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Moratorium on the Right

Date of publication: 18 November 2015

Irina Kirichenko, Patent Attorney of Ukraine
Source: Apteka

No matter how much they might say that success of any business is conditioned by its focus on the clients’ interests, and competition is the method of the natural selection of the best of the best, relations between the entrepreneur and the client are regulated by the rules of the special industry legislation rather than described by the dialectic of the unity and struggle of opposites. Consumer rights are provided by the corresponding obligations of a business entity, and industry supervising agencies competent in monitoring the quality of goods and services are called to observe their compliance. If specifics of kind of goods, such as medicinal products causes exceptional strict requirements for their quality, efficiency and safety, the level of criteria for monitoring the quality of other products is much lower and it was even forbidden to bother their producers in this regard  last year and a half.

Indeed, “with the aim of improving the business climate and promoting entrepreneurship” a moratorium on inspections of entrepreneurs by regulatory authorities had been imposed from August 2014 to June 30, 2015. We are talking about the Law of Ukraine “On Introducing Amendments and Declaring Invalid Some Legislative Acts of Ukraine” of December 28, 2014, No. 76-VIII , which sets forth that inspection of enterprises, institutions and organizations, individual entrepreneurs by the regulatory authorities (except for the State Fiscal Service Ukraine and the State Financial Inspection of Ukraine) is carried out during January-June 2015 only with the permission of the Cabinet of Ministers, or at the request of a business entity with respect to its inspection (clause 8 of Chapter “Transitional Provisions”). The said law, except for certain provisions, became effective on January 01, 2015, and the moratorium was imposed before July 01, 2015.

Exhausted by different inspections, abuse, “tribute” and all sorts of excesses, the entrepreneurs finally had a rest from pressure of the “system”. Though consumers, who came across spoilage of goods, rudeness of staff, fraud and other side effects of our service sector, remained alone with their problems and their rightness.

The notorious formula “the customer is always right!” remained uncalled as the consumer had neither place nor anyone to prove his/her rightness.

Optimists believe that introduction of moratorium, on the one hand, revealed the shortcomings of the current system of state supervision, and on the other – pointed to possible abuses in case of imposition of a complete moratorium.

On September 18, 2015, a group of people’s deputies – members of the Committee on Industrial Policy and Entrepreneurship of the Verkhovna Rada registered the draft Law of Ukraine “On Peculiarities of State Supervision (Control) in the Field of Economic Activity” (registration No. 3153, hereinafter, the draft Law) .

The draft Law contains provisions that supplement the provisions of acts of legislation governing imposition and operation of moratorium on inspections of entrepreneurs in Ukraine.

As follows from the explanatory note to the draft Law, a moratorium on inspections permitted to reveal inefficient mechanisms of the system of state control (supervision) and begin its reforming. However, a radical restriction of inspections had negative consequences for both the society and the state. A total ban of inspections of business entities by the regulatory authorities resulted in:

  • a substantial increase of citizens’ complaints about violations by business entities of consumer legislation;
  • an increase in the number of cases of unfair business operation by some business entities;
  • negative reaction of the EU and emergence of risk of restrictions on exports of domestic products to foreign markets.

With this in mind, to ensure a balance between stimulating development of small and medium-sized businesses in Ukraine and implementation of the citizens’ constitutional rights, the draft Law proposes a new mechanism for the imposition of restrictions on the actions of regulatory authorities and provision of guarantees of state protection in case of violation of the citizens’ constitutional rights.

Will quantity be transformed into quality?

The draft Law expands the list of persons and competent authorities, at the request of or in agreement with which it will be possible to schedule inspection of a business entity.

So far, clause 3 of the Transitional Provisions of the Law of Ukraine “On Amendments to the Tax Code of Ukraine and Some Other Legislative Acts of Ukraine Regarding the Tax Reform” of December 28, 2014, No. 71-VIII, and clause 8 of the Transitional Provisions of the Law of Ukraine “On Introducing Amendments and Declaring Invalid Some Legislative Acts of Ukraine” of December 28, 2014, No. 76-VIII, envisage that inspections of enterprises, institutions and organizations, individual entrepreneurs by supervisory authorities are carried out solely with the permission of the Cabinet of Ministers of Ukraine at the request of a business entity with respect to its inspection, according to the court decision or at the requirements of the Code of Criminal Procedure of Ukraine.

The draft Law specifies that the unscheduled measures of state supervision (control) are conducted by the state supervision (control) authorities with the approval of the Cabinet of Ministers of Ukraine; with the permission of the State Regulatory Service of Ukraine (on the basis envisaged in paragraph 2 of this article); upon a written request of a business entity to the relevant authority of state supervision (control) for implementation of a measure of state supervision (control) at its request; by court order.

Unscheduled measure (e.g. inspection) of state supervision (control) on the basis of reasonable request of an individual regarding violation by a business entity of its legitimate rights is carried out by the state supervision (control) authority with the permission of the State Regulatory Service of Ukraine (Article 3 of the draft Law).

Thus, by entering into the list of individuals as possible initiators of inspections, the legislator delegates to the public (in case of revealing violations) the right to request the regulatory authorities for carrying out inspections of entrepreneurs with a prior permit of the State Regulatory Service of Ukraine. The form and procedure for granting of the relevant permit will be approved by the Ministry of Economic Development and Trade of Ukraine.

Further, according to Article 4 of the draft Law, the State Regulatory Service is entrusted with responsibility to make public the relevant permit by posting it on its official website before beginning of measures of state supervision (control) by the supervisory authorities. Unscheduled measure of state supervision (control) without making public the permit is prohibited.

Thus, the said provision of the draft Law permits the consumer to protect his/her rights against unfair acts of entrepreneurs. It is important considering that the number of such acts on the part of business entities since introduction of the moratorium has increased and continues to increase due to lack of legal mechanism for combating violations of the rights of consumers by non-governmental organizations.

With regard to the list of regulatory authorities designed to protect us from unfair acts of business, their exhaustive list is defined in Article 6 of the draft Law. As follows from the explanatory memorandum to the draft Law, for “the effective operation of the proposed restriction of state control and prevention of adverse effects, as well as to speed up the reform / optimization of supervisory authorities, the legislative initiative implies a number of exceptions, in particular the restrictions of moratorium do not apply to the bodies which activities do not significantly affect the small and medium business; the bodies, which inspection procedures have already been reformed by a separate law; the bodies, which have already passed internal reform”.

An exception to the moratorium is a positive change in the legislation as branches of economy, such as circulation of narcotic drugs, import/export of military equipment, nuclear and heat and power engineering, not to mention the financial and currency control over circulation of funds in the country, etc., need constant supervision of the competent authorities as it concerns national security and national interests. Others (e.g. the scope of activity of the fiscal authorities) are regulated by special legislation. For example, the Law of Ukraine “On Amendments to the Tax Code of Ukraine and Some Legislative Acts of Ukraine Regarding Tax Reform” of December 28, 2014, No. 71-VIII set forth a moratorium on inspections for the territorial bodies of the State Financial Inspection and the State Fiscal Service. Thus, there is no need to duplicate the already adopted rules.

The medical and pharmaceutical sectors are not less important. After all, here the price of unfair business activity or negligence of supervising authorities can be health and sometimes lives of Ukrainian citizens.

Verification of rights to inspection

How to maintain parity of the rights of businesses and consumers? With regard to the pharmaceutical industry it concerns observation of the citizens’ constitutional rights guaranteed, in particular, by Article 3 of the Fundamental Law, not to mention the provisions of the EU Directives. For the medical sphere it is the Declaration on the Promotion of Patients’ Rights in Europe and the European Charter of Patients’ Rights.

It should be noted that according to the recommendations for the implementation of provisions of the Charter into the national legislation the measures to protect the patients’ rights may be exercised by the organizations of citizens with an active public position, as well as the institutions and bodies, such as ombudspersons, ethical committees or commissions.

It is good, if there is an effective mechanism for bringing to responsibility of offenders of the patients’ rights, and the main thing – for prevention of violations. To do this, there is control and the competent authorities exercising it worldwide.

In this regard, it should be noted that inspections of pharmacies have long been painful for both the pharmacies and the inspectors. On the one hand, the conditions for doing business in Ukraine are difficult today; it is even more difficult to work without violations. Thus, pharmacies are not happy to the inspectors. The inspectors also have own “sales plan”. It is not difficult to find a ground for imposition of fine, but for all its validity the inspectors will always be suspected of subjectivism, fault-finding, and sometimes extortion.

Everybody is ready to inspect pharmacies: representatives of the Ministry of Emergency Situations, the State Fiscal Service, the Ministry of Internal Affairs (in particular, the staff of the department for combating economic crimes), the Service for Control of Medicinal Products, the prosecutor’s office, the State Service of Ukraine on Medicinal Products, the Inspection for Protection of Consumers’ Rights.

Everything may be subject to inspection: from compliance with fire safety regulations and rules for distributing medicinal products to observation of the license conditions, even the head of the pharmacy sometimes does not remember the entire set of documents by heart.

At the same time, it is often difficult for the staff, which is not prepared by regular inspections, to understand the limits of requirements of the inspectors: whether they are authorized to demand, e.g. the original documents of title, etc.

It is worth noting that if some documents are withdrawn during inspection, it is necessary to draw up the act. Otherwise, it will be difficult for the entrepreneur to protect his rights and prove that the inspector exceeded his authorities. After all, if one has to uphold justice in court, it is necessary to have documentary evidence, when making decision, the court is guided by the facts (documents, audio and video recordings and other material evidence).

As for the supervisory bodies, the special role is assigned to the State Service of Ukraine on Medicinal Products, the executive authority forming the state policy in the pharmaceutical industry of Ukraine, including in the organization of state control of quality of medicinal products.

The main functions and powers of the State Service of Ukraine on Medicinal Products and its territorial bodies are as follows:

  • drafting decisions (regulations, orders) of the State Service of Ukraine on Medicinal Products on prohibition (termination) of production, sale (trade), storage and use of medicinal products that do not meet the requirements defined by regulations and normative documents. The body also makes a decision on the resumption of circulation of medicinal products and controls activities of its territorial bodies and validity of the decisions (regulations, orders) on prohibition of sale (trade), storage and/or use of medicinal products approved by them;
  • state control over compliance with the quality and safety requirements of medicinal products during their circulation;
  • state control over imports of medicinal products into the customs territory of Ukraine;
  • identification of counterfeit and unregistered medicinal products and taking measures for withdrawal from circulation of substandard, counterfeit and unregistered medicinal products and products that caused unexpected side effects;
  • consideration of complaints, requests, addresses of citizens, business entities, producers, representative offices of foreign companies in Ukraine regarding circulation of medicinal products.

For us, consumers, food is the next in order of importance after medicinal products. Therefore, it is also planned to exclude activities of the State Service of Ukraine on Food Safety and Consumer Protection from the scope of moratorium.

Article 42 of the Constitution of Ukraine determines that the state protects the rights of consumers, exercises control of quality and safety of products, all kinds of services and activities. Thus, the sphere of consumer protection requires constant state control and instant response.

Article 7(3) of the Final Provisions of the draft Law determines that the Cabinet of Ministers of Ukraine shall develop and approve the Strategy and Program of reforming the system of state supervision (control) in the period of 6 months after the entry into force of the Law.

As for the other business sectors, it is proposed to set the duration of moratorium until June 30, 2016.

The draftsmen believe that “its approval would permit to limit until June 30, 2016 inspections of enterprises, institutions and organizations, individual entrepreneurs by the state supervision (control) authorities and reduce administrative pressure on business, which, in turn, will improve the business climate in Ukraine. At the same time, the draft Law will permit to ensure the proper control by the society over observation of provisions of the legislation by business entities and provide guarantees for the protection of citizens’ rights”.

Currently, the draft Law is under consideration in the Committees of the Verkhovna Rada. We can only hope that its efficient completion and adoption by the Ukrainian Parliament will strengthen the guarantees of protection of the consumers’ rights and balance their interests with business interests of entrepreneurs that will promote healthy competition in the market of goods and services. After all, as S.J. Lec said, he, who constantly breaches law, rarely stands on his feet firmly.