KATHMANDU UNIVERSITY SCHOOL OF MANAGEMENT

Balkumari, Lalitpur, Nepal

BUSINESS ENVIRONMENT IN NEPAL EMBA 2021 (1st Sem)

ANALYTICAL REPORT

Protection of Consumer Interests

Submitted by:

Suprim Shrestha

Roll no: 21527

Submitted to:

Mr. Rameshore P. Khanal

June 18, 2021

 Introduction
Consumer protection laws are designed to protect and promote consumer interest, but who is the
consumer for whom the law seeks to protect and what is consumer interest? The term ‘consumer’
generally refers to a natural person, regardless of nationality, acting primarily for personal, family
or household purposes.

When we buy a good or service, we rarely have perfect knowledge of its quality and safety. We
are justifiably concerned about getting “ripped off.” Thus the need for consumer protection.
Economic activity flourishes when consumers can trust producers, but the consumer must have
grounds for trust. Consumers value, then, not only quality and safety, but also the assurance of
quality and safety.

Responsible for consumer protection

The function of consumer protection falls within the extent of both public and private bodies and
may be conferred by specific laws or assumed by them through virtue of their status. The following
bodies may play a role in consumer protection:

1. Government agencies
These may be Ministries or Departments of Consumer Affairs set up specifically to
administer and enforce consumer protection laws. In some countries, there are also
Consumer Advisory Councils or Committees, which have broad-based representation and
serve as a consultative mechanism to advise the Government on consumer protection
policies

2. Statutory/non-statutory standards bodies

There are Government and non-governmental bodies established to set standards for
product safety and quality control and issue certification marks. Most countries have
national standards bodies with an autonomous status, usually affiliated to the International
Organization for Standardization (ISO), which negotiates standards between
representatives of industry and other stakeholders, including consumers. National
standards often transpose international standards.

3. Ombudsmen
Ombudsman provides the public with information and advice on consumer rights and
assists with the settlement of disputes through mediation and arbitration. Initially
developed to deal with maladministration in public services, Ombudsmen have spread to
the private sector and may sometimes have a generic consumer protection remit in a given
locality.
4. Professional and industry associations
Professional and industry associations may conduct their own complaints handling and
disciplinary proceedings against their members and develop Codes of Conduct, often in
negotiation with consumer protection agencies. Aggrieved consumers may refer their
problems to these mechanisms for settlement.

5. Consumer associations

A well-organized and widely representative group of individual consumers can become a

strong force. The independent consumer movement is now well recognized in many
consumer protection regimes as a legitimate representative of the interests of consumers
and consumer representatives are called upon to sit in Government-recognized
committees to voice the views of consumers.

Necessities of consumer protection

Consumer protection addresses disparities found in the consumer-supplier relationship, which
include: Bargaining power, Knowledge and Resources.

State intervention is premised to provide consumer protection on a number of grounds, including:

Economic efficiency: In the case of a market economy, economic efficiency is a pre-requisite to

ensuring that all systems are functioning optimally. In an ideal market economy, the market is in
perfect equilibrium when the supply and demand side have equal power. Suppliers will:
 Engage in fair competition
 Provide consumers with full information on their products
 Observe all laws regarding safety and quality standards
 Compensate consumers if problems arise with their products or services.

On the demand side, consumers will act reasonably and purchase only products of the required
quality at the best price, thereby weeding out any uncompetitive suppliers. Consumers should be
well informed about a product or service before making a purchase. They should be
knowledgeable remedies available to them so that they can actively pursue these rights.

Individual rights: Consumer protection is designed to protect individual rights in the pursuit of
considerate treatment and dignity. Consumer rights are part of the range of social rights which
individuals are entitled to claim in a modern society.

Distributive Justice: Many States concerned with the public welfare implement policies that aim
at redistribution from the wealthy to the poor and guarantee access to basic goods and services.

Right to development: The right to development is a human right that recognizes every human
right for constant improvement of well-being.
 Review of Presentation (Free To Choose 1980 - Vol. 07 Who Protects
the Consumer? – Milton Friedman)
The accident of General Motors Corvair has led to a major change in both the extent and the
character of government involvement in the marketplace in the name of protecting the consumer.
Then a veritable explosion in government regulatory activity occurred. Regulatory agency was
established and instead of being concerned with specific industries, they covered the waterfront:
the environment, the production and distribution of energy, product safety, occupational safety,
and so on. In addition to concern with the consumer's pocketbook, with protecting him from
exploitation by sellers, agency are primarily concerned with things like the consumer's safety and
well-being, with protecting him not only from sellers but also from himself.
Government expenditures were skyrocketed in millions of dollars. They were just assuring
consumer safety, protecting their health but dominating to organize economy effectively. Their
restriction have been resulting antigrowth. They have been opposed to new developments, to
industrial innovation, to the increased use of natural resources. Agencies established in response
to these movements have imposed heavy costs on industry after industry to meet increasingly
detailed and extensive government requirements. They have prevented some products from
being produced or sold.
Competition was fiercest between distant, populous points such as New York and Chicago.
Shippers and passengers could choose among a number of alternate routes operated by different
rail-roads and also among the canals that had earlier covered the land. On the other hand,
between shorter segments of any one of these routes, for example, between Harrisburg and
Pittsburgh, there might be only one railroad. That railroad would have something of a monopoly
position, subject only to competition from alternative means of transport, such as canals or rivers.
Naturally, it would take full advantage of its monopoly position wherever it could and charge all
that the traffic would bear.
One result was that the sum of the fares charged for the short hauls or even for one short haul
was sometimes larger than the total sum charged for the long haul between the two distant points.
Of course, none of the consumers complained about the low prices for the long haul, but they
certainly did complain about the higher prices for the short hauls.
The first commissioner was Thomas Cooley, a lawyer who had represented the railroads for many
years. He and his associates sought greater regulatory power from Congress, and that power
was granted. The commission solved the long-haul/short-haul problem. It did so mostly by raising
the long-haul rates to equal the sum of the short-haul rates. Everybody except the customer was
happy.
When trucks emerged as long-distance haulers. The artificially high freight rates maintained by
the ICC for railroads enabled the trucking industry to grow by leaps and bounds. It was
unregulated and highly competitive. Anybody with enough capital to buy a truck could go into the
business. But that did not stop the railroads from agitating to have long-distance trucking brought
under the control of the Interstate Commerce Commission.
The railroad story was repeated for trucking when the ICC jurisdiction came over truckers to
protect the railroads, not the consumers. It was cartelized, rates were fixed, routes assigned. As
the trucking industry grew, the representatives of the truckers came to have more and more
influence on the commission and gradually came to replace railroad representatives as the
dominant force. The ICC became as much an agency devoted to protecting the trucking industry
from the railroads and the non-regulated trucks as to protecting the railroads against the trucks.
With it all, there was an overlay of simply protecting its own bureaucracy.
The elimination of ICC regulation of trucking would drastically reduce costs to shippers
A trucking company in Ohio, Dayton Air Freight, offers a specific example. It has an ICC license
that gives it exclusive permission to carry freight from Dayton to Detroit. To serve other routes it
has had to buy rights from ICC license holders, including one who doesn't own a single truck. It
has paid as much as $100,000 a year for the privilege. The owners of the firm have been trying
to get their license extended to cover more routes, so far without success.
As one of their customers, Malcolm Richards, put that the ICC is sitting on its hands doing nothing.
That was the third time to his knowledge that he had supported the application of Dayton Air
Freight to help him save money, help free enterprise, help the country save energy.It all comes
down to the consumer's ultimately going to pay for all this.
One of the owners of Dayton Air Freight, Ted Hacker, adds there is no free enterprise in interstate
commerce. It’s no longer exists in the country. They have to pay the price very dearly. And that
not only means that they have to pay the price, it means the consumer is paying the price.
But this comment has to be taken with a real grain of salt in light of a comment by another owner,
Herschel Wimmer that he have no argument with the people who already have ICC permits
excepting for the fact this is a big country and since the inception of the ICC in 1936, there have
been few entrants into the business. They do not allow new entrants to come into the business
and compete with those who are already in.
If the ICC had never been established and market forces had been permitted to operate, the
United States would today have a far more satisfactory transportation system. The railroad
industry would be leaner but more efficient as a result of greater technological innovation under
the spur of competition and the more rapid adjustment of routes to the changing demands of
traffic. Passenger trains might serve fewer communities but the facilities and equipment would be
far better than they are now, and the service more convenient and rapid.
Similarly, there would be more trucking firms though there might be fewer trucks because of
greater efficiency and less waste in such forms as the empty return trips and roundabout routes
that ICC regulations now mandate. Costs would be lower and service better. The reader who has
had occasion to use an ICC-licensed company to move his personal belongings will have no
difficulty in accepting that judgment.
By contrast with the ICC, the second major foray of the federal government into consumer
protection. The Food and Drug Act of 1906 did not arise from protests over high prices, but from
concern about the cleanliness of food and good quality drugs. Their economic interest was clear:
patent medicines and nostrums, sold directly to the consumer by traveling medicine men and in
other ways, competed with their services. Beyond this, they had a professional interest in the
kinds of drugs and medicines available and were keenly aware of the dangers to the public from
useless medicines promising miraculous cures for everything from cancer to leprosy. Public spirit
and self-interest coincided.
The act was largely limited to the inspection of foods and the labeling of patent medicines, though,
more by accident than design, it also subjected prescription drugs to control, a power The effect
on the rate of innovation of new drugs is dramatic: the number of "new chemical entities"
introduced each year has fallen by more than 50 percent since 1962. Equally important, it now
takes much longer for a new drug to be approved and, partly as a result, the cost of developing a
new drug has been multiplied many fold. As a result, drug companies can no longer afford to
develop new drugs in the United States for patients with rare diseases. Increasingly, they must
rely on drugs with high volume sales. The United States, long a leader in the development of new
drugs, is rapidly taking a back seat. And we cannot even benefit fully from developments abroad
because the FDA typically does not accept evidence from abroad as proof of effectiveness. The
ultimate outcome may well be the same as in passenger rail traffic, the nationalization of the
development of new drugs.
Many more drugs were available in other counties that were not available in the United States.
When they examine the therapeutic significance of drugs that haven't arrived in the U.S. but are
available somewhere in the rest of the world, such as in Britain, they came across numerous
examples where the patient has suffered. For example, there are one or two drugs called Beta
blockers, which it now appears can prevent death after a heart attack called as secondary
prevention of coronary death after myocardial infarction, if available there, could be saving about
ten thousand lives a year in the United States. In the ten years after the 1962 amendments, no
drug was approved for hyper-tension that's for the control of blood pressure in the United States,
whereas several were approved in other countries
The implications for the patient are that therapeutic decisions that used to be the preserve of the
doctor and the patient are increasingly being made at a national level, by committees of experts,
and these committees and the agency for which they are acting the F.D.A. are highly skewed
towards avoiding risks so there's a tendency for them to have drugs that are safer but not to have
drugs that are effective.
This inevitable bias is reinforced by the reaction of the pharmaceutical industry. The bias leads to
unduly stringent standards. Getting approval becomes more expensive, time-consuming, and
risky. Research on new drugs becomes less profitable. Each company has less to fear from the
research efforts of its competitors. Existing firms and existing drugs are protected from
competition. New entry is discouraged. Research that is done will be concentrated on the least
controversial, which means least innovative, of the new possibilities.
The FDA could offer safety and efficacy certification services; manufacturers could seek FDA
certification if they so desired, but would be left free to produce and market the product without
FDA certification. This would free consumers and their agents and knowers (doctors and
pharmacists) to choose a certified or noncertified drug.
 Review of Consumer Protection Act 2018 in Nepal

Consumer Protection Act, 2018 implemented on September of 2018, is the relevant act in Nepal
in order to protect the interest of consumers regarding the quality, quantity and price of the
consumer goods and services. The Act has tried to address the shortcomings of the Consumer
Protection Act, 1998. Some of the major highlights of the Consumer Protection Act 2018 are as
follows:

Redefining Service

The existing and the previous Consumer Protection Acts both consist of the legal provisions for
the protection of consumer who consume any goods or services. However, existing Consumer
Protection Act has not only limited such services to labor, facility or consultancy but recognizes
services such as electricity, drinking water supply, telephone, information technology, health,
education and consultation, transport, drainage, banking or other services of similar nature,
including legal, medical or engineering services.

Other Parties

Furthermore, unlike previous Act, Consumer Protection Act 2018 is not only limited to rights of
consumer but also provides liability of parties associated to marketing of goods or services which
include producer, importer, carrier, hoarder, seller and service provider under Chapter 3 of the
Act. The existing Act has defined such parties, their liabilities and means of legal remedies.

Regulation of Goods or Services

The previous Act provided very little as to how the goods or services were to be regulated. The
Consumer Protection Act 2018 has elaborated in this regard. Pursuant to Section 4 of the Act,
Government of Nepal shall perform various functions from implementing policy, facilitating the
supply system, coordinating with concerned agencies, etc. in order to regulate the supplies, price,
quality, measurement, label and advertisement of the goods and services.

Affix Label

Affixing label mentioning various particulars regarding the goods is a requirement under both the
existing and the previous Acts. However, the existing Consumer Protection Act prohibits import,
sale and distribution of goods on which label is not affixed pursuant to Section 6 of the Act.
Prohibited Activities

Chapter 4 of the Consumer Protection Act 2018 prohibits various activities in order to protect
consumers. The Act has tried to address the shortcomings of the previous Act by elaborating and
extending the prohibited activities. Some of which are as follows:

 To conduct unfair trade and business activities:

i. The Act elaborates on the unfair trade and business activities which include:
ii. Selling or providing goods or services by lying, concealing or hiding,
iii. Creating artificial shortage of, hoarding or selling any goods,
iv. Refusing to issue bill or invoice of the sold goods or service or not issuing bill or invoice,
v. Providing service without specifying the price, quality of service, etc.

 To cause adverse impact on demand, supply or price:

Distribution, transport, or hindering the sale and distribution of any goods by taking profit higher
that that prescribed and over the cost invested in the production, import, transport, hoarding or
selling and distribution of such goods is prohibited by the Act.

 Producing, selling or importing sub-standard goods knowingly,

 Selling any goods or services by lying or deceiving that the goods or services are other
goods or services and stating high standard goods or services,
 Producing or selling the goods or service that cause adverse impact upon the health of
consumer.

Relevant Authorities

The relevant government authorities in the previous Consumer Protection Act were limited to
Consumer Protection Council, District Court, Appellate Court and Compensation Committee. The
existing Act has removed the provision regarding Compensation Committee and extended the
relevant government authorities of Nepal for the consumer right protection. They are listed below.

 Ministry of Industry, Commerce and Supplies

 Department of Commerce, Supplies and Consumers Welfare Protection Department
 Consumer Protection Council
 Central, Provincial and Local Market Monitoring Committee
 Consumer Court
 District Court
Making a complaint

The previous Act provided for the complaints to be filed with the Compensation Committee.
However, there is no Compensation Committee under the existing Act. It provides that any
complaint be filed in writing or orally or even through electronic means to the Central Marketing
Monitoring Committee, Department or Inspection Officer, along with the information or proof and
evidence under his or her custody.

Filing Lawsuits

Any Lawsuits related to offences punishable under the previous Act was to be filed with the
concerned district court. However, Consumer Protection Act 2018 provides for the constitution of
Consumer Court in order to try and settle cases or complaints. Such cases and complaints are
transferred to the concerned district court only if the Consumer Court gets dissolved by the
Government of Nepal.

Compensation

Pursuant to the previous Consumer Protection Act, consumer suffering loss or damage could file
a complaint with Compensation Committee for Compensation. However, the existing Act provides
that such complaints for realization of compensation are to be filed at the Consumer Court.

Reward to informant

The existing Act also provides for reward of ten percent of the claimed amount recovered or one
million rupees, whichever is the lesser, to the person who provides information that the offence
has been or is going to be committed. There were no such provisions in the previous Act.
 Strengths in the prevailing regulatory environment in Nepal vis-à-vis
consumer protection
After the Consumer Protection Act came into force following listed items where consumer
protection has improved the position of consumers or made their everyday lives easier which are
the strengths in the prevailing regulatory environment in the context of consumer protection.
Many of the things consumers now take for granted have been achieved through consumer
protection and, on the other hand, consumer protection works and protects consumers even in
situations where they do not know their rights. Well-functioning and implemented consumer
protection can also present a competitive advantage to a company.
Marketing and advertising
Consumers must not be provided with false or misleading information in marketing. Marketing
must not violate good practices: for example, the use of violence and discrimination based on
gender or ethnicity in advertising is not acceptable. Marketing must take into account the position
of the target audience and not exploit their susceptibility to influence due to age, disability or
gullibility. Inappropriateness is assessed from the viewpoint of the target audience.
The position of minors is safeguarded so that, without the consent of a parent or guardian, they
can only make ordinary and minor purchases. Minors must also not be directly prompted to buy
a product or to persuade their parents to buy it.
Advertising must be recognizable on all channels. For example, a blogger or must clearly state if
the posting was done in cooperation with a company and he/she received the showcased
products or services for free. So-called negative contractual commitments are prohibited. It is
prohibited to market goods to consumers by delivering them without a specific order,
subsequently requiring them to make a payment or to return or safe keep the product. Offers must
not resemble invoices.
Purchases
The total price of products and services must be provided, that is, the final price payable by the
customer. If this is not possible, the basis for calculating the price must be provided. In addition
to sales prices, products must show prices per litre or kilogramme. This helps to compare which
option really is the least expensive. The discounts indicated must be real, or they must be
calculated on the price that was charged for the same product in the same venue immediately
prior to the sale.
Since consumers cannot inspect the goods in door-to-door or distance selling, the vendor has
extensive obligations to disclose information in these situations, and the consumer has the right
of withdrawal in many cases.
Compensation for defects in products and services
Consumers can expect the service life of their purchased goods to be equal to what can normally
be expected from similar goods. The consumer who has bought a defective product can request
that the vendor rectify the defect or deliver a non-defective product. If the defect cannot be
compensated for by either means, the buyer can request a discount or, ultimately, cancel the
purchase. Consumers have the right to withhold payment and the right to damages in the event
of defects and delays. The vendor's liability for defect does not end when the warranty expires.
Warranty repair is free of charge for the consumer.
Travel
Compensation can be claimed for delayed or cancelled flights, and bus, ship and train journeys.
The travel package security system safeguards advance payments made by consumers.
Contracts
The terms of contracts with consumers have been subjected to a requirement of reasonableness.
For instance, unclear terms are considered unreasonable. The notice period of the contract must
be reasonable. In disputes, unreasonable terms of contract are reconciled to the benefit of the
consumer. A company may unilaterally alter a contract only in pre-agreed and strictly limited
situations. Contracts must not be subjected to substantial changes in terms. The standard terms
and conditions negotiated by the Consumer Ombudsman provide protection for the entire
collective of consumers.
Financial matters
In defect and bankruptcy cases, for example, consumers have the right to get their money back
even from the credit provider, such as a credit card company. Consumers also have the same
rights towards telecom companies when purchases are charged on mobile phone invoices.
Consumers are entitled to basic banking services. Online banking credentials are also part of
basic banking services. The consumer has the right to repay a loan early. This allows for the
possibility to retender the loan. Limitations to the amount of collection costs in payment delay
cases are in force. Vendors of prefabricated houses must deposit a security for the advance
payments of consumers, safeguarding the money in case the company for some reason becomes
insolvent. Consumers can invoke the so-called social force majeure if they have run into payment
difficulties due to unexpected unemployment, an illness or another reason beyond their control.
Customer service
Consumers have the right to customer service via a basic-rate telephone number. The customer
service must be accessible, and companies must process complaints appropriately. Complicating
the exercise of consumers’ statutory rights constitutes unlawful, inappropriate practices in a
customer relationship.
Authorities helping the consumer
Consumer Rights Advisors help consumers in disputes compliance with legislation. They gives
guidance to consumers who have issues. They issues resolution recommendations in individual
cases. Companies must inform consumers of dispute settlement bodies. They accelerates
reaching negotiated solutions with companies.
 Reforms necessary in Nepal's consumer protection regulatory
environment at current situation

Prices of daily necessities have gone up unnaturally in the market since the Covid-19 pandemic
disrupted normal life. The government has said that the transportation and distribution of
essential commodities are going on regularly, but prices have gone up due to insufficient supply
in the market. The Department of Commerce, Supply and Consumer Protection Management
implements the Consumer Protection Act, the Food Act is overseen by the Department of Food
Technology and Quality Control, the Drugs Act is overseen by the Department of Drug
Management and the Drug Management Authority, and the Measurement Department is
overseen by the Department of Quality Control and Weights & Measures.

As the relationship and monitoring may not be effective, it is necessary to pay attention to the
need for a separate umbrella act. There is an unfair relationship between producers and
consumers. The rights of producers should not be infringed in the interest of consumers. The
current efforts in the field of protection of consumer rights are not enough. The disruption in the
supply chain has increased the cost of the economy, and we are facing a situation where
consumers are suffering a lot. There should be an environment where consumers can get the
desired goods easily and at a reasonable price.

Distribution system

It seems that a Unified National Supply Action Committee and a Unified Valley Supply Action
Committee should be formed at the national level to improve the overall distribution system of
the country by making the supply system of essential commodities easier and more accessible.

Traders are cheating consumers by selling them low-quality products at high prices or giving
them short measure. Dishonest traders face fines ranging from Rs200,000 to Rs3,000,000.
There is also a provision for the department to file a court case against traders for selling
products that are not properly labelled or have expired. However, under the new law, if a trader
wants to review the department's proceedings, he can complain to the department by depositing
half of the penalty amount. The department can double the amount of the fine for repeat
offences.

Consumer rights activists and retailers have questioned the government's ability to implement
the new market monitoring process recently unveiled by the Ministry of Industry, Commerce,
and Supplies for public response. The Market Monitoring Procedure 2020, which has just been
implemented, is designed to protect consumers and requires businesses to adhere to certain
quality standards. Inspection teams can shut down a firm for violating the law. Traders can be
fined on the spot. The inspection chief is authorized to detain the accused if they attempt to flee,
destroy evidence or obstruct the investigation process.

Some think that provincial and local governments and district administrations can be given the
right to inspect the market. New procedures and rules will make the monitoring system more
systematic and limited, but consumer rights activists are skeptical. The market should be stable,
supply-friendly and clean. However, the current market monitoring does not appear to be fully
legal, practical and business-friendly. The government, traders, consumers, producers and
suppliers can all benefit if a joint task force consisting of the government and the private sector
prepares the market monitoring modalities and moves forward. This way, a transparent, lawful
and consumer-friendly market can be created.

In the current context, to make market monitoring transparent, lawful and practical, it is
necessary to address the following points seriously. There is no clear policy in the country
regarding addressing, managing and destroying expired and damaged items. Retailers usually
return expired and damaged items to wholesalers. The wholesaler in turn returns the goods to
the producer or importer and reimburses them. It is natural for a business unit to have expired
and broken items. The main thing is that such goods should not be sold to consumers and, in
this regard, certain criteria and procedures should be issued.

Market prices around the world are generally determined by factors such as demand, supply,
weather, foreign exchange rates, consumer interest, international prices and quantity of
products. This is a very common phenomenon in a liberal, flexible and open economy. But the
current market monitoring team has not assimilated this general rule of the economy. Therefore,
with the participation of the private sector, a three-point procedure should be followed to first
prepare a list of essential commodities, identify the causes of the price rise in the second phase,
and control the prices of essential commodities in the third phase.

Even now, there is a lot of confusion in Nepal's economic world about maximum retail prices.
Except for a few countries in the Indian subcontinent, the trend of liberal economic policy seems
to have removed the practice of maximum retail prices in most countries of the world. There is
still a lot of confusion among us regarding the maximum retail price. For example, how can the
price of an item imported from the Sunauli border point be the same in Butwal, Kathmandu,
Baglung and Namche? The freight to Namche Bazaar is 30 percent higher on average.
Therefore, the goods sold at airports, cinema halls, resorts and hotels cannot be made available
according to the listed price.

Additional costs

When retailers sell imported goods, they are also affected by transportation costs, insurance
fees, government taxes, local taxes, business promotion fees, donations and fluctuations in
foreign exchange rates. Therefore, goods imported from India can easily be bought in some
markets of Nepal after multiplying the stated price by 1.60, while in some markets, the
consumer price is two to three times higher due to these different types of costs.

To make market monitoring reliable, systematic and economically friendly by addressing the
above-mentioned challenges and possibilities, it is necessary to set limits on the storage of
goods by entrepreneurs; create a permanent market monitoring mechanism with the
participation of the private sector; remove cartels, syndication and hoarding; amend the Black
Market Act, which was enacted 40 years ago, in line with today's liberal economic policy;
prepare objective criteria for implementing a digital weighing system in the market and
measuring the quality of agricultural produce practically.