Red Tape in OECD countries: Challenges and Responses Cesar Cordova-Novion Deputy Head Regulatory Reform Programme Beijing, China September 2001

What is red tape?

Formalities are an integral part of modern economies l Formalities are the main link between authorities and businesses and citizens l Governments require standard information to implement regulations and provide public services and products l As policies become more targeted to specific issues and populations, the need for information increases l But many regulations abuse of ex ante “paper” controls (‘command and controls’) rather than controlling actual compliance and change of behaviors (performance-oriented)

Main impacts of red tape l On businesses l Reduces economic efficiency ï impose unnecessary costs (time & money) ïdivert resources away from productive investments ïhamper entry into markets ïCumulative effects l Impedes innovation and business responsiveness l Discourages entrepreneurship l On government l Hinders achieving policy goals l Encourages informality and growth of the grey sector l Fosters corruption and discretionary abuses

The cost of red tape (1) Represents around 4% of the Business Sector GDP OECD (2001) Businesses' Views on Red Tape Administrative and Regulatory Burdens on Small and Medium-sized Enterprises, Paris

The cost of red tape (2) l On average, each SME spent US$ per year complying with tax, employment, and environmental formalities. Total costs split into tax (46%),employment (35%) and environmental (19%) formalities  Though the latter is growing rapidly. An average cost of US$4 100 per employee, or around 4% of the annual turnover of companies. l The majority of companies (around 60%) reported that administrative compliance costs increased over the period

A dramatic “regressive effect” Annual administrative costs per employee by company size, average all countries

Administrative simplification Best practices 1. One-Stop Shops 2. Time-limits on administrative decision making 3. Licences reduction programmes 4. Technological means of reducing transaction costs 5. Special SME activities

1. One Stop Shops l Reduce search costs l Improve awareness of requirements l Variety of delivery mechanisms l One-stop shops as licensing clearing- house l From single level access to inter- governmental co-operation l Though this raises delegation and overlap issues

2. Time limits on administrative decision-making l Statutory time limits enforces accountability l Consequences of failing time limits vary l ‘Silence is Consent’ l Change the burden of prove l But, can lead to disproportional harm from non-conforming activities without an enforcement and compliance upgrade

3. Licensing procedures l Rationalisation/reduction l Simplification l Information requirements l Attachments l From ex ante licensing to ex post control l Single identification number l Amalgamation of formalities l Central registry of all formalities with positive security l Quality certification of formalities

4. Technological means to reduce transaction costs (e- formalities) l Forms on-line (“dematerialisation”) l On-line on-way transactions (electronic signatures) l On-line two-way interchange (EDI) l Security dimensions

5. Special SME initiatives l Institutional support l Special flexibility measures (supply model) l Exemptions from requirements l ‘Vouchers’ to compensate administrative costs

Red tape reduction is a powerful leverage for regulatory reform l Main beneficiaries are SMEs l Visible gains l Early gains l Easier than complex reforms of economic and social regulations l Linked to improvements of public administration and bureaucracy