Chapter III. Regulatory Governance Abroad

As a special feature, this year's Annual Report to Congress on the Costs and Benefits of Regulation includes information on regulatory governance developments in other developed countries. The information is drawn from reports from the Organization for Economic Cooperation and Development (OECD), Asian Pacific Economic Cooperation, (APEC) and the European Commission (EC) and supplemented by insights drawn from OIRA discussions with OECD, APEC, and EC officials.

A. OECD Activities

The OECD consists of 30 democracies with advanced market economies in Western Europe, North America, Australia, New Zealand, Japan, and Korea. As an integral part of its mission, OECD's Public Management program (PUMA) assists governments with the "tools" and "rules" of goad governance to build and strengthen effective, efficient and transparent government structures.

The OECD countries have developed, through OECD's PUMA activities, a systematic approach to evaluating the quality of national regulatory management programs. In its 1997 report, OECD reported that the number of countries with such programs has grown from three or four in 1.980 to almost all 30 OECD countries today. The international public debate about regulatory improvement has been transformed from a discussion about whether regulatory reform programs should be adapted to a debate about what specific measures should be implemented to improve regulatory performance.

In 1995, the OECD published the first internationally accepted set of principles on ensuring regulatory quality: the Recommendation of the Council of the OECD an Improving the Quality of Government Regulation. We lave reproduced these principles in Box 1. OECD reports that experience in member countries reveals that an effective regulatory management system requires three basic components: a regulatory policy adopted at the highest political level; explicit arid measurable standards far regulatory quality; and a continuing regulatory management capacity. Countries vary in how well they provide these components, which OECD considers as mutually reinforcing in their impact on the quality of regulatory governance.

Box 1. The OECD Reference Checklist for Regulatory Decision-Making

1. Is the problem correctly defined?

The problem to be solved should be precisely stated, giving evidence of its nature and magnitude, and explaining why it has arisen (identifying the incentives of affected entities).

2. Is government action justified?

Government intervention should be based on explicit evidence that government action is justified, given the nature of the problem, the likely benefits and costs of actions (based on a realistic assessment of government effectiveness), and alternative mechanisms for addressing the problem.

3. Is regulation the best form of government action?

Regulators should carry out, early m the regulatory process, an informed comparison of a variety of regulatory and non-regulatory policy instruments, considering relevant issues such as costs, benefits, distributional effects and administrative requirements.

4. Is there a legal basis for regulation?

Regulatory processes should be structured so that all regulatory decisions rigorously respect the "rule of law"; that is responsibility should be explicit For ensuring that all regulations are authorized by higher level regulations and consistent with treaty obligations, and comply with relevant legal principles such as certainty, proportionality and applicable procedural requirements.

5. What is the appropriate level (or levels) of government fur this action?

Regulators should choose the most appropriate level of government to take action, or if multiple levels are involved, should design affective systems of coordination between levels of government.

6. Do the benefits of regulation justify the costs?

Regulators should estimate the total expected costs and benefits of each regulatory proposal and of feasible alternatives, and should make the estimates available in accessible format to decision-makers. The costs of government action should be justified by its benefits before action is taken.

7. Is the distribution of effects across society transparent?

To the extent that distributive and equity values are affected by government intervention, regulators should rude transparent the distribution of regulatory costs and benefits across social groups.

8. Is the regulation clear, consistent, comprehensible and accessible to users?

Regulators should assess whether tides will be understood by likely users, and to that end should take steps to ensure that the text and structure of rules are as clear as possible.

9. Have all interested parties had the opportunity to present their views?

Regulations should be developed in an open and transparent fashion, with appropriate procedures for effective and timely input from interested parties such as affected businesses and trade unions, other interested groups, or other levels of government.

10. How will compliance be achieved?

Regulations should assess the incentives and institutions through which the regulation will take effect, and should design responsive implementation strategies that make the best use of them.

In light of these OECD principles, the Secretariat of the OECD has been sponsoring, since 1998, detailed reviews of the regulatory governance programs in member countries. Sixteen country reviews have been completed from 1998 to 2001 and several more are now underway. OECD also commissioned a regulatory survey of member countries in 2000, convened a meeting of senior risk management officials from governments in October 2001, and sponsored an international meeting in December 2001.

Taken as a whole, the country-specific reviews, the 2000 OECD survey and recent international meetings reveal that the most common feature of regulatory management programs is that affected parties be consulted prior to regulation. A requirement for regulatory impact analysis prior to regulation has also been adopted in a majority of OECD countries. About half have some general requirement that regulatory alternatives be considered. Formal evaluation requirements for existing rules are less widespread. Some countries (e.g., Japan and Korea) have focused on the need to reduce over regulation while in other countries (e.g., the United States) the recent focus has been on improving regulatory quality through better analysis of benefits, costs and alternatives.

B. APEC Activities

The Asia-Pacific Economic forum was established by President George H. W. Bush in 1989. It is the primary international organization for promoting open trade and international cooperation among the 21 Pacific Rim countries. In addition to the seven OECD Pacific Rim countries, APEC includes Russia, China, Hong Kong, Chinese Taipei, Singapore, and Chile, among others. The APEC economics account for almost SO percent of world trade. APEC is promoting increased transparency, openness and predictability based on the rule of law for both trade and regulation. It seeks to eliminate impediments to trade and investment by encouraging member economies to reduce barriers and adopt transparent, market-oriented policies, and addresses such issues as outdated telecommunications regulatory practices. APEC requires its member countries to post on its website individual action plans (IAPs) that set out how they plan to meet the APEC goals and to update them each year. One of the IAPs is a deregulation initiative based on the USG's and other countries' experiences. The main focus of the deregulation initiative is to promote information sharing and dialogue, and increase the transparency of existing regulatory regimes and regulatory reform processes. OIRA has been helping USTR and the State Department promote this effort by highlighting our open, transparent, and analytically based regulatory development and oversight program.

Response to Public Comments

Several commenters welcomed this new chapter to the report (73, 105, 106). One commenter emphasized the usefulness of identifying best practices among international regulatory authorities and cited the OECD checklist as a good example. Another thought that the chapter was a good first step in international understanding and that next step should be coordination in reporting results of regulatory policy in a consistent framework on an international scale (105). A third commenter suggested that U.S. support for better European regulation could produce major gains (106). This commenter urged more communication between tire United Slates and the rest of the world about U.S. regulatory practices ill order to counteract tire belief by some that tire U.S. economy is an unregulated "jungle economy." The commenter suggested that the true picture is more complicated than that with the United States being both under regulated and over-regulated at the same time.

One commenter criticized the chapter for not emphasizing the importance of environmental protection and the precautionary principle in particular (99). The commenter suggested that we reference Environmental Issue Report No. 22 (2001) "Late Lessons from Early Warnings: The Precautionary Principle 1896-2000."