Roadmap to implement RIA based on international good practices
RIA is fundamental to consolidate a comprehensive regulatory approach since it is a tool that provides objective elements, such as costs, benefits and options, for decision making. A RIA system can only be consolidated and improved over time and following different stages in which a combination of elements should be taken into consideration. The roadmap to implement RIA in Colombia requires evaluation of the following issues:
Maximise political commitment to RIA. The OECD experience shows that the use of RIA to support reform should be endorsed at the highest levels of government. RIA has to be supported by a legal instrument that makes it compulsory for entities inside the administration (Box 5.8).
The various attempts to introduce RIA show that political commitment in Colombia is still to be formally institutionalised for the use of the tool. The lack of an oversight body for regulatory quality contributes to the diffusion of the political commitment, as several institutions claim to do some form of ex ante impact assessment, but there are no clear guidelines, criteria, methodology and obligation to conduct RIA.
Allocate responsibilities for RIA programme elements carefully. Experience in OECD countries shows that RIA will fail if left entirely to regulators, but will also fail if it is too centralised. To ensure ownership by regulators, while at the same time establishing quality control and consistency, responsibilities for RIA are often shared between ministries and a central quality control unit.
Box 5.8. Maximising political commitment to RIA
There are various RIA systems in OECD countries, depending on particular administrative, economic, political and cultural contexts. International experience shows, however, that the most successful RIA systems are those where there is clear political commitment to the use of the tool. Political commitment can be expressed in various forms, but the most common one is a clear recognition of the obligation to conduct RIA, its role in decision making, and the way the tool contributes to promote regulatory quality in the country.
In the United States, the principal tool for measuring the effects of proposed federal regulations is RIA, which was pioneered beginning in 1974 with inclusion of benefit-cost analysis in Inflation Impact Assessments. In fact, the United States was the first country to adopt broad requirements for benefit-cost analysis for regulation. Full RIA has been required by executive order for all major social regulations from 1981, with the Office for Management and Budget (OMB) responsible for quality control. The value of RIA has been considerably enhanced by its full integration into the public consultation process. Political commitment to RIA has come from the highest political level in the United States. The obligation to carry out RIA has, since its inception in 1981, been through executive orders. Moreover, each president since 1981 has issued his own revision of RIA, ensuring that the commitment to this tool is reaffirmed.
In Mexico, the use of RIA was formalised through amendments to the Federal Law of Administrative Procedure in 2000. RIA became compulsory for all types of legal measures of general application that create compliance costs, from formats to major implementation rules. They have to be submitted to the Federal Commission for Regulatory Improvement (COFEMER), except for the subjects that the law explicitly excludes, like those of fiscal nature, or acts by sub-national administrations (states or municipalities). Ministries and regulatory agencies are responsible for elaborating RIAs, while COFEMER is responsible for reviewing them. RIAs include a discussion of objectives, obligations to be imposed, alternatives considered, potential costs and benefits, and the results of public consultation.
Source: OECD (1999), OECD Reviews of Regulatory Reform: Regulatory Reform in the United States 1999, OECD Publishing, doi: 10.1787/9789264173989-en; and OECD (2004), OECD Reviews of Regulatory Reform: Mexico 2004: Progress in Implementing Regulatory Reform, OECD Publishing, doi: 10.1787/9789264017528-en.
For the particular case of RIA, the lack of a central oversight body limits the challenge function, whereby a central institution is responsible for reviewing the quality of RIA and ensuring that criteria and standards were applied in the preparation of the analysis.
The first attempt to have such a mechanism goes back to Decree 4669 of 2005, which established that the DAFP has the role to authorise if a new formality can be introduced and public institutions have to present a RIA to get the authorisation. The same instruction was reiterated in the recent Decree 0019 of 2012, which established that the department has to review and approve evaluations prepared by public institutions authorised to introduce formalities, at national and local level, in case they would like to register new ones. The practice, however, suggests that regulators still need to better understand their role as implementers of RIA, as the quality of analysis can be further developed and refined, and criteria and standards applied can be improved.
Train the regulators. Regulators must have the skills to prepare high-quality economic assessments, including an understanding of the role of RIA in assuring regulatory quality and an understanding of methodological requirements and data collection strategies. All complex decision-making tools, such as producing adequate RIA, demand a learning process.
In Colombia there is no comprehensive training programme on RIA methodologies for public officials. Institutions that are pioneering this tool are developing their own capacity-building programmes, and therefore some are more advanced than others. The Directorate of Regulation in the MCIT is currently developing a framework to introduce the use of RIA for technical regulations. This has included an initial training programme, as well as the preparation of templates and guidelines for this purpose.
Use a consistent but flexible analytical method. The OECD recommends as a key principle that regulations should “produce benefits that justify costs, considering the distribution of effects across society.” A cost-benefit analysis is the preferred method for considering regulatory impacts because it aims to produce public policy that meets the criterion of maximising welfare.
Despite existing efforts in various institutions, there is no single approach to RIA in the Colombian administration. Initial elements of impact assessment are found in Decree 1345 of 2010, which includes guidelines for the application of legal techniques when ministries and administrative departments are preparing draft decrees and resolutions. Some questions in those guidelines would follow the logic of RIA, particularly in the definition of the problem, the goal of government intervention, and the identification of possible affected groups. But the assessment then does not get deeper in the analysis of costs and benefits, as it is confined to defining the need of intervention. A particular limitation is that the ESIN is supposed to be done for the draft proposal so it is unclear if the document is prepared before the decision to regulate has been taken.
Some Regulatory Commissions undertake a form of ex ante analysis with the use of concrete methodologies. The Energy and Gas Regulatory Commission (CREG) conducts cost-benefit analysis. For the Communications Regulatory Commission, the methodology used for ex ante analysis is based on principles of good governance, such as proportionality, targeting, consistency, accountability and transparency. The Water and Sanitation Regulatory Commission (CRA) has established some phases for conducting ex ante analysis, based on a first stage where a detailed plan is presented and the study should examine the sustainability, viability and dynamics of the sector; an additional stage, where a cost-benefit analysis in the water and sanitation services should be conducted; and a final stage to evaluate the quality of the regulation that is being proposed. The Regulatory Commission on Health incorporated in its analysis an evaluation of the effectiveness and security, economic impact and financial impact.17
Target RIA efforts. RIA is a difficult process that is often opposed by ministries unfamiliar with external review or are under time and resource constraints. The preparation of an adequate RIA is a resource intensive task for drafters of regulations. Experience shows that central oversight units can be swamped by large numbers of RIA concerning trivial or low impact regulations. OECD countries have opted for different approaches to target RIA (see Box 5.9).
Box 5.9. Targeting RIA efforts in OECD countries
In the United States, a full benefit-cost analysis is required if a regulatory measure is deemed “economically significant”, if it is expected to represent annual costs exceeding USD 100 million; if the measure is likely to impose a major increase in costs on a specific sector or region; or if it will have significant adverse effects on competition, employment, investment, productivity or innovation. The United States’ Office of Management and Budget reviews roughly 600 regulations a year (15-57% of the regulations published), of which fewer than 100 (1-2% of the regulations published) are considered “economically significant”.
Korea has introduced mechanisms to target RIA. The Regulatory Reform Committee (RRC) decided in April 2004 to target its review of RIA to those dealing with “core regulations”, RIA conducted on other regulations are subject to review by the Internal Regulatory Reform Committee (IRRC) under the relevant ministry. Core regulations are those which:
- • have over KRW 10 billion (approximately EUR 8.5 million) of annual costs of regulatory impact;
- • affect over one million regulated people;
- • explicitly restrain competition;
- • are excessive or unreasonable in the light of international standards; or
- • are recognised by the RRC as in need of review because a regulation is controversial among related ministries or stakeholders, or has significant social and economic ramifications.
This is a useful mechanism for the RRC to focus its oversight and resources on those regulations which are likely to have significant economic or social impacts, while still ensuring that the RIA conducted on non-core regulations are subject to oversight and quality control by the IRRC in each ministry.
Source: www.whitehouse. gov/omb/inforeg, accessed 20 March 2012 and OECD (2007), OECD Reviews of Regulatory Reform: Korea 2007: Progress in Implementing Regulatory Reform, OECD Publishing, doi: 10.1787/9789264032064-en.
Decree 1345 of 2010 indicates that some form of impact assessment should be conducted for draft decrees and resolutions. There is nothing similar for law proposals and subordinate regulations. This is an area where the Colombian administration will need to define the thresholds and criteria for conducting RIA.
Develop and implement data collection strategies. The usefulness of a RIA depends on the quality of the data used to evaluate the impact. An impact assessment confined to qualitative analysis provides less accountability of regulators for their proposals. Since data issues are among the most consistently problematic aspects in conducting quantitative assessments, the development of strategies and guidance for ministries is essential if a successful programme of quantitative RIA is to be developed.
There is no clear evidence that information and data are systematically used in Colombia to support regulatory decisions. Some institutions prepare supportive documents that include information, but the level of analysis due to data availability could still be improved.
Integrate RIA in the policy-making process, beginning as early as possible. Integrating RIA in the policy-making process will, over time, ensure that the disciplines of weighing costs and benefits, identifying and considering alternatives, and choosing policy in accordance with its ability to meet objectives become a routine part of policy development. If RIA is not integrated into policy-making, impact assessment becomes simply an ex post justification of decisions already taken, and contributes little to improving regulatory quality. Integration is a long-term process, which often implies significant cultural changes within regulatory ministries. Early integration of RIA in the policy process would require stronger incentives and possible sanctions for non-compliance. More importantly, it would require that policy makers be convinced of and request the added value of RIA.
The lack of systematic use of RIA in Colombia indicates that the tool is not yet a mechanism to feed the decision-making process at the early stages. The challenge for Colombia is to design an effective mechanism that facilitates the use of RIA for decision making, providing evidence as early as possible on the potential costs and benefits of regulatory interventions.
Communicate the results. The assumptions and data used in RIA can be improved if they are tested through public disclosure and consultation. Releasing RIA along with draft regulatory texts as part of the consultation procedure is a powerful way to improve the quality of the information available about new regulations and, in so doing, improve the quality of regulations themselves.
The current information on regulatory decisions available to the public in Colombia relates to supportive documents and some justifications prepared by certain institutions when regulations are adopted. Consequently, there is scope for improvement in the quality of relevant information that is provided to the public, including the results of ex ante analysis.
Involve the public extensively. Public involvement in RIA has several significant benefits. The public, and especially those affected by regulations, can constitute cost- effective sources of the data needed to complete high quality RIA. Consultation can also provide important checks on the feasibility of proposals, on the range of alternatives considered, and on the degree of acceptance of the proposed regulation by affected parties. The extensive use of other different strategies, such as consultation, can be seen as an important means of collecting information and integrating the public in the decision-making process. The challenge is to use this information in a structured and critical way, avoiding the promotion of interests of particular stakeholders.
In the current administrative context of Colombia, regulatory commissions include technical evaluations to understand possible ex ante impacts as part of the package that is presented with the draft proposal to the public. All documents are published on the Internet, and this constitutes the beginning of the public consultation period. Public participation is considered as input in the preparation of the draft proposal and once a decision has been made, the institution has to prepare a document that explains the regulatory decision.
Ex ante analyses produced by ministries or other regulatory institutions are also part of the preparation of a draft proposal, but they are not systematically made public. In the case of the RIA required by the DAFP on formalities, it is usually not published.
Apply RIA to existing as well as new regulation. RIA is equally useful in reviewing existing regulation as it is in assessing proposed new regulatory measures. In fact, reviewing existing regulation involves fewer data problems, so the quality of the resulting analysis is potentially higher. Consistently applying RIA to existing regulation is a key priority. Parts of the regulatory structure that are not directly subject to government disciplines should be included in the analysis, such as local government regulations or the actions of independent regulators.
Regulatory commissions are obliged to conduct an impact assessment of their current regulatory framework every three years. This form of ex post analysis might serve as a basis for a more systematic review of existing regulation.