Improving the Process of Rulemaking

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The OECD analyzes the progress of regulatory frameworks in member countries.

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The COVID-19 pandemic has served as a stress test for the world’s regulatory structures. The scramble to respond to the unprecedented public health crisis has highlighted a variety of regulatory shortcomings in both substance and process in countries around the world, according to a recent report issued by the Organization for Economic Co-operation and Development (OECD).

The members of the OECD—an international organization of 38 major countries—have issued over 190 rules related to the pandemic. In a triennial report examining trends in regulatory policy across member countries, the OECD recently looked at the information that policymakers rely on to guide their rulemaking—including public engagement strategies, impact analyses, and international standards.

In an earlier set of recommendations, the OECD urged states to begin engaging members of their publics early—even before the formal rulemaking process, when regulators are defining problems that might necessitate new regulations.

Although the majority of OECD members have developed unified digital platforms to centralize their rulemaking outreach process, and some even use social media to collect comments, most states begin engagement only once a rule has been drafted, according to the recent OECD report. OECD argues that early engagement allows policymakers to incorporate stakeholder feedback through the life of the process, leading to both substantively better regulatory outcomes and increased public confidence in those regulations.

In addition to expanding the timeframe for public input, the OECD urges regulators to engage actively with the feedback they receive. Less than a third of OECD countries, however, require regulators to respond to public comments, and only a third require regulators even to consider those comments in their rulemaking. The OECD also encourages countries to engage foreign stakeholders when creating policies. This engagement will help rulemakers understand the potential impacts of domestic regulations abroad—and how those effects may, in turn, reverberate in the originating country.

The recent OECD report also explores policymakers’ use of cost-benefit analysis in the rulemaking process—or what is sometimes called a regulatory impact assessment (RIA). A robust RIA process is crucial to ensure informed decision-making, argues the OECD, because it allows policymakers to compare and contrast policy options and their impacts.

The OECD made several key recommendations about improving the RIA process in a 2012 report. The organization’s latest report, however, judges RIA to have improved only “slightly” since that time. Although member countries now have a requirement to conduct RIAs on at least some types of regulations, the report authors find that, in practice, many states fail to use RIAs consistently.

In conducting RIAs, regulators focus mostly on the economic effects of proposed policies, with some states emphasizing non-economic factors more than others. Many states have broadened the scope of impacts they consider to include externalities such as gender equality, the environment, poverty, and effects on small- and medium-sized businesses. In addition, some states consider the impact of their policies abroad, mostly concerning trade and market openness.

The OECD also notes that, although best practice is to include a no-action option in any cost-benefit analysis, some countries do not require that regulators do so. Most OECD states do, however, systematically identify, consider, and assess non-regulatory solutions to problems—but even when they do, it is often only one such option. The report’s authors argue that one result of the limited attention to non-regulatory options is that policymakers may not fully understand the status quo before they make new rules, leading to suboptimal—or sometimes unnecessary—regulations.

About half of the countries that are members of the OECD allow for emergency exemptions from their RIA requirements, and several countries have skipped or shortened their traditional RIA processes when implementing COVID-19-related regulatory measures.

Although crises might require short-circuiting regulatory procedures before rules are adopted, the authors of the OECD report argue that it is always necessary for states to have a robust ex post evaluation process to determine the effectiveness of rules—a practice that three quarters of OECD members do not systematically follow under regular circumstances. Only four states require ex post evaluation of regulations crafted under an RIA emergency exemption.

The pandemic also highlighted the importance of international regulatory cooperation. According to the OECD report, the very nature of the threat—airborne transmission of a virus—resulted in harsh, unilateral measures that challenged global supply chains and complicated cooperation in essential areas such as vaccine development.

But the OECD report notes that problems of international regulatory cooperation predate COVID-19 and have not been limited to public health. For example, digital enterprises are mostly regulated on a national basis, even though the underlying technology spans the globe. The OECD argues that a harmonized regulatory approach across jurisdictions could encourage a “race to the top” rather than a race to the bottom.

Even though an increasing number of countries consider international agreements when regulating, the OECD judges the approach to regulation in most states to be fragmented and urges a systematic, whole-of-government approach that embeds international concerns within domestic policymaking. Some countries have required regulators to consider international practice when crafting policy, and others have created domestic databases that keep track of the international agreements to which they belong.

The OECD report encourages countries to improve their regulatory systems by strengthening their engagement, impact analysis, and foreign consideration processes. In separate sections, the OECD report also explores other regulatory topics and creates detailed country profiles that explain recent national-level changes to regulatory processes. It remains to be seen whether countries will implement the OECD’s recommendations to improve their regulatory regimes.