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Regulatory Reform and Market Openness: An Overview

by Geza Feketekuty1


The globalization of production and markets, and the resulting deep integration of national markets, has created an increasing link between domestic microeconomic policies and trade liberalization. Domestic policies that are discriminatory, unnecessarily restrictive, or unnecessarily different from those of other countries can restrict the entry or operation of foreign firms in national markets, thus limiting competition to the detriment of both domestic consumers and foreign producers. The issues raised by this new dimension of market access are quite different from the issues that needed to be addressed for the removal of barriers at the border such as tariffs and quotas, and this has led to the search for new concepts and paradigms to guide future trade liberalization efforts. In this connection the OECD Trade Committee has been exploring the potential utility of basing future trade liberalization efforts on the “openness of national markets to global competition” or “the international contestability of national markets.”

Domestic regulatory policies are among the key domestic policy instruments that affect the openness of national markets to global competition. A comprehensive effort to assure the openness of national markets to global competition therefore should include an effort to reduce regulatory barriers to trade. In line with this objective, the Japanese government in 1995 proposed to the OECD an in-depth analysis of regulatory reform, with the objective of promoting such reforms at the national level and of exploring the possibility of future international efforts to reduce regulatory barriers to trade. As the Japanese paper indicated, both major technological changes and globalization have rendered many existing regulations obsolete, imposing undesirable constraints on both domestic economic growth and international trade.

The July 9-10, 1996 OECD Trade Committee Symposium on International Regulatory Reform and International Market Openness provided a useful survey of the relationship between domestic regulatory reform and trade liberalization, and of the search of concepts and mechanisms for promoting such reforms at the international level. This paper is designed to provide a synthesis of the issues discussed during the Symposium, and is based on a summary provided by the author at the end of the Symposium.

The Scope of Domestic Regulatory Activity

Governments regulate economic activity to promote a variety of overlapping social objectives, including 1) the promotion of health, safety, environment, consumer protection and other social objectives; 2) the establishment of standard sizes and weights of various products to facilitate commerce; 3) the establishment of conditions for the operation of interconnected networks, including distribution systems, communication systems, transportation systems, and public information systems networks; 4) the protection of consumers and downstream suppliers against exploitation by firms with excessive market power; 5) the establishment of condition for the operation of a market economy.

Governments pursue these objectives through various modes of regulation, including 1) the establishment and enforcement of standards for products, services, production processes, employers, and service providers, 2) the regulation of economic activity in particular sectors, industries, or professions; 3) the use of fiscal incentives, subsidies and taxes for the promotion of desired social goals, 4) the establishment of laws for he conduct of business, including the legal establishment, financing, governance and conduct of corporations; 5) the establishment of property laws, including laws governing commercial contracts.

The principal focus of the debate over regulatory reform, and therefore the principal focus of this paper is the regulation of economic activity in specific industries. Nevertheless much can be learned from the extensive experience in establishing international cooperation on standard-setting activities of governments, and they are therefore included in the analysis. The use of fiscal incentives and taxes often represents a superior method of achieving a desired social goal than direct regulatory control by the government, and are therefore covered in the analysis indirectly. The issue of what might or might not be considered an appropriate incentive or tax is not covered by the paper. Laws governing the conduct of business and the ownership and transfer of property are essential to the openness of national markets to global markets, but are an issue today largely with respect to transition economies and are therefore not considered in this paper.

The Rationale for Regulatory Reform

The are four major reasons why regulatory reform is timely. First, major technological advances in computer technology have fundamentally changed the possibilities for economically efficient competition in a number of sectors that were thought to be natural monopolies, subject to close government control or regulation for the protection of consumers. Second, the development of new products and services has made many regulations both more distortive for regulated activities and more ineffective in terms of the objectives they were designed to achieve. Third, much has been learned in recent years about the economics of regulation, offering new insights into the design of economically efficient regulation. Fourth, the globalization of production and markets has made it increasingly difficult to make distinctions based on national origin, while increasing the cost of large national differences in regulatory standards.

Many infrastructure services have traditionally been thought of as natural monopolies, because the major cost in providing the service was in the construction and maintenance of infrastructure facilities rather than in the marginal inputs required to serve individual customers. Modern computer technology has fundamentally changed the economics underlying the provision of such services by reducing the cost of the infrastructure facilities relative to variable costs, by significantly enhancing the possibility of interconnecting independently provided services through computer intermediate systems, and by enhancing the possibility of tracking, monitoring, and pricing services supplied over a single network by different producers to different customers at different times of the day/year. The net result is that competition has not only become more viable, but has become essential for the introduction of more efficient and innovative products and services. Regulations that stifle and limit competition have become obstacles to economic adjustment and growth. This has led to regulatory reforms leading to increased competition in infrastructure services such as telecommunications, air transportation, electric power and gas.

Second, technological advances have led to an explosion of new products or services. Regulations that are product or service specific tend to become increasingly distortive as such regulations prevent the introduction of new services, or as new unregulated products and services substitute for regulated products and services. Such product or service specific regulations also become increasingly ineffective as markets substitute unregulated products and services for the regulated products and services. These pressures have had a particularly strong impact on the regulation of financial services.

Third, much has been learned about the incentive structures created by various kinds of regulations, and their relative effectiveness in achieving desired social objectives. At the same time, much has been learned in more closely focusing on the critical aspect of an activity that needs to be regulated in order to achieve the desired objective, making it unnecessary to regulate all the related activities carried out by an enterprise. These insights have been derived from initial regulatory reforms in fields as diverse as telecommunications, air transport and environmental protection, and could lead to improvements in the design of a much broader range of regulations.

The advances in computer, telecommunication and transportation technologies has made it possible for firms to locate closely linked production activities in different countries to take advantage of the specific resources and conditions found in such countries. Such globalized production systems make economic sense only where national regulations allow the adoption of the same production and product technologies, information systems, and standards across the national frontiers. Large differences in national regulations that have a direct bearing on the production systems themselves or on the products supplied through such integrated production systems either add to the cost of globalized systems, or establish artificial barriers to the introduction of globalized production.

Rationale for International Cooperation on Regulatory Reform

A clear view of the full range of objectives served by international cooperation on regulatory issues is necessary to devise appropriate forms of cooperation.

Regulatory Reform Lifts Standard of Living and Economic Growth. Any international discussion of regulatory reform needs to be firmly anchored in a recognition that regulatory reform in the first instance is in the economic interest of the country itself. Regulations which are more costly or more restrictive than necessary to achieve the desired social objectives are a dead loss to a country’s citizens. They raise the cost of living, reduce choices, limit economic growth, and restrict employment opportunities in the most highly productive and therefore most highly paid jobs.

International cooperation can help countries attain these purely domestic gains in two ways - by expanding information and by helping to overcome internal political resistance. International cooperation can serve a useful educational function by allowing officials responsible for administering regulations to learn from the experiences of officials in other countries, and to benefit from studies carried out by highly qualified professionals employed by international organizations. International cooperation can also help educate a country’s voters about the potential economic gains from reform through the wide dissemination of information about such gains. Findings by international bodies that convey broad international consensus on a subject often carry considerable weight in domestic consensus building efforts. Finally, international cooperation can help overcome domestic political resistance to reforms that might benefit the country as a whole but disadvantage stakeholders in protected industries.

Regulatory Reform Liberalizes International Trade. International cooperation on regulatory reform also facilitates the removal of regulatory barriers to international trade, and promotes the openness of national markets to global competition. The reduction or removal of regulatory barriers will yield the economic benefits associated with trade liberalization. It will also contribute to the smoother functioning of the global trading system by helping to moderate and to resolve trade conflicts over regulations perceived as protectionist. The absence of adequate international norms has made the resolution of conflicts in this area particularly difficult, both as a matter of substance and as a matter of politics. The development of norms would establish reference points for the development of mutually acceptable agreements and would establish the legitimacy necessary for the political acceptance of such agreements.

Countries around the world are struggling to overcome constraints on their economic growth, and most of them recognize that regulatory reforms have a role to play. There is therefore a built-in constituency for reforms that can expand the openness of national markets. One of the crucial questions is how that constituency can be energized to support trade liberalization.

Cooperation on Regulatory Issues Strengthens International Bonds. Cooperation on regulatory issues can also serve foreign policy and security objectives by strengthening bonds among the participating countries. Such cooperation reinforces and helps secure the economic interdependence that has come from the explosive growth in trade and investment, and serves to remind governments that disputes that go out of control could entail severe costs. At the same time, such cooperation cements habits of cooperation among national officials and builds personal bonds among them, facilitating international communication across linguistic, cultural and political frontiers over a broad range of issues.

Criteria For Evaluating Proposals for International Cooperation

It would be useful to consider criteria that might help countries evaluate proposals for cooperation on regulatory issues, particularly agreements that limit local choice. The identification of a regulatory barrier is not as simple as identifying a tariff or a quota. A barrier to a foreign exporter may well be an essential regulation for a local authority. The appropriate action to be taken is also a more complex issue than the removal of a tariff and a quota. In many cases regulations that are widely judged to be protectionist devices also serve some legitimate domestic social objective, and the removal of the barrier therefore is not simply a matter of removing the regulation.

A clear view of the objectives of international cooperation on regulatory issues is a good starting point for the development of a set of workable criteria. The gains from international cooperation need to be balanced against the political, social and economic costs of limiting local choice, where the mode of cooperation imposes constraints on national decisions. It needs to be recalled, however, that international cooperation in many cases can lead to improved economic conditions in the home country when it helps to break down political barriers to the adoption of better policies. In fact, most workable international agreements on regulatory cooperation are ones that improve the economic conditions in both countries.

Ideally, a good agreement preserves as much as possible the ability of any country to achieve its desired social goals, while at the same time minimizing the barrier to trade. This is the principle built into the Standards Code of the World Trade Organization.

A related criterion might be that an agreement should leave as much flexibility for independent decision making by national authorities as is consistent with the achievement of the goal for international cooperation. This criterion is often referred to as the subsidiarity principle, which calls for decisions to be made at the lowest level of government consistent with the achievement of objectives that are possible only through wider cooperation among subsidiary governments. In order to preserve this principle, many agreements in the WTO place a great deal of emphasis on the principles and procedures to be followed by national authorities in formulating regulatory decisions, rather than in addressing the substance of such regulations directly.

In a market economy, most economic decisions are made by private actors making decisions to buy and sell, to invest and disinvest. In a complex modern economy, it is simply not possible for governments to second guess the bulk of decisions made in the market place. This consideration leads to a third criterion for evaluating proposals for regulatory cooperation, and that is that a good agreement for cooperation engages the cooperation and energy of the private sector. In areas such as standards the best international mechanisms are those that leave as much of the actual work of developing international standards to the private sector itself. The role of the government should be to assure such standards meet desired social objectives, and that the firms involved in such cooperation do not turn it into a mechanism for excluding potential competitors.

Establishing Priorities for International Cooperation

The possible areas, modes, and venues for international cooperation on regulatory issues are quite large and most national governments do not have the human resources to pursue them all with competence. This is likely to mean that for some time to come governments will have to establish priorities among proposals for enhanced cooperation. The highest priority should be assigned to proposals 1) that are most timely or time sensitive, 2) that make the best use of the scarce human resources available in the governments, 3) that most effectively engage and obtain the participation and cooperation of all the stakeholders, 4) that best serve the objectives for international cooperation.

Issues of timeliness can arise when existing national regulatory structures are under severe economic pressure, and the rational for regulatory reform has become apparent to everyone. It is easier to deal with vested interests when they know that the existing regime is no longer viable than when they believe that political resistance will help them to preserve rents built into existing regulations.

As ready mentioned, the human resources in governments to negotiate agreements on regulatory cooperation are scarce, and proposals for extended cooperation should help make best use of such resources. This may be the case if a single international agreement might replace many bilateral efforts. This objective is also served by agreements that allow some of the effort to be delegated to other stakeholders, including the business community, national regulators and other international organizations with expertise in the area. In any case, it is best to obtain the cooperation of such stakeholders through their cooperation rather than to risk attempts by disgruntled stakeholders to sabotage the effort.

Lastly, priority should be given to proposals that best meet the objectives for international cooperation on a particular regulatory issue.

Modes of International Cooperation

International cooperation on regulatory reform can involve different levels of commitment, including 1) an exchange of information on the experiences of member governments, 2) the commissioning of analytical papers, 3) the development of voluntary guidelines for the use of member governments in the development of their policies, 4) mechanisms for the development of international standards or for the mutual recognition of national standards, 5) international norms or rules for the development of national regulations that impact on international trade and investment, or on the openness of national markets to global competition, 6) international regulations that govern particular activities largely international in nature.

The appropriate level or intensity of cooperation has to depend on what is essential to achieve the desired objective of cooperation. Exchanges of information, internationally funded analytical papers, and voluntary guidelines are all appropriate tools for facilitating the design and political implementation of regulatory reforms for domestic economic purposes. The liberalization of trade and the establishment of conditions for the openness of national markets is likely to require higher or more intense forms of international cooperation.

The level or intensity of cooperation should depend on the extent to which voluntary actions by firms or national government prove inadequate and on the extent to which a particular economic activity has become internationalized. In any case, however, the subsidiarity principle should apply, namely that the level or intensity of international commitment should not be any higher than necessary to accomplish the desired goal being pursued through international cooperation. The adoption of international standards and norms always entails a sacrifice of local choice with respect to the desired social objectives, and that should be necessary only where the expected economic or political benefits of international cooperation offset the economic, political and social benefits of local choice.

Venues for International Cooperation

A number of different venues are available for expanding international cooperation on regulatory issues, including the OECD itself, the regional trade organizations such as the EU, NAFTA, APEC and the FTAA, the World Trade Organization, specialized global organizations such as the ISO, and global organizations in individual sectors such as the ITU, the BIS and IATA.

Each of these organizations have their unique strengths, and any efforts to expand international cooperation on regulatory reform should take advantage of the particular strengths of each organization. Ultimately each of these organizations has an impact on government regulations, and a successful strategy in pursuing the domestic and international economic benefits of regulatory reform would involve all of them in one way or another.

A number of international fora are available for obtaining the domestic educational and political benefits of international cooperation. The OECD is perhaps best know international organization for serving this objective, and it has a number of initiatives under way in this area. On the basis of work carried out in the OECD’s Public Management Committee, for example, the OECD Council on March 9, 1995 adopted a Recommendation on Improving the Quality of Government Regulation. This document provides the first international standard on regulatory quality. A number of regional trade organizations such as APEC and FTAA are also serving as international fora for the exchange of information and for building political support for regulatory reform.

The World Trade Organization, and the regional trade organizations, are the appropriate vehicles for the reduction or elimination of regulatory barriers to trade. The existing rules of the World Trade Organization, and of regional trade groupings such as the EU and NAFTA, contain many provisions designed to minimize regulatory barriers to international trade and investment among its member countries. Some of the relevant provisions of the World Trade Organization are explored below. Generally, the World Trade Organization does not address the substance of individual regulations or standards, but rather establishes principles and procedures for the design and implementation of national regulations, with the objective of removing unnecessary barriers to trade.

The development of international standards has been primarily the role of the International Standards Organization (ISO) and its regional counter parts such as the European Standards Organization (ESO). The ISO, and its various regional counter parts, provides a mechanism for the development of international standards that governments and firms can adopt as they choose. It provides the basis for the development of standards that can be used for internationally tradable goods and services where they meet the social requirements of particular governments in the case of critical requirements or the commercial needs of firms in the case of non critical requirements.

The development of international regulations for the regulation of economic activities that are international in scope has primarily been the role of sectoral organizations such as the International Telecommunications Union (ITU), the Bank for International Settlements (BIS), the International Air Transport Association (IATA), etc. To a considerable extent, the regulations incorporated in the relevant international agreements serve as extensions of the national regulations for international activities, and are in as much need of regulatory reform as the underlying national regulations.

Bilateral agreements by countries on specific areas of regulation provide an alternative mechanism for dealing with the need for cooperation on specific issues. Bilateral mechanisms have been the major method of cooperation in certain areas, e.g. air transportation. Bilateral agreements on regulatory issues are particularly appropriate where neighboring countries face overlapping regulatory objectives with respect bridges, waterways, watersheds, etc.. Bilateral agreements are also a useful mechanism for exploring new areas of cooperation, e.g. mutual recognition agreements.

Principles for Regulatory Reform

In 1995 the Japanese government proposed that various OECD Committees analyze the issues related to domestic regulation, with the objective of seeking to crystallize principles for the reform of such regulations. The Japanese government believed that such an effort might assist governments in designing more effective and economically efficient regulations, while also reducing potential barriers to trade.

The development of a set of guidelines for regulatory reform might represent an optimal kind of soft law which helps minimize the cost of national regulation, without unnecessarily intruding into the substantive rule-making responsibilities of governments at the national level. Such guidelines could assist national decision-makers in reforming national regulations, and provide an impartial reference point in bilateral trade disputes centered around regulatory issues.

Such guidelines might also assist negotiators in the World Trade Organization as they seek to negotiate more concrete international commitments on liberalization of trade barriers and new competition rules for previously heavily regulated sectors in services, negotiations which have proven difficult to conclude. It is conceivable that some of these principles might find application at some future time in a WTO code on regulatory activity.

Principles Embedded in the GATT/WTO. The existing rules of the World Trade Organization provide a number of principles which might assist efforts to remove regulatory barriers to international trade and investment. Some of these principles are incorporated in the basic GATT Articles, while others are incorporated in the Standards Code or the GATS Agreement. These principles are as follows:

Transparency - Everyone should be given full information about all rules and regulations governing economic transactions so all potential competitors can base their decisions on an accurate assessment of potential costs and market opportunities.

Due Process - Everyone affected by proposed standards should be given the opportunity to comment and the right to pursue issues related to their implementation with appropriate officials.

Proportionality - The cost of standards should be proportional to the regulatory benefit expected from their implementation.

Minimizing Distortions of Trade - Governments should adopt the least trade distorting method of achieving legitimate social objectives and to use international standards where such standards meet the desired level of performance with respect to that objective.

National Treatment - Regulations should be applied to domestic and foreign products on an equivalent basis.

Mutual Recognition of Testing Results - Governments are encouraged to negotiate agreements for the mutual recognition of testing results with respect to the certification of technical standards and for the mutual recognition of applicable educational and professional experience with respect to the certification of professional experience.

OECD Principles of Good Governance. Other principles might be derived from the “Recommendations on Improving the Quality of Government Regulation” adopted by the OECD Council on March 9, 1995. The Recommendations contain a “Reference Checklist for Regulatory Decision-Making”, which is designed to assist governments in designing regulations that are effective from a regulatory point of view, efficient from an economic point of view and legitimate from a political point of view. The Checklist contains the following ten questions which governments are urged to consider when evaluating proposed regulations:

1. Is the problem correctly defined?
2. Is government action justified?
3. Is regulation the best form of government action?
4. Is there a legal basis for regulation?
5. What is the appropriate level (or levels) of government for this action?
6. Do the benefits of regulation justify the costs?
7. Is the distribution of effects across society transparent?
8. Is the regulation clear, consistent, comprehensible, and accessible to users?
9. Have all interested parties had the opportunity to present their views?
10. How will compliance be achieved?

Possible Additional Principles for Domestic Regulatory Reform. The following principles for regulatory reform might complement or augment the principles discussed above. The objective of these guidelines or principles would be to minimize barriers to international trade, investment and production decisions. By doing so, they would not only help remove distortions to international competition, but also help reduce pressures for global regulation.

The statement of each principle is followed by a short commentary by the author outlining the reason for the principle, how the principle facilitates the application of the subsidiarity principle, and current operational examples of how governments are applying the principle in practice.

Analysis of Costs and Benefits - Governments should undertake a full analysis of the costs and benefits of proposed regulations, and make the results of their analysis public.

Comment: This principle could help assure that governments and all interested parties have the information necessary for a rational decision to the optimal design of regulations being considered at any level of governance.

Use of Market Mechanisms - Whenever possible governments should use market mechanisms to promote desired social objectives. The use of across the board economic incentives and disincentives should be considered preferable to detailed regulations which give officials a high degree of discretionary authority.
The allocation of scarce resources should be auctioned whenever possible to enable the most efficient firms to gain access to such resources.

Comment: Where regulations give existing producers or sellers preferential treatment in the allocation of scarce resources, they not only create domestic economic inefficiencies by discriminating against potentially more economically efficient new suppliers, they also distort international trade and competition. Similarly, regulations that seek to allocate scarce resources or to regulate controlled activities through discretionary decisions by bureaucrats are likely to be both economically inefficient and trade distorting. Moreover, there is a significant risk that the economic inefficiencies and trade distortions are magnified by political/interest group pressures, and campaign finance related political corruption.

Minimizing the Scope of Regulations - Governments should only regulate activities directly related to the achievement of the regulatory objective. Where the distribution network constitutes a natural monopoly, as is often true in infrastructure services such as water, gas, electricity, telecommunications and rail transportation, the government should seek to provide nondiscriminatory access to the network by all potential suppliers.

Comment: As has been shown by the deregulation and privatization of infrastructure services by a number of countries, over-regulation, which allows network monopolies to control the flow of resources over their networks increases consumer prices, reduces consumer choice and retards innovation. More generally, efforts to minimize the scope of regulations to the minimum necessary to achieve the desired social objective helps to minimize the economic cost of such regulations and the potential distortion of international trade and competition.

International Cooperation - Governments should seek to establish and avail themselves of mechanisms for the exchange of information on national experiences with respect to various regulatory approaches and for carrying out joint research on regulatory issues of common interest.

Comment: By exchanging information about the relative effectiveness and the costs and benefits of alternative regulatory approaches, governments can learn from each other and reduce the development costs associated with national regulation. Similarly, joint research efforts allows governments to share and thus to reduce further their cost of developing regulations. The OECD has played this role effectively for developed countries. Similar contributions have come from he various UN specialized agencies.

Such voluntary forms of cooperation among national regulatory authorities over time leads to the convergence of national regulations, thus providing an alternative means for minimizing the costs associated with national regulation, while avoiding or minimizing the need and the associated costs of global regulation.

Role of Voluntary Private Regulatory Activities - Governments should encourage their industries to work with each other and with their foreign counterparts to develop technologies and voluntary standards that will meet public concerns about the impact of their activities on various social objectives.

Comment: Where private industry responds to public concerns about the impact of production activities or products on legitimate social objectives, it can help meet societal objectives at less cost and with less international political friction than if governments do it. To the extent that voluntary adherence to such industry-developed standards remains adequate to meet public objectives, it has the added advantage of remaining open to adaptation to new technologies or new economic conditions. The ISO and many regional and national standards making organizations play this intermediary role admirably, as do many national and international industry associations. The semi-conductor industry, for example, organizes international conferences to exchange information about best practices in the environmental area.

As is true with respect to international cooperation by governments on regulatory issues, private voluntary efforts constitute a method for international convergence of regulatory standards without the cost of centralizing regulatory responsibility at the international level.

Open Access to Private Regulatory Activities - Governments should assure that private regulatory activities at the national, regional and international level are open to participation to all interested parties, and they do not become inadvertently barriers to entry into the industry or barriers to international trade and production.

Commentary: Voluntary efforts by private parties to establish regulatory standards at a national or regional basis creates a risk that such efforts because mechanisms for protecting members from competition by outsiders. Barriers to international trade and commerce created by private standards-making activities are some of the more difficult barriers to deal with because the division of responsibility between such bodies and the relevant national or regional supervisory authorities is often not very clear. This remains an important source for barriers to trade and an area where additional international rule-making may
be necessary.

Mutual Recognition of Testing Results - Governments should establish procedures for the mutual recognition of testing results, certification of educational and professional experience, and similar reviews of compliance with particular regulatory criteria.

Comment: An important cost to industry of national regulation is the duplication of efforts required to prove that various products, production processes or services meet required regulatory standards, or that various professional practitioners meet particular educational or professional standards. By negotiating agreements for the mutual recognition of organizations granted authority to certify that various products, production processes or services meet required regulatory standards, or that professional practitioners have satisfied various educational or professional standards, national governments can remove an important cost national as against international regulation.

Mutual Recognition of Non Critical Standards - Governments should provide mechanisms for the mutual recognition of national standards which are designed to facilitate trade and commerce, and are not essential for the achievement of critical social objectives.

Comment: Mutual recognition of non-critical standards represents one way of eliminating the economic cost of traders and global producers facing different national standards. It allows each country to establish regulatory standards for goods and services produced in its own country, while allowing goods and services produced in other countries to be sold as long as they meet the regulatory standards established by their home government. This rule would not apply to regulations critical to the protection of a country’s own health, safety. Environment or protection of non corporate consumers. This rule has been adopted by the European Union, in combination with the adoption of minimum harmonized standard for critical health, safety, environment and consumer protection objectives.

The OECD and International Cooperation on Regulatory Reform

The OECD has an important role to play in furthering international cooperation on regulatory reform. As already mentioned, and as recognized by the Japanese initiative for the OECD work program that led to this Symposium, the OECD is ideally suited to assist member governments in developing both effective national regulatory reforms and well thought-out proposals for enhanced international cooperation at the global level.

The educational value of OECD work is widely respected, both in terms of assisting governments in gaining a better understanding of the issues involved in complex policy issues and in developing reports that help educate the interested public in member governments. OECD Ministerial Statements also serve an important role in the arduous process of developing a political consensus among member governments on difficult policy issues requiring common action. The action taken by Ministers in establishing the umbrella program on regulatory reform already envisions action on both the educational and political front, and need not be elaborated further.

A useful step the OECD might consider is to enhance the surveillance function of the organization in this area, perhaps in the context of the periodic EDRC reviews. The OECD also might consider the publication of reports highlighting the important economic benefits that have accrued to countries that have implemented major regulatory reforms. Such reports might also refute public misperceptions about the risks of reform.

The OECD Trade Committee has a special role to play in developing a conceptual framework for expanded international cooperation on regulatory issues in the WTO and other trade-related international organizations. The Committee has already engaged the broader challenge of developing proposals for possible future negotiations aimed at promoting the openness of national markets to global competition, and its work program on regulatory reform is clearly designed to support that objective. As an important next step, the Committee needs to reflect on the wide range of issues discussed in the Symposium, and to prepare a report to member governments on the most salient points. There remains a great deal of confusion among many business people as well as officials on the nature of international cooperation on regulatory and standards issues, as well as on the costs and benefits of domestic reforms.

In developing a conceptual framework for enhanced international cooperation on regulatory reform issues, the Committee might well start with the principles and provisions already incorporated in existing trade agreements, and the helpful list of implicit principles underlying the “Recommendations on Improving the Quality of Government Regulation” approved by the OECD Council on March 9, 1995. This paper contains some additional suggestions that might be considered.


The elimination of regulatory barriers is one of the key challenges facing trade negotiators in the future. It is bound to be a critical component of any effort to assure the openness of national markets to global competition. The global trade rules embodied in the agreements of the World Trade Organization already contain many important provisions, but a broader set of principles and rules will be required to assure regulations do not create unnecessary barriers to trade. World wide interest in regulatory reform as a means of stimulating economic growth provides a unique opportunity to achieve reforms that will facilitate trade liberalization efforts.


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