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A Synthesis Report Based on a Review of Regulatory Management Practices in Selected OECD Countries and the European Union

Prepared for the Canadian External Advisory Committee
on Smart Regulation
June, 2003
The Regulatory Consulting Group Inc.
Ottawa, Canada

INTERNATIONAL TRENDS AND INNOVATIONS IN REGULATORY MANAGEMENT

A. Introduction

In the September 2002 Speech from the Throne, the Government of Canada established the External Advisory Committee on Smart Regulation. The intention is to create a "modern regulatory system designed for the 21st Century that will protect the health and safety of Canadians, preserve the environment and create an environment of innovation and growth." As part of the research commissioned by the Committee, the regulatory management practices of four countries (Australia, Finland, United Kingdom and the United States) and the European Union were reviewed. The individual reviews have been published as "stand alone" documents. In the course of the reviews, a variety of notable innovations and trends were identified. This paper brings together these trends and innovations to provide insights into possible "next steps" for Canada's continuous improvement of its regulatory management system.

The paper will first examine the common stories, the concerns and areas for improvement identified in the country reviews. It will then identify the innovative approaches, particularly those not used widely in Canada, to improve the quality of regulatory management. There are common themes in these approaches that may be regarded as trends for the next stage of a more mature federal regulatory management system.

B. Common Stories

The jurisdictions studied are well along the road to improving the quality and effectiveness of their regulation. Some are stronger in certain areas than others. Finland, for example, has a long history of consultation and consensus building, but is still in the process of building an effective regime of impact analysis into its regulatory management system, despite a requirement that regulatory impact analysis be carried out dating to 1975.

The United States, on the other hand, has a strong regulatory management tradition going back decades and has provided an influential model for rigorous analytical approaches. Yet, its regulatory culture is litigious with complex prescribed procedures. Currently, the European Union is particularly concerned about simplification and accessibility of the "Acquis Communitaire," (the body of pan-European legislative/regulatory requirements that must be adopted as domestic law by member states). In other countries, however, the laws are easily accessible, often on the Internet.

Nonetheless, there are common stories and concerns about the quality and effectiveness of regulatory management systems, irrespective of the strengths of individual countries. They all recognize the need for constant improvement and adjustment. For example, regulatory impact analysis, a key tool in modern regulatory systems, has not reached its full potential as a tool for decision-makers in all countries examined.

Consultation is integral to the regulatory process in all the countries studied. New approaches and techniques, however, are needed to reach stakeholders, yet not cause delays or overwhelm their capacity to participate effectively.

Both governments and citizens want assurances that the regulatory process is credible, transparent and accountable. All countries are concerned about national and international coordination. The EU clearly is faced with a formidable set of coordination challenges, but even unitary states are concerned about regional and local coordination of regulatory implementation and enforcement.

Finally, all governments studied recognized that regulatory management systems generally have focused on ex ante analysis and the process of developing regulations, often at the expense of the review of the existing stock of regulation.

C. Key Trends and Innovations

1. Broadening the Scope of Concerns

When the current movement for regulatory reform and improved regulatory management began, there was a strong emphasis on compliance costs and other impacts on business-the "regulatory burden." Reform efforts were driven by concerns about productivity, competitiveness and the need to combat stagflation.

Thus, an early objective of regulatory management improvement initiatives was on developing an economically-oriented Regulatory Impact Analysis or a Business Impact Test. Stakeholder consultation tended to occur later in the process and was aimed largely at business interests. Not surprisingly, much of the new thinking about regulatory management and the merits of specific regulatory proposals was focused primarily on the potential effects of regulatory intervention on regulated firms. In some cases, policy makers paid specific attention to differential impacts on small business, but other interests were generally given less prominence.

Having accepted the need to reflect the concerns of (large and small) business, regulators and policy makers are now broadening the scope of their attention to encompass a variety of issues. Concerns, as expressed in consultation, analysis, and implementation planning, are now going beyond a business-oriented focus. In analytical terms, this is reflected by an expansion of regulatory impact to include such matters as sustainability and environmental impacts. In some countries, it may involve making a more explicit link between (dynamic) competition issues and regulatory issues.

A number of countries are now requiring that impact assessments go further than the original economically-based considerations of cost and benefit or cost-effectiveness. A major, and potentially highly significant, trend is the adoption of sustainable development as a matter worthy of assessment in an impact statement. Requirements to consider sustainability have either been mandated or are being proposed in the policies of Australia, Finland, the United Kingdom, and the European Union. The United States has required some form of environmental impact analysis since 1970, but it is likely that the scope and sophistication of these analyses for major regulatory actions will be enhanced.

Finland has issued separate instructions on, among others, the assessment of economic, business and environmental impacts, as well as impacts on regional policy and is presently examining the use of gender analysis for new regulatory actions. In some cases, analyses are also done of human social and health impacts. All the countries studied are increasing the attention paid to impacts on small business.

2. Increasing the Rigour of Impact Analysis

Both the countries themselves, and the OECD in its country reports, expressed dissatisfaction with the quality of many regulatory impact analyses and with assessments of alternative policy instruments and innovative regulatory choices. While the requirement for impact analysis was usually honoured, the analyses themselves too often lacked rigour, ignored important analytical points or appeared to be "after the fact" exercises that did not really influence policy development or shape regulatory decision-making. Consequently, there are now numerous attempts to improve the quality and rigour of regulatory impact analysis.

In the United States, the Office of Information and Regulatory Affairs has proposed updating the guidelines for the conduct of regulatory reviews. The proposals have been put out for comment and peer review. For "very major" impacts (over $1 billion per year), a probabilistic analysis of costs and benefits will be required. As well, a summary of the proposed rule should be presented in an accounting statement that would provide annualized, monetized, quantified and qualitative benefits and costs for economically significant regulation. OIRA has been urging executive agencies to seek peer reviews of scientific and other technical analysis to provide an expert review that is free from the biases of the regulators and interested parties. Criteria have been proposed to ensure that reviewers are unbiased, objective and do not reflect a particular ideological position.

The United Kingdom is aiming to move beyond full and formal compliance with the RIA process and has set in train initiatives to improve the quality of RIAs and to embed a culture of impact assessment within departments and agencies. In future, departments will have to include their performance on RIAs and regulatory simplification in their annual reports and the National Audit Office will conduct annual audits of a sample of RIAs. At the same time, there has been expanded guidance on RIAs, increased training in RIA, and a strengthening of regulatory impact units within departments.

The Australian Productivity Commission's current priorities are to ensure that Regulatory Impact Statements provided considered information and advice on regulatory compliance costs and the impact on small business, as well as sustainable development. (The Commonwealth government plans to amend its Guide to Regulation to include an assessment of sustainable development.) The European Community is also requiring that impact on sustainable development be addressed as part of a regulatory impact assessment.

Some jurisdictions have found a two-stage analysis to be an effective approach. In the United Kingdom, for example, a partial (preliminary or provisional) regulatory impact analysis (RIA) is prepared when collective ministerial agreement is being sought to the principles of new legislation (primary or secondary), which must also be available for public consultation. Subsequently, a full RIA is prepared to include the results of consultation and forms the basis of ministerial action.

A new impact analysis process in the European Union also envisions two stages: the preliminary assessment ascertains the nature of the problem, possible options and affected sectors. At the second stage, a decision is made whether the proposals require more detailed analysis proportionate to the significance of likely impacts. A clear system of measures describing "significance" has been proposed.

Improving the capacity of analysts and public officials to recognize issues and carrying out the appropriate analysis is an important step in improving the rigour of regulatory impact analysis. In the United Kingdom, widespread training is provided, including modules on impact assessment in some Civil Service College courses.

3. Refining Consultation

Every country studied has accepted and implemented widespread consultation procedures. In the US, the "notice and comment" provisions in the Administrative Procedures Act have made opportunities for comment available since 1946. Australia has had a form of notice and comment in place since 1903. An open consensus process has been a long-standing feature of the Nordic values reflected in the Finnish law-making process. While consultation may be an established feature of the regulatory landscape in most industrialized countries, problems have been noted. There is "consultation fatigue" experienced by stakeholders (particularly public interest groups and small business interests) who cannot respond in a meaningful way to the demands being placed on them. There is concern that consultation is costly and leading to delays and bottlenecks in the regulatory process.

At the same time that demands are being made for consultation to be better targeted, there are also demands that it be more inclusive and less focused on established interests. To meet these demands, countries are improving the planning and coordination of consultation efforts and using new techniques, such as the Internet and polling, to broaden the reach of consultation and enhance inclusiveness. For example, Finland, while relying on traditional consultation approaches, has also begun using the internet and public hearings to gauge public reaction to regulations and referenda at the municipal level. "Tripartite" agreements among social partners comprising employer and employee groups and government are being usedin appropriate areas.

Partly to make consultation more efficient and to reduce "consultation fatigue," the United Kingdom has prepared a new code of practice on written consultation. The Code includes a commitment to set up a register of current consultations, which would allow coordination of consultation activities. A project is underway to add a summary of responses to the register and provide links to each consultation document.

The European Union has also established new consultation guidelines, "Towards a Reinforced Culture of Consultation and Dialogue-the General Principles and Minimum Standards for Consultation of Interested Parties by the Commission". The intent of the new guidelines is to achieve greater coherence in consultation approaches across EU institutions.

Providing clear information on regulatory intent and impacts can be an important factor in the success of consultation, allowing for meaningful input and exchange of views. In Australia, the preferred consultation technique is circulation of proposals, justification statements and/or regulatory impact statements to affected or interested parties.

Advisory groups are occasionally used to write regulations and public hearings on regulatory proposals may be convened. Australia also makes heavy use of codes, which may or may not be voluntary, and are usually written by industry, often with government input and participation. In the United Kingdom, regulatory impact information is routinely provided in consultations.

4. Inter-Jurisdictional Harmonization and Coordination

The global trading and information economy and specific political initiatives, such as the European Union and the devolution of powers to Scotland and Wales in the United Kingdom, have emphasized the need for harmonized regulatory initiatives and practices. There is an increased consciousness of the degree to which regulation can act as a barrier to trade, reduce consumer choice, and inhibit the growth of competitive open economies. Most countries studied, therefore, have in place specific programs and policies to foster increased harmonization and coordination of regulatory requirements.

While it is to be expected that EU Member countries would work to harmonize national law to EU objectives, there is also a strong emphasis on regulatory harmonization and coordination (which are not necessarily the same thing) among various levels of government in a single jurisdiction. Local governments are being asked to play stronger roles in delivering programs, including regulatory programs, and enforcing national standards. In federal countries, there is a need to harmonize requirements among jurisdictions and create internal free trade markets.

In the United Kingdom, an Enforcement Concordat provides consistency and harmonization in the implementation of regulations that are now the responsibility of local governments. The Concordat involves representatives of business, the voluntary sector, the enforcement community, and consumer groups. It is a non-statutory and voluntary code that describes for businesses and others what they can expect from enforcement officers, with emphasis placed on helping businesses to comply.

Similarly, the United Kingdom, having devolved a number of responsibilities to administrations in Scotland and Wales, has negotiated frameworks for cooperation and common obligations and commitments. Among these are "Devolution: Memorandum of Understanding and Supplementary Agreements between the United Kingdom Government, Scottish Ministers and the Cabinet of the National Assembly for Wales" and bilateral concordats. Since approximately 40 percent of significant regulations in the United Kingdom originate with EU initiatives, coordination with the EU has a high priority.

Australia, a federal state, has developed intergovernmental agreements that provide for, among other matters, the establishment of Ministerial Councils to facilitate consultation and cooperation among governments, to develop joint policy, and to undertake joint action. In some cases, the Councils 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.

The Commonwealth Government signed a Mutual Recognition Agreement as part of its efforts to create a domestic open market. The Agreement sets out two main principles: if goods can be legally sold in one state or territory, they can be sold in another; and someone registered to practice an occupation in one state or territory may practice it in another. Disagreements can be appealed to the Administrative Appeals Tribunal. The Agreement also calls for harmonized national standards administered by joint regulatory bodies.

5. Enhancing Accountability and Transparency

Since regulation is, by definition, an intrusive act by the state intending to change behaviour in the private sector (or in some cases, the quasi-private sector) and failure to comply can be an offence subject to sanctions, there is a strong emphasis on the transparency of regulatory actions and accountability for their use. This ties into the oversight function discussed below. Public reporting of activities enhances both functions, following the philosophy that honest government and fair treatment of citizens thrives in the sunlight.

In the United States, the Office of Management and Budget (OMB), an executive agency reporting to the President that performs "gatekeeping" and quality control functions for executive agency regulations, is required to provide Congress with a "Report on the Costs and Benefits of Federal Regulations."

The United States has also been making increased and aggressive use of the Internet to increase public access to the Office of Information and Regulatory Affairs (OIRA) in the OMB. The OIRA website includes a list of regulations currently under review, monthly summaries of agency actions, prompt letters, return letters, and information about meetings between OIRA staff and outside parties.

In the United Kingdom, agencies that have adopted the Enforcement Concordat must report annually compliance with the Concordat and departments must include their performance on RIA and regulatory simplification in their annual reports. In Australia, the Productivity Commission, an independent advisory body reporting tothe Commonwealth Parliament through the Treasurer, produces an annual report, Regulation and Its Review. The most recent report (Nov. 2002) looked at such issues as compliance with Regulatory Impact Statement requirements and the adequacy of analysis. In addition, the Australian Annual Review of Small Business reports on Regulatory Performance Indicators to measure the extent to which agencies responsible for small business regulation are demonstrating good regulatory practices.

The Australian Productivity Commission also produces an annual report on industry assistance and its effects on the economy. The most recent review deals not only with developments in some key sectors or the economy, but also support measures for individual firms, including, for example, drought relief. In addition, it outlines recent international policy developments affecting Australia's trade.

6. Strengthening Oversight and Independent Advice

New mechanisms for oversight and independent advice are key elements of strategies aimed at continuous improvement of regulatory management systems and effective accountability. In a number of countries bodies with sufficient distance and that are sufficiently disinterested in the activities of regulators have an opportunity to review regulatory activity, test it against some more or less explicit criteria, and provide judgments. In some countries, regulatory activities, including the quality of regulatory impact statements, may attract the attention of think tanks, industry groups, NGOs, academics and others. Their comments on government regulatory action provide an important counterbalance in systems that are often strongly controlled from the inside.

The "Report to Congress on the Costs and Benefits of Federal Regulation" by the Office of Management and Budget (OMB) in the United States sets out recommendations for reform. As well, by pre-publishing the Report in draft form, the OMB seeks information from the public regarding outdated or ineffective regulations. After investigation, these comments may serve as the basis for requesting agencies to investigate potentials for reform. Later Reports follow up on previous requests. Recommendations for reform in this year's Draft Report deal with revisions to guidelines for regulatory analysis; the coordination and management of emerging risks to public safety, health and the environment; and improving the analysis of homeland security regulations.

In a particularly innovative practice, the Office of Information and Regulatory Affairs (OIRA) in the OMB has been issuing "prompt letters" to stimulate the development of new regulations where regulation may deliver significant benefits in comparison to costs. Studies have shown that adding new regulations, while eliminating or reducing others, could have substantial benefits in terms of lives saved, health improvement and cost savings. OIRA has also been making a more aggressive use of "return letters," sending proposed rules back to agencies with comments on deficiencies, primarily in the analysis. As a practical matter, the agencies must respond and correct the deficiencies before the proposal can go forward for publication in the Federal Register.

In the United Kingdom, the independent Better Regulation Task Force (BRTF) was established in 1997 to "advise the government on action which improves the effectiveness and credibility of government regulation by ensuring that it is necessary, fair and affordable, simple to understand and administer, taking particular account of the needs of small business and ordinary people."

Also in the United Kingdom, the Panel for Regulatory Accountability, consisting of senior ministers, was established by the Prime Minister "[t]o take a strategic overview of the regulatory system; to tackle instances where progress on regulatory reform is blocked; and to call Ministers to account for new regulation and their performance in addressing the burden of existing regulation."

Regulatory Reform Ministers for each of the key regulatory departments are responsible for removing any regulations that are outdated or burdensome, and ensuring that new regulations are not introduced unless they are necessary and impose the minimum cost on business. Departments report their progress to the Cabinet Office and Reform Ministers are accountable to the Panel for Regulatory Accountability.

The Australian Productivity Commission, reporting to Parliament through the Treasurer, 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. The Commission also carries out research projects on regulatory issues.

The Office of Regulatory Review within the Commission is responsible for, among other matters,advising on quality control mechanisms for regulation making and review; examining and advising on RISs prepared by Commonwealth departments and agencies; providing training and guidance to officials; reporting annually on compliance with RIS requirements; advising Ministerial Councils and national standards-setting bodies on regulation making; lodging submissions and publishing reports on regulatory issues; and monitoring regulatory reform developments in the States and Territories and in other countries.

In the European Union, the European Economic and Social Committee, an advisory body, is responsible for expressing the opinions of organized civil society on economic and social issues.

Several jurisdictions have Ombudsmen, including the United Kingdom, the European Community, and Finland. By virtue of their investigative and advisory powers, the ombudsmen can provide advice on the correction of regulatory process errors or on unintended or unfair impacts of regulation. In Australia, the Australian Appeals Tribunal provides a specialized quasi-judicial (and very court-like) appeal mechanism in certain circumstances.

7. Reviewing the Existing Stock of Regulations

Regulatory management systems have often focused on the "front" end of the policy making process while giving less emphasis to concerns about implementation, compliance and later assessment of the effectiveness of regulatory actions. A number of countries, however, are turning more attention to analysis and evaluation of the existing stock of regulations.

In the United States, The General Accounting Office is the audit, evaluation and investigative arm of Congress. In addition to its auditor functions, the GAO evaluates federal programs and activities in Performance and Accountability reviews, conducts Best Practices Reviews, carries out comparative benchmarking, and undertakes Best Practices Methodology studies. Comments from the public received in response to requests in the OMB's annual Report to Congress have stimulated reviews by identifying outdated or problematic regulation. In Australia, the Productivity Commission also plays a similar role, preparing and publishing independent reviews of regulatory programs.

D. Summary

A number of common problems and issues were found in the jurisdictions reviewed for the External Advisory Committee on Smart Regulation.

All are concerned about improving their regulatory management systems and moving on to a new level of maturity in their approach to meeting public policy objectives. All faced challenges in improving information for better decision making. All recognized the need to improve interaction and dialogue with citizens about how they are regulated.

Thinking about regulatory impacts had become more sophisticated, with an increased acceptance of the need to consider a range of issues, including sustainable development. At the same time as the scope of concerns and issues has broadened, the rigour of analysis is being strengthened. Better guidance, training and access to independent experts are among the techniques being used. The value of independent oversight and improved transparency and accountability was recognized in a number of jurisdictions.

Several governments are improving the transparency of the impacts of their regulatory actions through annual public reporting. All jurisdictions are making efforts to improve national and international coordination as they recognize the economic and social consequences arising from regulatory trade barriers and lack of regulatory harmonization.

The concerns of the jurisdictions studied are, in large measure, shared by Canada. The specific regulatory management innovations and general trends that appear to be developing in the European Union and the countries reviewed can provide the External Advisory Committee with valuable insights into promising new directions that might be pursued by the Government of Canada in its "Smart Regulation" Initiative.

Last Modified:  8/30/2004

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