RIA in Viet Nam: Why and key issues?

“.. pro-competitive [regulatory] reforms tend to increase both investment and multi-factor

productivity [and] higher growth in GDP per capita (OECD 2005). “

Presentation by GTZ to the Ministry of Justice

21 December 2005

Outline of presentation

Introduction to RIA (Why) What RIA involves (What) Implementation issues (How) Next steps (Next) Brief look at Australian and other

international approaches to reducing regulatory costs of doing business

Why. What is Regulation

Regulation are instruments by which governments set requirements on enterprises and citizens.

Regulations include laws, formal and informal orders, and sub-ordinate rules issued by all levels of government

Regulations include quasi-regulations. {Rules, instruments and standards used to influence business behaviour, but not be reflected in official regulations (i.e., not published in Cong Bao)}.

Why. What is Regulatory Reform?

OECD defines regulatory reform as: – “changes that improve regulatory quality, that is, enhance the

performance, cost-effectiveness, or legal quality of regulations and related government formalities.” Achieved through a mix of regulation, deregulation and re-regulation

Implementing regulatory reform requires– High level statement of principles/policies– Institutions– Incentives (at all levels)– Tools (RIA, consultation, communication, periodic reviews etc.)

Why? Procedural Complexity and Corruption

Why. What is a Regulatory Impact Assessment (RIA)?

A process to assess likely impacts of a policy change and the range of options to implement it. It can be used to assess:– All potential impacts – social, environmental, financial

and economic. – All regulations: formal legislation and quasi

regulations (e.g. guidance or codes of practice, public awareness campaigns, etc.)

– Distribution of impacts to consumers, business, employees, rural-urban, or other groups.

Why. Aim and Use of RIA?

Better regulations =>more competitive economy, and higher growth (OECD 2005 for evidence).

RIAs =>better regulation =>more equitable society. RIA recognized as a key element of good regulation

(e.g. OECD). Now required in most OECD countries. Some developing and transition countries. (e.g.

Hungary, Korea, and Peru) now require RIAS. Not a panacea. Also need political commitment to

act (e.g. slow productivity growth in Netherlands

Why. Less risk of policy mistakes:

Helps define objectives of proposed policy change. Assess full impact of the proposed change,

including unintended impacts on non-target groups Identify and assess options for achieving policy

objectives. Ensure consistency with other policy instruments Assess whether benefits exceed costs. Ensure a transparent & efficient consultation

process. Help ensure compliance with international

agreements.

Why? Ameliorating regulatory inflation

Without accountability there is a tendency to over-regulate. Viet Nam still has a relatively complex and at times overlapping regulatory system. There may be value in establishing an independent office with responsibility for improving regulatory quality.

Donors contribute to the problem with ad hoc new regulation frequently specified as project and program lending conditions. RIAs requires that everyone justify the need for regulations.

What. RIA Statement (RIAS) Process

RIAS is typically prepared in several stages: – An initial RIA is prepared when a proposal is first

considered as a first step in deciding whether to proceed.

– A partial RIA should be prepared prior to formal consultations, and included with consultation papers.

– A full RIA will include more detailed analysis, and reflect the findings from the consultation process.

Don’t need to be overly complex documents

What. Sorts of Questions asked in RIAS

Nature of the problem. Regulation and regulatory failure. Alternative solutions to problem. Benefits of regulating. Cost of regulating. Public consultation. Support for regulation. Impact on competition.

What. Who should prepare RIAs?

The agency responsible for proposed policy change should be responsible for preparing the RIA (but may contract work to specialist organizations and/or firms).

A separate agency can oversee compliance with RIA requirements and ensure the quality of RIAs. Integration of RIA into the decision-making processes will require sustained political, administrative and public support.

What. How to ensure RIA quality?

A separate agency should be responsible for monitoring the quality of RIAs. In most countries this agency IS NOT directly involved in regulatory development and preparation of RIAs.

Participatory approaches -- including ensuring that RIAs are easily accessible by the public (e.g., summaries in the press, full RIAs on the internet) -- can help increase pressure on government agencies to produce quality RIAs.

How. Key Steps in the RIA process

Identify/Assess Problem Prepare Partial RIA Stakeholder Consultations Data Collection & Analysis Prepare Full RIA Statement RIA Approval

How. Indicative Contents of a RIAS

Introduction Purpose and Nature of Proposed Regulatory

Change The Consultation Process Review Options for Resolving the Problem Benefits and Costs of Proposed Change Compliance, Enforcement and Monitoring Summary and Recommendations

How. Assessing benefits and costs

Assess benefits, costs and distributional impacts of each option -- including the ‘doing nothing’.

Where feasible, major costs and benefits should be quantified. RIAs should include full economic costs and benefits (e.g. social, environmental, and health and safety ). Compliance levels need to be assessed in order to assess likely benefits.

However, full quantification is not always possible, even in developed countries. (Full CBA often missing from RIAS in UK and Australia).

How. Analytical problems with RIAs

Alternative methodologies can be applied, but none is entirely satisfactory.

Frequent limitations in the data. Those proposing reforms can be over-

optimistic in evaluating reform benefits. RIA is not for ‘fine-tuning’ policies. More for

identifying good and bad options.

How. Problems, but never mind; the process itself is useful

Major benefits from RIA derive from adopting a process of structured thinking and consultation.

Need to get processes right and focus analytical resources on the key issues.

Limited resources should not be diverted to unnecessarily complex methodology.

Particularly true in Viet Nam given limited resources in many national agencies.

How. Summary Matrix for RIAS

Problem/Objective of proposed change Proposed options Anticipated impacts of proposed changes Key intended benefits Costs Distribution of Impacts Summary of key concerns raised during

consultations

Next: OECD best practices in implementing RIA

1. Maximise political commitment to RIA2. Allocate responsibilities for RIA program elements

carefully3. Train the regulators4. Use a consistent, but flexible analytical method5. Develop and implement data collection strategies6. Target RIA efforts7. Integrate RIA with the policy-making process8. Involve the public extensively9. Communicate the results

Next. What might be needed for implementation?

1. NA/Government adopt national principles of good regulation to guide regulators and inform the public.

2. Government prepare and adopt guidelines on RIAS preparation. Require ministries (and provinces) to prepare RIAS for new laws, ordinance and decrees.

3. Develop oversight agency reporting to government (or NA) to assist and direct ministries in RIA.

4. Develop and implement a national training program on RIA.

5. Work with private sector and media to improve consultations and accountability mechanisms

Next. Possible Short Term Follow-up

Organize workshops to present and discuss draft RIAS guidelines.

Prepare pilot RIAS of topical issues at central and provincial levels.

Use workshop feedback and pilot RIAS to improve draft RIAS guidelines.

Consult with NA, government agencies and public to build support for RIA process

International context & some Australian experiences

Regulatory issues concern business everywhere

Regulatory Reform: What Tools?

Figure 1: Selected tools used in OECD countries to improve regulatory quality

18

17

24

23

13

12

12

17

14

16

0 5 10 15 20 25 30

Regulation impact analysis

Assessment of regulatoryalternatives

Consultation with affectedparties

P lain language draftingrequirements

Evaluation of the results ofregulatory programs

Number of Countries

Specific Sectors or P olicy AreasGovernment Wide

Source: Argy, S., and Johnson, M., (2003, p. 17) using data from OECD (2002b).

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Key initiatives (Australia)

Business licence reduction programs Improving access to information Regulation review process National reforms

Reducing business licence (Australia)

Taskforce/agency identified licences for rationalisation

Reported impressive reductions in licence numbers

Success difficult to measure

Improving access to information (Australia)

Business Entry Point– Single internet entry point for businesses

seeking information from any level of Government

Business Licence Information Service– a ‘one-stop’ shop for all government business

licensing National Business Information Service

– Provides information relating to all tiers of government

Regulation review process (Australia)

Tests the need for regulation Aims to improve the decision-making

process and ensure more consistent, systematic and transparent process

RIS sets out the problem, objectives, options, impacts, consultation, conclusion, implementation and review

Must specifically address impacts on small business

Managing Regulatory Reform

Many countries established central agencies to facilitate Broad based regulatory reforms : Belgium => the Agency for Administrative Simplification (ASA) in 1988; France => the Commission on Administrative Simplification (COSA) in 1998; Italy =. the Regulatory Simplification Unit (Nucleo) in 1999.

Securing national commitment to generalized administrative reforms can be time consuming, as demonstrated by experiences in Australia.

Australia: Office of Regulatory Review (ORR)

ORR promotes best practice regulation making and vets agency compliance with (RIS). ORR’s charter list the following principal activities:

– advise on quality control for regulation making and review;– examine and advise on RISs prepared by central agencies;– provide training and guidance to officials;– report annually on compliance to Government’;– advise Ministerial Councils and national standard-setting bodies

on regulation;– lodge submissions and publish reports on regulatory issues; – monitoring regulatory reform developments at the state level,

and in other countries .

Coordinating Central-State reforms

Cooperation obtained through Council of Australian Governments (COAG) and ministerial councils

Business groups applied pressure Incentives for compliance. Some central-

state fiscal transfers linked to RIS compliance.

Netherlands: 11 Determinants of Compliance

Spontaneous compliance dimensions (factors that affect the incidence of voluntary compliance; that is, compliance that would occur in the absence of enforcement):

– T1. Knowledge of rules: Target group familiarity with laws and regulations, clarity of laws and regulations.

– T2. Cost-benefit considerations: Material and non-material advantages and disadvantages resulting from violating or observing regulation.

– T3. Level of acceptance: Extent to which the target group (generally) accepts policy, laws, and regulations.

– T4. Normative commitment: Innate willingness or habit of target group to comply with laws and regulations.

– T5. Informal control: Possibility that non-compliant behaviour of the target group will be detected and disapproved of by third parties and the possibility and severity of sanctions that might be imposed by third parties (for example, loss of customers/contractors, loss of reputation).

Determinants of Compliance: Netherlands

Control dimensions (the influence of enforcement on compliance):

– T6. Informal report probability: The possibility that an offence may come to light other than during an official investigation and may be officially reported (whistle blowing).

– T7. Control probability: Likelihood of being subject to an administrative (paper) or substantive (physical) audit/inspection by official authorities.

– T8. Detection probability: Possibility of detection of an offence during an administrative audit or substantive investigation by official authorities. (The probability of uncovering non-compliance behaviour when some kind of control is applied.)

– T9. Selectivity: The (increased) chance of control and detection as a result of risk analysis and targeting firms, persons or areas (that is, extent to which inspectors succeed in checking offenders more often than those who abide by the law).

Determinants of Compliance: Netherlands

Sanctions dimensions (the influence of sanctions on compliance):– T10. Sanction probability: Possibility of a sanction

being imposed if an offence has been detected through controls and criminal investigation.

– T11. Sanction severity: Severity and type of sanction and associated adverse effects caused by imposing sanctions (for example, loss of respect and reputation).

Summary Conclusions for Sustaining Regulatory Reform in VN

Aim to avoid, minimize or simplify regulations. Where regulations are needed, regulate well.

Be aware of the regulatory impact on business costs. Require regulators to include some formal assessment of regulatory benefits and costs, and of the distribution of costs and benefits, when submitting new regulations.

Study closely practical issues relating to the costs and probability of compliance and enforcement.

Build public understanding and support for regulatory reforms. It is difficult and often impossible to implement top-down reform.

Develop national institutional capacity to implement an ongoing program of regulatory review and reform. Use new information technology