International regulatory co-operation: Addressing global challenges

Abstract

With the progressive emergence of an open, dynamic and globalised economy, the internationalisation of rules has become a critical issue. Governments increasingly seek to maximise the benefits of globalisation for national populations by eliminating unnecessary regulatory divergences and barriers, and ensuring greater co-ordination of regulatory objectives. At the same time, intensification of global challenges, such as those pertaining to systemic risks (financial markets), the environment (air or water pollution), and human health and safety, is leading to growing regulatory co-operation efforts as a key component of risk management strategies across borders. Regulatory co-operation is not a new topic (OECD, 1994). However, renewed attention has been paid to its importance since the economic crisis began in 2008. Perceived regulatory failures related to poor articulation of regulation across borders, limited enforcement of rules and regulatory capture have raised questions regarding the role of the state as a regulator and, specifically, how and where it should intervene to achieve key policy objectives in an increasingly globalised world. The gains that can be achieved through greater co-ordination of rules and their application across jurisdictions remain largely untapped and underanalysed. Consensus has grown among countries over the years on the elements of "good" regulation at domestic level, culminating in 2012 with Council's approval of the Recommendation on Regulatory Policy and Governance. By contrast, the potential of international regulatory cooperation (IRC) to transfer good regulatory practices, to make markets function better, to level the playing field, to reduce costs, to manage global goods and risks better and to generate substantial benefits for business and the public has not been explored systematically. Despite its potential and the fact that the OECD and others have accumulated a large body of experience in fostering regulatory co-operation in a number of specific areas, including environment, competition, consumer protection and tax, this vast body of (mostly qualitative) knowledge has yet to be synthesised and analysed to provide useful lessons. This report is a unique attempt to gather in a synthetic but systematic manner, the knowledge and evidence available to date on IRC. This report reviews the available evidence on IRC drawn from a literature review, a survey to OECD countries and case studies of specific IRC experiences and lays the foundation for further work on IRC. Chapter 1 systematically defines and documents a wide range of IRC mechanisms and highlights a number of prevailing trends in the internationalisation of regulation, laying the foundation for the development of a typology. Chapter 2 reviews the benefits, challenges and costs of IRC and highlights the critical conditions of success, laying the foundations for the development of a checklist to support governments' efforts in identifying adequate forms of IRC in a specific context and in developing and strengthening successful co-operation. The areas where further work is needed are elaborated upon in the conclusion. The review of evidence confirms the increased internationalisation of regulation, which takes place through a wide variety of IRC mechanisms and multiple actors. Today, governments use and combine a broad range of formal and informal, broad and specific IRC mechanisms to achieve their co-operation objectives. In a given policy area, there can be different forms of IRC. The strengthening of IRC is accompanied by a multiplication of state and non-state actors with regulatory powers, i.e. different levels of government and public agencies and private national and international stakeholders. As a result, countries are embedded in webs of regulatory cooperation that go beyond the traditional treaty-based model of international relations, to encompass transgovernmental networks involving multiple actors with sometimes limited oversight or monitoring by the centre of government. To keep pace with the need to regulate across borders, the nature of IRC has changed from complete "harmonisation" of regulation (i.e. uniformity of laws) to more flexible options - such as mutual recognition agreements. This shift is partly due to the recognition that frictions generated by regulatory divergences result as much from diverging enforcement and implementation efforts as from differences in the regulations and standards themselves. Consequently, harmonisation of rules will address only one aspect of regulatory divergences. The understanding that regulatory co-operation needs to encompass all phases of the policy cycle is growing and with it the recognition that flexible mechanisms need to be put in place to address implementation challenges and to anticipate forthcoming issues. In this context, soft law and informal co-operation - such as dialogue between regulators and exchange of information - Are becoming more important in promoting regulatory co-operation, generally in support or in anticipation of more binding processes, and as a flexible tool to address emerging global issues. Similarly, the trend is towards the development of supporting international organisations that provide a platform for continuous discussions. Despite growing regulatory co-operation, decision making on IRC remains mainly guided by political considerations and is not informed by a clear understanding of benefits, costs and success factors of the diverse IRC options. In some areas, co-operation has led to obvious successes. Experience accumulated in chemical safety, for example, shows that the use of harmonised approaches and instruments leads to important savings for governments and industries, while allowing greater achievement of public policy objectives. Most cases of successful co-operation have, however, tended to develop in an ad hoc manner, along "paths of least resistance", and without following general principles of good regulatory governance. There is no overall and cross-country consensus yet on the language used in relation to IRC, or on the range and definition of the different mechanisms in the hands of policy makers to promote IRC. The quantitative evidence on the benefits and costs of IRC remains scant. Changing language and anecdotal evidence generate uncertainty with regards to the benefits and costs of regulatory co-operation and prevent systematic and rational decision making on IRC. The shortcomings and gaps in policy making related to IRC call for further analytical work and guidance for which the OECD Regulatory Policy Committee is well positioned to provide useful inputs. While most countries acknowledge the importance and potential value of IRC, very few have started considering and mainstreaming issues of international co-operation into their regulatory process. More could be done in support of country efforts to identify the range of existing IRC mechanisms, to assess the benefits, costs and challenges of IRC in specific sectors and situations, and to strengthen IRC following good regulatory policy principles. Similarly, the emergence of new actors with regulatory powers on the international scene has been mostly spontaneous, and has not necessarily been matched with corresponding good regulatory practices. As an example, while transnational private regulation plays a growing role, governments have limited systematic tools at their disposal to evaluate when and under which conditions transnational private regulation might be a preferable regulatory option. Similarly, while international organisations play a growing role in supporting IRC, the extent to which they do so while following good regulatory policy practices is unclear.