A. INTRODUCTION

Australia is a relatively small but prosperous country with a population of 19.5 million residing mainly in metropolitan areas in the southern part of the country especially New South Wales and Victoria where 60 percent of the population resides. Its per capita GDP (AUD$35,920 in 2002) is on par with the most prosperous western European nations. The federal government's emphasis on economic reforms has contributed to its remarkable growth making it the envy of many OECD countries. Its unique federal approach to economic and regulatory reform makes it worthy of close examination.

B. STRUCTURE OF GOVERNMENT AND RULE-MAKING

1. Structure of Government

The Commonwealth Constitution of Australia, 1901, united several self-governing British colonies. Today, the federation comprises six states, two territories and seven administered territories. The Commonwealth powers are set out in section 51 of the Constitution. The Commonwealth administers most policies that address international and interstate trade, taxation, broadcasting, telephone and postal services, trading corporations, financial corporations, and foreign affairs. Section 109 states that when "a law of a State is inconsistent with the law of the Commonwealth, the latter shall prevail and the former shall, to the extent of the inconsistency, be invalid." States exercise powers for most areas of service delivery, education, energy, agriculture, health, transport, housing and development, police and justice systems, and local government. The 750 local municipalities and shires are responsible for service delivery, planning and approval. The Constitution also requires uniform customs duties (section 88) and free trade among the states (section 92).

While similar to the Canadian system in terms of combining federal and parliamentary institutions and using cabinet government at both the federal and state level, Australia has chosen to institute an elected Senate with equal representation of the states.

The Australian legal system is derived from the British system, and is based on both British common law, as modified by the decisions of the Australian courts, and on Australian statute law passed by federal and state parliaments. With respect to regulatory responsibilities, there is significant overlap between commonwealth and state government.

This blurring of responsibilities has meant that Australia has had to incorporate significant coordinating functions in national and state institutional processes. For example, there are regular and frequent meetings of more than 40 Ministerial Councils, which discuss nationwide regulatory action to be implemented by individual state governments

2. Rule-Making Approaches

Australia has a long tradition of decentralized, consensual decision-making marked by flexibility and non-litigious action. Regulatory proposals in primary legislation can be proposed by either the House of Representatives or Senate at the Commonwealth government level, or in the state legislatures. . Proposals are supposed to be submitted to the Office of Regulatory Review federally or to state units if originated there for review of impact analyses. Compliance with such requirements is high, with 88 percent compliance at the decision-making stage and 94 percent compliance at the tabling stage.

Several regulatory instruments are used in Australia. At the Commonwealth level, primary legislation or Commonwealth parliamentary law must be passed by both houses of Parliament and given royal assent by the Governor-General. However, there is a predisposition to the use of subordinate legislation, which is produced by Commonwealth authorities with delegated powers authorized by parliamentary law. These consist of three types: statutory rules which are subject to Senate review by the Senate Standing Committee on Regulations and Ordinances (SSCRO); disallowable instruments which are made by ministers or government agencies subject to review by SSCRO and disallowance by Parliament; and, other subordinate legislation which is not subject to parliamentary review.

At the state level, state laws are used in areas such as education, agriculture and health and hold the same legal weight as Commonwealth parliamentary law. State parliamentary laws may be pre-empted by federal parliamentary laws or federal agency regulations to the extent there is conflict. State subordinate legislation is produced by state authorities operating under delegated powers and must be authorized by state parliamentary law. This legislation can take a number of forms which vary by state, including proclamations and orders-in-council, notifications published in a gazette, regulations or rules which can be disallowed by the legislative assembly, by-laws, ordinances, statutes, and notices.

In addition, Australia makes a more frequent use of various forms of self-regulation, co-regulation or guidance by industry codes (which may be mandatory) than is found in most other countries. These codes and industry arrangements may or may not be developed under the supervision of the government and may or may not be mandatory.

C. REGULATORY REFORM IN AUSTRALIA

1. Background

Since the 1980s, the Commonwealth government has focused a great deal of attention on regulatory reform in an effort to improve the competitiveness of an economy that had become highly regulated and dominated by numerous protected producer groups. By 1992, Australia's performance in terms of per capita GNP had fallen from the top 10 percent of OECD countries in the 1960s to the bottom third. According to the OECD, Australia had been suffering from a poor productivity record in infrastructure industries and attributed the decline in part to regulatory and other constraints on competition and adjustment, including the extensive use of tariffs, subsidies and regulatory protection. As such, reform has been concentrated on microeconomic and structural policy.

In 1984, the Commonwealth government embarked on a massive deregulation strategy focusing on regulations in 11 policy areas, including customs, building codes, and foreign investment controls. By 1989, the programme was extended to include state-owned enterprises, which accounted for 10 percent of GDP. The federal Industry Commission estimated in 1989 that structural reforms in transport, communications, and electricity, and reform of industrial support programmes would result in gains of A$16 billion.

Between 1985 and 1995, reform efforts were extended to state government activities, including deregulation in domestic aviation, financial, telecommunications and transport sectors. By 1995, productivity in these sectors had improved dramatically. However, according to several international regulatory sectoral analyses, Australia was still lagging behind. Although significant tariff reductions had been made, regulatory reform had not yet been initiated.

In 1993, a major inquiry was established to examine the potential for a "National Competition Policy." The "Hilmer Report" of the Independent Committee of Inquiry into National Competition Policy recommended that Australia create a national policy with the following elements: a set of competitive conduct rules; additional structural reform of government monopolies; access rights to infrastructure industries, including telecommunications, electricity and rail networks; and, a review and reform of market regulations that were consistent with serving the public interest.

In 1995, the Council of Australian Governments (COAG), which is the senior coordinating body in the country, composed of the Prime Minister, Premiers and Chief Ministers, signed the "Competition Principles Agreement" embodying the 1993 proposals. As a result of this agreement, the federal Australian Competition and Consumer Commission (ACCC), discussed below, was created to enforce the Trade Practices Act and the National Competition Council (see below also) was established to oversee and advise on compliance with the Competition Principles Agreement.

A key reform was subjecting state-owned enterprises to the competition policy under the principle of "competitive neutrality," which meant that government-owned businesses would enjoy no competitive advantages as a result of public ownership. In addition, by 1995, a common Australian market was created that would remove regulatory barriers to interstate trade. This discussion, initiated in 1990, led to the Mutual Recognition Agreement of 1992 (discussed below) to pursue a common microeconomic reform agenda of deregulation, harmonization, mutual recognition, and enhanced regulatory coordination between federal and state governments.

Nonetheless, the extent of regulatory activity had been growing in Australia. According to the Confederation of Australian Industry, the volume of Commonwealth lower-level rules had more than doubled in the 1990s from the 1980s with the main contribution to this growth being made by ministers rather than by the Commonwealth Cabinet. In 1995 a Federal Register of Legislative Instruments was created to list legislative instruments, although listing is not mandatory and the database may not be a complete catalogue of Commonwealth legislative instruments. The Legislative Instruments Bill, currently before Parliament, would made listing in the database mandatory. There has been an increase in delegated powers to ministers, however, which has signaled a gradual shift in decision-making from parliamentary to administrative authorities.

2. Improving Coordination in the Federation

Recent government reform in Australia has brought about key changes to how the federation operates, particularly in the area of environmental management not mentioned by the Constitution. The federal government has enhanced its responsibilities for environmental protection through its powers to regulate foreign investment, exports, matters of Aboriginal cultural heritage, and international obligations. Although controversial, this shift in responsibility has brought about the introduction of "cooperative federalism" via economic efficiency.

Economic reform has become the principal responsibility of the Commonwealth where greater emphasis has been placed on coordination through institutions such as the Council of Australian Governments (COAG), which was made permanent in 1994. Various intergovernmental agreements were drafted which led to the creation of new regulatory processes and institutions, such as Ministerial Councils and Consultative Councils in which powers are shared, responsibilities are delegated, and single bodies are left to regulate without interference from multiple levels of government.

"Ministerial Councils" were created to implement the agreements. Councils are defined as a formal meeting of Ministers from more than four jurisdictions that meet on a regular basis to facilitate consultation and cooperation between governments, to develop policy jointly, and to undertake joint action in the resolution of issues that arise between governments. Representation consists of members of the Australian Local Government Association and the governments of New Zealand (i.e., with respect to issues arising regarding the Trans-Tasman Mutual Recognition Agreement (TTMRA)) and Papua New Guinea by invitation. They are considered to be rule-making bodies, with varying authorities to produce standardized national regulations and, to a lesser extent, strategies for enforcing these standards. Some 45Ministerial Councils have been established in the areas of forestry, small business, fisheries and agriculture, transportation, immigration, and multicultural affairs. In addition, national regulatory bodies headed by independent commissioners have also been created.

An example of a Ministerial Council that oversees issues with respect to a particular economic interest is the Small Business Ministerial Council, which provides a forum for Ministers to discuss small business issues; promote a national, consistent and coordinated approach to small business policy and development; and, to provide the means to achieve integration of action by governments. The Council comprises the Commonwealth, State and Territorial ministers responsible for small business policy. The Council is further supported by working committees, which are established on an ad hoc basis to advise the Standing Committee consisting of senior officials from departments and agencies whose Ministers are members of the Council.

With respect to extra-territorial coordination, Australia and New Zealand have attempted to combine their regulatory reform efforts New Zealand is part of the formal decision-making process in relation to those areas of regulation covered by the TTMRA. Throughout 2001-02, the Office of Regulation Review (see below) worked with officials from the New Zealand Government to assist with the development of a revised regulatory impact statement system that is broadly similar to the Australian Commonwealth's.

3. Regulatory Institutions

Since 1995, the regulatory reform initiatives at the Commonwealth, state and local levels have resulted in increased cooperation, thereby prompting the need for centralized federal and state regulatory agencies in order improve domestic and international coordination. There is no single institution responsible for regulatory reform but a few are playing an increasingly prominent role. These institutions vary by function and location which have included specialist regulatory reform agencies within administrations, advisory commissions, regulatory reform committees of Cabinet (both federal and state), parliamentary committees, and intergovernmental committees.

(a) Office of Regulation Review (ORR) and the Productivity Commission

The central coordinating institution is the ORR created in 1989 within the Productivity Commission. The role of the ORR is to promote the Commonwealth Government's objective of effective and efficient legislation and regulations, and do so from an economy-wide perspective. Specifically, the ORR advises decision makers, including Cabinet, on the adequacy of the analysis contained in the regulatory impact statement. It also advises the Government, Commonwealth departments, regulatory agencies and statutory Authorities on appropriate quality control mechanisms for the development of regulatory proposals and for the review of existing regulations. It does not, strictly speaking, advise on specific regulatory policies. The ORR Charter sets out its functions:

• Advise on appropriate quality control mechanisms for the development of regulatory proposals and for the review of existing regulations;

• Examine Regulation Impact Statements (RISs) prepared by departments and agencies and advise on whether they meet the Government's requirements and whether they provide an adequate level of analysis;

• Providing training and guidance to officials to assist them in meeting the requirements to justify regulatory proposals;

• Report annually on compliance with the Government's Regulation Impact Statement guidelines, and on regulatory reform developments more generally;

• Provide advice to Ministerial Councils and national standards setting bodies on the Council of Australian Governments' (COAG) guidelines that apply when such bodies make regulations;

• Lodge submissions and publish reports on regulatory issues having significant economic implications; and

• Monitor regulatory reform developments in the states and territories, and in other countries, in order to assess their relevance to the Commonwealth.

The ORR is also authorized to ensure that the particular effects on small business of proposed new and amended legislation and regulations are made explicit, and that full consideration is given to the Government's objective of minimizing the paperwork and regulatory burden on small business. The ORR, along with the Department of the Treasury, also advises the Parliamentary Secretary to the Treasurer in his role as the Minister responsible for regulatory best practice.

The state-level reform and regulatory management units are:

• New South Wales Regulatory Reform Unit (1994)
• Northern Territory Regulatory Review Committee (1987)
• Queensland Business Regulation Review Unit (1991)
• South Australian Deregulation Office (1993)
• Tasmanian Regulation Review Unit (1992)
• Victorian Office of Regulation Reform (1984)
• Western Australia Office of Economic Liaison and Regulatory Review (1991)
• Australian Capital Territory's Business Regulation Review Unit (1991)

The Productivity Commission is an independent advisory body reporting to Parliament through the Treasurer. Reports are tabled in Parliament and attract parliamentary privilege. The Commission conducts independent public inquiries into economic issues, and provides the Federal Government with advice on matters relating to industry, including legislative or administrative action to be taken. It is required to produce a series of annual reports, including Regulation and Its Review. The 2001-02 Report (November 2002) examined such issues as compliance with Regulation Impact Statement (RIS) requirements and the adequacy of analysis in the Statements. Current priorities are to ensure that RISs provide considered information and advice on regulatory compliance costs and the impact on small business, as well as ecologically sustainable development. In addition, the Commission believes that integrating cost recovery policies with the RIS process and initiatives to cooperate more closely with New Zealand are important.

The Commission is also required to produce an annual report on industry assistance and its effects on the economy, which examines a broad range of measures used by governments to provide assistance. The most recent review deals not only with recent developments in some key sectors of the economy, but also support measures for individual firms, including, for example, drought relief. It also outlines recent international policy developments affecting Australia's trade.

The Commission also undertakes subject matter reviews and analyzes specific regulatory issues. It has recently reported the results of its Airport Inquiry, which examines the need for price regulation of airports and the appropriate form of regulation, if any. This examination followed the transitional use of price cap regulation (monitored by the Australian Competition and Consumer Commission) after the privatization of major airports in Australia. A current Inquiry is in the process of examining the social impacts of the Disability Discrimination Act 1992 on people with disabilities and the community as a whole. Among other matters, the Commission will be assessing the costs and benefits of the legislation and its effectiveness in achieving its objectives. The findings of Commission inquiries are tabled in Parliament and policy recommendations are considered by the Government through appropriate Ministerial and Cabinet processes.

In addition to performing reviews and carrying out formal inquiries (with public input, discussion papers, consultation reports, etc.), the Commission carries out research projects on regulatory issues, such as the recent project "Incorporating externalities into the pricing of irrigation water."

(b) Australian Competition and Consumer Commission

The Commission was created as an independent statutory authority in November 1995 by the merger of the Trade Practices Commission and the Prices Surveillance Authority to administer the Trade Practices Act 1974, the Prices Surveillance Act 1983 and the Airports Act 1996, as well as carrying out other responsibilities under other legislation. Under the national competition policy reform program, the Trade Practices Act has been expanded and harmonized with State/Territorial application legislation so that its prohibitions of anti-competitive conduct apply to almost all businesses in Australia. Its responsibilities under the Prices Surveillance Act are to monitor and vet proposed price increases of organizations under surveillance, and hold inquiries into pricing practices.

The Trade Practices Act covers anti-competitive and unfair marketing practices, mergers or acquisitions of companies, product safety/liability, and third party access to facilities of national significance (e.g., bottleneck telecom facilities). The Commission is the only national agency dealing generally with competition matters arising from market behaviour and the only agency with responsibility for enforcement of the Trade Practices Act and the associated State/Territorial application legislation.

The Commission has three pricing functions under the Prices Surveillance Act:

• To vet the proposed price rises of any business organization placed under prices surveillance;

• To hold inquiries into pricing practices and related matters and to report the findings to the responsible Commonwealth Minister; and

• To monitor prices, costs, and profits of any industry or business, as directed, and to report the results to the Minister.

There are several groups within the Commission dealing with regulatory and competition oversight, functions that in other countries might be performed by independent sectoral regulatory agencies. For example, the Telecommunications Group administers the telecommunications-specific provisions of the Trade Practices Act that authorize the Commission to deal with anti-competitive conduct by the carriers, as well as tariff filing directions and record-keeping rules. By facilitating access by competitive carriers and administering provisions under the Telecommunications Act providing for the transition to a more competitive environment, the Commission plays a major regulatory role.

The Gas Group deals with access arrangements and other upstream regulatory matters regarding gas distribution. The Transport and Prices Oversight Branch deals with aviation, post, rail, waterfronts, petrol and insurance. The Aviation Group in that Branch monitors price, quality of service and financial performance of airports. It is also responsible for assessing proposals to increase charges for terminal and en route navigation services, as well as rescue and firefighting services to airports. It has no specific role regarding airlines, although general competition law provisions apply. Using the Commission as a locus for post-privatization or "deregulation" monitoring and oversight has emphasized a competition-oriented approach to transition regulation.

4. National Competition Council

The National Competition Council (NCC) was established by all Australian governments in 1995 to act as a policy advisory body to oversee the implementation of the National Competition Policy. The goals of the NCC include:

• To facilitate timely implementation of effective and fair competition reforms by governments;

• To promote competition policy as an "economic tool" for enhancing Australia's performance and productivity;

• To promote better use of Australia's infrastructure; and

• To build community awareness and support of the National Competition Policy.

In addition, the NCC monitors compliance of all jurisdictions, including the Commonwealth, with the Competition Principles Agreement. The NCC focuses on whether regulation restricts competition, whether the restriction on competition is the only way of achieving the objective and, if so, whether the restriction can be justified as being in the public interest. The NCC reports publicly each year on regulation review and reform processes and outcomes of each jurisdiction.

5. Administrative Appeals Tribunal and Administrative Review Council

The Administrative Appeals Tribunal (AAT), reporting through the Office of the Attorney-General, reviews a broad range of administrative decisions made by Commonwealth and to some extent, State government ministers and officials, authorities and other tribunals. It can also review decisions of non-government bodies. It conducts "merits reviews" of administrative decisions involving whether the correct or preferable decision has been made in accordance with the applicable law. It covers matters of taxation, social security, veterans' affairs, Commonwealth employees' compensation and superannuation, criminal deportation, civil aviation, customs, freedom of information, bankruptcy, student assistance, security assessments, corporations and export market development grants. The AAT may affirm, vary or set aside the original decision.

The Administrative Review Council analyzes administrative law processes in an effort to improve the quality of administrative decision-making.

6. The Australian Law Reform Commission

This advisory commission is responsible for reviewing the legal processes of government and to recommend changes where appropriate. It produces a variety of reports concerning administrative procedures and their appropriateness. Their most recent report (March 2003) is entitled Principled Regulation: Federal Civil and Administrative Penalties in Australia. This report is the result of an Inquiry carried out by the Commission. As the Commission notes: "Within every government regulatory scheme is a system of penalties and other sanctions to foster compliance and punish non-compliance. A review of penalty schemes, therefore, looks at the way in which government relates to the communities that it seeks to regulate, which is in many respects the heart of government activity." Current Inquiries deal with safeguarding classified and security-sensitive documents during court or tribunal proceedings and intellectual property rights over genetic materials and genetically related technology.

7. Building a National Competition Policy

In 1993, the Hilmer Report, prepared by the Independent Committee of Inquiry into National Competition Policy, on the creation of a "National Competition Policy" asserted that, "Australia is facing major challenges in reforming its economy to enhance national living standards." The aim of the Committee was to remove barriers from a single national market. Many goods and services were still sheltered from competition, and pro-competition reforms implemented had progressed without a broad framework that would have facilitated a more efficient reform effort. This matter is discussed further at C(1).

8. State-Owned Enterprises and Competition

As a result of the National Competition Policy, a number of state-owned government business enterprises (GBEs) were subject to competition for the first time. State and federal governments agreed to implement the principle of "competitive neutrality," declaring that, "government businesses should not enjoy any net competitive advantage simply as a result of their public sector ownership." National Competition Policy is neutral with respect to the nature and form of ownership of government business enterprises. Notwithstanding this, at the federal level, nearly all significant GBEs have been privatized. At the state level, the more common reform model has been corporatization.

9. Creating a Common Australian Market

A key element of microeconomic reform was the removal of regulatory barriers to interstate trade. Inconsistent regulatory controls and laws between the states in areas such as transport, food and packaging standards, and occupational qualifications created trade barriers and significant inefficiencies. In 1990, the Prime Minister observed that trade between European Union states would be less restrictive and more efficient than between Australian states.

Consequently, a Mutual Recognition Agreement (MRA) was signed in 1992 establishing two main principles:

• If goods can be legally sold in one state or territory, they can be sold in any other participating state or territory; and

• Someone registered to practice an occupation in one state or territory can practice in any other state or territory.

Although the agreement permits temporary exemptions to protect public health, safety and the environment, the rationale for invoking these provisions must be acceptable to the signatories. Where there is disagreement, states can appeal to the National Administrative Appeals Tribunal. The agreement calls for harmonized national standards administered by joint regulatory bodies such as the Commonwealth/State Ministerial Councils or other national commissions. In Australia, such a development has begun to eradicate long-standing attitudes regarding the "sanctity of state sovereignty".

9. Building a More Robust Export Sector

During the 1980s Australia diversified its export markets relying less on raw materials and more on manufactured products to be sold in Asia. In 1995, the Kean Inquiry determined that an effective system of standards-setting would encourage innovation and spearhead competitive advantage. Australia and New Zealand signed an agreement that year on harmonization and mutual recognition of product and occupational standards (the TTMRA). An agreement was also reached with the European Union. The agreement with New Zealand was similar to the MRA among the Australian states, above. The agreement between Australia and the European Union dealt with the mutual recognition of conformity assessment to standards. As a result of this agreement, appropriately designated Conformity Assessment Bodies can assess conformance with import requirements in the exporting country.

The combination of microeconomic reform at the state level with macroeconomic reform at the federal level has improved competitiveness in the export sector. However, as of 1994, the degree of regulatory fragmentation among states and the federal government was still high according to a New South Wales report into the degree of red tape. Today, the Regulatory Impact Statement regime (RIS) has improved regulatory fragmentation by ensuring that both federal and state/territorial regulations assume an economy-wide perspective where decisions are made through COAG. In this case, decisions are expected to conform to COAG's Principles and Guidelines. However, regulators in most states are not required to take an Australian-wide view that would reduce regulatory fragmentation.

D. REGULATORY MANAGEMENT AND PROCESSES

Australia has implemented important changes in its regulatory management regime and processes. This section examines the use of regulatory principles and regulatory impact statements, the exploration of alternatives to regulation or alternative forms of regulation, public consultation approaches, coordination activities, the use of international standards, harmonization and mutual recognition of standards or regulatory regimes, and improvements in market openness.

1. National Regulatory Policy and Regulatory Impact Analysis

Australian regulatory policy is outlined in COAG's "Principles and Guidelines for National Standard Setting and Regulatory Action by Ministerial Councils and Standard-Setting Bodies" adopted initially in 1995 and based on principles of "good regulation" as suggested by the OECD in its Recommendation on Improving the Quality of Government Regulation of 1995. These apply to Ministerial Councils and national standards-setting bodies engaged in the promulgation of national standards or regulation. The Commonwealth's regulatory policy is outlined in A Guide to Regulation. In addition, other processes and oversight occur, including the Regulatory Performance Indicators and the Regulatory Plans. In addition, National Interest analysis is conducted before treaties are entered into.

The COAG standards hold that regulators should not impose any new regulation unless the following conditions are met.

• Regulatory and administrative burden is at a minimum;

• Regulatory objectives are clear identifying a social or economic problem exists;

• Regulations are not unnecessarily rigid;

• Other solutions such as self-regulation or market-based measures have been fully considered particularly secondary effects and regulation is demonstrated to be the most appropriate instrument;

• Benefits exceed costs especially with respect to their distribution;

• Appropriate consultation has been completed with affected groups;

• Overlap and duplication have been minimized;

• Provisions exist for regulatory review; and,

• Impacts on competition are minimized.

The checklist for assessing regulatory quality used by the ORR employ the following seven principles:

• Employ the minimum necessary to achieve objectives
• Not unduly prescriptive
• Accessible, transparent and accountable
• Integrated and consistent with other laws
• Communicated effectively
• Mindful of the compliance burden imposed
• Enforceable

Proposals are classified into one of four "significance" rankings reflecting the nature and magnitude of the proposal and the scope of its impact. The rankings are denoted by Level A through D where A is considered to be "More Significant" and D is considered to be "Less Significant."

2. Consultation and Transparency

Australia has a long tradition of public consultation as first mandated by the federal Rules Publication Act 1903, which required 60 days notice of intent to regulate and that copies of all draft bills be made available to the public. Although the consultation requirements were repealed in 1916, legal pre-publication requirements became widespread during the 1970s, particularly in connection with environmental impact assessments for project development proposals. This interest quickly spread to regulatory decisions. Between 1984 and 1994, most states enacted laws that contain general requirements for consultation in the preparation of RISs and for identifying alternatives to regulation.

In 1997, the new RIS guidelines provide an outline of effective consultation. It is to be carried out by all regulators, both for the review of existing regulations and the development of new ones. Specifically, consultation is to be carried out with all affected parties; this has enhanced transparency, provided quality control, and improved the information upon which the RIS is based.

A variety of consultation techniques are used in regulatory decision-making that offer differing degrees of access, transparency and information. The preferred technique is the circulation of proposals, justification statements and/or regulatory impact statements to affected or interested parties. Green papers (i.e., discussion papers without policy commitment) or White papers (i.e., papers stating policy commitment) are used occasionally. Advisory groups are also used occasionally to write regulations, particularly in the areas of federal road safety. Public hearings are sometimes convened which are used mainly in federal food regulation. Notice and commitment procedures are rarely used but in several states, a notice must be published in the gazette, daily newspapers and trade journals stating the goals of the regulatory proposal.

3. General Oversight of the Regulatory Management System

In general, Australia, not unlike other OECD countries, lacks effective mechanisms for managing and tracking reform inside the central administration in order to avoid poor quality regulatory practice. The Productivity Commission and the ORR play a role, but the ORR does not have sufficient resources to track the policy development process within a department or agency. Nonetheless, it is privy to some information regarding reviews, as well as information on policy proposals. In addition, the ORR publishes an annual report on compliance with the government's RIS requirements and has found this to be a useful tool for encouraging the integration of RIS processes.

The ORR maintains a compliance database and its assessment of compliance with the RIS requirements is published annually as part of the Productivity Commission's Annual Report: Regulation and Its Review. Where compliance is an issue, it is made clear which departments (and where the matter is significant, which regulations or policies) did not adequately follow these requirements. Public reporting appears to have a significant impact on commitment of departments and agencies to the RIS process. It is through this mechanism that the ORR is able to influence the policy development process.

Several states, however, have expressed concern about the effectiveness of delegating reform programs to individual ministries at the state level. A New South Wales parliamentary committee noted, "…where responsibility for the review of …rules is left completely in the hands of Ministers…the level of compliance…tends to vary from one portfolio to another." This committee and others have recommended that a strong independent oversight function be instituted. They also noted that regulatory review was likely to fail if ministers were allowed discretion to exempt regulations from review. Such ministerial discretion would place more responsibility for determining what rules to exempt into the hands of senior bureaucrats upon whose advice ministers depend. At the federal level, however, only the Prime Minister or Cabinet has sufficient authority to exempt a proposal from the RIS requirements. Since the requirements became mandatory, one proposal has been exempted.

Regulatory Performance Indicators are reported in the Annual Review of Small Business. The indicators initiative was first announced in the Prime Minister's 1997 small business statement, More Time for Business. Nine indicators are used to measure the extent to which agencies responsible for small business regulation are demonstrating good regulatory practice. ORR assesses performance with certain indicators (e.g., proportion of regulations for which the RIS adequately justified the compliance burden on small business) and Commonwealth agencies provide information to the Office of Small Business on other indicators (e.g., proportion of cases in which external review of decisions did not lead to a decision's being reversed or overturned).

Additional oversight potential is provided by the publication of Regulatory Plans. Each Commonwealth agency with responsibilities for business regulation is required to publish a regulatory plan on its website early in the financial year. The plans deal with changes in the agencies' areas of responsibility and contain information about changes to business regulation that have occurred since the last plan was published and activities in the coming year that could lead to changes in regulation. The plans cover primary legislation, subordinate legislation, quasi-regulation or treaties that directly affect the business community, have a significant indirect impact on business, or restrict competition.

E. CHALLENGES FACING THE REGULATORY MANAGEMENT SYSTEM

In its assessment of the Australian regulatory management system, the OECD noted the following challenges yet to be addressed.

1. Challenges of Compliance

Recently, the Productivity Commission reported in its annual report, Regulation and its Review 2001-02 that compliance with the guidelines averaged 88 percent for the 145 proposals submitted at the decision-making stage. At the tabling stage, 116 of 123 proposals were accompanied by an adequate RIAS. The Report also noted that the problem of RIS submissions made late in the decision-making process persists. In particular, it indicated that compliance rates for "significant" or more important regulatory proposals tended to be undertaken in compressed time frames, thereby raising some concern about their contribution to the decision-making process. This suggests that many departments consider the RIS process to be simply an "add-on" task after a course of action has already been agreed.

2. Small Business Impacts

With respect to small business impacts, the ORR concluded in Regulation and its Review 2001-02 that "some departments and agencies could do a better job by following the requirements included in A Guide to Regulation and routinely considering small business impacts." It noted that this weakness has likely resulted in a disproportionate impact of regulation on this community. In the same report, the ORR stated that "[e]vidence from 2001-02 indicates that there is a significant scope for improvement in the level of analysis in many RISs."

3. Ecological Sustainable Development

In 1998, the Commonwealth government expressed its intention to amend its Guide to Regulation to revise the RIS process to include an assessment of ecologically sustainable development (ESD). The national strategy for ESD has been endorsed by all governments. Consideration of ecological impacts is required because of a number of recognized market failures associated with some sustainable development issues, such as public goods and externalities, common property issues and scientific uncertainty

F. INNOVATIONS AND TRENDS

1. Alternatives to Regulation

As per RIS requirements, alternatives regulatory instruments are considered before proceeding with regulation. One such alternative is that jurisdictions have been asked to consider "performance-oriented regulation" instead of traditional command and control approach. Since 1992, the Transport Commission has moved in this direction, requiring automobile manufacturers to show that their cars reach a certain level of safety, rather than being forced to include particular safety features. This particular approach has reduced regulatory costs by increasing the flexibility of regulated enterprises to comply in the most effective way. A criticism of performance-based regulation, however, is that these generally tend to be more complex for both the regulator and regulated firm, more extensive, and impose barriers to entry or impose undue costs on smaller firms.

Another approach is "codes of conduct" to ensure that business behaviour meets ethical, quality, or performance standards, and as compliance mechanisms. The Commonwealth government has directed the banking and broadcasting industries to adopt such codes or face formal regulation. The challenge for use of this approach has been to ensure a degree of quality that does not set unreasonably low standards. The Australian Competition and Consumer Commission often plays an advisory or even vetting (occasionally granting exemptions for anti-competitive conduct) role to ensure that codes do not become mechanisms for limited competition, particularly by raising entry barriers.

Tradable permits are also becoming a standard feature of regulatory alternatives. For example, in New South Wales where fishermen have been depleting fish stocks, they were assigned shares entitling them to a certain proportion of the fish available. The shares are tradable, so that more efficient fishermen can buy from those who are less efficient. Fishermen are inclined to protect the value of their shares by reporting catch quota cheaters.