The recommendations included in this chapter follow the framework set out in the report OECD (2008), Building an Institutional Framework for Regulatory Impact Analysis (RIA): Guidance for Policy Makers. These recommendations result from evaluating the level of adoption in Peru of each of the building blocks of the RIA system, described in Chapter 6. The recommendations are also consistent with those included in the report OECD (2016), Regulatory Policy in Peru: Assembling the Framework for Regulatory Quality. Annex 7.A includes a priority proposal for the implementation of the recommendations contained in this chapter.
Implementing Regulatory Impact Analysis in the Central Government of Peru
Case Studies 2014-16
Chapter 7. Recommendations to adopt the building blocks of a RIA system in Peru
Abstract
Recommendations to introduce RIA
A political commitment to RIA, which includes getting support from stakeholders and establishing a legal mandate for RIA
1. Peru should issue a legally binding instrument that establishes the obligation for ministries and government entities issuing regulations to make an ex ante evaluation of the regulatory proposal, which includes at least the following elements:
Definition of the public policy problem to be solved.
Objective to be achieved through government intervention.
Identification of alternatives to the regulation to address the public policy problem.
Impact evaluation of each of the alternatives, and demonstration that the regulatory option is the one providing the greatest net benefit.
The impact evaluation of the alternative corresponding to the regulation must include an estimate of the new formalities to be generated, including the measurement of potential administrative burdens. In this sense, the RIA system must integrate the current process of Regulatory Quality Analysis, so that there is only one system for the ex ante evaluation of the regulation.
Early consultation measures taken.
Definition of strategies to promote compliance with regulation, including the identification of resources for oversight tasks.
Definition of strategies to monitor and evaluate the performance of regulations, including the definition of indicators to measure the degree of accomplishment of public policy objectives.
The following chapter suggests model processes for the issuance of regulations that address each of these steps.
Ideally, the criteria and guidelines suggested here should be part of the legislation and be specified in its Regulations and/or corresponding manuals.
The issuance of the Legislative Decree 1448 (see Chapter 4) which defines the policy of improving the quality of regulation and defines RIA as a tool for it, is an encouraging development in this direction. The PCM, MEF and MINJUSDH’s publication of the implementation decree should consider addressing the recommendations made in this section.
2. In order to have the highest level of political commitment, the President of the Republic should endorse the legal instrument, so line ministries and their public entities sign up compliance with the RIA.
3. Define and execute an action programme to get the support from stakeholders that include ministries and public entities, universities, business associations and civil society, Congress, among others. This programme should include communication and training actions to inform these stakeholders about the benefits and challenges of the RIA system. It would also encourage the participation of such stakeholders in the consultation process of the rules recommended below.
Timely integration of RIA in the decision-making process
4. Include in the RIA manual to be published, diagrams and processes explaining in detail that RIA should be started in the early stages of the public policy design (see below specific recommendation). The next chapter suggests model processes for the issuance of regulations that address each step of the RIA process.
Build a RIA team inside the administration, including the creation of an institutional setting.
5. The OECD report Regulatory Policy in Peru: Assembling the Framework for Regulatory Quality (OECD, 2016[1]) recommends that:
As a first step, Peru could consider establishing a co-ordination council on regulatory policy in which the Ministry of Economy and Finance, the Presidency of the Council of Ministers, and the Ministry of Justice and Human Rights have permanent seats, and with sufficient capabilities to exercise an effective oversight function. Responsibilities and roles for each of the members would have to be defined clearly for the functioning of this council.
The Committee is already working, but without legal mandate. It is recommended to issue a legal instrument to vest it with legal personality, which should include the criteria under which the regulation will be evaluated.
6. The OECD report Regulatory Policy in Peru: Assembling the Framework for Regulatory Quality (OECD, 2016[1]) recommends that:
Peru should aspire at establishing an oversight body, which concentrates, if not all, most of the regulatory policy activities and tools currently spread across several ministries, agencies and offices. This oversight body should have the legal capability and the necessary resources to carry out an active enforcement of activities, while overseeing the complete regulatory policy, including the capacity to return draft regulation with a proper assessment through the use of regulatory impact analysis (RIA), when the defined criteria are not met.
Figure 7.1. Grounds upon which an oversight body can return RIA for revision
Note: Based on data from 34 countries and the European Commission. The figure displays the number of countries that have reported the different grounds on which an oversight body can return RIA for revision for either primary laws or subordinate regulations.
Source: 2014 Regulatory Indicators Survey results, www.oecd.org/gov/regulatory-policy/measuring-regulatory-performance.htm, (OECD, 2015[2]), OECD Regulatory Policy Outlook 2015, Paris, http://dx.doi.org/10.1787/9789264238770-en.
7. The oversight body must have enough financial and human resources to perform its duties effectively. In particular, it must ensure that it has a cross-functional team with expertise in the areas of public policy, law and economics.
8. The oversight body should have the capability to reject regulatory proposals whose RIAs do not meet the required standards. This should be lay down in the legal instruments that establishes the RIA system and the oversight body (see international examples in Box 7.1 and Figure 7.1).
Box 7.1. Ensuring correct assessment of costs and benefits: some country examples
In Australia, a preliminary assessment determines whether a proposal requires a RIA and helps to identify best practice for the policy process. A RIA is required for all Cabinet submissions. There are three types of RIAs: long form, standard form and short form. Short form assessments are only available for Cabinet submissions. Both the long form and standard form must include, amongst other requirements, a commensurate level of analysis. The long form assessment must also include a formal cost-benefit analysis.
In Canada, for the case of subordinate regulations, when determining whether and how to regulate, departments and agencies are responsible for assessing the benefits and costs of regulatory and non-regulatory measures, including government inaction. This analysis should include quantitative measures and, if it is not possible to quantify benefits and costs, qualitative measures. When assessing options to maximise net benefits, departments are to: identify and assess the potential positive and negative economic, environmental, and social impacts on Canadians, business (including small business), and government of the proposed regulation and its feasible alternatives; and identify how the positive and negative impacts may be distributed across various affected parties, sectors of the economy, and regions of Canada. Treasury Board of Canada Secretariat provides guidance and a challenge function throughout this process.
In Mexico, RIAs are reviewed by the National Regulatory Improvement Commission (CONAMER) and if they are unsatisfactory, for example, by not providing specific impacts, CONAMER can request the RIA to be modified, corrected or completed with more information. If the amended RIA is still unsatisfactory, CONAMER can ask the lead ministry to hire an independent expert to evaluate the impact. The regulator cannot issue the regulation until CONAMER’s final opinion.
In the United States, for the case of subordinate regulation, agency compliance with cost‑benefit analysis is ensured through review of the draft RIA and draft regulation by the Office of Information and Regulatory Affairs under Executive Order 12866.
Source: (OECD, 2015[2]), OECD Regulatory Policy Outlook 2015, Paris, http://dx.doi.org/10.1787/9789264238770-en.
Recommendations for designing the RIA framework
Co-ordination and management
9. Consider the creation of official liaison units on regulatory policy within the ministries and entities that issue regulations, which serve to strengthen the organisation and co-ordination within the RIA system (see international examples in Box 7.2).
10. Consider the establishment of an electronic RIA management system to facilitate its operation and interaction between the ministries and entities that issue regulations and the oversight body.
Box 7.2. Network of officials for regulatory policy, examples from OECD countries
In the United Kingdom there is a central unit for better regulation. Better Regulation Executive, subordinated to the Department for Business, Energy and Industrial Strategy, is the agency responsible for the management of regulatory policy. This unit does not draw up rules or regulations, it is rather a core that interconnects the central government, the parliament, the National Audit Office, and the national regulatory bodies. Moreover, it identifies the official responsible for the process of better regulation in each ministry This agency exerts influence on several government areas.
In Mexico, the heads of the entities and decentralised agencies of the federal public administration appoint officials who act as better regulation liaisons before CONAMER; and they are assigned specific tasks within the better regulation process. They are in charge of co-ordinating and enforcing this process within their own entities and agencies, submitting to CONAMER the better regulation programme related to the regulations and procedures they implement, as well as of signing and sending both drafts —regulations and procedures— that should be subject to the process of better regulation. These liaison officials should be deputy ministers or chief administrative officers, that is, hold the next level after the incumbents, which strengthens the process.
Source: (OECD, 2010[3]), Better Regulation in Europe United Kingdom, http://dx.doi.org/10.1787/9789264084490-en; Cámara de Diputados del H. Congreso de la Unión (2017), Art. 69-H. Ley Federal de Procedimiento Administrativo Título Segundo del Régimen Jurídico de los Actos Administrativos, www.diputados.gob.mx/leyesbiblio/pdf/112_020517.pdf.
Targeting and prioritising RIA efforts
11. Define some list and/or criteria of the regulatory proposals that will be exempted from RIA, because they do not have any impact on regulated parties (see further information in Box 7.3). See in the next chapter the suggested model processes for the issuance of regulations that address the case of exemption from RIA.
Box 7.3. Cases of exemption from the RIA
There are several ways to determine whether a draft proposal requires preparing a RIA. Australia uses a list of questions that regulators must respond to prepare the RIA. The criterion in Mexico is that any provision generating costs above zero to users requires a RIA. The United States sets caps on monetary cost (OECD, 2015[2]).
It is possible that a regulatory proposal does not create costs to those subject to regulation. An obvious example is when a ministry or public entity wishes to implement a improvement measure of better regulation that may be:
The elimination of an administrative procedure
The elimination of requirements
A decrease in response time
The reduction of technical demands
The removal of a ban
In these cases, regulated parties will benefit from the measure because there is a reduction in the costs of compliance with regulation.
In others, the very nature of the regulatory provision results in zero compliance costs to regulated parties because it does not impose any obligation on them. This type of provisions relates more to internal government processes, government transparency obligations, or to other legal obligations. Some examples are the following ones:
Official appointment or dismissal of government officials
Publication of opening hours for the public
Working days of the entity, non-working days, or closing for vacation periods
Change of location of public offices
It is possible to prepare a list of regulatory provisions that, a priori, do not require a RIA because it is expected that they will not impose any cost on regulated parties.
In these cases, it is advisable that the oversight body of better regulation keeps the power to demand the preparation of a RIA, even if a regulation might seem to fall in the cases of exemption.
12. Establish at least two types of RIA, one for high-impact regulatory proposals, for which a thorough and in-depth impact analysis must be done; and another for the remaining proposals, whose impact analysis be less substantial. The RIA manual should state the characteristics of the analysis to be performed for each case (see an example from Mexico in Box 7.4). See in the next chapter the suggested model processes for the issuance of regulations that address these cases.
Box 7.4. Exceptions to the Regulatory Impact Expression and types of analyses in Mexico
In Mexico, the Federal Law of Administrative Procedure (LFAP) provides for exempting the obligation to submit the Regulatory Impact Expression (MIR, for its nomenclature in Spanish) when the draft regulation does not create compliance costs on individuals. In this case, however, the relevant body should send to CONAMER the regulatory proposal accompanied by a request for exemption. This must confirm that the proposal does not fall into the following categories: i) it creates new obligations and/or penalties for individuals or tighten the existing ones; ii) it modifies or creates procedures that involve greater administrative burdens or compliance costs to individuals; iii) it reduces or restricts benefits or rights for individuals; iv) it establishes or modifies definitions, classifications, methodologies, criteria, characterisations, or any other reference term, affecting rights, obligations, benefits or procedures of individuals. By observing the above, the regulatory proposal may be exempted from submitting the corresponding MIR. In spite of this, CONAMER reserves its right to deny the exemption request and require the submission of the corresponding MIR, if considers that the regulatory proposal does generate compliance costs to individuals.
As of 2010, in Mexico there were the following types of regulatory impact assessment:
Moderate-impact MIR: This MIR must be prepared when the potential impact of the draft regulation submitted before CONAMER is moderate, according to the result of the Regulatory Impact Calculator.
High-impact MIR: This MIR must be prepared when the potential impact of the draft regulation submitted before CONAMER is high. This classification is determined through the Regulatory Impact Calculator.
Periodic-updating MIR: This MIR is prepared in the case of draft regulations that intend to modify provisions, which, must be updated on a regular basis, without imposing additional obligations to those already existing.
Emergency MIR: This MIR is prepared when the draft meets the following criteria to issue emergency regulation: i) if the measures proposed in the draft have a lifespan of no more than six months; ii) if it is designed to address an immediate harm or mitigate or eliminate an existing harm to the health or wellbeing of population, the environment, or natural resources; and iii) if emergency treatment has not been previously requested for a draft with equivalent content.
In November 2012, the following types of MIR were implemented in addition to the existing ones:
Moderate-impact MIR with competition impact analysis: This MIR must be prepared when the Regulatory Impact Calculator rates the potential impact of the draft regulation submitted before CONAMER as moderate, and the result of the Competition Impact Checklist concludes that it may affect competition in markets.
High-impact MIR with competition impact analysis: This MIR must be prepared when the Regulatory Impact Calculator rates the potential impact of the draft regulation submitted before CONAMER as high, and the result of the Competition Impact Checklist concludes that the draft contains actions that could impact the intensity of competition, economic efficiency and consumer welfare, either by restricting or promoting specific changes in market conditions.
High-impact MIR with risk analysis: This MIR must be prepared when the Regulatory Impact Calculator rates the potential impact of the draft regulation submitted before CONAMER as high, and the result of the Competition Impact Checklist identifies actions intended to address, mitigate or lessen a risk.
High-impact MIR with competition impact analysis and risk analysis: This MIR must be prepared when the result of the Regulatory Impact Calculator, the Competition Impact Checklist and the Risk Impact Checklist concludes that the potential impact of the draft regulation submitted is high, it identifies actions that could impact the intensity of competition, economic efficiency and consumer welfare, either by restricting or promoting specific changes in market conditions, as well as actions or measures intended to address, mitigate or lessen a risk.
MIR ex post: This MR is prepared to review the regulation in order to determine the accomplishment of its objectives, as well as its efficiency, effectiveness, impact and permanence.
Later, in December 2016, the following ones were added:
Moderate-impact MIR with analysis of impact on foreign trade: This MIR must be prepared when the result of the Regulatory Impact Calculator and the Foreign-Trade Impact Screening concludes that the potential impact of the draft regulation submitted before CONAMER is moderate, and provisions that may have an impact on foreign trade are identified.
High-impact MIR with analysis of impact on foreign trade: This MIR must be prepared when the result of the Regulatory Impact Calculator and the Foreign-Trade Impact Screening concludes that the potential impact of the draft regulation submitted before CONAMER is high, and provisions that may have an impact on foreign trade are identified.
Moderate-impact MIR with competition impact analysis and analysis of impact on foreign trade: This MIR must be prepared when the result of the Regulatory Impact Calculator, the Competition Impact Checklist and the Foreign-Trade Impact Screening concludes that the potential impact of the draft regulation submitted before CONAMER is moderate; and actions that could impact the intensity of competition, economic efficiency and consumer welfare, either by restricting or promoting specific changes in market conditions, as well as provisions that may have an impact on foreign trade are identified.
High-impact MIR with competition impact analysis and analysis of impact on foreign trade: This MIR must be prepared when the result of the Regulatory Impact Calculator, the Competition Impact Checklist and the Foreign-Trade Impact Screening concludes that the potential impact of the draft regulation submitted before CONAMER is high; and actions that could impact the intensity of competition, economic efficiency and consumer welfare, either by restricting or promoting specific changes in market conditions, as well as provisions that may have an impact on foreign trade are identified.
High-impact MIR with risk analysis and analysis of impact on foreign trade: This MIR must be prepared when the result of the Regulatory Impact Calculator, the Risk Impact Checklist, and the Impact on Foreign Trade Screening concludes that the potential impact of the draft regulation submitted before CONAMER is high; and actions or measures intended to address, mitigate or lessen a risk, and provisions that may have an impact on foreign trade are identified.
High-impact MIR with competition impact analysis, risk analysis, and analysis of impact on foreign trade: This MIR must be prepared when the result of the Regulatory Impact Calculator, the Competition Impact Checklist, the Risk Impact Checklist, and the Foreign-Trade Impact Screening concludes that the potential impact of the draft regulation submitted before CONAMER is high, identifies actions that could impact the intensity of competition, economic efficiency and consumer welfare, either by restricting or promoting specific changes in market conditions; identifies actions or measures intended to address, mitigate or lessen a risk; and provisions that may have an impact on foreign trade are identified.
In all cases, and irrespective of the results of the Regulatory Impact Calculator, when CONAMER deems it appropriate, it may request, in writing, the preparation of a MIR other than the one submitted that include extensions and corrections.
Source: (OECD, 2014[4]), Regulatory Policy in Mexico: Towards a Whole-of-Government Perspective to Regulatory Improvement, Paris, http://dx.doi.org/10.1787/9789264203389-en; Ley Federal de Procedimiento Administrativo Título Segundo del Régimen Jurídico de los Actos Administrativos de México; CONAMER. (s.f.). Marco Jurídico, Comisión Federal de Mejora Regulatoria, Gobierno, gob.mx, www.gob.mx/conamer (accessed 23 January 2018).
13. Define the criteria and processes by which the oversight body will rate a regulatory proposal as moderate or high impact, which must be included —at least— in the corresponding RIA manual (see international examples of criteria to define the thoroughness of the RIA in Box 7.5).
Box 7.5. Threshold tests to apply RIA: Some country examples
In Australia, a Preliminary Assessment determines whether a proposal requires a RIA (or a RIS, regulation impact statement as they call it) for both primary and subordinate regulation (as well as quasi-regulatory proposals where there is an expectation of compliance). A Regulation Impact Statement is required for all Cabinet submissions. This includes proposals of a minor or machinery nature and proposals with no regulatory impact on business, community organisations or individuals. A RIA is also mandatory for any non-Cabinet decision made by any Australian Government entity if that decision is likely to have a measurable impact on businesses, community organisations, individuals or any combination of them.
Belgium applies a hybrid system. For example, of the 21 topics that are covered in the RIA, 17 consist of a quick qualitative test (positive / negative impact or no impact) based on indicators. The other 4 topics (gender, SMEs, administrative burdens, and policy coherence for development) consists of a more thorough and quantitative approach, including the nature and extent of positive and negative impacts.
Canada applies RIA to all subordinate regulations, but employs a Triage System to decide the extent of the analysis. The Triage System underscores the Cabinet Directive on Regulatory Management’s principle of proportionally, in order to focus the analysis where it is most needed. The development of a Triage Statement early in the development of the regulatory proposal determines whether the proposal will require a full or expedited RIA, based on costs and other factors:
Low impact, cost less than CAD 10 million present value over a 10-year period or less than CAD 1 million annually;
Medium impact: Costs CAD 10 million to CAD 100 million present value or CAD 1 million to CAD 10 million annually;
High impact: Costs greater than CAD 100 million present value or greater than CAD 10 million annually. Also, when there is an immediate and serious risk to the health and safety of Canadians, their security, the environment, or the economy, the Triage Statement may be omitted and an expedited RIA process may be allowed.
Mexico operates a quantitative test to decide whether to require a RIA for draft primary and subordinate regulation. Regulators and line ministries must demonstrate zero compliance costs in order to be exempt of RIA. Otherwise, a RIA must be carried out. For ordinary RIAs comes a second test – qualitative and quantitative – what Mexico calls a “calculator for impact differentiation”, where as a result of a 10 questions checklist, the regulation can be subject to a High Impact RIA or a Moderate Impact RIA, where the latter contains less details in the analysis.
New Zealand employs a qualitative test to decide whether to apply RIA to all types of regulation. Whenever draft regulation falls into both of the following categories, then RIA is required: i) the policy initiative is expected to lead to a Cabinet paper, and ii) the policy initiative considers options that involve creating, amending or repealing legislation (either primary legislation or disallowable instruments for the purposes of the Legislation Act 2012).
The United States operates a quantitative test to decide to apply RIA for subordinate regulation. Executive Order 12866 requires a full RIA for economically significant regulations. The threshold for “economically significant” regulations (which are a subset of all “significant” regulations) is set out in Section 3(f)(1) of Executive Order 12866: “Have an annual effect on the economy of USD 100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities.”
In the European Commission, a qualitative test is employed to decide whether to apply RIA for all types of regulation. Impact assessments are prepared for Commission initiatives expected to have significant economic, social or environmental impacts. The Commission Secretariat general decides whether or not this threshold is met on the basis of reasoned proposal made by the lead service. Results are published in a roadmap.
Source: (OECD, 2015[2]), OECD Regulatory Policy Outlook 2015, Paris, http://dx.doi.org/10.1787/9789264238770-en.
14. The oversight body must keep power to change the thoroughness of the RIA, regardless of the above-mentioned definition process.
Data collection
15. The RIA manual should include a section detailing and listing the public sources of data and information that could be used to carry out the corresponding assessment.
16. The RIA manual must define alternative strategies for data collection in the event of unavailability of data, such as surveys or meetings with stakeholder groups. It should be emphasised that in the early consultation stage (see recommendations on early consultation below) there are plenty of possibilities for gathering information, which, ultimately, will allow to conduct a correct assessment of public policy proposals (for more information on how to obtain the data to conduct RIA, see Box 7.6).
Box 7.6. How to obtain the data needed for a RIA: basic concepts
Obtaining high quality data is a basic challenge to conduct a RIA. Without good data, RIA will contribute relatively little to good policy-making. However, data collection can be a time-consuming and expensive exercise. This means that a careful and strategic approach must be adopted. The following are data collection strategies that should be considered when commencing a RIA and should be carefully weighed according the particular RIA project. As many of these data collection methods may require considerable resources, it may be necessary to rely on third party sources to obtain information, which saves time and research costs.
Surveys
By designing a questionnaire, specific information on major elements of a proposed regulation can be asked. A well-designed survey of affected groups can provide a good basis for estimating the costs of compliance. However, care is needed in several areas:
The survey should be sent to a representative group of affected parties, trying to ensure that all the main groups who will have to comply with the regulation are included.
The questionnaire must be realistic. This means the questions should be carefully considered to ensure that respondents provide meaningful answers. Conducting a trial with a very small number of respondents can help to identify potential problems related to this need.
The sample size must be carefully considered. On one hand, a sufficient number of respondents is needed to trust on the identified trends; on the other, it must be ensured that the scale is not too demanding of scarce resources.
It should try to guard against biased answers: those who must comply with regulations will have an interest in over-stating the costs of compliance. Careful design of the questions can guard against this problem.
Particularly where compliance costs are complex, one may wish to consider direct interviews as a way of improving the quality of the data received. Remember that surveys covering relevant issues may have been completed previously, either by government or by other bodies. It should try to identify relevant survey results that are already available to improve existing knowledge and reduce the costs of data collection.
Business test panel
An innovation pioneered in Denmark is the Business Test Panel, a list of companies that have agreed to assist government in conducting RIA. These companies volunteer to advice on the likely costs of regulatory proposals. This group is used as the basis for administering surveys. This model has the advantage that, over time, the business involved will become familiar with the RIA concept and gain a better understanding of the nature of the questions being asked and the information that is needed. It needs to be ensured, however, that the answers received are not biased by the fact that a particular “insider" group is questioned on a frequent basis.
Review of experience in other countries
In many cases, a similar regulation to the one being considered may have been adopted in neighboring countries. Contacting government officials, or other sources, in those countries can be an effective way of obtaining information on the likely impacts of your regulatory proposal.
Other government agencies
A large amount of relevant data is held by government agencies. For example, the government statistical office is a rich source of general information on issues such as the number of firms in various industries, the number of people employed and the like. Other useful material may also be available within government. For example, regulations with similar features may previously have been adopted.
Literary reviews
Reviewing the existing academic literature can be a very interesting way of obtaining relevant information. The Internet can increasingly be used to conduct literature searches; likewise, market reports and other research documents commissioned by industry associations or similar groups can be very useful. For example, insurance companies may have much relevant data on the size and nature of the harms that regulations try to prevent. This can be used to estimate the size of likely regulatory benefits.
Source: (OECD, 2008[5]), “Introductory Handbook for Undertaking Regulatory Impact Analysis (RIA)”, Paris, https://www.oecd.org/gov/regulatory-policy/44789472.pdf (accessed 3 August 2017).
17. The RIA manual must consider the possibility of commissioning data collection for high-impact RIAs to external firms.
18. Regarding the high-impact RIA, the requirement of conducting a cost-benefit monetary analysis should be laid down in the RIA manual (see a summary of the cost-benefit analysis methodology in Box 7.7).
Box 7.7. Summary of the cost-benefit analysis methodology
The cost-benefit analysis (CBA) is one of the approaches used to measure the impacts of a regulatory proposal. This six-step methodology proposes the quantification (in monetary terms) of the costs and benefits of the regulation. Implementing this methodology involves:
Identifying the direct and indirect impacts of the alternatives to the regulation. This step also includes a distributional analysis and a competition impact analysis, as well as specific information about compliance costs, including the administrative burden that can be measured through the Standard Cost Model.
Quantifying and monetising costs and benefits. Allocating a monetary value can be based on market prices (if available) or on alternative approaches such as hedonic prices, defense costs, travel costs, or contingent valuation.
Defining the appraisal horizon and determining cash flows. The number of periods that will be employed to assess the costs and benefits of the proposal can be established in various ways. In general, the number of years in which the contribution of discounted costs and benefits begins to be minimal is considered; however, the expected life of capital investments or the duration of the programme could also be used.
Discounting flows. This step involves establishing a discount rate in order to update cash flows to present value. This step and the previous one are particularly important because they determine the net present value of the proposal and, hence, its preference or not over another. The present value is calculated by discounting the cash flows (both costs and benefits) with the following formula:
Where:
V0: Present value
Vt: Monetary value in the period
r: Discount rate
t: Number of periods
Once the flows have been discounted, the benefits are added and the costs subtracted. Although costs tend to be identified at the beginning of the proposal, this is not necessarily always the case; so, it is important to consider all expenses and benefits during the life of the regulation. The proposal with the highest net present value should be preferred.
Sensitivity analysis (if necessary). The sensitivity analysis involves making changes in relevant variables to see how the results change. This process is important when regulatory proposals have different periods or in which it is difficult to determine a discount rate.
Choosing the best alternative. Once the evaluation criteria are available, it is necessary to choose the intervention to be carried out. The alternative with the highest net benefit or that with a higher cost-benefit ratio (and greater than 1) is frequently chosen.
The cost-benefit analysis is an objective way to evaluate the impact of a regulation; there may be discrepancies, however, when determining the discount rate or allocating a monetary value to intangible elements (for example, satisfaction).
Source: (COFEMER, 2013[6]), “Guía para Evaluar el Impacto de la Regulación”, www.cofemer.gob.mx/presentaciones/espa%f1ol_vol%20i.%20metodos%20y%20metodologias_final.pdf; (European Commission, 2017[7]), “Better regulation Toolbox”, https://ec.europa.eu/info/sites/info/files/better-regulation-toolbox.pdf.
19. As to moderate-impact RIAs, the RIA manual should state that —apart from the cost-benefit analysis— other methodologies can be used. This can include cost-effectiveness analysis, multi-criteria decision-making analysis (see a summary of other methodologies available for impact evaluation in Box 7.8). It also must state that the qualitative identification of the costs and benefits of each alternative should be included, as a minimum.
Box 7.8. Summary of other methodologies for the impact evaluation
Cost-effectiveness analysis
The cost-effectiveness analysis (CEA) is mainly used in those cases where it is very expensive to conduct a cost-benefit analysis. The CEA allows comparing, in monetary terms, the costs with the benefits that cannot be monetised. That is, this methodology quantifies the benefit for each monetary unit allocated to the proposal. Like the CBA, the cost-effectiveness analysis follows a series of steps in its preparation.
Quantifying the costs of each regulatory alternative. In this first step, direct and tangible costs are determined for each policy option.
Quantifying the benefits of each regulatory alternative. In this case, benefits are not measured in monetary terms, but accounted using alternative measures according to the objective of the program. For example, measures such as increased life expectancy, the amount of CO2 emissions that is reduced, or the level of educational attainment can be used to estimate the benefits.
Quantifying the effectiveness for each option. The cost-effectiveness ratio, defined as the net present value of costs divided by benefits, is the criterion used to determine the preference of one option over another.
Choosing the regulatory alternative with the lowest cost-effectiveness analysis.
Multi-criteria decision-making analysis
This method consists in weighing and analysing the different evaluation criteria, it is particularly useful in cases where the economic, social and environmental dimensions are relevant. The building blocks of this methodology are the following ones:
Setting the objectives to be evaluated. It consists in identifying the main purpose of the policy, as well as the secondary goals.
Identifying the evaluation criteria. This is particularly important because the necessary parameters to weigh the accomplishment of the objectives set in the previous step are defined. The selected indicators must be mutually exclusive, that is, a criterion cannot influence on more than one indicator.
Identifying the options to be evaluated. A small set of alternatives must be evaluated, but with different options, in order to analyse policies with substantially different effects.
Rating and evaluating the expected performance from each option, according to the evaluation criteria that was chosen. As the evaluation can be quantitative or qualitative, it is important to make that results be comparable to each other, in order to obtain a single result from every policy option considered. The standardisation of results is carried out with a scale from 0 to 100 (where 0 is the less desirable result and 100 is the most favorable one).
Weighing of criteria. Once results are standardised, it is necessary to generate a single indicator for each policy alternative. The construction of the indicator implies determining the relative importance of individual evaluation criteria, which may be the responsibility of the regulatory body or an external advisor.
Combining the weights and scores of each option. The final score of each of the alternatives considers is the weighted average of all the criteria evaluated.
Choosing the policy alternative with the highest score.
Source: (COFEMER, 2013[6]), “Guía para Evaluar el Impacto de la Regulación”, www.cofemer.gob.mx/presentaciones/espa%f1ol_vol%20i.%20metodos%20y%20metodologias_final.pdf; (European Commission, 2017[7]), “Better Regulation Toolbox”, https://ec.europa.eu/info/sites/info/files/better-regulation-toolbox.pdf.
20. Establish that, in both types of RIA, the analysis must include an assessment of the new procedures created, including the measurement of potential administrative burdens.
Consultation, participation and transparency
21. Lay down in the legal mandate creating the RIA system that consultation is an essential element and specify that the regulatory proposals – as defined in the manual to be issued – must follow the two stages of the consultation: the early consultation and the consultation once the proposals is available.
22. Lay down in the RIA manual the necessary guidelines to establish the early consultation as a flexible and open, but necessary process (see more information on early consultation in Box 7.9).
Box 7.9. Early consultation: basic elements
The early consultation takes place when there is a problem that justifies government intervention. This consultation is good, fundamentally, to obtain information that allows identifying in a correct way the policy problem, its scale, and importance. At present, it is advisable to conduct a focused consultation that considers the main affected parties and those who can provide better information. This stage is prior to the design and submission of a regulatory proposal, that is, there is not yet a draft regulation; and, on the contrary, this consultation helps to define the possible form of government intervention to address a public problem.
The early consultation must be carried out as soon it is identified the need to step in, so that it helps to determine if government intervention is really needed —besides getting information and evidence of the identified problem. Moreover, above all, to guarantee how government must step in, defining if it will be through a regulatory proposal or by other mechanisms.
The European Commission proposes some types of methods and tools to carry out the early consultation, which are shown below, as example:
Source: (European Commission, 2017[7]), “Better Regulation Toolbox”, https://ec.europa.eu/info/sites/info/files/better-regulation-toolbox.pdf.
23. Lay down in the RIA manual a standardised process for the consultation stage of the regulatory proposal, which must have the following characteristics:
The regulatory proposal and the corresponding RIA should be made available for consultation for a minimum of 30 business days.
Those subject to regulations should be able to comment on both the regulatory proposal and the RIA.
The Ministries and entities issuing regulations must reply all comments and, at the end of the process, issue a document summarising all the comments received and the actions that will be taken to address the relevant ones.
24. Create an online system for the consultation stage of the regulatory proposal and the corresponding RIA (see the example of Mexico in Box 7.10) that:
Centralises and includes all regulatory proposals and the corresponding RIA under consultation.
Allows regulated parties to send their comments, and that they are made public.
Allows ministries and entities issuing regulation to reply to the comments, and that they are made public.
Allows ministries and entities issuing regulations to publish the document that summarise all the comments received and the actions that will be taken to address the relevant ones.
Box 7.10. The consultation in the Regulatory Impact Assessment in Mexico
Consultation in Mexico is strongly influenced by the requirements formally established in two separate pieces of legislation. First, the Federal Lay of Administrative Procedures sets out specific public consultation requirements as an integral part of the RIA process. Second, more recently adopted transparency legislation has established more general consultation requirements that are independent of the RIA process itself. In particular, this law requires all regulatory proposals to be published on the website of the relevant ministry or regulatory agency.
The RIA process itself provides important public consultation opportunities, as well as important safeguards to ensure that adequate account is taken of comments received from stakeholders. In particular, the CONAMER publishes in their website www.conamer.gob.mx all draft RIA as soon as they are received, as well as its comments on the draft RIA and all inputs received from stakeholders. This generalised publication of a wide range of RIA-related documentation is possibly unique among OECD member countries. Importantly, publication of CONAMER’s response to the draft RIA provides stakeholders with additional information that can potentially allow them to participate more effectively in the process.
For example, by highlighting weaknesses in the analysis, this material may assist stakeholders to identify data or other materials they possess which could be fed into the analysis to enhance its quality. More generally, the publication of all stakeholder comments on the proposal provides the basis for a more detailed dialogue on its merits among interested parties. The CONAMER believes that the publication of this wide range of RIA‑related documents is a key factor in ensuring that regulators take account of CONAMER’s opinions and, hence, that it is a critical success factor for the RIA process.
The draft RIA is required to be open to consultation for at least 20 working days but, in practice, much longer consultation periods appear to be the norm. This reflects, in part, the need for the CONAMER to undertake its initial analysis of the RIA document and publish its response. Consequently, it appears that the process provides extensive opportunities for stakeholder input. The CONAMER also supports effective engagement in consultation by actively providing the draft RIA to key stakeholders and soliciting their inputs in many cases.
Source: (OECD, 2014[4]), Regulatory Policy in Mexico: Towards a Whole-of-Government Perspective to Regulatory Improvement, Paris, http://dx.doi.org/10.1787/9789264203389-en.
25. In the case of multisectoral regulatory proposals, the consultation process should be carried out before the revision of the Vice-Ministerial Coordination Council (CCV).
Recommendations to prepare RIA implementation
Development of guidelines
26. Issue a guide for the simplified RIA that currently performs the MEF-PCM-MINJUSDH Committee for the ex ante impact evaluation of regulatory proposals. This guide might include an impact checklist and guidelines for its response. See an international example in Box 7.11.
Box 7.11. The Regulatory Criteria Checklist of British Columbia, Canada
In British Columbia, Canada, the Regulatory Criteria Checklist (RCC) replaced the Regulatory Impact Assessment (RIA) in 2001. Ministers and heads of regulatory authorities must make sure that any proposed legislation, regulation and new policy are evaluated according to the criteria set out in the checklist. A signed copy of the RCC or exemption form must be included with any legislation submitted for Executive Council review and any Order in Council that is being recommended by the responsible minister to the Executive Council to enact a regulation. Copies of the signed RCC and exemption forms must be provided to Straightforward BC. In addition, the responsible minister or head of a regulatory authority must make the RCC available to the public, at no charge, on request.
The RCC itself is simple and includes several questions in eleven different categories: i) reverse onus: need is justified; ii) cost-benefit analysis; iii) competitive analysis; iv) streamlined designed; v) replacement principle; vi) results-based designed; vii) transparent development; viii) time and cost of compliance; ix) plain language, x) simple communications and xi) sunset review/expiry principle.
Each category has a yes/no checkbox next to it. If the answer to the questions in any category is “no”, then an explanation must be attached. At the end of the form, there is a box that asks how many regulatory requirements will be added and how many will be eliminated, as well as what the net change will be. When the reform policy was first introduced in 2001, two regulatory requirements had to be eliminated for every one introduced. Since 2004, when the original goal to reduce regulation by one-third was met, a target of no net increase has been in place and extended to 2015. The RCC encouraged a change in culture from one where regulation was seen as the answer to any problem and the private sector was viewed with some suspicion, to one where questions are asked, alternatives are considered, and the contributions that businesses make to the economy is better understood.
Source: (García Villarreal, 2010[8]), “Successful Practices and Policies to Promote Regulatory Reform and Entrepreneurship at the Sub-national Level”, OECD Working Papers on Public Governance, No. 18, Paris, http://dx.doi.org/10.1787/5kmh2r7qpstj-en.
27. Once issued the legal instrument that establishes the RIA system, issue the RIA manual.
28. This manual must include, at least, the following sections:
The public policy process and when each RIA stage must be carried out (see suggested model processes to issue regulations in Chapter 8).
List of criteria or instruments exempted from RIA.
Process to perform the analysis that allows identifying the thoroughness of the analysis of the RIA.
Instructions to fill out each section of the RIA form for high-impact RIAs, including an explanation on the methodology of the Cost-Benefit Analysis.
Instructions to fill out each section of the RIA form for moderate-impact RIAs, including an explanation on the methodologies of the Cost-Effectiveness Analysis and the Multicriteria Decision-Making Analysis.
Instructions to carry out the early consultation.
Guide with information about data sources.
Training the regulators
29. Design and deliver a training programme for communicating the RIA timetable implemented by the MEF-PCM-MINJUSDH Committee, and fill out the simplified RIA according to the guide above recommended.
30. Once issued the legal instrument that establishes the RIA system, implement a recurrent training program.
31. This programme must include different levels of complexity in the courses (for example, induction courses vs. advanced courses), according to the demand of officials, the training needs, and the objectives of the oversight body.
32. In addition to the training program, seek exchanging technical internships with the OECD countries for the adoption of good practices in respect of RIA. In these internships, officials from the oversight body and from the ministries and government entities issuing regulations might participate, according to the objectives set out by the oversight body.
Communication as a tool for RIA, including the communication within the public administration and report the results
33. Once issued the legal instrument that establishes the RIA system, implement a programme of public meetings to communicate the progress of the RIA system, and supplement it with the preparation of public and regular progress reports.
Annex 7.A includes a proposal of priority implementation of the recommendations.
References
[6] COFEMER (2013), Guía para Evaluar el Impacto de la Regulación, http://www.cofemer.gob.mx/presentaciones/espa%f1ol_vol%20i.%20metodos%20y%20metodologias_final.pdf.
[7] European Commission (2017), Better regulation Toolbox, https://ec.europa.eu/info/sites/info/files/better-regulation-toolbox.pdf.
[8] García Villarreal, J. (2010), “Successful Practices and Policies to Promote Regulatory Reform and Entrepreneurship at the Sub-national Level”, OECD Working Papers on Public Governance, No. 18, OECD Publishing, Paris, https://dx.doi.org/10.1787/5kmh2r7qpstj-en.
[1] OECD (2016), Regulatory Policy in Peru: Assembling the Framework for Regulatory Quality, OECD Reviews of Regulatory Reform, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264260054-en.
[2] OECD (2015), OECD Regulatory Policy Outlook 2015, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264238770-en.
[4] OECD (2014), Regulatory Policy in Mexico: Towards a Whole-of-Government Perspective to Regulatory Improvement, OECD Reviews of Regulatory Reform, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264203389-en.
[3] OECD (2010), Better Regulation in Europe: United Kingdom 2010, Better Regulation in Europe, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264084490-en.
[5] OECD (2008), Introductory Handbook for Undertaking Regulatory Impact Analysis (RIA), https://www.oecd.org/gov/regulatory-policy/44789472.pdf.