumer as someone who is aware of their position relative to other market players, but who also is expected to perform due diligence in their economic transactions. MEIC only uses the definition of average consumers as a reference to determine (in some circumstances) if a consumer is behaving reasonably or not. As the MEIC manual explains, the fundamental reason why the consumer requires special protection is because he/she is weaker at the end of the chain formed by the production, distribution, and marketing of goods and services. In other words, “the consumer is at a disadvantage compared to sellers and suppliers and therefore requires a policy that levels the situation with regard to other market participants.” (Fundacionambio, n.d.). Zapata explains that the current consumer legislation also requires the consumer to be responsible and diligent. The legislation establishes a series of obligations and duties to the merchant, but also promotes responsible behaviour by the consumer. He (the consumer) should read the labels, follow directions, read contracts, compare prices, and make informed decisions for legislation to protect (himself) properly (Zapata, personal communication via email, July 21, 2010). Thus, from this responsibility placed on the consumer as an active member in the marketplace was born the concept of a reasonable consumer. A reasonable consumer is understood as an informed consumer, aware of his rights, who expects to receive a good or service of certain characteristics according to information received or advertised, under the provisions of any contract, in exchange for paying a fee. A reasonable consumer is a responsible and diligent individual who carefully reads any contract to compare alternatives, and becomes adequately informed before making a purchase decision (Fundacionambio, n.d.). Yet, despise its universal appeal, the measure of the average consumer poses several challenges. The underlying assumption of this construct is that the consumer is well-informed, rational, and an attentive participant in economic transactions who would pursue his/her self-interest. This standard assumption of the “average consumer model” has often been challenged equally by scholars in the USA and in Europe. As Poncibo and Incardona (2007) eloquently concluded, this “average consumer test reflects the economists' idealistic paradigm of a rational consumer in an efficient marketplace.” (p. 35). As we have been enlightened by behavioural economists, consumers have cognitive biases and bonded rationality that constrains them from making optimal decisions (OECD 2011). Despite the fact that the average consumer test is hardly an appropriate standard for legislative or judicial sanctions, it is has been amply accepted within the context of consumer policy in many countries, including Costa Rica, that it is almost fruitless to try to dislodge it. Nonetheless, one must recognize that all consumers may be vulnerable to economic or physical damage at some point in their life. There are some who may be more susceptible to vulnerabilities due to physical or psychological limitations, which could be temporary or

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permanent. Studies in behavioural economics have indicated that the context in which a transaction occurs may increase vulnerabilities (Bertrand et al. 2006; OECD 2011). Some consumers are more often susceptible to vulnerabilities. Examples of these types of consumers are people who are perpetual victims of discrimination, people with low educational levels, people with language limitations, people with learning difficulties, visual perception, or mobility. The problem with designing consumer policies directed to an average consumer is that there is the possibility that more problematic groups are not targeted. Regulation would be acceptable if it helped the vulnerable consumer—or at least the less informed or less disciplined—without imposing extra costs on the other, for example, the most sophisticated and disciplined. It is the primary role of government to identify areas of need for government intervention. Such task may not be easy, as it requires a balance between the costs and benefits of intervention. Remedies Available to Consumers and Their Empowerment Roles Outstanding Challenges

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Even though Costa Rica has a structure in place for consumers seeking redress, there is limited access to both administrative and judicial justice regarding consumer remedies in the rural areas. Protection authorities have their offices located in San José metropolitan area (the capital of the country and where about 65% of the urban population lives). Submitting complaints in person imposes extra costs to complainants who live in rural areas. The CONCADECO report (2009) likewise emphasizes that it is essential that government agencies provide services to the greater amount of territory in the country, in order to prevent rural consumers from losing their consumer rights. Costa Rica has no regional offices for consumer protection. The degree of national coverage of consumer protection agencies in Costa Rica was rated 14% by CONCADECO, only second to Honduras with 11%, and considerably behind El Salvador with 100% coverage (CONCADECO 2009, p. 34–35). The 7242 Act only protects the consumer if the goods and services purchased are of direct benefit to him or to his family. The NCC is only empowered by law to resolve an individual consumer complaint; likewise the law does not provide the tools for proactive work in the defense of collective and diffuse interests of consumers. The complexity of the system and bureaucratic procedures creates confusion for the consumer. Consumers seeking redress do not know where to go to resolve their issues. With the high literacy rates enjoyed by the country (94.9%), one would expect consumers to be well equipped to deal with today's information driven economy. Nevertheless, significant gaps have been found in the skills Costa Ricans need to understand standard contracts for debit cards, credit cards, and insurance. Therefore, it cannot be assumed that there is a correlation between the literacy level of the country and their respective consumer literacy skills. While Costa Rica has achieved some success in consumer education efforts, it still necessitates developing awareness campaigns along with those educational efforts. The main difference between a campaign of awareness and an educational campaign is the time and depth of presented information. Awareness campaigns are short term and focus on one consumer problem or consumer issue at a time. For example, an awareness campaign can make consumers more aware of one consumer issue. Educational initiatives, on the other hand, take a long-term approach because the objective is precisely to develop skills and knowledge that can be empowering and useful to the consumer in the different market transactions, and which, in the long run, could promote changes in consumer behaviour (OECD 2005).


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Costa Rica's laws empower consumers to present objections to rate increases requested by the companies providing public services. As indicated, CONCORI and the Ombudsmen Office have been active in this field, having obtained some important achievements, but it is taking more and more specialization, manpower, and training in the area due to the technical complexity of the issues. With overwhelming technical information, consumer participation has been subsiding. The procedures established by law to resolve disputes between a merchant and a consumer in cases brought to Casas de la Justicia and the NCC are governed by the General Law of Public Administration. The application of a procedure designed to deal with bilateral processes (citizen vs. state) to a tripartite process (consumer–provider–state) is generating a series of formal and administrative problems that affect the efficiency and effectiveness of the agency in protecting consumers and in promoting competition. There is anecdotal evidence of information asymmetries in the provision of goods and services, particularly in the called, experience goods (goods whose attributes or quality can be only observed after use), as in the case of herbal remedies, wine, or vitamins. Such asymmetries may be the source of hidden detriments for consumers. For example, in the case of door-to-door sales of goods and services, consumers may not realize detriment until they find that the product did not perform as expected, resulting in an unexpected loss. There are different prices for the same good or service that varies according to payment choice. Businesses that sell on credit usually provide two different prices: one for cash purchases and the other for credit purchases. If a customer buys on credit, he/she would not only pay more in interest, but also in padded fees quoted as part of the installment plan. There is a big issue regarding misleading advertising. The merchant and the advertising agencies are always giving consumers partial messages, or messages that are clearly misleading for goods and services that are being sold (Ulate, personal communication May 5, 2010).

Typology of Consumer Protection Regime in Costa Rica It has become increasingly certain that a successful, effective consumer protection regime is that in which more than one player is actively involved. Given the social market economy and paternalistic political system of the country, the incipient efforts in consumer protection, and the fact that the country is a developing county, one would have hypothesized that Costa Rica fit into Model 1 of the taxonomy presented in the Organization for Economic Co-operation and Development (OECD) study. The professionals interviewed for this study agreed on a classification of the country as a continuum between model 1 (consensual and interventionist) and model 2 (mixed model). The Costa Rica legal framework for consumer protection is similar to the USA, which provides both competition laws and provisions dealing with consumer rights. In Costa Rica, the Ministry of Industry and Commerce (MEIC) and its consumer agency, the National Consumer Commission (NCC) (which is homologous with the Federal Trade Commission in the USA) enforces and penalizes, with fees and fines, any contraventions or business practices that engage in restrictive trade. At the business level, NCC evaluates mergers and determines whether different economic sectors have unwarranted concentration of economic power. At the consumer level, it promotes the formation of a consumer educated civil society. Erick Ulate, President of Consumidores de Costa Rica (CONDECO), believed that there is a constant political struggle between regulating and not regulating the market. In some instances, the private sector gains a lot of support, and at other times, the regulating agencies play the only role, he explained. For him, it is clear that there is some interest by the state to regulate certain activities, though this does not mean that the state is interested in regulating all market activities, all the time (Ulate, personal communication, May 5, 2010).

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For Cynthia Zapata, the Executive Director of the National Consumer Commission, Costa Rica is still in model 1, but migrating to a mixed model (model 2). Why are they not in a mixed model yet? Because Central American countries still have a way to go in technical regulations. According to Zapata, Costa Rica has the lead in technical regulations (defined as rules of quality that a product must meet to enter a national market) in relation to other Central America countries, but the country still lags behind in meeting the requirements for some international markets. “When the country tries to compete with its products in European countries, it is when Costa Rica realizes that it lags behind the rules of the game.” (Zapata, personal communication, June 2, 2010). For example, for Costa Rican products to be positioned in Europe, they have to comply with a series of quality standards, which are all tested in laboratories. Costa Rica still needs to build capacity so that their products can compete with the European domestic and international market. Concomitantly, Costa Rica needs to build enforcement capacity to verify that its European trading counterparts would export products to the Costa Rica markets that comply with the established international standards. One example of quality technical standards for both national and international markets is in the dairy industry. In Costa Rica, it is illegal nationally and internationally to sell milk in bulk without pasteurization.

Concluding Remarks and Suggested Recommendations The adoption of the 1985 United Nations Consumer Protection Guidelines inspired many Latin American nations to include consumer protection provisions in their constitutions. According to Consumers International, there are about 30 nations worldwide with constitutional provisions, including Costa Rica. Before the 1980's, the framework for consumer protection in Latin America was aimed at the protection of the health and safety of consumers, but there was not a broad framework to govern consumer goods and services. The goal of this paper was to identify the main components of the consumer protection framework, its strategies, consumer problems, remedies, and consumer protection challenges. Undoubtedly, Costa Rica has the political momentum and a real interest by the private and public entities to improve their national consumer protection policy. One of the major challenges that remain is to find a balance between intervention costs and benefits. From the information gathered, there appears to be an active interest in facilitating the insertion and integration of the country into the global economy. Enforcement tools present a coordinated effort that included sanctions and financial penalties, self-regulatory arrangement, and consumer complaints and queries submitted to Ombudman offices. Similar to other countries around the world, consumer protection in Costa Rica is not a priority in the national agenda. Aligned with its social market economy, the country's priorities are in education, transportation, and health. With constrained budgets, the approach to consumer policy has been reactive as opposed to proactive. This study identified several challenges in the legal and institutional framework, in the role of the private sector and consumer advocacy groups and in the remedies available to Costa Rica's consumers. The taxonomy of the countries used in the UKDTI study is useful for scholars to identify a country's consumer policy based on a number of criteria such as legal framework, institutional framework, and consumer empowerment. Because of the author's a priori knowledge of the economic and political system in Costa Rica, it was expected that Costa Rica would be classified under model 1 (consensual and interventionist). Based on the response of the reviewers and on the observation of consumer protection practices in the country, Costa Rica seems to be moving on a continuum from model 1 to model 2 (which is a paradigm more common in developed countries). The only plausible explanation for the transitional path from Model 1 to Model 2 could be the


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irreversible impact of globalization in the Costa Rica economy. But even with that explanation, Costa Rica cannot be boxed into a theoretical classification. Based on empirical observation, it is concluded that Costa Rica exhibits a hybrid model of consumer protection that can be explained using an analogy of three edges of a pyramid. The first edge of the pyramid is a capacity-sharing effort between the various entities responsible to protect consumers. In addition to adequately covering the outline of consumer protection in the Constitution, Costa Ricans have mechanisms in place to seek consumer redress and resolutions. The main players in this coordinated effort are government officials, the private sector, and shareholders in civil society. The second edge of the pyramid is the law enforcement and judicial administrative structure. Finally, the third edge of the pyramid is the theme of education for consumersand for merchants. Costa Rica promotes education among the different stakeholders, promotes self-regulation, the adoption of both mandatory and voluntary standards, and encourages the active participation of the civil society. Avisual representation of the hybrid model is presented in Figure 2. The listed recommendations below suggest possible solutions to the identified challenges: 1. 2.

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Strengthen Costa Rica's regulatory framework in order to advance preventive work in the protection of consumer rights by empowering the NCC to initiate investigations on its own. Implement a procedure to fit the tripartite nature of the conflicts that consumers face. The procedure should be guided by principles of celerity, simplicity, and efficiency within a framework of legal due process. Expand NCC consumer protection authority to take and handle both individual and collective complaints. By not taking collective consumer issues, the amounts of individual cases are significantly increasing not only in the conciliation stage, but also in administrative procedures. Indeed, this study shows a decrease in the effectiveness and efficiency in the administrative action of the NCC, which may worsen in the long term, if no action is taken in the short term to strengthen the management and operational capacity of the Directorate of Consumer Support Area and the NCC.

Fig. 2 Proposed model of consumer protection in Costa Rica

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Allow the NCC to have a board made up of members with different multidisciplinary background (not just attorneys). Promote the insertion of consumer protection in the curriculum of not only elementary and secondary school, but also in tertiary schools. Neither Costa Rica nor any country in Central America currently offers consumer science courses. Costa Rica is seeing an increase in the need for training consumer affairs professionals. At present, most of the people involved in consumer protection in Costa Rica come from political sciences or law school. Teaching graduate—and undergraduate—level classes in consumer sciences would bring a new body of discipline-based information to prepare professionals in the field. Implement two strategies to resolve the issue of the MEIC's unfunded mandate to support consumer organizations. The first one would be to allow NCC to allocate money, from fines and penalties, to a special fund that will support the activity of grass-root level consumer organizations. The second strategy would be to, along with the creation of an academic initiative to teach consumer science courses at major universities, develop an internship programme or a service-learning course, or expand the current communal work programme required in some universities, in which graduates could work directly with consumer organizations by providing them with technical and operational support. Strengthen the active participation of the academic sector in consumer protection. This is essential not only for the training of human resources in business and civil society, but also for providing volunteer interns to help increase the technical and operational capacity of consumer organizations, the NCC, and Support Directorate. Allow consumer advocacy groups to bring forward complaints representing collective consumers. Increase the NCC's operating resources to open offices in rural areas. To this end, the NCC and the DSP can implement pilot projects for decentralization and expansion of functions in the countryside. Strengthen alternative methods of dispute settlement, such as conciliation and arbitration, with an emphasis on conciliation by phone or online. Shown in Table 2, the number of appointments via phone increased from 57% to 71% in just 2 years, and the number of appointments via email increased from 10% to 13% (MEIC 2009, 2010). In this way, NCC could free more human resources for preventive and education efforts and for consolidation of services provided by consumer associations. Releasing these resources would allow proactive market supervision to be a priority, strategically refocusing the work of the agency. Encourage entrepreneurs in rural and metropolitan areas to have a proactive role in the defense of consumers and promotion of fair competition. Strengthen certification programmes of good business practices as a voluntary system whereby the supplier agrees to comply with certain established practices (for example, provide truthful information about the product offered, comply with agreed terms, implement return policies for defective products, have a customer service platform), and be affiliated with the national conciliation system. Such practices bring multiple benefits. Onthe one hand, the supplier competes fairly and differentiates itselffrom others who do not. On the other hand, the consumer can identify which companies respect the rights of consumers before purchasing from them. Review the role of the NCC as a punitive agency and provide the legal authority so that the agency can utilize other consumer policy instruments such as moral persuasion. Moral persuasion occurs when the government seeks to influence or pressure the companies to meet specific objectives without directly regulating their activities (OECD 2010). This could be accomplished by promoting corporate responsibility (in the social and economic sense), recognizing consumer friendly companies via an award system, or by naming and shaming firms that act contrary to consumer interests.


13.

14.

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Involve the media. The media could play a fundamental role in presenting exposé cases as well as facilitating widespread consumer awareness and educational campaigns. This could be done through public service announcements. Consumer protection legislation should go hand in hand with a global openness. In fact, the current consumer protection legislation is itself in a transition state (from a closed market to an open one.) Law 7472 is more than 15 years old. In the interim, public officials are working to improve the scope of an inter-agency law, and they are making a proposal to reform the rules of Law 7472 (Zapata, personal communication, June 2, 2010). Several amendments and legal initiatives have been put in place via executive orders, as bills in the National Legislative Assembly may take up to 10 years.

Appendix

Table 3 Economic and demographic indicators of Costa Rica Costa Rica 2009 Population

4636348 (2012 est.)

Unemployment rate

6.5% (2012)

GDP Per capita (in U.S. dollars)

$11500 (2011 est)

Population below poverty line

16% (2006 est.)

Inflation rate Population growth rate

5.3% 1.28% (2012 est.)

Birth rate (births/1000 population)

16.4 births/1000 population (2012 est.)

Death rate (deaths/1000 population)

4.38 (2012 est.)

Infant mortality rate (death/1000 live births)

9.2 deaths/1000 live births (2012 est.)

Life expectancy at birth

77.89

Female life expectancy at birth

80.65 (2012 est.)

Male life expectancy at birth

75.26 (2012 est.)

Children born per woman White (including mestizo)

1.93 (2010 est.) 94%

Black

3%

Amerindian (and Alaskan)

1%

Chinese

1%

Other races

1%

Roman Catholic

76.3%

Evangelical

13.7%

Jehovah's Witnesses Other religion

1.3% 4.8%

No religion

3.2%

Literacy over age 15 (read and write)

94.9%

Internet users

1.46 million (2008 est.)

Official language

Spanish (official), English

Currency

Costa Rica colones

Location

Central America (between Nicaragua and Panama

Total area

19730 mile2

84

L.M. Delgadillo

An assessment of Consumer Protection Policies in Costa Rica Questionnaire Interviewee Name and Affiliation: ________________________________________ What does the institution do? I. Philosophy and consumerist movement in Costa Rica (CR) What do you think is the vision of CR in terms of consumer protection? What are the public and private mechanisms for consumer protection? In your opinion, would you say that CR follows an interventional, noninterventionist, or mixed model for consumer protection? To whom are most of the policies addressed? To the average consumer? To the vulnerable consumer? II. Questions regarding the institutional framework: What do you think is the degree of trust in contract law in the country? In your opinion, does CR have a comprehensive consumer law or are there serious biases and fragmented efforts? Are there any compensatory mechanisms that exist for a consumer? (e.g., filing a complaint for possible damages compensation.) Are these compensatory tools only for the individual or for a group of individuals? How active are Costa Ricans as consumers? Why? How did they reach that level of activity? III. Efforts to enforce current legislation: What kinds of actions are taken against companies that violate the rights of consumers? Who takes those actions? Do people utilize the courts to seek compensation? What are private initiatives for consumer protection, if any? [e.g., incentives such as licensing, good reputation] Is mediation and arbitration used? IV. Educational efforts: What are the educational efforts by the government? Have they been evaluated? Thanks for your time. Can you suggest someone else to interview? List of Interviewees cited in paper: Cynthia Zapata, Executive Director of the National Consumer Commission. Ministry of Economy, Industry and Commerce Erick Ulate, president of CONCORI [Consumers of Costa Rica] Juan Ricardo Fernandez, Executive Director from Free Consumers of Costa Rica. Juan Marcos Rivera, Attorney. Additional Interviewees not cited in paper: Harold Hutt, Ministry of Economy, Industry and Commerce Kattia Chaves Matarrita, Consumer's National Commission Technical Department


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