An Assessment of Consumer Protection and Consumer Empowerment in

Costa Rica

Introduction

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 United States and in Europe (Asher 1998;

McGregor 1996; Rock, Bievert, Fisher-Wink 1980; OECD2010), a

seminal study by the United 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

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(CONCADECO), and other documents provided to the Principal

Investigator (PI) during interviews conducted in Costa Rica.

The literature review section presents the theoretical

framework used in this analysis as well as other relevant

concepts and definitions associated with consumer protection.

The second section describes the methodology. Before the third

section, which encompasses the analysis and discussion of

consumer protection in Costa Rica, a brief background concerning

the socio-economic 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

I. 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

socio-economic 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

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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 q 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).

II. 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, Garman and Keiser 2003).

In market economies, the interest of business, government,

and consumers converge in the market place. The business sector,

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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. 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.

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III. 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 brand-building and creating a

profitable company.

Several countries, including the UK, US, 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

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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 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

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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 Stiglitz

1986). Nevertheless, as behavioral 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 well-being. 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 programs at the local

level in place, such as financial counseling and debt counseling.

However, consumer education programs 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

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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

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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).

IV. 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.

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The real possibility of court action improves the bargaining

position of the consumer. An example of a mixed model country is

the US.

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 non-interventionist 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 US 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.

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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 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.

Socio-Economic Conditions in Costa Rica

Costa Rica is one of the most developed countries in Central

America.  It is well known 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

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allowed the country to devote more resources to economic

development and improvement of socio-economic conditions. With

no military spending, the government has been able to devote more

resources to social programs 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 4,636,348 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 7 provinces. Its legal system

is based on the Spanish civil code -- Roman Law-- and its

government is divided into 3 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 15-20% 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

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is literate. Unemployment averages at about 6%, and average

yearly inflation rate is about 5%. Labor 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 1 in

Appendix ) (CIA n.d.).

Analysis and Discussion

I. 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 n.d).

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

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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 twenty 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 US, but on the United

Nations’ Guidelines for Consumer Protection, passed in 1985 and

expanded in 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 US are: (1) Right to Choose; (2) The

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, 2010). 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 United States’ one.

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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.

<Insert Table 1 here>

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 monopolies1, 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 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).

1 It is interesting to observe that the Costa Rica Constitution forbids private monopolies or anymonopolistic 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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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 programs 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).

Insert Figure 1 here

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

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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 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

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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 8 studies

conducted. Another example of a strategic goal set in 2009 was

to recover US$733.918 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$1,442,157 (exchange rate in 2009 1 US$= 545 Colones). In 2010,

the objective was to recover US$1,083,793. A total of

$1,546,231.81 (exchange rate 1 US$= 498 Colones) were recovered,

which corresponded to 143% of the target (MEIC 2009 and 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 Consumer National Commission Technical Department serves as

technical support Unit of the National Consumer Commission, under

the terms described in Article 22 of the Law

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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.

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 programs for

consumers and other operators involved in the market.

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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 programs 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.

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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.

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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 USD$300 to USD$12,000 (2010 conversion

rates) (MEIC, n.d.). NCC has no authority to utilize

resources 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

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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 referres 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

protection agencies in Costa Rica was as follows: Economic:

67%; Administrative: 67%; and Functional: 75% (COCADECO

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.

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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 exante 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

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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 Ministry of Economy, Industry and

Commerce (MEIC) in 2010-2012 represented about 0.1% of the

national budget (approx. 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.

Insert Table 2 here

II. Market Place Constituents and Consumer Issues

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 nationalbudget, 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%).

25

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” (p. 1) (Fundacionambio n.d)

The document is a clear message as to the type of behavior

desired by the authorities responsible for protecting the

interests of consumers. The manual facilitates a responsible

26

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

27

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

Herbert J. 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.

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 (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

28

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 non-profit

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

29

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 labeling 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 (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

30

of consumers, producers, and manufacturers. They defend the

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 (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:

31

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

programs 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 labor 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.

32

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

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

33

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 (Personal communication,

June 17, 2010).

III. 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 Center 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 Ministry of Economy, Industry and

34

Commerce (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 alternative dispute resolution

(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 Center 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 2,230 cases, of which 876 (39%) were reconciled. And

35

in 2010, the equivalent numbers were 2155 and 716 (33%)

respectively (MEIC 2008, 2009 and 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%,

33%) might show initial signs of agency saturation.

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

36

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

37

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 US, 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 (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.

Another reason for the lack of class action suits in Costa

Rica is that unlike class actions in the US, 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)

38

The Ministry of Economy, Industry and Commerce (MEIC) implements

a national consumer education program. 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 programs 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,

39

“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 behavior

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.”

(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

40

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.)

41

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 behavior 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 (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 US and in Europe. As

Poncibo and Incardona (2007) eloquently concluded, this “average

42

consumer test reflects the economists’ idealistic paradigm of a

rational consumer in an efficient marketplace” (p. 35). As we

have been enlightened by behavioral 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 permanent. Studies in

behavioral economics have indicated that the context in which a

transaction occurs may increase vulnerabilities (Bertrand,

Mullainathan, & Shafir, 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

43

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

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

44

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

45

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 behavior (OECD 2005).

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.

46

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).

IV. 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

47

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 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 US, 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 US) 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

48

the State to regulate certain activities, though this does not

mean that the State is interested in regulating all market

activities, all the time (Personal communication, May 5, 2010).

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” (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,

49

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.

50

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

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

51

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 consumers

and 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. A visual representation of

the hybrid model is presented in Figure 2.

Insert Figure 2 here

The listed recommendations below suggest possible solutions to

the identified challenges:

1. 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.

2. 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.

52

3. 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.

4. Allow the NCC to have a board made up of members with

different multidisciplinary background (not just attorneys).

5. 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.

6. 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

53

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 program or a service-learning course, or expand the

current communal work program required in some universities, in

which graduates could work directly with consumer organizations

by providing them with technical and operational support.

7. 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.

8. Allow consumer advocacy groups to bring forward complaints

representing collective consumers.

9. 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.

10. 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 two 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

54

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. 11.

Encourage entrepreneurs in rural and metropolitan areas to have a

proactive role in the defense of consumers and promotion of fair

competition. Strengthen certification programs 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. On the one hand, the supplier competes fairly and

differentiates itself from others who do not. On the other hand,

the consumer can identify which companies respect the rights of

consumers before purchasing from them.

12. 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

55

system, or by naming and shaming firms that act contrary to

consumer interests.

13. 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.

14. 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 (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 ten years

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