regulatory Compliance Costs in Practice Eric Thomson, Policy Analyst, OECD Ljubljana, 30 May 2017

Flowchart of compliance cost assessment In the morning Daniel introduced the concepts of compliance costs and what sorts of categories of costs we may be interested in. Now, I will give you a quick tour of the process.

Preliminary Assessment of the Scope Doing calculations is time consuming! Greater the expected impact = Greater the expected analysis Greater impacts on the economy or society should be scrutinized more closely. It’s always easy to do more and more analysis but to not get a a good “return” a better developed regulation or a more reasoned argument for/against regulating. In many countries, there is a systematic process to determine the level of analysis. Canada uses a “Triage system” where regulations with impacts less than ? Million can just have a qualitative analysis but major regulations require a full cost-benefit analysis. There is an analyst in the CoG that makes the determination to avoid gaming of the requirement. Analysis is dependent on the size of the country too. Smaller countries should generally have simpler analysis.

Identifying Data Sources and Strategies Identify Key Data and Sources Number of regulated parties affected by the regulation Internal data (info. from government departments, statistical agency, etc.) External data (academic sources, comparable countries, regulators) Surveys of affected parties Most important data point is obviously the number of affected parties. It makes a big difference if 50 or 5000 businesses are affected.

Developing Methods With a list of tasks and requirements in hand develop a strategy for estimating each category Implementation Labour and overhead Equipment Materials External services Implementation: Who needs to learn about the regulations? How complex is the regulation? How much time will the need to learn? Labour costs: Who will do the work to comply with the regulation? How much is their wage? Equipment: What sort of new equipment might be required? (Filing cabinets? Storage? Security? ITC?) Materials: Printing, sending applications, etc. External services: Is the regulation so complex that it requires an external firm to understand? Are external unbiased compliance checks required? Does the business need to hire a profession to help? (e.g. trainers, lawyer, engineer, plumber, etc.)

Case Study: Mandatory Truck Driver Training and Licencing In response to a high number of road fatalities involving transportation trucks, Ruritania’s Ministry of Transportation has proposed that all new drivers must undergo a rigorous new training program. Trucking companies will be required to pay for the course and final road test for each new driver.

Determine the compliance effects Number of truck transportation companies: 1000 # New truck drivers per year per company: 10 Type of Compliance Cost Costs Implementation Management learning about the new regulation and developing a strategy for compliance. Labour and overhead Record keeping for new training (who has taken what course and when) Equipment Use of a truck for a road test Materials Cost of training materials for each new driver External services Training course

Cost x Frequency Implementation: Hours of management time x wage x number of businesses Labour and overhead: Hours of administrative time x wage x number of businesses Equipment: Cost to use a truck for a test x number of final tests per year Materials: Cost of training materials x number of courses per year External services: Cost of a training course x number of courses per year A lot of the data used in these calculation is already in the SME Test!

Estimate and Review Implementation: 20 hours x 50EUR/hr of management time x 1000 = 1 million EUR Labour and overhead: 20 hours x 20EUR/hr of administrative time x 1000 = 400K EUR Equipment: 100EUR x 10 drivers X 1000 = 1 million EUR Materials: 50EUR x 10 drivers X 1000 = 500K EUR External services: 500EUR x 10 drivers X 1000 = 5 million EUR Grand Total: 7.9 million EUR per year I’m leaving out the annual costs

Present, Publish, Consult Case from aquaculture industry. Costs were per pen not by producer. Normenkontrolrat in Germany review an estimate of an RCC that discovered that the regulators missed ? Million in compliance costs.

Present, Publish, Consult Ex post evaluation What was the actual impact in practice? Strategize Estimate and Review Present, Publish, Consult Ex post evaluation Assess Tendency to underestimate RCC to justify a policy.

Thank you Eric Thomson, Policy Analyst, OECD eric.thomson@oecd.org Sources: OECD Regulatory Compliance Cost Assessment Guidance