REGULATING IN A GLOBAL MARKETPLACE
Susan E. Dudley, Administrator
Office of Information and Regulatory Affairs
Office of Management and Budget
Executive Office of the President
Remarks Delivered at the U.S. Chamber of Commerce Conference on
"Going Beyond the Border:
The Impact of Domestic Regulation on Global Markets"
July 17, 2007
Thank you for inviting me to the launch of the Chamber’s Global Regulatory Cooperation Project. This project is both timely and important, and I’m happy to be here.
Your introduction noted that I have worked in government before. In fact, I was in the Office of Information and Regulatory Affairs (OIRA) as a career economist 20 years ago, and it’s fun for me to come back as the OIRA Administrator and see the differences and the similarities between then and now.
The similarities are that we still consider the analysis underpinning the regulations that agencies develop to be very important and we make sure that their effects are understood. A lot of things, however, are different. Some of us didn’t even have computers on our desks when I previously worked in OIRA, and we certainly didn’t have the Internet. And global regulatory cooperation was not something that we were thinking about. Back then, our focus was more on domestic regulations and the effect of those regulations on the domestic economy. Of course, that is still the case for many issues. For example, workplace safety tends to be a more domestic matter, as is land-use planning and housing. Increasingly, however, regulations are explicitly international. Examples include the Bioterrorism Act requirement that the Food and Drug Administration (FDA) receive prior notice of food imports, and country of origin labeling for food.
There are also those regulations that may unintentionally have an effect on trade, but that has always been the case. I remember a regulation from my previous service in OIRA, when FDA and the Environmental Protection Administration developed rules concerning sulfites on grapes. I recall being concerned at the time that one of the effects of limiting sulfite residue on grapes was the impact on Chilean importers of grapes versus American producers. Another case that I thought was interesting is saccharin and cyclometes. In the U.S., we banned cyclometes and approved saccharin and our neighbors north of the border banned sachharin and allowed cyclometes. So, I think there have always been trade and international harmonization concerns; they just haven’t been as high on our agenda.
Not only are we more aware of our economy becoming more global, but we are making efforts to reduce our tariffs and our explicit trade barriers. As we do so, regulations are emerging as more important and significant barriers to trade. I wonder, if we look ahead 20 years instead of back 20 years, what will our focus will be? My predecessor, John Graham, predicted that, 25 years from now, OIRA’s focus will almost exclusively be on the international effects of regulation. This is why I think that the Chamber’s project is compelling and very timely.
There are several efforts underway to think explicitly about the international effects of regulation. For example, the Department of Transportation’s National Highway Traffic Safety Administration (NHTSA) has been working for years with our counterparts in Europe and elsewhere to try to ensure that the international standards for vehicles are consistent, so that we don’t have competing standards for a car that is going to be driven in the U.S. versus Europe. Another indication of the increasing importance of these issues is that, even though I’ve only been on the job three months, I’ve already been to Europe to meet with my counterparts in Brussels and in Berlin. During my recent trip, we discussed NHTSA’s regulation on electronic stability control for vehicles; the Europeans are working to develop a similar regulation that is consistent with ours.
We also have Federal Aviation Administration regulations under development that would require the installation of GPS systems on certain aircraft, as part of a "New Generation" air transportation system that would replace the current ground-based radar tracking system. Again, it is going to be very important that we work with our EU and other international counterparts to ensure that aircraft don’t have to be equipped with two different kinds of GPS-based systems.
I do want to caution, however, against focusing exclusively on harmonization or convergence. We need to minimize unnecessary differences, but not all differences. Converging on poorly designed standards is not going to be beneficial for businesses or consumers in any of our countries. For example, our international counterparts do not want to converge and harmonize with Sarbanes-Oxley. In fact, the competition that exists not only among businesses but among regulators is encouraging the U.S. to revisit Sarbanes-Oxley and try to minimize some of its unintended effects. So, there are advantages to regulatory competition, too.
I’m sure you’re all familiar with Europe’s regulations of chemicals. Because REACH relies on a precautionary, rather than risk-based, approach to chemicals, this is a case where the U.S. does not want to harmonize our regulations with those of the EU. Both of these examples illustrate that while harmonizing those standards that allow us to trade effectively is important, we need to understand that some regulatory differences are actually beneficial.
In considering harmonization, we should focus on some key factors. First, we should respect property rights, including intellectual property rights. Second, we should strive for open markets. We have had the Buy American Act since 1933, which doesn’t always allow open procurement and investment. Third, transparency in the development of regulations, and ex ante analysis of what impacts those regulations will have, is important, and we are working together to harmonize on best practices for developing regulations. This is an area where my office at OMB has invested considerable efforts over the last ten years.
Based on my study of regulations, ex ante analysis of regulatory impacts began in earnest in the U.S. about 30 years ago. I’m pleased to say that it has withstood the test of time. There is always controversy surrounding how much analysis should be done, or the extent to which we should quantify the effects of regulation. However, regardless of party, regardless of administration, this type of analysis has played an important role in the development of regulations in the U.S. What we’re seeing now is that other countries are trying to build on the analytical framework that we’ve developed.
Let me briefly go through some examples of international efforts to increase analytical capability to improve regulations. The Organisation for Economic Co-operation and Development (OECD) has been one of the leaders in this effort, and my office has been working with them since the early 1990s. In 1995, the OECD developed recommendations for improving the quality of government regulation, creating the first ever internationally-accepted statement of regulatory principles. In 1997, the OECD issued recommendations for regulatory reform, and in 2005, guiding principles for regulatory quality and performance, which emphasized ex ante impact analysis of regulations and market openness.
The Asia-Pacific Economic Cooperation Forum (APEC), working with the OECD, has built on these principles and developed an integrated checklist for regulatory reform, which is a self-assessment tool. My office and the State Department have been working with countries using this tool to help them assess the kind of analysis they should use to develop their regulations. Of course, there is also the European Union’s (EU) regulatory reform program. I think we can build on these efforts.
Transatlantic regulatory cooperation is crucial, of course, given that the U.S. and EU have the largest bilateral trade and investment relationship in the world. The opportunities are exciting because we have leadership in the EU that is very interested in the same issues as the U.S. European Commission (EC) President Barroso has launched a Better Regulation initiative, which I was pleased to learn more about while I was in Europe. The EC now does impact analyses of new legislative proposals, and they have an Impact Assessment Board that does analysis and works with the individual directorates on new proposals.
The U.S. ambassador to the EU, Ambassador Boyden Gray, has been a champion of regulatory reform. Europeans find it very interesting that he will attend regulatory meetings and get very involved in reform efforts. Finally, German Chancellor Merkel, who just finished her term as EU president, signed the Framework for Advancing Transatlantic Economic Integration in April. I’m encouraged by that the Transatlantic Economic Council (TEC) she and President Bush established.
National Economic Council Director Al Hubbard is the U.S. Chairman of the new TEC. His counterpart is the Vice President of the European Commission, Gunter Verheugen. We met in Berlin for a kickoff meeting a couple of weeks ago. Al Hubbard is not a "dialogue" guy, so this is not about more dialogue. He really cares about outcomes. Both he and Vice President Verheugen agreed that we want to have results and outcomes, so we can go beyond discussions.
OMB’s role in the TEC is multifaceted, but I think one important area to focus on is the process of regulating. That is something that my office has been very involved in. As part of the TEC, OMB has committed to look at our guidelines for regulatory analysis and ensure that they capture international trade and investment effects. We have also committed to share more information on upcoming regulatory proposals with our European counterparts.
Another issue that we recently discussed with our counterparts in Brussels was risk assessment and risk communication. Perhaps countries can work together to harmonize how we evaluate the risks of health, safety, and environmental regulations and how we communicate these risks to the public. In addition, there are numerous sector-specific coordination efforts, which might involve mutual recognition in certain areas.
While in Europe, I learned that there is still some controversy over the precise details of benefit-cost analysis and the quantification of regulatory impacts. The Europeans are, however, very interested in our more open and transparent process that aims to base new regulations on sound analysis, which I find very encouraging. Our Administrative Procedure Act includes the public and gives stakeholders a chance to comment on the impacts of regulations. I think the TEC framework will provide a good focal point for stakeholders to get involved.
While my international focus in the short time I’ve been in OIRA has been on Europe, there are noteworthy developments elsewhere. As part of the Security and Prosperity Partnership of North America, a Regulatory Cooperation Framework will be finalized next month in Canada. My staff has been working with Department of Commerce staff on this important initiative. We also have an ongoing Strategic Economic Dialogue with China.
During OIRA’s review of significant domestic regulations before they are published, we can also look for unintended trade barriers or, as the Chamber puts it, "in-country barriers" (ICBs). One example is procurement. We have the Buy American Act of 1933, and more recent legislative efforts, particularly in the defense area, where we seek to make sure that we use American materials for defense projects. However, a proposed Department of Defense rulemaking would provide a waiver from the requirement to buy American specialty metals if off-the-shelf products are commercially available. And if we find during our review of regulations that there are aspects that may be trade barriers, we will involve the Office of the U.S. Trade Representative to ensure that they are part of our interagency coordination.
Let me conclude by highlighting what we would like from you. I think the key question is -- what are your priorities? I was so pleased to hear that the Chamber plans to work with all of you to identify your priorities for reform to reduce these ICBs, these unintended trade barriers.
The Transatlantic Economic Framework and the North American Competitiveness Council provide specific opportunities for input, but please feel free to talk to me and my staff, as well as the agencies that are issuing regulations, and let us know which regulations might have adverse effects. Hearing from you about what you think are the biggest barriers will be very helpful. Your comments are all the more valuable when you provide analytical support. This analysis doesn’t have to be a complex empirica model. Even if you simply have illustrations of why the priorities you have identified should be addressed, it would be very useful.