Common Principles of Regulatory Law

1. Common Principles of Regulatory Law Part IVLectures: Dr. Marie NiocheTutorials: Rafael Amaro Module VIII - Law of Regulation

2. § 2 – The Increase of Private Regulation and Self-Regulation • The Origin of the Increase of Private Regulation and Self Regulation 2. The Resulting Regulatory System: Co-Regulation 3. Risks and Advantages of Co-Regulation

3. Among the main characteristics of the post-regulatory state: • the increase of the role and power of private regulators • the development of self-regulatory mechanisms

4. Self-regulation Self-regulation describes the situation in which you have a group performing a regulatory function in respect: • of itself and • of other persons who accept its authority

5. 1. The Origin of the Increase of Private Regulation and Self Regulation 1.1. A Strategy of the Private Entities 1.2. A Strategy of the Governments

6. 1.1. A Strategy of the Private Entities Self-regulation implies an organization regulating the standards of its members. Why should a private organization wish to do this? • In some cases, private organizations need regulation, where public regulation does not exist • In other cases, private entities just want to avoid public regulation

7. Private entities trying to avoid public regulation The public regulation which the private entities wish to avoid can be: • present public regulation • or future public regulation

8. Self regulation as a mean to avoid present public regulation • There are areas where centralized regulation is well established but controversial among those regulated • In these areas, businesses subject to regulation havecomplaints about the burdens of existing command-and-control regulation • Sometimes the regulated have some success in pushing for deregulation • In exchange for a certain extent of public dereglementation, theregulated industries accept the inevitability of some regulation and are willing todiscuss self regulation and implementation.

9. Self regulation as a mean to avoid future public regulation Example: childhood obesity in the United States • A report by the Institute of Medicine put the issue on the public agenda and led public-health groups to call for regulation of the food and beverage industry • The industries responded to the threat of government regulation with a tactic which may be called “preemptive self-regulation”: in order to forestall the drive toward government regulation, the industries began to implement regulation themselves

10. 1.2. A Strategy of the Governments Government regulators often rely on private entities to exercise some of the functions that public regulators would otherwise have to perform

11. 2. The Resulting Regulatory System: Co-Regulation • The development of self-regulatory mechanisms requires a new attention to the interaction between public and private regulators • Today, the role of private regulation is increasing • more as a complement to public regulation • rather than as an alternative

12. Co-regulation between public and private regulators Instead of taking over all the components of regulation: • the self-regulator may be involved at the standard setting stage by developing a code of practice • while leaving enforcement to the government Or: • the government may establish regulations • but delegate enforcement to the private sector

14. Hard Law and Soft Law The rules or standards issued by private actors may have varying degrees of legal force: • They are normally purely voluntary: soft law • But they may become formally binding: hard law

15. An example of soft law resulting from private regulation Technical standards for products set by private associations can become the product safety and quality standard in private transactions • either by express incorporation into contracts • or as the default standard

16. Soft Law may become hard law Examples: - In the European Union, the ‘Social Dialogue’ between employers’ association and trade unions can produce labour standards (soft law) which can become hard law in the form of Directives - Accounting standards in Europe (cf. below)

17. No clear dichotomy between “self-regulation” and “public regulation” Public and private actors interact in complex and collaborative ways to address problems of public policy

18. 3. Risks and Advantages of Co-Regulation 3.1. Risks 3.2. Advantages

19. 3.1. Risks of Private Regulation and Co-regulation • Serious questions concerning the legitimacy of private regulators • Risks of lax standards or absence of enforcement • Risks of conflict of interests and of regulatory capture

20. Risk of Regulatory Capture • Concept built by Georges Stigler, Nobel Prize in economics (1982) • Regulatory capture happens when private interests organizations are able to substantially influence the decision of public regulatory authorities through: • intellectual domination, • lobbying activities, • direct participation to joint committees between public and private organization • Corruption • etc. • G. Stigler, an economist belonging to the ultra-liberal school of Chicago, was concluding that it was better not to develop regulation than to create regulation captured by private interests

21. The concept of regulatory capture is frequently used to criticize the participation of private experts in decision of regulation without a strict control of conflicts of interests between: • the experts taking part to the decision • and interests groups concerned by the decision

22. Regulatory Capture and the H1N1 epidemics During the H1N1 flu epidemics, the World Health Organization has been attacked on the fact that too many of its experts were linked with the big pharmaceutical companies, having an interest in a pessimistic view of H1N1 evolution. The experts predicted a huge development of the epidemics which led many governments (in particular the French government) to buy a lot of vaccines

23. Regulatory Capture and the Accounting Standards in Europe • In 2002 the European Union decided a mandatory unification of standards for the consolidated accounts of all the listed companies • It made compulsory for every member State to enforce the new standards • But the most surprising fact is that the European Union decided that these standards would be issued by a private body, the International Accounting Standard Board (IASB) • on which the European Union has no control • and which is composed of experts mainly issued from the « big four », i.e. the four biggest multinational audit firms : PriceWaterhouseCoopers ; Deloitte ; KPMG ; Ernst & Young.

24. This situation is an extreme case of « Regulatory Capture » We have here a complete privatization of the standards setting and of the of the standards adaptation in the future and these standards have been made mandatory by the European Union. • There were different reasons for this strange situation. One of them was that it was apparently impossible to obtain a consensus among the Member States on new unified standards. To import a ready made solution was a way to overcome the conflicts between the members. The International Accounting Standard Board (IASB) “offer” appeared as a system of standards elaborated by a professional group of international experts very familiar with the international companies practices. • It is an extraordinary situation which leads now the European Commission to do its own lobbying to influence the private authority to which it has delegated its power

25. 3.2. Advantages of Co-regulation involving public and private actors • An efficient way to implement supranational policies • Expertise and Information • Legitimacy of regulatory power • Mollifiying opposition to regulation and increasing compliance with standards • Savings in the costs of amending standards

26. a) An efficient way to implement supra-national policies • In a globalized economy, the action of government agencies has inherent limits • This is why legal and political sciences are paying growing attention to the concept of self regulation, as a regulatory strategy in order to implement supra-national policies

27. b)Expertise and Information Self-regulatory organizations can normally command a greater degree of expertise and technical knowledge than a government agency • As a consequence, co-regulation reduces the time and public cost entailed in developing and issuing regulations • For the same reasons, monitoring costs and enforcement costs are also reduced

28. c) Legitimacy of regulatory power • Another rationale for self-regulation is the legitimacy of regulatory power (as opposed to the lack of legitimacy of an independent regulatory agency) • However, legitimacy may be questioned since there are private actors other than those regulated, whose interests can be deeply affected by the regulatory process: • For example, in the area of environmental regulation, the interests of those who are living in proximity to polluted areas. • Likewise, in the area of product safety, consumers are affected by dangerous products. • Therefore the argument of legitimacy is not so convincing: it is more accurate to say that self-regulation allows a certain consensus because of the participation of the regulated actors in the standard setting process or in the enforcement process

29. d) Mollifiying opposition to regulation and increasing compliance with standards • Self-regulation permits to mollify opposition to regulation by co-opting the regulated industries into the regulatory scheme. • For the same reasons, self regulation permits to increase compliance with standards.

30. f) Savings in the costs of amending standards To the extent that the processes of self-regulation and rules issued by self-regulators are less formalized than those of public regulatory regimes, there are savings in the costs of amending standards.

31. Does the increase of private regulation coincide with a lower degree of regulation? Not necessarily: there are areas in which a direct positive correlation between the role of private regulation and the increasing amount of regulation is shown The involvement of professional associations in regulatory processes has often brought about hyper-regulation.

32. Conclusion on § 2 • Increase of self regulation and, as a consequence, rise of a conception of governance as a set of negotiated relationships between • public actors • and private actors. • Public and private actors negotiate over: • policymaking • implementation and enforcement • This conception evokes an image of decision making in which there is no center of control, such as the regulatory agency

33. § 3 - The Increased Regulatory Function of Private Law Read H. Collins in the Textbook (p. 40-41) The regulatory function of private law is theability of private law instruments (in particular contracts, torts and property) to address market failures and influence social behaviors

34. Addressing the market failures • It is not the dominant function of private law • But it has become one of the functions of private law

35. Traditionally: • Private law is understood as a mechanism for supporting the private ordering of society, without seeking to organize or steer it • Private law seems particularly inadequate as a regulatory tool, in particular because of its lack of differentiation between social contexts • However this is changing

36. Private law has become a mechanism by which the State seeks to regulate markets • In other words, private law has become a regulatory tool, among other techniques of social and economic regulation

37. The general law of contract has been called upon to contribute to the steering mechanisms of the post-regulatory state • The traditional respect paid to liberal values such as freedom of contract must be reconciled with the demand for: • social justice • or welfare

38. This transformation of private law reasoning is occurring in all advanced legal systems • However there are special factors that apply to Member States in the European Union

39. Special factorsin the European Union The project of harmonization of laws in order to create a Single Market has led to social and economic regulation of contractual practices at the European level

40. Special factorsin the European Union • This general regulation (at the European level) then has to be translated into more concrete rules that fit into: • the national private law • and regulatory traditions • Since the European regulation may not be adequately implemented by national legislation, the national courts fall under an obligation to try to achieve harmonization by the manipulation of all sources of national law, including private law

41. As a consequence: Reasoning in private law has to be adjusted as far as possible to achieve harmonization with European regulatory goals This internal logic of the constitutional arrangements of the European Union therefore poses crucial challenges to private law systems

42. Challenges to private law systems • Private law systems have to be adjusted so that they conform to the objectives of European: • Social regulation • Economic regulation • It requires the inclusion of consequentialist or instrumental reasoning as the dominant guide in private law

43. Understanding the objectives of the European Union regulation • The objective of the European Union regulation are often slightly opaque • National private law systems have to observe how these objectives are interpreted by other courts, in order to ensure harmonization of laws

44. Understanding the objectives of the European Union regulation Private law reasoning becomes in part an exercise of comparative law in order to understand how the courts in different Member States have interpreted and implemented the objectives of the European regulation

45. Regulatory objectives in the discourse of contract law • The difficulty is that private law has to include regulatory objectives (in particular European regulatory objectives) into its own discourse • Private law, and especially contract law, has to reinvent itself in a more contextual way so that it can differentiate its approach according to new categories, such as consumer transactions

46. Unification of contract law in Europe and the need for a better definition of regulatory goals If contract law has a regulatory function, it means that the unification of contract law in Europe requires that the regulatory goals of such European contract law should be defined

47. The unification of contract law in Europe therefore requires that the values which should underpin the market order be defined • In other words, “merely technical” rules of contract law cannot be approximated only according to a sort of “common-denominator” approach

48. A unified law of contract will have to strike the balance between • The weight attached to individual private autonomy as expressed in the idea of freedom of contract • Other principles, which respect other equally important demands, for instance, for social solidarity

49. European private law: towards the construction of a political entity • The creation of a European private law fits into the broader evolution of Europe towards the construction of a political entity • Initiatives with respect to private law fit into the emancipation of the European union: • from a limited focus on an internal market • towards becoming a political entity with its own values

50. II. Private Enforcement of Regulatory Law § 1 - The U.S. Regime of Private Enforcement of Regulatory Law: the Most Fully Developed among Modern Systems § 2 - The Development of Private Enforcement of Regulatory Law in Europe