Reduce Regulatory Burden, Improve Regulatory Quality

Reduce RegulatoryBurden, ImproveRegulatory Quality“Tamang Regulasyon Para sa Patuloy na Pag-Ahon”Gilberto M. Llanto, PresidentPhilippine Institute for Development StudiesSurian sa mga Pag-aaral Pangkaunlaran ng Pilipinaswww.pids.gov.ph1

Outline of the Presentation1.2.3.4.IntroductionThe Need for Regulatory QualityPolicy and Regulatory Reform and ChallengesEstablishing a Formal Regulatory ManagementSystem5. Assessment of Philippine ‘RMS’6. Policy Recommendations2

1. Introduction As signatory to the ASEAN Economic Community 2015, thePhilippines has committed to improve overall business andeconomic environment to stimulate investments and growthwith regulatory frameworks that are harmonized with that ofother ASEAN Member States Fundamental action: Improvement of domestic regulatoryquality and coherence The paper highlights the critical measures to reduce the costof doing business in the countries: Examines the case of reducing regulatory burden and improvingregulatory quality in the Philippines3

What is Regulation? “promulgation of an authoritative set of rules, accompanied bysome mechanism, typically a public agency, for monitoring andpromoting compliance with these rules” (Baldwin, Scott andHood 1998) “a legal instrument to give effect to a government policyintervention. The term used for legal instrument varies byjurisdiction but includes all primary laws, secondary regulationsor tertiary rules” (Gill 2014) “any instrument by which governments, their subsidiarybodies, and supranational bodies [such as the EU or the WTO] setrequirements on citizens and businesses that have legal force.The term may, thus, encompass a wide range of instruments:from primary laws and secondary regulations to implementprimary laws, subordinate rules, administrative formalities anddecisions that give effect to higher-level regulations (for example,the allocation of permits), and standards” (OECD 2010)4

‘Regulation’ in Philippine Context rules, permits, and licenses issued, controlled andimplemented by the national government, localgovernments and regulatory bodies regulations implemented by regulatory bodies asmandated by the laws, and local government permits andlicenses impact investment, production and consumptionbehavior on a daily basis can be more easily modified or revoked by regulatorybodies5

2. The Need for Regulatory Quality Government use regulations to: influence or direct cognitive andbehavioural changes in consumers andfirms mediate diverse competing interests incomplex, evolving societies uphold public interest and the generalwelfare address market failures to producedesirable social outcomes Poor regulatory environment undermine business confidence andcompetitiveness erodes public trust in government encourages corruption in publicinstitutions and public processes6

Regulatory Quality, ASEAN Member StatesNote: *Governance Score (-2.5 to 2.5)Source: World Bank’s Worldwide Governance Indicators(WGI) project7

Governance Indicators, PhilippinesSource: World Bank’s Worldwide Governance Indicators8

3. Policy and Regulatory Reform and Challenges Big Policy Changes in the late 1980s – 2000s Corazon Aquino administration: greater openness of the economyand more vigorous trade liberalization started; reliance on privateenterprises as the main engine of growth with government providingthe proper policy and regulatory framework Fidel Ramos administration: regulatory reforms strengthened themarket-orientation and outward looking stance of the economy Other regulatory reforms in 2000s: General Banking Law of 2000,Retail Trade Liberalization Act, Electric Power Industry Reform Act of2001 [EPIRA]; devolution and decentralization of basic public servicedelivery to LGUs under the 1991 LGC Gloria Arroyo administration: Anti-Red Tape Act of 2007 Regulatory reform momentum weakened Political uncertainty due to corruption and other irregularities(Estrada administration) and alleged poll rigging (Arroyoadministration) Poor governance has muted the impact Weaknesses and incompetence of some Philippine institutions9

Comparative economic performanceBrunei DarussalamCambodiaIndonesiaLao ppines7.63.76.87.26.26.4Singapore a/Thailand b/Viet .94.55.7Strong macro-economic fundamentals (low and stable inflation,moderate interest rates and a stable banking system, sustainable fiscaland external positions, political stability, good governance) underpinnedthis performance10

Government and private sector reform effortsAdministrative Order No. 38, series of 2013, which created an inter-agency taskforce, chaired by National Competitiveness Council to initiate, implement andmonitor Ease of Doing Business (EODB) reformsDoing BusinessReportDB 2015IndicatorReformTrading AcrossBordersDealing w/Construction permitsTruck ban in Manila created logjam in the ports[immediate reform issue requiring action]Eliminated the requirement to obtain a healthcertificateImproved access to credit information by beginningto distribute both positive and negativeinformation and by enacting a data privacy act thatguarantees borrowers’ right to access their dataGetting CreditDB 2014Paying TaxesDB 2012Resolving InsolvencyIntroduced an electronic filing and payment systemfor social security contributionsAdopted a new insolvency law that provides a legalframework for liquidation and reorganization offinancially distressed companies11

Reforms in BPLSOld Process:New Process:can be completed in 34 dayscan be completed in 8 days12

Reforms in BPLSSummary of Doing Business in the Philippines13

Philippines’ Rank in GlobalCompetitiveness Report CardWEF Global Competitiveness IndexaIFC Ease of Doing BusinessbIMD World Competitiveness Reportc201120122013201475/142 65/144 59/148 52/144134/183 136/183 138/185 108/18941/5943/5938/6042/60TI Corruption Perception Indexd94/177Economic Freedom IndexeGlobal Information TechnologyaReportTravel and Tourism ReportaGlobal Innovation IndexfLogistics Performance IndexgFragile States IndexhGlobal Enabling Trade IndexaGlobal Gender Gap Reporta115/179 107/17986/138 052/17864/138105/176 129/183n/a95/14152/15556/17772/1328/13514

Upcoming NCC Project Implementation of Project Repeal which aims to revokelaws and regulations that increase the cost of doingbusiness and hinder competitiveness At present, NCC is gathering information on what lawsand regulations to repeal and once these have beenidentified, the NCC will work with Congress in repealingsuch laws and regulations and establish a structure tooversee the process in 2016.15

4. Establishing a Formal Regulatory System OECD has pioneered on reforming regulatory policies andpractices A formal Regulatory Management System [RMS] can helpwith: reduction of regulatory burden on citizens and firms improvement of regulatory quality identification of best choice of policy options Comprised of four elements:1.2.3.4.regulatory quality toolsregulatory processesregulatory institutionsregulatory policies16

Malaysia’s Regulatory Management System17

Regulatory Impact Statement Process,MalaysiaSource: Malaysia Productivity Corporation (2013).18

Philippine ‘Regulatory ManagementSystem’ (1)Elements of a “regulatory management system”, Philippines19

Philippine ‘Regulatory ManagementSystem’ (2) The nearest Philippine equivalent to a formal regulatorypolicy statement is government’s declaration of nationalcompetitiveness as a goal through Executive Order No. 571,s. 2006 Public-Private Task Force on PhilippineCompetitiveness to promote and develop nationalcompetitiveness Philippine regulators are neither required to undertakeregulatory impact analysis nor issue regulatory impactstatements Most common tools used in assessing the effect ofregulatory changes: descriptive analysis and standard costbenefit analysis However, results are neither published not made available tothe wider public20

Three Pilot RIA Projectsin the Philippines These are in the DOT, the DOLE, and the NEDA The Asian Development Bank is assisting the implementationof a Regulatory Impact Assessment regime at the Departmentsof Tourism and of Labor and Employment, respectively At the NEDA, the RIA pilot is under the ADB-supportedtechnical assistance on Increasing Competitiveness forInclusive Growth Program 2 Progress to date includes: Establishment of RIA Pilots in the Departments of Labor andEmployment and Tourism Development of RIA Guidelines including templates Conduct of RIA Training across participating departments Various RIA awareness raising activities among seniorrepresentatives from Philippines government and business21

Challenges to the creationof formal RMS in the Philippines Inadequate skills and knowledge in analyzing the impactsof regulations Weak coordination across ministries in the developmentand assessment of laws and regulations Weak interface between government and business inregulatory development and implementation, e. g., poorconsultation practices and access to regulatory information No strong central oversight body or institutionalmechanism that systematically coordinates, checks forconsistency and reviews efforts on new regulations oramendments to existing regulations contemplated bydifferent regulators regulatory bodies function as regulatory silos22

5. Assessment of Philippine ‘RMS’ On Regulatory Policy: Philippine regulatory framework includes market-friendlyregulations, rules, laws, administrative and executive orders that tryto provide the policy and regulatory environment as well asincentives for increased private participation in the marketplace Cutting red tape, tackling regulatory inflation, and applying ScottJacob’s idea of a “regulatory guillotine” On Regulatory Institutions: Regulatory institutions cover various sectors, e.g., banking,telecommunications, energy, water, while government departments[ministries] also discharge regulatory functions, e.g., Department ofthe Environment and Natural Resources in charge of environmentallaws and regulations Critical issue: inability of regulatory institutions, including somegovernment departments to translate regulations into efficientregulatory outcomes bad governance and inefficiencies in institutions tend to bluntreform efforts and weaken the positive impact of regulatory reforms23

Creation of a central oversight body will largely depend onthe commitment and decision of the political leadership a more fundamental issue: lack of political will andcommitment of a compromised leadership to reform On policy dialogues, notifications: Policy dialogues, notification on proposed regulatorychanges, consultations and even workshops are standardprocedures in the process of changing or introducing newregulation in the Philippines However, procedures occur on a sectoral basis No mechanism for national government-localgovernment coordination on regulatory impositions24

On Regulatory Impact Analysis: Not yet existent in the Philippine ‘RMS’ not standard practice in the country to subject existingor proposed regulation to regulatory impact analysis butsome form of ex ante descriptive analysis of the effect ofproposed regulatory changes25

6. Policy Recommendations (1) The government must exercise firm leadership andpolitical will in reducing regulatory burden and improvingregulatory quality. It can do this by establishing a formalRMS. It can start by issuing an Executive Order announcingRIA as a whole-of-government policy, and not for sectorregulators alone. The political leadership should identify or constitute acentral oversight body that will oversee theimplementation of a formal RMS. It can establish aninstitution such as the contemplated Office of RegulatoryPractice that will oversee the conduct of RIA in nationalgovernment regulatory agencies and the issuance ofregulatory impact statements.26