Raise prices and go straight to jail

PARLIAMENT passed on November 6 an amendment to the Penal Code that imposes prison sentences of up to 12 years on businesses found to have raised prices without justification during the lead–up to euro adoption.

PARLIAMENT passed on November 6 an amendment to the Penal Code that imposes prison sentences of up to 12 years on businesses found to have raised prices without justification during the lead–up to euro adoption.

The Justice Ministry contends that the law is part of the state's strategy for combatting price gouging. It takes effect on December 20.

But opposition politicians charge that the law accomplishes little, as talk of it has prompted some retailers and service providers to raise prices before it takes effect, and legal experts have questioned how the government will prove a direct link between future price increases and euro adoption.

Furthermore, critics note, the law only applies to small business and entrepreneurs.

Justice Minister Štefan Harabin voiced support for the law as early as this May, calling it an important preventative measure.

He strongly defended it again during a recent interview with the public service broadcaster Slovak Television.

“We are obliged to protect common people from price increases connected with the adoption of the euro,” he said after the law passed.

The amendment reclassifies violations of price regulations from a civil offence to a criminal offence, which makes the offender eligible for a prison sentence.

Anyone who is found to have caused “minor damage” to consumers by “breaking the price discipline set in this rule, or any other limitation of contractual pricing stemming from obligatory legal norms or a decision issued based on it” could face between six months and three years in prison, the Sme daily wrote on November 8. The daily defines “minor damage” as total gains of between Sk8,000 (€265.55) and Sk4 million (€132,775.68).

For damage above Sk4 million, the offender could face between seven and 12 years.
Former justice minister Daniel Lipšic (KDH) told The Slovak Spectator that the amendment has actually had the opposite effect so far. As businesses heard they could face criminal charges for raising prices after euro adoption, many chose to raises prices now, before the law takes effect, he said.

“Just compare the Czech Republic, where the price of food has decreased since January, with Slovakia, where it has quite clearly increased,” he remarked. “In effect, this clever government guaranteed that prices hikes will happen sooner.”

He concluded, “It is a superfluous law, a Potemkin village. It will not be used in a single case.”
But Michal Jurči, a spokesman for the Justice Ministry, told The Slovak Spectator that the law had been prepared by a team of legal experts.

Radoslav Procházka, a constitution law expert, said that even if it's uncertain how the amendment will be enforced, it was obviously very carefully drafted.

The fact that it applies only to small business and entrepreneurs isn't an obstacle, he said, because “the amendment was never intended to affect large companies, which cannot be held personably responsible for setting prices."

But Procházka did express concern at the level of scrutiny the law requires.

“Such an approach seems appropriate only in exceptional circumstances, such as a national emergency or a war,” he told The Slovak Spectator.

Jaroslav Pilát, an analyst with the M.E.S.A. 10 non-governmental think-tank, told The Slovak Spectator that the amendment was “exotic – to put it nicely” among countries in the eurozone, which Slovakia joins in January 2009.

“The amendment makes the state’s approach more repressive than what’s common in a democratic system,” Pilát said.

He added that it is common in a market economy for prices to fluctuate.

“Price increases are a natural part of this fluctuation,” he said. “And in our market environment, consumers are protected by the Act on Consumer Protection.”

Moreover, he said, Slovakia already has price regulations with related penalties.

“The authorities are empowered to enforce these laws, and penalise anyone who violates them,” he said.

Pilát commented that the new amendment doesn’t specify how authorities will decide whether a price increase is justified.

In response to Interior Minister Robert Kaliňák, who said police are prepared to act on reports of price gouging, Pilát said: “Will police officers be called to every grocery store and supermarket to carefully inspect each fluctuation in price? And what if the increase is justified?”

He concluded, “In general, this amendment is more a political tool for gaining voters than an effective device for protecting consumers.”

The National Union of Employers (RÚZ), which comprises more than 1,300 firms, raised the question of how the new law will be enforced.

“In the context of prices, it is impossible to ascertain whether it raised due to increased input costs, a global increase in food prices, or some other external reason,” it wrote in a statement this July, as cited the SITA newswire.

Jozef Vozár, a lawyer with the Institute of State and Law, said other steps should have been taken to protect consumers before the Penal Code was amended.

“Criminal charges should be introduced only as a method of last resort,” Vozár wrote in the Hospodárske Noviny business daily this June.

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