Institution-building for regulatory reform in MENA

The group having a break (photo: Ayman)

Three years after the beginning of the Arab spring, it was a good idea to take stock of current initiatives to improve economic governance in the MENA region, reflect on their relevance and make suggestions as to channels of further progress.

Such was the ambition of a workshop organised by the university of Granada, at the initiative of Jesus Florido Banqueri, former director of INSTEA, who is also the director for MENA of SICIDOMINUS, a consulting firm leading many governance projects in the MENA and Europe regions.

The workshop was part of the 4th Master's course in Public Governance in the Arab World, designed for middle-rank public officials from MENA countries.

Your blogger was honoured to participate by contributing views on "International Cooperation in Economic Institutions Building in the MENA Region." This was an opportunity to present the contribution of institutions to Regulatory Reform, and to draw up a list of international organisations (OECD, World Bank...) and initiatives (Deauville Partnership, Open Government Partnership, EuroMed...) aiming at building such capacities in MENA. Participants agreed that the multiplicity of donors, their differing objectives and procedures, posed a challenge for national officials seeking to tap the potential of international expertise to support the necessary economic reforms in their countries.

Some of the slides are made available on this blog.

For more on the topic, see a January 2014 "quick note" from the World Bank: "Strengthening Governance and Institutions in MENA: issues and priorities."

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Swedish report on regulatory cooperation

H. Lund, senior adviser in the Swedish Board of Trade, draws our attention to an interesting new report which contributes to one of the most challenging dimensions of regulatory cooperation. The following is a quote from a Board's news report:

Free movement of goods and services are increasingly dependent on preventing and eliminating technical barriers. Therefore, technical barriers to trade between the EU and the U.S. are a key issue in the ongoing free trade agreement negotiations, the Transatlantic Trade and Investment Partnership (TTIP). This is also established in the National Board of Trade's new report "Regulatory Co-operation and Technical Barriers to Trade within Transatlantic Trade and Investment Partnership (TTIP)".

The report has been produced as a contribution to the negotiations and highlights the regulatory aspects of TTIP. It outlines how the regulatory systems for trade in goods is structured in the EU and the U.S. and provides an analysis how TTIP relates to the WTO legal framework and existing free trade agreements. The report also includes an analysis of how TTIP can affect five selected sectors: automotive, information- and communication technology (ICT), chemicals, pharmaceuticals and medical devices.

The challenge in the negotiations consists of finding the level of regulatory cooperation that offers clear benefits in terms of enhanced trade opportunities between the U.S. and the EU. This, while legitimate interests such as health and safety are maintained and while observing that trade conditions with third countries are not impaired. An important part of the analysis is to clarify the Swedish interests and estimate the extent to which they coincide with the interests put forward by various stakeholders in the EU.

"Better regulation can facilitate trade" (OECD)

OECD (Regulatory Policy Committee) work on International Regulatory Cooperation (IRC) has taken a big step forward with the organisation of a one-day joint workshop with the Trade Committee to investigate how sound regulatory policy could enhance the quality and effectiveness of trade agreements. It was also the first time that the newish community of regulatory experts formally joined forces with the Trade pundits to tap the potential of a synergy between the two bodies of expertise.

In the morning delegates heard a series of presentations (including one from A. Alemanno who recently wrote on the TTIP negotiations) researching how trade barriers related to regulatory heterogeneity could weigh down the desirable development of international commerce and thus impede growth. The afternoon session (chaired by your blogger) featured six national cases of successful experience with IRC mechanisms in support of trade policies and FTA negotiations. The closing session, chaired by the UK delegation, outlined a future programme of work that would substantiate the conclusion (formulated by F.van Tongeren from OECD) that "Better Regulation can facilitate trade." No doubt official proceedings will soon be made available on the IRC and Trade pages of the OECD site.

Background. Recent OECD work on Global Value Chains has provided a strong reminder of the importance of reducing protectionist measures, improving inefficient and unnecessary customs and other border procedures, and reducing the cost of ‘behind the border’ measures that constrain trade in goods and services. In particular, regulatory misalignment, both in policy formulation and application, increases the costs facing firms operating internationally and holds back growth and job-creation. The OECD publication "IRC: addressing global challenges" makes the point that IRC is intensifying but there are also concerns that multilateral and regional trade deals could lead to a weakening of legitimate domestic regulations. Achieving regulatory and policy objectives in an increasingly globalised world while respecting the need for openness internationally can be a challenge for governments.

New economics to support smarter regulation (OECD Forum)

On 28-29 May, the OECD held its Forum, its largest annual open event where economists and policy makers from around the world meet to discuss latest findings and chart the future. The Organisation also uses this high moment to deliver some of its flagship products, such as the Economic Outlook, or the new rankings of its Better Life index, both topics widely reported in the news, or announce diplomatic breakthroughs (for instance the signature at OECD of anti-tax haven instruments). It was expected that an organisation committed to "better policies for better lives" would have a lot to offer smart regulators, whose mission is to ensure more efficient public policies by assisting decision makers with better evidence about economic, social and environmental outcomes. Perhaps the best introduction to the abundant new literature is the 28 May press release "New approach to globalisation and global value chains needed to boost growth and jobs" which provides an entry point to the technical studies on a number of new topics and initiatives. Among the most significant issues is the shift to the "global value chain" approach to international trade, which is based on the fact that "what you do" (the activities of a firm or country) matters more to growth and employment than "what you sell" (the final product). The past decades have witnessed a strong trend towards the international dispersion of value chain activities such as design, production, marketing, distribution, etc. and this challenges how we look at economic globalisation and in particular the policies that we develop around it, such as trade, investment, competitivesss and other policies. A new book on the topic Interconnected Economies: Benefiting from Global Value Chains was also released during the Forum.
Another report released at the same time, New Sources of Growth: Knowledge-based capital (KBC), finds wide differences between countries in the levels of KBC investment, which includes inter alia IT systems, innovative property and economic competencies (including brand equity, firm-specific human capital, networks and organisational know-how). A finer approach to investment is therefore now necessary.
All these new concepts and data series need to be accommodated by smart regulation tools, such as RIA (a new way of calculating economic impacts), ex-post evaluation (which impact to look for), if regulatory policy to keep up with its mission: quite a challenge but an appealing task, so watch this space !

International regulatory cooperation comes of age

24 April 2013: the OECD has published a well-researched and thought-out stocktaking exercise on International Regulatory Cooperation: Addressing Global Challenges which provides an overview of recent trends, the range of existing regulatory cooperation mechanisms (and actors involved) and preliminary lessons taken from selected experiences. Probably the first such ambitious compendium in the field, it builds on 10 case studies covering a vast range of sectors and experiences (which will be published separately), a review of the literature and other sources. There is also a useful bibliography and a glossary at the end of the volume.
For an overview of the project, go to OECD Regulatory Policy pages on IRC.
The report shows the fascinating multiplicity of IRC arrangements and the important benefits that can accrue from greater regulatory cooperation but also, as it acknowledges, "the remaining analytical gaps and the complexity of implementing effective IRC." As one of the principles enshrined in the 2012 Recommendation (n°12) the development of IRC will be actively pursued in coming months and years, starting with the next OECD regulatory event: the 5th expert workshop on Assessing the Implementation of the 2012 Recommendation of the Council on Regulatory Policy and Governance, co-organised by OECD and Sweden in Stockholm, on 3-4 June 2013 (by invitation).

Update on international regulatory cooperation

In times of economic turmoil, there is an increased risk that governments will be tempted to engage in "regulatory competition" and use regulation to promote national interests in contravention with their international commitments, and to give a temporary boost to competiveness. The risk seems greates in the area of financial services, as a number of countries like the US adopt tough financial reforms to reassure their citizens that they are proactive in dealing with financial instability and speculation. In some cases, there can be consequences for foreign firms operating on their markets, and even abroad. An article on Reuters.com of two days ago summarizes the current tension under the catchy title "ET, the new alien scaring global markets" where ET stands here for "extraterritoriality", or legal effect beyond borders of a national law. The article shows the risks of regulatory competition, and the need for international regulatory cooperation (IRC), or coordination, to avoid negative economic effects.
The European Union provides a good forum to broach these sensitive issues with major economic competing blocs such as the US and Japan. See the DG Enterprise page on IRC which reports on EC cooperation with a number of governments around the world to remove regulatory barriers viewed as a significant impediment to trade and investment. With the US for instance, "regulatory cooperation is an important tool to helping dismantle existing regulatory barriers and prevent new ones from emerging. Since the development of the EU-US Guidelines for Regulatory Cooperation and Transparency, Regulatory authorities on both sides aim at achieving greater convergence of technical rules through a number of sectoral and methodological regulatory dialogues. Since its inception in 2005, the High Level Regulatory Cooperation Forum has met regularly to focus on key regulatory issues of common interest and to facilitate the exchange of best regulatory practice across sectors." See previous post on EU-US regulatory dialogue
Following a similar initiative from the Commission, the UK Finance Minister George Osborne wrote to B. Bernanke (Federal Reserve) on 23 January to ask for regulatory dialogue "aimed at minimising any unintended consequences of regulatory reforms on either side of the Atlantic."
A good presentation of the US point of view can be found in a 2010 speech by the U.S.Securities and Exchange Commissionner who explored the history, the forms, the advantages and the limits of IRC in promoting efficient capital markets.
Another particularly necessary area for IRC is the cooperation about collective investment schemes (CIS), but it seems to be fraught with difficulties, as explained in an article of the International Financial Risk Institute (IFRI)"To date, a uniform and consistent approach to the global regulation of CIS has not been pursued by regulatory authorities. It is therefore important in this climate for regulators to develop strategies to deal with this increased global activity in order to improve their collective oversight of the markets. If regulatory authorities chose to ignore the current trend that cross-border activity is increasing, they run the risk of failing to effectively regulate their markets and decreasing investor protection. Alternatively, if regulators accept that globalisation is a permanent feature of the managed funds industry, they should consider ways of improving their oversight of the markets. The incentive for pursuing this approach is that a co-ordinated harmonised approach to international regulatory co-operation should promote and strengthen the securities markets globally, increase investor confidence, attract investment, as well as assist the mutual flow of business."
The issue of IRC was raised at the OECD conference in October 2010on the future of regulatory policy, and a break-out session was devoted to the rationale for IRC (see summary of discussion). The theme was recently incorporated in the Recommendationsfor Regulatory Policy and Governance of OECD as part of quality regulation: "In an increasingly globalised economy, international regulatory co-operation must become integral to systemic risk management and long-term policy planning. Governments should take into account relevant international regulatory settings when formulating regulatory proposals to foster global coherence" (draft under discussion). OECD will be further exploring how to share national best practice in this new workstream of regulatory governance.

Regulatory reform in Africa (OHADA)

For a good update on regulatory reform efforts in mostly francophone Africa, a newly released IFC/ World Bank “report, “Doing Business in the OHADA 2012”, draws on data from the annual global Doing Business study and takes a detailed look at business regulations in the 16 OHADA economies.
Founded in Mauritius in 1993, OHADA is a system of business laws and implementing institutions adopted by 16 West and Central African nations. OHADA is the French acronym for "Organisation pour l'Harmonisation en Afrique du Droit des Affaires."
The average ranking of the OHADA member states is 166 out of the 183 economies measured in the global Doing Business 2012 report. Mali, with a global rank of 146, is the easiest place among OHADA member states for an entrepreneur to do business, followed by Burkina Faso (150) and Senegal (154). In the past six years, all 16 OHADA member states made it easier to do business. Across the region, the average cost of starting a business decreased from 338 percent to 110 percent of the average per capita income. The average time required to register property also decreased by 28 percent.
The importance of international trade for all economies makes it worthwhile to pool information with a view to improve national and regional competitiveness.
One of OHADA's priorities is to establish a uniform legal framework to govern business activities in the region's economies, hence making the region more attractive to FDI and foreign business. This year, the first revision of the body of commercial laws in the region simplified business entry in eight member states and strengthened secured transaction laws in all 16 member states.

ASEAN pursues regional regulatory dialogue

As reported in the international press (example Thailand), on 17 November 2011, ASEAN held its 19th ASEAN Summit in Bali, Indonesia, followed by a meeting with the ASEAN Business Advisory Council (ABAC). Key issues discussed at the Summit were ASEAN Community building by 2015 (see the Blueprint), the role of ASEAN in the global community and other regional and international issues of mutual interest.
At the end of the Summit, ASEAN Leaders signed a Bali Declaration on the ASEAN Community in the global community of nations and witnessed diverse technical agreements.
Regulatory reform remains high on the agenda to achieve regional integration, and is most visible in the third pillar, which calls for streamlining standards and technical barriers to trade including systems of standards, quality assurance, accreditation and measurement. Leaders called for the institutionalisation of the High-level Task Force on Regulatory Reform, whose first meeting was held in Jakarta on Aug. 3, 2011 (as reported on this blog.) For more on this event, see an article in Jakarta Post.

APEC promotes good regulatory practices

In complement to yesterday's post about the APEC ministerial, our network correspondent in Chinese Taipei, who was at the conference, draws our attention to the APEC Leaders' Honolulu Declaration ("Towards a seamless regional economy) published yesterday. Go to Annex D "Strengthening Implementation of Good Regulatory Practices" to see how member countries will try "to embed the concepts of non-discrimination, transparency, and accountability into the regulatory cultures of APEC economies", to help create jobs and promote economic growth. Experts will want to check the new formulation of principles of high-quality regulation contained in that document. Compared to the new OECD principles, which are now close to finalisation and publication, the APEC text provides a shorter and more general list of actions to be implemented by November 2013. On substance, there is little new in this document (except perhaps the notion of "incentives to review regulation") but we can hope that it will create some momentum for domestic reform in member countries.

APEC links RR with trade and green growth

There is a lot of conceptual material to be found in the proceedings of the 2011 APEC ministerial meeting held in Honolulu, Hawai, on 11 November and chaired by Ms Clinton. In a “Declaration of Honolulu – towards closer regional economic ties,” APEC Ministers committed to take action to strengthen economic integration and expand trade, promote green growth and advance regulatory convergence and cooperation, to achieve economic growth in the region. The statement published on the APEC site and the annex F on regulatory issues provide rich reading. Here are the main chapters (our unofficial summary):

• "Regulatory Cooperation on Emerging Standards and Regulatory Issues for green growth": the objective is to prevent unnecessary technical barriers to trade, support interoperable emerging standards for smart grids, green buildings, and solar technologies.
• Approval of a "Regulatory Cooperation Action Plan" to inter alia improve the efficiency and effectiveness of regulations, build public trust in regulations, improve consumer confidence in globally traded products and encourage implementation of the APEC-OECD Integrated Checklist on Regulatory Reform;
• Regulatory Convergence: streamlining approval procedures for Medical Products , harmonised classification of Chemicals, cataloguing regulations on Services, reducing unnecessary testing and streamlining paperwork on Wine certification and trade procedures, raising common Food Safety rules, including closer alignment on international standards (with APEC-World Bank collaboration).

In summary, a fine example of effective regional regulatory cooperation.

ASEAN starts regulatory reform dialogue

Among many reasons for engaging in international regulatory cooperation, regional economic integration is certainly one of the most promising in terms of competitiveness and growth potential. After devoting a decade (2000-2010) to applying Better Regulation principles to its legal production, the European Union has refined its tools under the name of smart regulation. Other regions are following, as already reported on this blog, including South East Asia and East Africa.
In South East Asia, regional integration took another step forward, as delegates met for the First ASEAN Regulatory Reform Dialogue (ARRD) in Jakarta on July 27. Here are excerpts from the official report online:
“The Dialogue - chaired by Dato Lim Jock Hoi, Permanent Secretary, Ministry of Foreign Affairs and Trade of Brunei Darussalam -is an important avenue to exchange views and information on regulatory reform efforts and policy measures, and to discuss measures and activities to take forward ASEAN initiatives on regulatory reform related issues.
This effort is a positive and pro-active step towards looking into ways to deal with impediments to trade, and investment facilitation, as ASEAN advances its economic integration.
Specialists in structural and regulatory reforms from the World Bank, and the Asia-Pacific Economic Cooperation (APEC)Secretariat, also shared their knowledge, tools, approaches and experiences at the Dialogue.
In today's complex and interconnected world, regulations assume a greater role than ever before as a fundamental tool of government, and an integral part of a well-functioning economy. Regulatory reform is a multi-faceted task that involves various stakeholders, and it requires co-operation between all levels and all stakeholder groups in ASEAN, namely government administration, business, and peoples.
Dato Lim said that "ASEAN is diverse and there is no 'one size fits all' formulation to addressing regulatory reform . but there is scope for a degree of regulatory coherence in many areas, especially in areas committed under the ASEAN Economic Community (AEC) Blueprint". He further elaborated that "undertaking regulatory reform will never be an easy task and it is essential to start the process of socialising the issue of regulatory reform within ASEAN today".
The Deputy Secretary-General of ASEAN for ASEAN Economic Community, S. Pushpanathan, who participated in the Dialogue, articulated that "behind the border regulatory reform could assist ASEAN countries in realising the full potentials and benefits of trade, investment liberalization, and facilitation at the border." He further added that, "for a successful regulatory reform to take place, it is important that we bring in the private sector and other stakeholders to participate in the regulatory reform and policy-making process".
During the Dialogue, each ASEAN country presented the progress, challenges and issues related to regulatory and structural reform that has and is being undertaken in the areas of trade in services, investment facilitation and transport. The Members then exchanged views on their respective reform efforts and discussed on the possibility of cooperation in these three areas at the regional level.”

EU- USA regulatory dialogue

The EU - USA regulatory dialogue is a topic not yet covered by this blog, but well worth checking out for its technical content. A DG Enterprise webpage traces the history and goals of the dialogue (since 1998), launched on the basis that "Regulatory barriers have long been recognised as the most significant impediment to trade and investment between the EU and the USA... a more integrated and streamlined transatlantic regulatory environment would significantly reduce costs for producers and consumers on both sides of the Atlantic and improve the competitive potential of EU and US companies in the global economy." Both the European Union and the United States run a number of regulatory dialogues.
The EU-USA dialogue takes a practical turn at the meetings of the High Level Regulatory Cooperation Forum, which is convened at irregular intervals, and where partners discuss burning trade issues but also exchange best practice concerning regulatory reform methodologies or compare notes on current issues (example reponses to the financial crisis.) For an example of proceedings, see report of the 2008 meeting in Washington).
The framework agreement has spawned more specialised streams, such as the the financial markets regulatory dialogue (for EC point of view see 2004 paper) which aims to foster a better mutual understanding of EU and US regulatory approaches; to identify potential conflicts in approach as early in the regulatory process as possible; and to discuss regulatory issues of mutual interest. Other sectoral dialogues (15) include Automotive industries, Chemicals, RTT and Insurance.
Recent news: owing to the interests at stake, the dialogue is lively: yesterday, Commissioner for internal markets and services Michel Barnier was putting pressure on his US counterparts, according to a Financial Times news item. Mr. Barnier stated that even though the pair had jointly declared their commitment to introduce a number of regulatory initiatives, the EU has overtaken its counterpart in areas such as capital requirements and putting curbs on banker bonuses. "The level playing field must be a reality, not an empty slogan," he is reported to have written in the letter, sent on 27 May. Mr. Barnier's concerns rest with the US's reluctance to fully adopt banking standard Basel II, fearing that the country could take a similar stance with its successor, Basel III.

EU and ASEAN join forces on regional economic integration

At the close of a seminar on regional economic integration earlier this month, a joint communiqué from EU and ASEAN announced the official launch of revamped cooperation between the two organisations, in the ASEAN-EU Economic Integration Support Program (AEISP). This new instrument succeeds the Programme for Regional Integration Support (APRIS Phases I and II) and aims in particular to assist the establishment of the ASEAN single market and production base by 2015. APRIS Phase I and Phase II have been operating for the last eight years with EU grant support of €10 million. The new programme has expanded targets and can draw from a larger budget of $20.7 million.
These goals are to be sought via actions similar to those undertaken by the EU to build its Internal Market, which relies to a large extent on Better Regulation principles and results, including the simplification of customs procedures across borders, harmonization of administrative documents, standardization of technical requirements and the transition from governmental pre- approval system to a post-market surveillance.
The programme also requires improving dispute settlement mechanisms.

OECD and ASEAN cooperate on regulatory reform

Regulatory reform, under the denomination of Better Regulation, has greatly contributed to European economic integration. Has its potential been recognized and tapped in other regional groups? While the Asia-Pacific countries (associated in APEC) have been discussing BR since 2000, the South East Asia countries started more recently, in 2007. In both cases, these groups tapped OECD experience and exchanged best practices with its member states.

The APEC countries recognized that regulatory reform contributes efficiently to the promotion of open and competitive markets, and can be a key driver of economic efficiency and consumer welfare. As a result, APEC and OECD agreed a Co-operative Initiative on Regulatory Reform in 2000 and jointly issued in 2005 an Integrated Checklist for self-assessment of regulatory, competition and market openness policies, to build domestic capacities for quality regulation.

More recently, the ASEAN countries have engaged a similar dialogue with OECD since 2007. To date, ASEAN and OECD have organised two regional forums to strengthen cooperation between the two organisations:

• the 1st OECD-Southeast Asia Regional Forum on “Peer Review Mechanism for Policy Reform” in January 2007 in Jakarta,
• the 2nd OECD-Southeast Asian Regional Forum on “Enhancing Competitiveness through Regional Integration” in April 2009 in Bangkok.

A seminar on Challenges in Cooperation and Communication for Development in Southeast devoted to “Aid Effectiveness & Regional Economic Integration Asia” was held on 26-27 April 2010 in Hanoi, Viet Nam.

Other joint-activities include “ASEAN Special Dialogues with the OECD” in October in Paris and the coming “ASEAN-OECD South East Asia Investment Policy Conference” 18 -19 November 2010 in Jakarta. Preparations are also underway for the joint collaboration on the “Southeast Asian Economic Outlook Report” in 2012.

Regulatory reform has been identified as a specially promising tool to bring about greater economic integration and competitiveness. At their meeting in August 2010 in Da Nang, the ASEAN economic ministers agreed to an “ASEAN Regulatory Reform Dialogue” at the senior economic officials’ level early next year to address some of the issues starting with trade facilitation, services liberalization and investment facilitation.

In the meantime, as announced by Secretary General of the OECD, the Organisation will co-host the first ASEAN-OECD meeting on regulatory reform in Hanoi on 25-26 November.