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Market Surveillance in Ukraine: Reform on the Way to the European Market Kyiv, 16 March 2011.

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Presentation on theme: "Market Surveillance in Ukraine: Reform on the Way to the European Market Kyiv, 16 March 2011."— Presentation transcript:

1 Market Surveillance in Ukraine: Reform on the Way to the European Market Kyiv, 16 March 2011

2 Project Overview Stage 1. Capacity assessment of the Government to organize implementation of the EU-Ukraine Association Agreement: – Research – 2009; – Report – January Stage 2. Policy campaign and planning for sectoral reforms: – Research – Second half of 2010; – Report – February 2011; – Pilot Sector: Market surveillance. “Analytical Support to the Process of European Integration” Project Supported by the Swedish International Development Cooperation Agency SIDA

3 No investments, no prospects Ukraine is struggling in the in the worldwide competition for capital and investment. Position in international ratings for the ease of doing business: – deep into the second hundred countries; – the lowest of all countries in Europe. Low per capita investments, compared to neighbors Conservative structure: privatization, banks, real estate, retail and logistics Major western corporations have enough problems trading with Ukraine just to get a foothold as importers, never mind setting up manufacturing here.

4 Improving business environment – reform priority – Success of International technical assistance: EU’s “Technical Assistance to Ukrainian Infrastructure Quality” Project; – Effective completion of the reform to bring tangible results is crucial. President Yanukovych and the Government declared improving business climate and attracting foreign investment as one of the top priorities. Ukraine is committing to adapt its regulatory policies to acquis communautaire under the Association Agreement with EU. Technical regulation is one of just a few examples of resent positive change

5 Ukraine & reform: Kill the post-soviet dragon Institutions have remained deeply soviet in their essence and in their style of work, although all other conditions in the country have long changed: – instead of a Communist Party monopoly on politics – intense political competition; – instead of a single state ownership – countless economic operators; – instead of a restrictive approach to the quantity and variety of goods and services – an open global market. The fusion of business and power has turned the remnants of post-soviet institutions into monstrosities that: – manage public finances and assets without input or oversight; – unilaterally establish the rules of play in all sectors, interpret them and enforce them; – keep coming up with new ways to leverage money from both individuals and businesses while avoiding any public accountability whatsoever. Attempts to reform inappropriate and unaccountable institutions, especially by increasing their institutional capacity, - not only useless but actually damaging. Ukraine’s long history of either fudging or altogether ignoring reforms is the result of the incomplete democratic transformation of its state institutions.

6 The system of government in Ukraine should undergo a complete, radical transformation, starting with introducing basic European principles of good governance that: – exposes violations and determines punishment for them; – does not allow bureaucrats to take decisions at their discretion; – secures the independence of control and inspection bodies from their audit subjects; – obligate to carry out regular control, auditing and monitoring of organizations, procedures, standards; – obligate to constant auditing of effectiveness of rules and regulations; – obligate to mass using of Deontological rules - regulation of professional conduct: what should and should not be done by a civil servant; – once set up the anti-corruption institutions and legislation becomes a foundation for a system of warnings: encouraging to give up corruption, controlling over income and property, controlling over conflicts of interest. Ukraine & reform: Kill the post-soviet dragon Transformation should also include establishing: – a new role for the state; – a professional civil service; – new functions, powers and means of working for state institutions; – analysis and public debate of public policy options; – consultations with stakeholders and interest groups.

7 GOST – the challenging heritage GOST* – system for detailed technical requirements of products from the Soviet Union. Precise requirements as to the components, specifications and procedures for the manufacture of products. Non-compliance with the GOST was an economic crime, severely punished. * From Russian for “State Standard” Quality standards meant identical, immutable products, which automatically guaranteed their safety. Consumers had little choice, but they also didn’t have to bother thinking about the quality of products: the state decided everything for them at the highest political level.

8 How the GOST worked State - one owner; State - one manufacturer; State - top-down chain-of-command; The number of variations on foodstuffs and industrial goods as well as services was severely restricted: – only three kinds of boiled sausage: doktorska, molochna and dytiacha; – menus in restaurants and cafés were virtually identical; – all products and services were identical throughout the country. The GOST worked most effectively under the Soviet conditions:

9 New situation The conditions have changed The old command-administrative economy was replaced by open, globalized market one which, by its very nature, does not provide for any restriction of quantity or variety of products entering the market. The system hasn’t The GOST system and the enforcement mechanisms remained unchanged; Decision-making was shifted from the Communist Party to officials at State committee for technical regulation; The quality of thousands of varieties of boiled sausages on the market is still inspected the same way that three once were.

10  Neither price, nor product certification, nor quality label protects Ukrainian consumers from extension cords that catch fire, toys that injure children or food products that are toxic.  Many products in the market have no certification and do not meet any standards: they evade the system altogether, which is an indicator of its ineffectiveness and corruption. Soviet axiom “quality=safety” Soviet axiom “quality= sameness, invariance” The old system doesn’t work anymore

11 State responsibility – an illusion The state pretends to bear full responsibility for quality and safety of products. In reality: Irresponsible populism: no government official was punished for dangerous products found in the market. Bureaucrats punish business. The state cannot control products at every economic operator: not enough people, resources. Instead, bureaucrats have means to pressure honest business and cover up for dishonest business, which is what goes on in Ukraine.

12 The difference between EU and post-soviet systems The EU system is directed at protecting the consumer, not at controlling business and levying fines. Notion of quality is subjective, but the safety of products is a must. Business is responsible for upholding essential safety requirements and for providing the consumer with full and accurate information about the characteristics and proper use of products. Responsibility for reading this information and making a careful and conscious choice when buying a product rests with the consumer. Once a risky or actually hazardous product is identified at a point of sale, it can be traced across the entire supply chain so that restrictions and corrective measures can be applied across the entire country and even the whole of EU. Conformity assessment (declaration) Market surveillance Safety requirements

13 Ukrainian system works separately with individual manufacturers or retailers. Any measures taken have marginal impact: an unsafe product that has been taken off the shelves in one store can easily be sold in a different store next door. The difference between EU and post-soviet systems (2) Pre-market state oversight Mandatory certification Consumer rights protection

14 Cost of not doing reform No general safety requirements: a quality certified product can be unsafe. Impact of oversight system is discrete. The cost of mandatory certification to companies is passed on to consumers in the form of higher prices. The cost to consumers The cost to business It is very difficult to bring a new product onto Ukraine’s market: taking a product through the surveillance and permit process costs a lot of time and money. The system hampers technological modernization of domestic companies, increases production costs, reducing the competitiveness of domestic manufacturers on both the domestic and foreign markets. Companies are always under the risk of suspension of their production and trade due to minor discrepancies with standards, such as external appearance.

15 Cost of not doing reform (2) Consumers are in an uproar about the number of unsafe and poor quality products; Honest business is angry about: – the complicated inspections; – the time and cost of regulatory procedures; – the officials who do not protect honest manufacturers from corruption. Ukraine is not making good on its international commitments; Ukraine cannot take advantage of the results of the EU market surveillance system: – notifications of dangerous products; – joint inspections; – exchange of experience. The cost to the government The government is clearly to blame on all counts:

16 The cost to the government (2) Cost of not doing reform (3) The problems are concentrated in the State Committee for Technical Regulation and Consumer Policy (DSSU): This situation is the source of: —conflicts of interests; —discretion; —rent-seeking. It is responsible for nearly all aspects of technical regulation, which is against EU requirements; Functions of a commercial nature—certification—and functions of state surveillance are combined in DSSU regional offices; DSSU controls itself, without external accountability; In December 2010 it was transformed into the State Service for Technical Regulation – the nature hasn’t changed.

17 A proper market surveillance system can only be instituted together with comprehensive reform of the technical regulation system: standardization, metrology, conformity assessment, and accreditation. Thus, bringing these components in line with EU norms needs to be speeded up. In December 2010, two key Laws were approved: “On government market surveillance over non-food products” and “On the basic safety for non-food products.” They provide for the institution of European principles, mechanisms and procedures of market surveillance. – The existing pre-market state oversight is eliminated; – collision emerges: the market surveillance system will control products for compliance with new safety requirements; – the unchanged consumer protection system – for compliance with old quality standards; – general safety requirement is new to Ukraine: risk of unsafe products coming to the market. Reform or replacement?

18 Mandatory certification Update: from pre-market to market surveillance Reform should be done on the basis of reasonably using components in the existing systems where institutional adaptation is possible. The existing system has some qualified and experienced specialists, as well as laboratories that are technologically well equipped. In addition to the new laws, they need to be introduced to: – new goals; – new procedures, templates and standards of work. They need to be provided with the necessary training and funding. Market surveillance Technical regulations

19 How to manage the change 1.Institution building needs assessment 2.Preparation of institution building plan 3.Evaluating and updating the institution building plan The methodology includes three stages: New reform planning instrument is needed for the reform to be properly organized The instrument called an institution-building plan, or similar instruments were used by all countries that were preparing to join the EU. It should be used for adapting to EU norms and standards across all sectors covered by the future EU-Ukraine Association Agreement. ICPS adapted the methodology and practically used it for market surveillance reform.

20 Needs assessment for acquis adaptation 1.Putting together a list of acquis requirements (norms) for the sector After careful analysis of the entire range of sectoral norms in the acquis, they were grouped into a single list. This list includes requirements that apply to only the most important aspects of the sector собою. Institutional parameters such the features of legislation, structures and the procedures for carrying out functions are also included. Product: list of acquis requirements (norms) for the sector (Annex 4) 2.Analysis of compliance of existing legislation and institutions with the acquis; For each requirement, its compliance was assessed de jure and de facto. The compliance of each of the requirements is designated as fulfilled, not fulfilled or fulfilled in part or with certain limitations and reservations. When a given requirement has not been fully met, parameters not being satisfied were clearly stated. Product: report on assessment of compliance with acquis (Annex 5) 3.Drawing up a list of measures to be taken in the sector in order to comply with the acquis. A list was prepared for every acquis requirement that is met incompletely or not met at all. They contain all measures necessary to ensure that a given requirement is properly met. Product: lists of measures for acquis implementation in the sector (Annex 5)

21 Coverage is essential EU requirements: – the system should cover the entire country; – it should function across all designated product groups. The new laws on market surveillance generally meet the requirements of the EU. Their enactment needs to be ensured when determining: – what bodies will be responsible for market surveillance; – their areas of competence; – their organizational structure. The Cabinet of Ministers is responsible for this.

22 Surveillance not separated from conformity assessment  Currently, this requirement is not met: all technical regulation functions are combined in DSSU and the various entities that are subordinate to it. The new market surveillance legislation introduces this requirement in Ukraine, but its implementation is already problematic. The need to separate these functions was not taken into account when the restructuring of central executive bodies (CEBs) was undertaken by President Yanukovych in December 2010: the newly-established State Service for Technical Regulation is a full-fledged successor to DSSU. EU requirement: market surveillance must be institutionally separated from conformity assessment

23 Designate proper structures This issue requires particular attention in the DSSU, which is likely to be one of the market surveillance bodies. Market surveillance functions need to be attached to territorial consumer rights departments. The sub-units that currently handle state surveillance at the SCSMCs, along with their staff and other institutional components, should be transferred over to the respective consumer rights units.  Every market surveillance body to be designated in Ukraine needs to also designate, set up or reorganize sub-units that will carry out market surveillance functions exclusively, especially its territorial sub-units.

24 Procedures and standards: testing needed Many market surveillance mechanisms are being introduced to Ukraine for the first time, therefore periodic reviews of the new procedures and standards need to be instituted. The law provides for such evaluation and review to be done every three years, but with the system just being launched, this should be done at least once a year. Optimal qualitative and quantitative evaluation criteria should be designated. Any system parameters can be revised, from procedures and standards to the areas of responsibility of market surveillance bodies.

25 Needs for further functioning A number of institution building needs could not be provided for in the law. They need to be satisfied for effective functioning of the system. Human, material and financial resources should be provided sufficient for the market surveillance system to cover the entire country and all designated product groups.

26 Use the assistance Ministry of economic development and trade should take maximum advantage of the international technical assistance. The EU’s sector policy support program “Promoting mutual trade by removing technical barriers to trade between Ukraine and the European Union” offers great opportunities. Building up a market surveillance system is one of the areas supported by this program. Ukraine needs to put together all its procedures and start implementing the program. It provides serious financial resources, EUR 45 million, for equipment, training and advice.

27 Human resources are everything EU experience: training market surveillance staff becomes the biggest spending item after payroll. EU budget support program provides extensive opportunities for this that Ukraine should use. Comprehensive administrative reorganization: reduced staff. Market surveillance bodies will have to reallocate personnel: increased workload. Professional development opportunities, such as trainings, consultations and exchanges, as well as equipment, can ease the situation.

28 Modern technologies help The operation of a market surveillance system in the EU involves wide use of modern ICT. In addition to office and computer equipment, with the necessary software and communications systems, market surveillance officers also need: – portable computers; – digital cameras; – mobile telephone communication; – mobile access to the internet. To work effectively in the regions, service vehicles are also needed, as well as budgeted funds for the use of public transport.

29 Money matters In addition to payroll and current expenditures, funds to purchase samples of products and to pay for laboratory analysis and testing should be provided. Respective budgetary items should be planned annually. These expenditures should be funded in line with market surveillance plans.

30 Impact on stakeholders For consumers: – Reduced risk of buying unsafe products; – Lower prices as production costs go down; – Greater responsibility for selecting products and defending their rights. For business: – Reduced market entry costs for products; – No more threat of production or trade being completely shut down; – Greater liability for manufacturing, distributing or selling unsafe products. For the government: – More opportunities for economic growth; – Good performance on commitments to both citizens and foreign partners; – Streamlined budget expenditures. For the Derzhstandart system: – Reduced range of powers; – Better opportunities for professional development and work; – External control and transparency of information; – Loss of rent-seeking opportunities for individual officials.

31 Build a constituency Know the stakeholders to find support, overcome resistance Most legitimate interest groups stand to gain from reforms: keep them informed in order to maintain their public support. Groups that are to lose from reforms can be expected to oppose in many ways: – public criticism; – delaying tactics; – distorting information and the nature of the reforms, covert lobbying to have reforms done late, incompletely; – not produce the necessary results.

32 Build a constituency (2) Government should actively engage all stakeholders in a dialog in support of change, using a variety of instruments: – publications in media; – working sessions; – roundtables. The transparency and activeness of such a dialog is important for all sides to understand the changes that are taking place. Interest groups should also take active part in this dialog: – carry out their own analyses; – propose their own arguments for various aspects of the reform.

33 Overall Action plan includes: 1. Acquis requirements for the sector – according to the list prepared at the needs assessment stage (Annex 4); 2.For each requirement – reference to EU document where they are contained; 3.For each requirement met at legislative level – reference to Ukraine’s legal act; 4. The status of implementation of each requirement de jure and de facto – according to the results of analysis of compliance of existing legislation and institutions with the acquis (Annex 5); 5.For those requirements that are met incompletely or not at all, measures should be provided that will ensure meeting acquis requirements, in accordance with the list prepared at the needs assessment stage (Annex 5); 6.For each of the measures – a deadline for completing it and the responsible entity. Product: Action plan (Table of changes) for the sector (Annex 6). Reform by the plan

34 Reform by the plan (2) 1.Preparing a list of organizational and administrative actions necessary to carry out the measures:  Structures: setting up/shutting down/reorganizing institutions and their sub-units;  Procedures: approving/canceling/amending procedures, standards, templates, manuals and instructions;  Premises: acquiring/renting/renovating/re-equipping premises;  Equipment: acquiring office furnishings, computer equipment, other equipment, and software;  Staffing: expanding/cutting staff;  Training: the need for professional development. 2.Designating the entity responsible for carrying out each action; 3.Setting the deadline for each action: month and year; 4.Determining funding requirements for each action: the sum in local currency; 5.Determining sources of funding for each action: state budget/local budgets/institution’s own funding/international assistance. The calendar plan of organizational and administrative actions is prepared for each measure listed in the Action plan (Table of changes) that requires a series of steps and actions: Product: A plan of organizational and administrative actions for every measure listed in the Action Plan (Table of Changes) (Annex 7).


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