Creating A Conducive Legal & Regulatory Framework

1. Legal and Regulatory Reforms : Case Studies of Specific Reform Strategies and Their Relevance for Russia Scott Jacobs, Managing DirectorJacobs and Associates Creating A Conducive Legal & Regulatory Framework for Small and Medium Enterprise Development in Russia A Policy Dialogue Workshop, St. Petersburg, Russia September 14-16, 2003 www.regulatoryreform.com

2. Three Stages of Regulatory Reform • Regulatory Management • Regulatory Quality • Deregulation

3. International good regulation practices are now widely accepted Lessons from 30 countries and 25 years of initiatives to improve the efficiency and effectiveness of regulation as a tool of government: • Strategies to organize and sustain market-based regulatory reforms • Tools to Improve Regulatory Security • Tools to Improve Regulatory Quality • Tools to Improve Implementation of Regulations

4. 1. Strategies to organize and sustain market-based regulatory reforms • 1.a. Adopt, at highest political levels, a regulatory reform policy with explicit objectives, timetables, actions, and accountability • 1.b. Adopt government-wide principles of good regulation • 1.c. Create quality control procedures with central oversight unit

5. Strategies to organize and sustain market-based regulatory reforms:1.a Adopt, at highest political levels, a regulatory reform policy • Every OECD country with an organized and multiyear program of regulatory reform has established an explicit policy statement on reform at the highest levels of government. • The more complete the principles, and the more concrete and accountable the action program, the wider and more effective was reform. • OECD Report recommends that countries “adopt at the political level broad programmes of regulatory reform that establish clear objectives and frameworks for implementation”.

6. Year of adoption of government-wide regulatory quality policies in selected countries 1981 United States 1985 United Kingdom 1986 Canada 1993-94 Denmark 1994 Netherlands 1995 Mexico 1996 Hungary, Ireland, Finland 1999 Italy 1998 Japan, Korea 2000 Czech Republic, Greece, Poland

7. Purposes of the regulatory reform policy: • communicate the reasons for reform and build public support for change • signal the government’s commitment to better regulation by making transparent the objectives/strategies of reform • set clear policy objectives and means for reaching them, to transform reform into a systematic and permanent process • establish accountability for state organs in their use of regulatory powers • reduce the power of vested interests to block reform • enhance effectiveness of co-ordination and co-operation efforts by establishing a general framework.

8. Goals adopted in reform policies • Increase social welfare by more effectively delivering social and economic policies. • Boost economic development and consumer welfare by encouraging market entry, innovation, competition, and competitiveness. • Improve productive efficiency by reducing unnecessary costs, particularly for SMEs. • Improve public sector efficiency, responsiveness, and effectiveness through better public management reforms. • Improve the rule of law and democracy through legal reforms, including improved access to regulation, reducing excessive discretion of regulators

9. Selected regulatory quality tools contained in regulatory reform policies in 28 OECD countries Regulatory impact analysis Assessment of regulatory alternatives Transparency/Consultation with affected parties Plain language drafting Evaluation of results of regulations

10. Spectacular use of regulatory policies in economies in transition • Czech Republic, Hungary and Poland transitions required massive programs of deregulation and re-regulation, complete rebuilding of institutional framework, and strong transparency and accountability measures. • This was possible by adoption of coherent regulatory policies with strategic and systemic approaches to building regulatory policies, tools and institutions. • In Hungary, “regulatory reform….central to policies of democratisation, marketisation, public administration modernisation, devolution to local government and harmonisation with EU legislation.”

11. Strategies to organize and sustain market-based regulatory reforms:1.b. Adopt government-wide principles of good regulation • It is essential to explicitly define regulatory quality, especially in a transition country. • Most governments have issued instructions to regulators about the quality of their regulatory decisions. • These commonly take the form of checklists and decision criteria. • Regulators themselves must show that their regulations meet these quality standards.

12. The OECD Checklist for Regulatory Quality 1. Is the problem correctly defined? 2. Is government action justified? 3. Is regulation the best form of government action? 4. Is there a legal basis for regulation? 5. What is the appropriate level (or levels) of government for this action? 6. Do the benefits of regulation justify the costs? 7. Is the distribution of effects across society transparent? 8. Is the regulation clear, consistent, comprehensible and accessible to users? 9. Have all interested parties had the opportunity to present their views? 10. How will compliance be achieved?

13. Strategies to organize and sustain market-based regulatory reforms:1.c Create quality control procedures with central oversight unit • A well-organized and monitored reform process, driven by “engines of reform” with clear accountability for results, is important for success. • This requires strong political oversight, strategic planning, and incentives for results.

14. Two levels of oversight: Ministerial committee and an expert Secretariat • A ministerial-level committee for regulatory reform and SME development is needed to oversee reforms at the political level and insist on ministerial action. • A dedicated and expert group is needed at the working level, usually as a Secretariat to the ministerial committee

15. Putting a minister in charge…

16. …with central oversight of regulatory reform

17. Oversight institutions for regulatory quality • Canada: The Special Committee of Council, The Regulatory Affairs and Orders in Council Secretariat (RAOICS) (15 people) • US: Office of Information and Regulatory Affairs, Office of the President, Annual reports to Congress on costs and benefits of regulation (35 people) • UK: Panel for Regulatory Accountability, Regulatory Impact Unit (RIU – 57 people), Departmental Regulatory Impact Units, Regulatory Reform Ministers, Small Business Service • Netherlands: Competition, Deregulation and Quality of Law (MDW) Committee,Helpdesk (Ministries of Economic Affairs, Justice and Environment), Ministry of Justice

18. Tools to Improve Regulatory SecurityThe Guillotine Method • GOAL: establish a clear and accountable legal structure by creating a comprehensive and central regulatory registry with positive security.

19. How the guillotine works • The Government instructs all government agencies to establish lists of their rules in one year. • As they prepare the lists, they identify unnecessary rules, and rules that are unnecessary or outdated • At the end of a year, any regulation not on the list is automatically cancelled without further legal action. • All new regulations and changes are to be entered in the registry within one day of adoption. • The registry has legal security – no regulation not in the registry can be enforced against a business.

20. 3. Tools to Improve Regulatory Quality • 3.a. Use Regulatory Impact Analysis • 3.b. Improve public consultation and transparency • 3.c. Consider alternatives and better forms of regulation • 3.d. Exploit international pressures, benchmarking, and good practices to promote reforms

21. Tools to Improve Regulatory Quality 3.a. Use Regulatory Impact Analysis (RIA) RIA is a method of • systematically and consistently examining selected potential impacts arising from government action or non-action, and of • communicating the information to decision‑makers and the public.

22. Analysis: Calculating the costs and benefits of government action Opening up decisions to a wider range of interests Integrating multiple policy goals (social and economic policies) Accountability for actions and results (within ministries, to the public) Increasing social benefits of government action, finding lowest cost solutions, reducing failure Transparency Policy coherence in a complex world Client-oriented and responsive government Good government goals of RIA

23. Defining the problem and justifying government action, OECD countries

24. Coverage of benefits and costs in RIA in 20 OECD Countries (year 2000)

25. Methods of RIA in Selected Countries • Canada: Benefit/cost analysis with the goal of maximizing welfare. Each regulatory proposal must “maximize the net benefit to Canadians”. • US: Benefit-cost analysis, supplemented by examination of at least 3 alternative approaches: Informational Measures, Market-Based Approaches, Performance Standards • UK: Flexibility in analytical methods. Costs and benefits are expressed in monetary terms as far as possible, but there is no set formula for RIA. Benefit-cost tests are characterised by methodological diversity and a varying degree of quality.

26. Suggestions for Russia RIA: • Russia should implement, step by step, a program of regulatory impact analysis within the ministries. • The first step should be an agreement by ministers to require an expanded justification statement for all new laws and other regulations.

27. Tools to Improve Regulatory Quality 3.b. Improve public consultation and transparency • Five tools of Public consultation: • Informal consultation. • Circulation of regulatory proposals for public comment. • Public notice-and-comment. • Hearings. • Advisory bodies.

28. Public consultation methods in OECD countries Number of OECD countries using the method Informal consultation with affected groups Circulation of proposals for comment Public notice and comment Public meeting Internet Advisory groups Preparatory public committees Number of OECD countries

29. Consultation practices in selected countries • Denmark places the results of its business impact assessments on an Internet site • United States publishes its regulations in the national gazette twice: at draft and final stages • Australia uses two methods: targeted consultation when developing the rule, followed by public “notice and comment” on the draft regulation.

30. Tools to Improve Regulatory Quality 3.c. Consider alternatives and better forms of regulation • Virtually all countries are increasing their use of a range of alternatives to traditional forms of regulation. • Instruments to be considered include a wide range of non-regulatory instruments, as well as a number of distinctly different forms of regulation. • Innovation often involves complementing traditional regulation with other instruments, rather than replacing traditional regulation completely.

31. Forms of alternative instruments • Information disclosure to empower citizens and consumers to make informed choices • Performance-based regulation that specifies outcomes, rather than the means by which businesess must comply • Process regulation that requires businesses to develop processes that ensure a systematic approach to controlling and minimizing risks • Market based instruments that harness market incentives, such as tradable permits, insurance schemes, taxes and subsidies • Voluntary commitments, self-regulation, codes of practice, and co-operative approaches

33. Tools to Improve Regulatory Quality3.d. Exploit international pressures and benchmarking to promote reform • WTO (TBT Agreement) • OECD (good regulatory practices) • EU (systematic overhaul) • APEC (regulatory principles)

34. 4. Tools to Improve Implementation of Regulations • Regulators must apply and enforce regulations systematically and fairly, and regulated groups must have access to administrative and judicial review of the actions of the regulator through: • 4.a. Administrative procedure acts • 4.b. Independent administrative appeals • 4.c. Methods of improving compliance

35. 4.a. Administrative procedures (1) Administrative procedures can assure quality regulation and preserve the rights and interests of citizens by mandating: • Consultation requirements • Preparation of regulatory impact assessments • Consideration of alternative instruments • Publication requirements for new regulations • Duration (including automatic “sunsetting”) • Accessibility of regulations • Rules on incorporated material such as international standards

36. 4.a. Administrative procedures (2) (List continued from previous page) • General rules on extent and exercise of administrative discretions, including publication of objective criteria for judging applications • Time-limits for decision-making • Requirements to give reasons for rejecting applications • Application of general procedural rules to amendments of existing regulation, rules on updating of incorporated material • Hearing procedures before disciplinary actions for regulatory violations • Rights of regulated entities in appealing rules • Administrative actions such as enforcement and sanctions.

37. 4.b. Independent appeals • Opportunity for a complaint to be heard by an administrative body other than that responsible for making the initial decision. • Judicial review of administrative decisions is the ultimate guarantor of transparency and accountability

38. Independent appeals in Hungary • Judiciary. Poor efficiency, but National Judicial Council is improving judiciary through better selection, training and skills of judges with skills to work in a market economy • Public Prosecutor’s Office is entitled to examine the legality of an agency’s decisions and may initiate a formal motion to review the decision. • Ombudsmen are concerned with violations of constitutional rights, and can act independently in their designated fields. • Constitutional Court has played an outstanding role since the change of regime. As in most countries, a specific procedure permits individuals to directly appeal to the Constitutional Court against alleged violations of their rights by a law or regulation.

39. 4.c. Methods of improving compliance • Communicate. Improve public knowledge and understanding of rules. • Simplify rules. For SMEs in particular, the burden of assimilating and complying with many complex and technical rules can be unreasonable. • Compliance assessment. Regulations must be backed by sufficient budgetary and administrative resources for effective implementation and enforcement. • Measure compliance rates ex poste.

40. Conclusions for Russia: • Regulatory quality policies are essential elements of broader government policy and structural reform programs. Regulatory reform must be integrated with competition, trade and consumer policies. • A relentless focus on results in the market is necessary. Flexibility and redirection will be necessary to continually improve the reform program. • Invest in institutions. Success depends on coordination, management and direction from the center