State overregulation to the consumer’s and economy’s detriment

On August 15, 2007 the Government of Moldova adopted the Decision No.934 regarding the institution of the automated information system “State Register of Bottled Natural Mineral, Drinking Water and Non-Alcoholic Drinks”. Earlier, there were created such information systems as the State Nomenclature of Medicines and the State Register of Ethyl Alcohol and Alcoholic Production Circulation. Under the given decision, the bottled natural mineral, drinking water and non-alcoholic drinks that are produced, imported and sold in Moldova must have a state trademark applied on them as from January 1, 2008. Import of such products without marks into Moldova will be banned. The Government says the decision was taken in a move to toughen up control over products’ quality. At the same time, producers and experts in the field say this is a new excessive control by the state imposed through not always legal levers. [Contrary to the legislation, market rules and international practice] In this connection, [analyst Igor Gutan] says that the information systems similar to those mentioned are not a solution to the existing or invented problems. Moreover, they generate problems, including additional expenses, to the entrepreneurs and consumers. The implementation of the Decision will have as a result the rise in the price of bottled natural mineral, drinking water and non-alcoholic beverages, which will ultimately affect the consumers. The increase in prices is imminent if the operating costs of the entrepreneurs grow. The Government Decision does not say how much the state trademark will cost. According to Igor Gutan, what is essential is that the price cannot be approved by the Government or by the State Main Fiscal Inspectorate, but by law. Article 6 of the Law No. 235 of July 20, 2006 regarding the basic principles of regulating entrepreneurial activities will take effect also on January 1, 2008. The article says that the payments for the provided services and the documents issued to entrepreneurs by the public authorities and other regulatory institutions are fixed by law by indicating the type of service, the size of taxes for services and documents etc. The expert denies the declared aim of the Decision regarding the toughening up of control over products’ quality. According to him, the quality can be ensured by other means, not necessarily by applying a trademark. In other states this type of products is not marked and the registers are used only to register the goods. The portal www.moldapa.md will be a component of the new system, but as long as the number of internet users, especially in rural areas, is insignificant, the utility of the portal as informative instrument for consumers is questionable. For example, it is rather difficult to imagine that the people that drink beverages sold in the street, in cafes and restaurants will permanently check the trademark stuck on the bottle to see if it is or is not included in the system. The consumers in rural areas for sure will not do this. [A new and illegal form of taxation] Igor Gutan considers that the Government’s initiative to put the state trademark for sale is in fact a new form of taxation. The money collected from sales will have the status of extra-budgetary resources of the State Main Fiscal Inspectorate. The obtaining and application of the trademark will be regulated by the regulations concerning the labeling of bottled natural mineral, drinking water and non-alcoholic drinks with the state trademark, provided in Appendix 5 of the Decision. It is worth noting the stipulations of letter b), point 12 that will oblige the importers to sign direct contracts with the producers. In the conditions of a free market, a commercial relation does not obligatory envisage a contract, and if a contract exists, the relation must not necessarily be direct and only with the producer. Contrary to the practices laid down for other areas, the respective regulations do not envisage the restitution of money by the state when the entrepreneur returns the unused or damaged trademarks. Unlike these regulations, the regulations concerning the institution of the system for labeling the indigene and imported goods with excise stamps approved by the Ministry of Finance envisages the restoration of the money. Therefore, we can speak about discrimination of a category of entrepreneurs. By the stipulations of point 24 of the regulations, the Customs Service is empowered with a new right – to ban the production of bottled water and non-alcoholic drinks liable to labeling if they were not marked with state trademark when manufactured. Firstly, such a right can be given only by law and secondly, the stipulations of Decision No.934 apply to the Customs Service only when the respective products are imported. According to the expert, many things are yet unclear, though the new rules will come into force in a short period of time. Since the importation of bottled mineral water and non-alcoholic drinks without state trademark will be banned as of January 1, 2008, it looks that the entrepreneurs that will place the merchandise under temporary admittance regime will also have to buy it. The entrepreneurs will not be exempted from this obligation even if they decide to leave the goods to the state. It is not clear what will happen to the products that will be in store on January 1, 2008. They could be withdrawn from circulation, because point 22 of the regulations says that the marking must be done while producing the goods, but the importers and sellers do not have such a right. The exported products will also be liable to marking, fact that will negatively influence their competitiveness on other markets as the costs will rise. [Legal ways for avoiding the law] Intentionally or not, the Government left some doors for avoiding the implementation of this Decision. According to the regulations concerning the non-alcoholic drinks stipulated in Appendix 3 of the Decision, to be considered non-alcoholic, the drinks should meet the following conditions: a) to contain at most 0.5% of alcohol (measured at the temperature of 20◦C); b) to be made from drinking water by adding food additives, fruit and/or vegetable juices, including concentrates, fruit, berries and/or aromatic plant syrups etc. The regulations also say that the fermented drinks that contain up to 1.2% of alcohol are considered non-alcoholic drinks. At the same time, article 1 of the Law No. 1100-XIV of June 30, 2000 regarding the manufacture and circulation of ethyl alcohol defines the alcoholic products as food products that contain over 1.5% of ethyl alcohol. As a result, the Decision No.934 does not extend to the drinks that contain between 0.51% and 1.49% of alcohol, except the fermented ones. The decision does not relate to the fermented drinks that contain between 1.21% and 1.49% of alcohol, Igor Gutan said. [Overregulation as economic style] The rather detailed analysis of the situation in a certain sector of the Moldovan economy comes to confirm the generalized conclusions formulated by experts earlier. [Alexandru Culiuc, public policy doctoral student at the Harvard University in the U.S.] gives as example data from an economic study aimed at identifying the major constraints in the Republic of Moldova. One of the main problems discovered is the overregulated business environment. Alexandru Culiuc says that the Moldovan economy suffers from excessive state interference. According to the analyst, there are a range of situations when the market mechanism fails. The state uses these situations to interfere in the market economy. In today’s Moldova, the state interference is yet rarely determined by the wish to offset against certain failures. The further distortion of the market through new interferences (regulations, subsidies, licenses, taxes etc.) is regarded as a panacea for all the economic and social problems. Culiuc does not say that the state should fully withdraw from the economy. But he considers that it is time to analyze the state policies from the viewpoint of economic efficiency, leaving the populism out. [Another standpoint] Asked by Info-Prim Neo to comment on the created situation, [Roman Mihaes, president of the League for Consumers’ Rights Protection,] said that the institution of the automated information system “State Register of Bottled Natural Mineral, Drinking Water and Non-Alcoholic Drinks” seems to be in the interests of the consumers. He sees no problem in the fact that the goods produced, imported and sold in Moldova must have the state trademark on them. At least as long as Moldova does not effectively control its eastern border and there are cases of smuggling and counterfeiting of mineral water and non-alcoholic drinks. It is important that this procedure is transparent and not costly and it does not create problems to the importers. Mihaes suggests assessing the trademark application procedure in a year to see how efficient this action is. As regards the costs, Roman Mihaes estimates that a bottle will grow dearer by about 0.1-0.2 lei, which is not a significant rise if considering the intentions of increasing health protection. The food safety in Moldova must be a priority for the government and for the economic entities, concludes the president of the League for Consumers’ Rights Protection.