PRICES IN A STATE OF EMERGENCY
Attorney Hristo Koparanov and legal counsel Peppy Kuzeva clarify the legal framework of the speculation with prices during the state of emergency.
- Are there any special requirements about the prices in the conditions of a state of emergency and what are the prohibitions concerning the speculation with the prices of different types of products?
By itself, the declared state of emergency doesn’t lead to any change concerning pricing. The common rule is that everyone sets the prices for his sales freely, unless a specific regulation for those products exists.
As for now there are no product with a price ceiling, with the exception of medicines. The Bulgarian Parliament adopted price regulation under the conditions of a state of emergency but after a presidential veto, the members of the parliament complied with the president’s decision and the new regulations will not come into force.
In the conditions of a market economy, as is the Bulgarian one, there is no regulation concerning the speculation with the prices of foods and protective equipment. There is however a price ceiling on the sales of medicines. According to the Law on Medicines, the National Council on Prices and Reimbursement of Medicinal Products maintains and updates a registry about the maximal sale prices of non-prescribed medicines.
This tool for the restriction of the merchants’ right to sell at prices, higher than the provided in the registry, was introduced due to the often-received signals about the price hikes of non-prescribed medicaments. A check on the maximal prices of medical supplies can be done through the National Council on Prices and Reimbursement of Medicinal Products portal – https://portal.ncpr.bg/registers/.
Despite this, due to the declared state of emergency, measures may be taken in order to regulate the prices of basic food supplies, medicines and protective equipment. Of course, the introduction of such measures should be enacted by law.
According to Article 225 of the Penal Code, whoever sells products for a price, higher than the determined or approved in accordance with the established procedure or one or before the said fixation was completed, or receives a remuneration higher than legally permissible, shall be punished by imprisonment for a term of up to 2 years or by a fine of a 100 to 300 leva.
Of course, this sanction is not applicable when it comes to price increases due to higher demand or higher prices from the producers/distributors of the said product.
- Is it possible and what sanctions can be imposed for speculation and for actions, leading to artificial price increasing or shortages?
Immediately after the declaration of the state of emergency in Bulgaria on 13.03.2020 a vast number of examples of people stocking up with basic food and medical supplies and other essential products could be seen. It should be noted that despite the numerous appeals of politicians and state experts, including the Head of the Consumer Protection Commission, that there would be no lack of supplies, many stores, drugstores and pharmacies were left with empty stands and missing products like masks, disinfectants, spirt, toilet paper, bread, eggs, etc.
Because of this, proposals have been put forward to outline around 130 products that are vital for the population and to set a ceiling, after tracing their wholesale and retail prices. The Minister of Economy presented arguments that if such a ceiling was put in place, all traders would sell the said products at maximum price and therefore make it possible for a negative, instead of a positive, effect to take place. This opinion was also shared by the Consumer Protection Commission in 2019. The aim of the proposed measure is to enable the state to track the prices of these vital products and have a mechanism in hand to use against unfounded (speculative) price increases.
Firstly, it should be noted that under the conditions of a dominant position, the abuse of this position is forbidden. The dominant position is defined differently by each market and the conclusion for its existence also varies. It is also possible for sudden changes to take place and for a dominant position to be absent at a certain moment and occur afterwards. The relevant market can also change due to the surrounding it conditions.
The state of emergency by itself doesn’t mean that a dominant position of wholesalers and traders occurs, but the higher demand of certain products in the given situation can lead to it and the measures for social isolation can shrink the geographic market. It can be accepted that under the conditions of a quarantine each neighborhood and even every store could be a separate market.
In case where the demand strongly exceeding the supply and the existence of only one or a few traders possessing the said product, it could be decided that a dominant position takes place. The exclusive wholesaler of a product would also be in a dominant position.
In this case the sale of the certain product at an over-price would be seen as a violation.
The concerned practices regarding the prices, in which traders sell at the same or almost the same price, are also outlawed, even so when no agreement between them has taken place. Therefore, the simultaneous (even when uncoordinated) price increase for the same product would be forbidden.
The consequences for the violation of these prohibitions can reach sanctions of up to 10% from the whole past-year turnover from the sales of the said product.
Next, the unfair market practices affecting the consumers should also be mentioned. A market practice from a trader towards a consumer is unfair if it contravenes the requirement of good faith and professional competency and if it alters or may substantially change the economic behavior of the targeted average consumer. A market practice is deceiving, when in one way or another, including its whole presentation, deceives the average consumer and therefore leads him or is able to lead him into taking a financial decision, which he wouldn’t otherwise take. A deceiving market practice is the delivery of information, including inaccurate facts about the market conditions or the chances for the product or service to be found on the market, with the aim of making the consumer buy the said goods under worse than normal conditions. In this case a rather exotic hypothesis occurs, in which the traders haven’t practically declared that a deficit of food, medical or other essential supplies may take place.
The usage of an aggressive or a deceiving market practice, i.e. if a trader deliberately hides products or suggests that there is a deficit, in order to force or deceive the consumer into buying at a very high price, would be a ground for sanction. The guilty individuals can be fined up to 15 000 leva and the sole traders and undertakings – a pecuniary penalty of up to 30 000 leva.
On the other hand, in the case that a certain producer or a large supplier possesses products but keeps them at his warehouses, he becomes the reason for a deficit on the market. If this producer/supplier is the only one in the market or there are only a few producers/suppliers, then their actions would be a violation of a dominant position. The Law for the Protection of the Competition expressly forbids the behavior of undertakings with a dominant position, which could affect the consumers’ interests, for example through:
- Limiting the production, trading and technical development, thus harming the consumers;
- An unfounded rejection to deliver a good or provide a service, in order to impede the financial activity of the consumer.
In addition, a violation of the prohibition on unfair competition may occur when a false suggestion about a deficit of certain goods is being used. This should be taken into account in advertisers’ marketing campaigns, which includes direct or indirect messages to the consumer that there are limited supplies of essential goods, including foods, medicines or protective equipment.
- Is misleading/false information subject to sanction?
In view of consumers protection, the increasing number of telephone fraud cases, should be taken into consideration, as well as the cases of fraud via electronic messages and fake news, related to the coronavirus.
As of now and after a presidential veto, the Parliament rejected the introduced proposal for such fraud cases to be prosecuted and individuals who share false information about the spread of a contagious disease to receive a sentence of up to 3 years imprisonment and a 1000 to 10000 BGN fine.
In this regard, it has to be pointed out that big companies, such as Facebook, Google, LinkedIn, Microsoft, Reddit, Twitter and YouTube are joining efforts against false and misleading information, related to the coronavirus. With a joint statement to the mass media these world giants have declared close cooperation for preserving their communities from unconfirmed information. As a measure against fake news, Facebook has prohibited commercial advertising of masks and other protective articles, and a fake account, presenting itself as a hospital has been blocked by Twitter. Google is in the process of removing videoclips with misleading content from its YouTube platform, and recently a 24-hour team has been assigned to react and fight against disinformation.
From the statement it becomes clear, that these companies are working in close cooperation with health organizations worldwide, so as to succeed in maintaining the best possible cleanest, adequate and true information about COVID-19.
After the Law for Emergency Situation Measures adoption, there will be clarity with regard to whether and which kind of sanctions for distribution of misleading information will be in force in Bulgaria.
After the completion of this article, the Parliament adopted legislative changes regarding price regulation but those were in turn vetoed by the President. The representatives respected the decision and scrapped the said changes during the re-vote. For additional clarity, we present the amendment initially voted by the National Assembly:
New corrections were introduced on 20.03, according to which, during the state of emergency, all economic subjects were obliged to offer the population their products/services at a price, equal to the average price of said products/services in the last three months before the declaration of the state of emergency. It was envisaged for those prices to be determined through the data from the cash registries or the received bank/card payments. If a certain product was new to the market, its price should have been no more than 20% higher than the original cost of acquisition and if that were a service – no more than 20% higher than the prime cost. For the violation of these restrictions a sanction of 5% from the past year turnover was envisaged and if there was no economic activity in the past year – a 20 000 to 100 000 BGN fine. The managers of the offending firms could receive a fine from 20 000 to100 000 BGN and additionally, sanctions for the individuals directly or indirectly in control of those undertakings were also planned. If the traders weren’t able to prove the cost of acquisition or the prime cost of their products/services, they would receive a property sanction from 30 000 to 100 000 BGN.
A legislative change, which came into force after its publication in the State Gazette, reads that the sanctions for “speculative prices” under Article 225 from the Penal Code will be higher during a declared state of emergency. Those sanctions are envisaged to be from 1 to 3 years of imprisonment and a 5000 to 10 000 BGN fine.
This review describes the current legislation’s basic principles and the expected (to the date of its publishing) amendments – dynamic under the emergency situation conditions. It is not related to the details of a particular situation, it does not represent a legal advice, and is subject to additions following further changes.
In case that you need a legal consultancy, related to a concluded contract and its implementation under the conditions of emergency situation, you can address att. Hristo Koparanov, Partner and Head of Competition and Consumer Law Practice, e-mail email@example.com