TOWARDS BETTER REGULATION: THE ROLE OF IMPACT ASSESSMENT COLIN KIRKPATRICK IMPACT ASSESSMENT RESEARCH CENTRE UNIVERSITY OF MANCHESTER, UK UNECE Symposium on Trade Rules, Regulations and Standards: Different Levels of Rule-making and their Impact, 23 October 2007, Geneva

OUTLINE OF PRESENTATION 1.Why Regulation Matters 2.The Challenge of Designing Better Regulation 3.Towards Better Regulation: the Role of Regulatory Impact Assessment (RIA) 4.Some Lessons from Experience in Developing and Transitional Countries 5.Applying RIA to Trade Rules: Two Examples 6.Conclusions

1. WHY REGULATION MATTERS Regulation plays a central role in the functioning of market economies: - addresses market failures - fosters competition - promotes investment and enterprise development - promotes safety, health and welfare - enables growth with equity - protects the environment

High quality regulation helps achieve these objectives: low quality regulation can have the opposite effect. International interest in improving the quality of regulation as a means of enhancing national competitiveness and achieving national development goals: - EU Better Regulation Policy - OECD Regulatory Reform Programme - New Member States have adopted policies of regulatory reform similar to other EU member states

- Countries in Transition and Developing Countries have adopted Regulatory Reform Programmes, often as part of Business Sector Development Programmes, supported by World Bank (IFC and FIAS) and bilateral donor agencies

2. THE CHALLENGE OF DESIGNING BETTER REGULATION Not All Regulation is Bad! ‘Better regulation does not necessarily mean less regulation’ Multiple Regulatory Goals Economists refer to ‘maximising social welfare’ or the ‘public good’ EU refers to ‘competitiveness’ and ‘sustainable development’ World Bank refers to ‘private sector development’ and ‘costs of doing business’

Developing Countries and lower-income countries in transition have other goals – poverty reduction, promoting SMEs, increasing employment, reducing regional disparities Regulatory Capture this occurs where the regulation becomes distorted to represent particular special interests rather than the national interest

Inappropriate Regulation ‘Model’ Transfer The objectives, needs, resources and institutional capacity for regulatory reform are very different between countries There is no single ‘best practice’ approach: regulatory reform needs to be designed to meet the specific needs and circumstances of each economy This has implications in terms of the timing and coverage of regulatory reform and for institutional capacity strengthening. ‘Too much too soon’ will result in disappointment and disillusionment with regulatory reform

Regulatory Governance Good regulation will contribute to good governance The attributes of good regulatory governance include:  Transparency  Accountability  Consistency  Proportionality

3. TOWARDS BETTER REGULATION: THE ROLE OF REGULATORY IMPACT ASSESSMENT (RIA) What is RIA? RIA is a tool now used in many countries to improve understanding of the economic, social and environmental impacts of regulation RIA is a process of evidence-based decision making based on a systematic analysis of the potential (or actual) benefits and costs of the regulatory measure RIA supports better regulation by improving the outcomes of the regulation adopted

RIA supports better regulation by contributing to the process of good governance: - consultation and responsiveness to a wider range of interests - accountability for actions and results (within ministries, to the public) - integrating multiple policy goals (policy coherence)

4. SOME LESSONS FROM EXPERINCE WITH RIA IN DEVELOPING AND TRANSITIONAL ECONOMIES Evidence based on: - Postal survey of 36 developing and transitional countries - SIGMA report on post-2004 NMSs - Personal experience with introduction of RIA in developing and transitional countries Key Lessons: 1. The Need for Political Support - successful implementation needs high level political support - risks of failure with donor-driven initiatives

2. Legal Effectiveness is not Sufficient - Administrative traditions may concentrate on legal drafting of regulations. But RIA requires a multidisciplinary approach which assesses how the regulation will work in practice, and how they will be enforced and complied with. 3. Capacity Constraints Need to Allowed For - capacity to undertake economic (and social and environmental) analysis may be limited in the ministries. - this should be reflected in the form of RIA that is adopted - need for training and capacity building before introduction of RIA

4. Need for Effective Consultation - Consultation contributes to evidence gathering and to transparency and accountability - But, in practice, consultation is often limited to business sector and less frequently with consumer bodies and other representatives of civil society. Also, the results of consultation are often not made public. 5. Need to Manage Expectations - Like all new initiatives, there will be “teething problems” and a process of gradual learning and improvement. Should allow for ongoing monitoring and evaluation procedures that can be used to support a process of quality improvement over time

5. APPLYING RIA TO TRADE RULES: TWO EXAMPLES 1.Public Procurement - Regional Trade negotiations often include negotiations on public procurement (eg EPA negotiations) - Proponents argue that developing countries will benefit from (i) lower prices (ii) improved quality (iii) reduction in rent seeking and corruption in govt. contracting -Opponents argue that developing countries will lose from (i) withdrawal of public support to ‘infant industries’ (ii) higher transaction costs (iii) unfair competition from international companies

Limited Evidence on the Potential Benefits and Costs The negotiations are not informed by an evidence – based assessment of the potential costs and benefits of market opening for public procurement - RIA could be used to provide negotiators about the potential consequences of an agreement on public procurement

2. Trade Facilitation - Included in RTA negotiations and WTO negotiations - Proponents argue that ‘on the border’ customs regulations and ‘red-tape’ increase the costs of exporting and importing businesses and are a serious constraint on trade performance - others argue that ‘behind the border’ infrastructural barriers and regulatory constraints are more significant barriers to trade - RIA could inform the negotiations on trade facilitation: what effect will customs reform have on export performance?

what are the costs of customs reform? What effect do ‘behind the border’ constraints have on export performance? What are the costs of reducing the ‘behind the border’ constraints? Proposal Is there a role for ‘Aid for Trade’ assistance to developing and transitional economies, in capacity- building in the analytical skills needed in applying RIA to trade rules and regulations?

6. CONCLUSION RIA is not a panacea for poor governance, but by providing a method for improving the quality of regulatory decision-making, RIA can assist policy makers in addressing their regulatory reform needs Improvements in the quality of regulatory decision making can be expected to contribute to a more efficient and effective functioning of the market economy, and in this way accelerate progress towards fulfilling national development goals.

Thank you for your attention Contact Details: Professor Colin Kirkpatrick University of Manchester Manchester, UK