Supporting Transatlantic Trade: Standards and Conformance for Business and Regulators
Susan E. Dudley, Administrator
Office of Information and Regulatory Affairs
Office of Management and Budget
Executive Office of the President
U.S. Chamber Global Regulatory Cooperation Project
September 24, 2008
Thank you for the kind invitation to address your group. I am the Administrator of the Office of Information and Regulatory Affairs in the Office of Management and Budget, and I have been a student of regulation for a long time; working on regulatory issues in both U.S. government agencies and non–profits.
I have been speaking with many of you about how interesting we find the issue of regulations and standards, and how fascinating it is to see them in operation. Yet, when we talk to people not in our field, “regulations and standards” sounds dry and boring, and makes their eyes glaze over; while we find it among the most exciting issues! I think this is partly because most people don’t realize how fundamental regulations and standards are to everything that we do. Our whole society depends on regulations and standards to function; so much so that it is hard to imagine what life would be without them.
In fact, life itself is built upon a simple standard code – the genetic code. The genetic code is nothing more than a set of rules and standards by which living cells translate information encoded in genetic material (RNA, DNA) into proteins. So, from this simple 4–letter code, we have a great diversity of life flourishing here on earth.
Like the genetic code, modern standards encourage innovation; they facilitate transactions between buyers and sellers, and efficiently provide valuable information related to product safety and product quality. Modern standardization addresses what economists refer to as a “coordination problem,” where all parties can realize mutual gains, but only by agreeing to mutually acceptable decisions. It also addresses asymmetries in information, encouraging well–functioning markets and informing market participants about quality and safety.
Some standards evolve as de facto solutions to coordination problems. Think of the side of the road on which you drive, for example, or the QWERTY keyboard. These de facto standards tend to emerge as the result of market forces, early entrance into a market, superior performance, or simply through public acceptance and tradition.
Other standards are developed with more foresight and deliberation. Industries or groups may develop standard formats or designs to address coordination problems by ensuring interoperability between products or things.
Standards may also be developed as a way to provide information to consumers. Kosher labeling standards for preparing and eating food, for example, are designed to allow people to follow Jewish dietary laws, but these standards also have external benefits for others. I have a son that follows a restricted diet, and we find that sometimes the specific information required by Kosher labeling provides us with better information about the contents of that particular food item than government labeling requirements would provide – particularly for dairy products.
Of course, voluntary consensus standard–setting bodies also develop a variety of standards in a methodical way; relying upon open and transparent processes that involve different members of the public to design standards that meet both public and private sector needs.
For the most part, de facto standards and those developed by industry and consensus standard organizations are voluntary. They are followed to the extent they benefit users, by allowing them to engage in market activities and communicating quality information to potential buyers. They may also be incorporated into legal contracts or adopted by private organizations or companies; and then become mandatory for participation in those contracts or organizations.
But, for a standard to be truly mandatory, one needs the power to enforce, and of course that means the “government;” which brings me to the topic of this panel: government regulation, and the use of private sector standards and conformance mechanisms.
I’d like to provide an overview of how standards are made in the U.S. U.S. regulatory agencies are guided by a variety of different administrative, statutory, and legal requirements when developing regulations.
An important one related to standards are OMB Circular A–119 and the National Technology Transfer and Investment Act. These oblige agencies to use existing private sector standards, including private sector international standards, as the basis for regulations, or justify the reasons for not doing so. By directing agencies to use these voluntary consensus standards in lieu of government–unique standards, except where inconsistent with law or otherwise impractical, these policies are intended to minimize agencies’ reliance on government–unique standards. Additionally, these statutory and administrative requirements reduce costs to government and private parties, provide incentives and opportunities to establish standards that serve national needs, encourage long–term growth for private enterprises and promote efficiency and economic competition through harmonization of standards.
Recently, as part of the EU–U.S. High–level Regulatory Cooperation Forum (HLRCF), my office and the Secretariat General of the EU recommended that agencies should consider existing international standards or regulatory approaches as an explicit regulatory alternative when developing new regulations. We are now seeking public comment on making this policy explicit through guidance to agencies in their rulemaking practices. We have included the request for public comment in our Annual Report to Congress on the Benefits and Costs of Regulation and we welcome your thoughts on it.
In addition to guidance on how to use standards, U.S. agencies also face guidelines on what standards should NOT do, or how NOT to use standards. In particular, the Trade Agreements Act of 1979 implemented the Standards Code in the United States, which guides agencies "[n]ot [to] engage in standards activities that are prepared, adopted or applied to create, or have the effect of creating, unnecessary obstacles to the foreign trade of the United States.” So, we recognize that standards, if improperly designed or used, can actually suppress free and fair competition, impede technical innovation and progress, exclude safer or less expensive products, or otherwise adversely affect trade, commerce, health, and safety.
With these considerations in mind, US agencies are required to:
- Ensure that imported products are treated no less favorably than domestic products;
- Use international standards, if appropriate, as a basis for developing new standards;
- Develop standards based on performance rather than design, if appropriate; and
- Allow foreign suppliers access to their certification systems on the same basis as access is permitted to domestic suppliers.
U.S. agencies also face other overarching requirements when developing regulations. The Administrative Procedure Act of 1946 governs the way in which agencies may establish standards and regulations.
When developing new regulations, the Act requires agencies to provide the public a notice of rulemaking and opportunity to comment on it. Agencies are required to issue a proposed rule that lays out what we propose the regulation will be, and provide an explanation for it. The comment period then gives the broader public – not just stakeholder groups – the opportunity to participate in the rulemaking process. We publish these proposals in the Federal Register.
The Act also requires regulations to be based on the record. In addition to being provided publicly through the Federal Register, rules are also available electronically on www.regulations.gov. Here, the public can file comments, as well as view comments that people are filing on the proposed rule in real time.
And then, a final regulation must be based on this record. If it is not, a court can overturn an agency action if it is deemed arbitrary and capricious, or an abuse of that agency’s discretion. Therefore, U.S. agencies have to make sure that they lay out all reasons for the regulation, seek public comment on it, and respond to all public comments before issuing a final regulation.
In addition to the Administrative Procedure Act requirements imposed by Congress, agencies also have executive administrative requirements imposed by the Executive branch. My office operates under Executive Order 12866, whereby we review the regulations of executive branch agencies and their supporting analysis. In developing regulations, agencies must explain the need and provide a Regulatory Impact Analysis describing alternatives to achieve the desired goals of that regulation, and their likely effects on benefits and costs. This includes projecting potential costs and benefits, and if they can be quantified, who bears those costs and benefits. So we look at the regulation’s impact on small businesses, state and local governments, children’s health, and a variety of other things.
I want to return to the High Level Regulatory Cooperation Forum and the Transatlantic Economic Council (TEC). The TEC was created in April, 2007 by then–EU President Angela Merkel, EC President Barroso & President Bush. The HLRCF was also created at that time, which I co–chair with Heinz Zourek. Our work in the regulatory forum feeds into the TEC. The TEC’s primary focus has been on existing regulations that aren’t working or are causing barriers to trade, so they work across the Atlantic to address those issues; whereas the Forum has reinvigorated existing efforts to look at cross–cutting issues by focusing on forward–looking matters.
At the last meeting of the HLRCF, we issued a joint paper with the Secretary General of the EU, providing guidance on how to analyze impacts on international trade and investment when developing regulations. The goal of this guidance is to be able to receive early warning of when a regulation will have an effect on international trade or investment. In fact, we in the U.S. plan to provide a searchable “international effects” flag in the next edition of our Unified Agenda of Federal Regulatory and Deregulatory Actions so that commenters can see when international trade issues may be involved with a regulation that is under development.
Import safety has also been a topic of the Regulatory Forum. The Forum released a joint report in May on the challenges of information sharing for import safety; including standards for toy safety. We are cooperating at the technical and scientific level on how to understand risk assessment when developing regulations in order to arrive at a common understanding of how to measure risk across all areas of regulation.
The TEC has several interesting priorities; one is related to biofuels and sustainability criteria. Another one is suppliers’ declaration of conformity (SDOC). In Europe, electrical equipment used in the workplace can be certified by a supplier, whereas the U.S. requires 3rd–party certification to satisfy workplace safety requirements. Through the TEC, the U.S. Department of Labor ’s Occupational Safety and Health Administration (OSHA) has committed to go out with a request for information to evaluate whether an SDOC system might be a viable option for certification in the U.S.
These collaborative efforts, along with our statutory and administrative authority, have enabled the Federal government to enhance international opportunities for public comment on U.S. agency–sponsored regulation in a way that benefits from voluntary standards. Our work with the High Level Regulatory Cooperation Forum helps us coordinate and preserve private sector standards that promote market efficiency and compatibility. I think coordination and alignment of our regulatory systems presents our best opportunity for long–term change.
