M EASURING T RADE I MPACTS OF R EGULATION AND R EGULATORY H - - PDF document

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MEASURING TRADE IMPACTS OF REGULATION AND REGULATORY HETEROGENEITY: A THEORETICAL FRAMEWORK ON TRADE-RELATED IRC

Joint Meeting of the Regulatory Policy Committee and the Trade Committee on Trade and International Co-operation OECD Conference Centre, Paris 05 November 2015

Assessing the impacts of regulation on international trade - RIA practices in OECD countries

• RIAs traditionally used to ex ante

assess impacts of regulatory initiatives on society, the state, the economy and the environment.

• Have regulators been using RIAs to

identify and measure the impact of regulation on international trade – and if so, how?

• Two thirds of OECD members

report to assess trade impacts as part

• f RIAs.

All primary laws (15) Major primary laws (2) Some primary laws (7) Never (10) Evaluation of trade impacts of primary laws in national RIA procedures

16/11/2015 2 Assessing the impacts of regulation on international trade - RIA practices in OECD countries (cont’d)

• What do countries’ trade impact measurement in RIAs focus on?
• 1. Macroeconomic effects
• 2. Impacts on ex- and imports
• 3. Impacts on third countries
• 4. Interactions between domestic and international regulation
• De facto limitations in the use of RIAs to assess trade impacts

1. Problem with RIA overload 2. Vagueness of guidelines yet limited expert involvement 3. Focus on impact of regulation, not of regulatory divergence 4. Focus on domestic impacts, not international impacts (GVCs) 5. Private standards (and related trade barriers) not subject of RIAs

Assessing the impacts of regulation on international trade - RIA practices in OECD countries (cont’d)

• Challenges and potential for improvement

1. Methodological challenges to measure and to quantify regulatory divergence 2. Strengthened focus on impacts on GVCs beyond national borders 3. Improved consultations between line ministry drafting RIA report and trade experts

• Ensure proportionality of assessment
• Accurately identify trade impacts
• Complementary tools

1. Inherent limitations of RIAs 2. Stakeholder consultations on trade impacts 3. Ex post evaluation to measure trade impacts of regulation

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• Key question:

– How, from a theoretical perspective, can reduced regulatory heterogeneity increase national (and international) welfare? – In other words: how best to strike the balance between domestic regulatory objectives and the benefits of international trade?

OECD Trade and Agriculture Directorate 5

Benefits of Trade-Related IRC: Objective of a Theoretical Framework

• Current focus on product and production

requirements

• Application of two key economic concepts:

– Welfare theory – Game theory

• Welfare problem can be split in two parts:

– Domestic effects of regulation

• Including the direct regulatory benefits and any domestic

market effects arising from the regulation

– Heterogeneity-costs (or trade costs)

• Losses due to costs arising from regulatory differences

OECD Trade and Agriculture Directorate 6

Conceptual basis

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• Analysis of regulatory outcomes for different

cooperation scenarios:

– No information sharing: countries base their regulation only on domestic effects – Information sharing: countries‘ regulations in response to trade partners‘ regulatory activity – Negotiations: pareto-optimal regulatory

• utcomes

– Optimal negotiation outcomes from an international perspective

OECD Trade and Agriculture Directorate 7

From the acknowledgement of trade costs to adjusted regulation

• Balancing relative importance of trade costs and

domestic effects

• Accounting for trade costs generally should lead

to less divergent regulations

• Heterogeneity-related trade costs relevant not
• nly for exporters, but also for importers
• higher prices, reduced choice
• Addressing inefficiencies:
• information inefficiencies
• cooperation inefficiencies
• bundling inefficiencies

OECD Trade and Agriculture Directorate 8

Perspectives on the Implications for IRC

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• Work in progress:

current Theoretical Framework focused on changes in product and production requirements, but

– Costs related to design and implementation of (changed) regulations – Costs related to conformity assessment and certification – Importance of fixed versus variable trade costs – Options for addressing heterogeneity-related trade costs without regulatory changes (e.g. MRAs)

• Making the Framework practically useful

– Prime purpose: support a future Diagnostic Tool – Ensure reality check

OECD Trade and Agriculture Directorate 9

Additional issues to be considered in the Theoretical Framework Thank you !

OECD Trade and Agriculture

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Contact: Robert.Basedow@oecd.org Veronique.Bastien@oecd.org Barbara.Fliess@oecd.org Celine.Kauffmann@oecd.org Martin.vonLampe@oecd.org