Chapter 8. Model processes to issue regulations in Peru
This chapter includes proposals of model processes for issuing regulations to conduct a high-impact RIA, a moderate-impact RIA, and the process of exemption from RIA for Peru. In each case, the essential steps that must be included are explained.
In this chapter, proposals for processes to issue regulation in Peru are made, and the steps of the RIA are specified.
There are several compelling reasons to be clear about the model process for the issuance of regulations. First, it ensures that the RIA be an essential part of the public policy process, so that RIA provides adequate information to make an evidence-based decision. The RIA compels officials to think critically about the existing problem, define whether or not government action is necessary, consider the available public policy alternatives to address the problem, determine if regulation is the best option, conclude whether the regulation would produce greater benefits than costs, identify the building blocks to implement effectively the regulation, and ensure that the opinions from stakeholders and affected parties are taken into account.
Second, it provides clarity about when the different RIA steps in the process to issue regulations must be carried out, in order to guarantee that RIA is initiated from the early stages of the public policy process, and that it contributes effectively to make the best decision. What should be avoided is to add the RIA as a further step at the end of the public policy process, once the decision to regulate has already been made. In this case, the purpose of RIA of contributing to issue quality regulations based on evidence becomes null.
Finally, the model processes for issuing regulations can help to implement the proportionality criterion within RIA, which assumes that the exhaustiveness of the assessment to be conducted must be proportional to the impact foreseen in the regulation. Considering that government resources are scarce and conducting a RIA requires significant resources, it is advisable that – for regulations in which a high impact is expected – the responsible officials should carry out a more sophisticated analysis that includes monetising the benefits and costs. Instead, when it comes to regulations with limited impact, the thoroughness of the analysis must be defined with less demanding parameters.
Proposals for three types of model processes are set out below: high-impact RIA, moderate-impact RIA and exemption from the RIA.
High-impact RIA
Figure 8.1 contains a flowchart of the model process for the high-impact RIA proposal. The steps suggested are the following ones:
1. Potential public-policy problem arises
The public policy cycle starts here. Ministries or government entities realise, by different means, that there is a potential problem, which may require government action through the design and execution of a public policy.
It is possible that from the moment the potential public-policy problem arises, co-ordination is required among different areas within a ministry, among different ministries or government entities. Occasionally, the very nature of the potential problem can indicate which areas of government should be involved. Therefore, from this stage it must be evaluated if it is necessary to start the co-ordination among different areas of government.
2. RIA step: early consultation
The RIA process starts formally here. Once the potential problem has been identified, it is advisable that ministries or entities conduct an early consultation with stakeholders. This consultation can be useful to determine if there is really a problem and, should it be the case, define its scale, resolve whether or not government action is needed, and identify possible ways of addressing it.
If at this stage there is still no co-ordination among the different areas within a ministry, or among ministries or government entities, it is possible that the need to establish such co-ordination arises as a result of the early consultation. That will depend on the information collected.
See Chapter 7 for more detailed information about the nature of the early consultation.
3. RIA step: definition of the problem
At this stage, ministries or government entities must clearly define the nature of the problem to be solved. Ideally, the early consultation should provide information to define the problem based on evidence. If the consultation is not performed, it would be necessary to get the evidence from other sources.
The correct definition of the problem can lead to conclude that co-ordination with other areas of government is necessary, if it has not yet begun, so that the following steps are carried out jointly.
See Box 8.1 for further information on how to define the problem.
The identification of the problem is the first and most important step. If the problem is incorrectly defined, the rest of the RIA will not be sufficient to establish an appropriate regulatory program. Consequently, even if a basic RIA is performed, it is imperative to conduct a good analysis to identify the problem. To facilitate the categorisation of the elements that must be included in the definition of the problem, the following can be taken into account: delimitation, cause and effect, and scale.
The delimitation of the problem must address a first context of the problem that was perceived. Certain aspects of the problem must be defined in this stage. First of all, the concrete definition of the problem, where the question should be addressed, why is it problematic? Although occasionally it may seem intuitive, an exercise to develop an explicit definition must be carried out to lay concrete foundations for the rest of the RIA. To have a full perspective of the situation, it also needs to be defined if there are related problems. Lastly, the delimitation must include a baseline to assess the problem. This will serve both to set the objectives and to evaluate the regulation that be implemented.
Once the problem intended to be solved is identified, attention should be focused on assessing its size and nature. This means to determine:
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What groups of society are being affected;
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The size of each group;
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What is the nature of the impact on each group;
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How big are the impacts, and
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For how long would these impacts persist.
All the effects on the different groups should be considered when defining the size of the problem, based on the context of the objective intended to be accomplished.
4. RIA step: definition of the public policy objectives
In this section of the RIA, ministries and government entities must devote themselves to define the objective to be accomplished by way of government action, using as a starting point the problem to be addressed. As in the previous step, the early consultation can provide inputs and information to fulfill this step.
The correct definition of the public policy objectives can lead to conclude that co-ordination with other areas of government is necessary, if it has not yet begun, so that the following steps are carried out jointly.
See Box 8.2 for further information on how to define the public policy objectives.
Once the problem is identified, specific objectives must be set out to address its root causes. The RIA can contribute to make regulations as effective and efficient as possible. An effective regulation accomplishes the objectives it was devised for. A regulation is effective if it accomplishes those objectives at the lowest cost for all society groups.
The efficiency and effectiveness are important as there are always limits in the number and type of regulations that can be absorbed by society and implemented effectively by governments. Regulation always imposes costs and offers benefits, and if it is inappropriate it may distort economic growth by hampering the way businesses are done and creating negative perceptions about the economic environment. At the same time, making and implementing regulations demands important resources from governments; that is why it is essential that it be well designed.
How to improve efficiency and effectiveness through RIA?
The decision-making process to draw up regulations can be improved by using the RIA. Particularly, RIA helps to promote a systematic decision-making process and a comparative approach to that decision making. The RIA makes officials think about the following questions and answer them:
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Generally, what is the problem that we must solve?
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What is the objective that we want to accomplish?
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What are the available means to accomplish that objective?
Before proposing any regulation, these questions should be raised. By starting the whole process with these questions, it is almost certain that as many practical options as possible can be identified to accomplish the objective, which is fundamental in the case of looking for the best option.
A very common mistake is to start the analysis by confusing “means” and “ends”. The public-policy or regulatory objective is the “final result” that the government wants to achieve. This should not be confused with the “means” to reach it because, then, there would be no capacity to consider the merit of all the alternatives that may exist. For instance, a public policy objective can be to reduce the number of deaths due to traffic accidents. Reducing the speed limit is a means to achieve the goal, but it is not the goal itself. Other means may be to require particular safety measures or to improve road conditions. This example shows that there are several ways and options to achieve the goal.
After all possible options have been identified, the RIA must be compared in terms of benefits and costs. It means that attempts should be made to identify all the impacts from the different options. Once this is done, each and every option can then be analysed to get information on which is the most effective and efficient.
Maximising social welfare
Regulation should proceed only if it is expected to improve the economic conditions of society and its welfare. This is only accomplished if the total benefits of a regulation – for society as a whole – are greater than the total costs, considering all the impacts on society. An important dimension that RIA must consider is that “society as a whole” should always be taken into account, instead of paying too much attention to the impacts on certain groups, who might push for to get a specific regulatory decision made.
SMART objectives
The following characteristics prepared by the European Commission (Specific, Measurable, Achievable, Realistic, Timely, SMART), which are explained below, can be taken into account to develop sound objectives:
Specific: the objective must be concrete enough so that it is not open to interpretations and seek to address specific problems and not macroeconomic situations.
Measurable: a monitoring and evaluation plan must be considered at this point in the RIA; therefore, it is necessary to set an objective that can be evaluated in order to analyse if the implemented regulation is working.
Achievable: it is necessary to set out objectives that can reasonably be accomplished, avoiding optimist biases that end up by making them unfeasible.
Realistic: the objective must explicitly relate to the problem and its causes.
Timely: the timeframes in which the objectives are to be achieved in order to design the evaluation must be specified.
Source: Adapted from (European Commission, 2015[1]), “Better Regulation Guidelines”, p. 65, http://ec.europa.eu/smart-regulation/guidelines/docs/swd_br_guidelines_en.pdf.
5. RIA step: definition of alternatives to the regulation
Once the problem and the objective to be achieved with government intervention are defined, ministries and entities must determine the different alternatives available to address the problem and achieve the objectives set out. In this case, the early consultation can also provide information and input to define the alternatives.
It should be noted that the regulatory option is only one of the possible alternatives, and that other non-regulatory alternatives should be included as possible resources to address the problem and accomplish the objective.
See Box 8.3 for further information on how to identify the alternatives.
Normally, regulation is the only option considered by decision-makers, perhaps because there is a very old habit in the government of favouring this tendency. However, it is necessary to consider alternatives to identify if the public policy problem can be addressed in another way, depending on its specific circumstances.
Other intervention tools can be those mentioned below:
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To conduct an information campaign to inform or prevent the public about a problem;
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To offer specific information directly to consumers so they look after their own interests.
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To force those who offer goods or services to give information to consumers before they purchase the products;
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To impose a tax to discourage an activity;
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To grant a subsidy to stimulate a particular behaviour;
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To promote the development of a “self-regulation” scheme within the industry or a particular group.
6. RIA step: Initial assessment of the impact of the alternatives
In this step, ministries and government entities must perform an initial assessment of the costs and benefits of each of the alternatives identified. In the case of the regulatory alternative, it is not necessary to have the regulatory proposal completely drawn up. An outline of the regulation would suffice to meet this requirement.
With the problem well defined, and with the objectives intended to achieve, it should be possible to do an analysis of the net benefits expected from each option. The analysis should not be exhaustive, but rather a guide to decide if proceeding with the regulatory option is the most advisable alternative. It means that, while a full monetary cost-benefit analysis should not be pursued, at least a well-justified qualitative analysis or some other impact evaluation technique should be carried out (see options for evaluation techniques Chapter 7).
It must be taken into account that the RIA is a recursive process: as the ministry or entity advances in preparing the RIA, more information is collected and the evaluation process is perfected and refine; which should lead to carry out another assessment of the alternatives. The final decision to issue or not a regulation will depend on the result of reevaluating the options constantly.
See further information on step 6, initial assessment of the impact of the alternatives in Box 8.4.
In many cases, the initial analysis done through the RIA may indicate that it is not desirable to regulate. Other type of tool can allow us to achieve the goals we pursue in a more efficient and effective way. In those cases, RIA can help because it gives more insight into the possible impacts of alternative approaches to regulation to achieve public policy objectives. Or, the analysis performed may reveal that government intervention is not necessary.
Discovering that it is not necessary to do something to solve the problem can occur in the following cases:
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When the size of the problem is so small that the costs of government action are not justified, and
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When the analysis proves that a regulation, or any other action, is not feasible to effectively address the problem and at a reasonable cost that allows to get some kind of benefit.
How can one conclude that regulation is justified?
There is no specific rule to determine if the problem is big enough to justify government action. However, the following elements can be considered:
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The limited capacity of government to enforce regulations effectively;
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The size of the problem compared to others that, it was considered, needed regulations;
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The capacity of the affected groups to take some action that can solve the problem,
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If the problems tend to last for a long time, or if they can change relatively quick because of external factors.
Once all these elements are taken into account, if the regulation is thought to be justified, it must be considered whether the regulation will solve the problem at a reasonable cost compared to other alternatives.
7. RIA step: Is the regulation the best option?
Once the different alternatives have been evaluated, it is decided whether or not the option of issuing a regulation is the best. This assessment assumes that there is enough evidence to reach a reliable conclusion. If the assessment performed with the evidence and information available suggests that the regulatory option is the most desirable because of the potential net benefits it generates, then the next step must be carried on. Otherwise, the most feasible alternative must be examined with the greatest thoroughness. As more information is collected and the degree of complexity of the RIA increases, this assessment must be repeated.
8. Development of the regulatory proposal
It is advisable to prepare in detail the regulatory proposal until an initial assessment of the alternatives has been made, and that the regulatory option be validated as the one that can potentially provide the greatest net benefits.
The necessary internal steps must be carried out in this stage, so that the technical areas from the ministries and government entities co-ordinate with the legal offices to decide on the type of legal instrument that will be drawn up. Involving the legal departments must also guarantee the legality of the rule, as well as compliance with technical legal requirements, such as those provided for in the Guide on Legislative Technique for the Development of Regulatory Proposals from the Entities of the Executive Branch, from the MINJUSDH.
In this step, it is advisable that the technical areas of the ministries or entities share with the legal teams the content of the RIA created so far, which must include:
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Definition of the problem;
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Definition of the public policy objectives;
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Identification of the alternatives;
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Initial assessment of the alternatives;
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Description of the early consultation process, its results and input to each of the previous sections.
The purpose of this is that all legal departments know the information, evidence and assessment that led to the decision of drawing up a regulatory proposal and, thus, ensure the alignment of the objectives that are sought through the regulation between the technical areas and the legal departments.
9. Diffusion of the proposal
Depending on the nature of the problem, the public policy objective and the type of regulation intended to be issued, co-ordination among the government offices, ministries or entities must already have taken place.
If it has not started, the responsible ministry or entity must establish —in this step— the co-ordination with the appropriate agencies. It is possible that steps 8 and 9 are carried out simultaneously, because the preparation of the regulatory instrument is usually made jointly. But, for didactic purposes, in this report the two steps are shown sequentially.
10. RIA step: criteria to select the type of RIA
The previous chapter recommends that Peru implements the proportionality criterion within RIA: the thoroughness of the assessment of the regulatory option must be consistent with the expected impact of said regulation (see recommendations 12 and 13).
In this step, entities and ministries should apply the criteria previously established by the oversight body regarding regulatory policy, to decide on the type of RIA that must be prepared and submitted (see international examples of differentiation criteria among the types of RIA, in Box 7.5).
The decision on the type of RIA —high-impact or moderate-impact— will define the content of the impact evaluation sections (step 12), the measures to ensure compliance with the regulation (step 13), and the measures to monitor and evaluate regulation (step 14), as explained below.
11. RIA step: high-impact RIA?
Should the criteria be met, ministries or government entities will prepare the high-impact RIA.
12. High-impact RIA step: impact evaluation, cost-benefit analysis in monetary terms
For high-impact RIA, it is advisable to perform a monetary analysis of the costs and benefits. Considering the high impact expected from the regulation, the description of benefits needs to be thorough with values expressed in monetary terms. Likewise, it must be proven that the benefits from the regulatory proposal are greater than the costs.
See a summary of the methodology and more bibliography in Box 7.7.
Additionally, it must be proven that, among the alternatives considered, the regulatory proposal is the one offering the greatest net social benefit. For this, the benefits and costs of the alternatives identified in step 5 must be reevaluated, and a general reassessment must be made to decide which alternative offers the highest net benefits. For this reason, Figure 8.1 includes a feedback link between this step and step 6. Should the regulatory option be the one with the highest expected net social benefit, the process to issue the regulation would continue.
13. High-impact RIA step: measures to ensure compliance with the regulation
An essential part of the regulatory governance cycle is to implement and enforce regulation, as illustrated in Figure 1.4. For this reason, in this step, ministries and government entities must detail the proposed strategies to maximise the compliance by regulated parties with the obligations established in the regulatory proposal.
Box 8.5 includes further information on the measures to ensure compliance with the regulation.
Making a realistic analysis of the compliance rate expected to achieve with the regulatory proposal is an important element for evaluating the impacts. Regulation will only have an impact if people comply with it.
Compliance is a subject that should be studied from two points of view. First, if the evaluation considers that the risk of noncompliance is high, the reason for such a case must be studied. That will allow to weigh all the aspects of regulation that can be changed to promote compliance and it may mean changing the regulation substantially or modifying the communication or the proposed implementation.
Second, if there is a high risk of noncompliance, it must be considered if it is appropriate to continue with the regulatory proposal. Should a risk of regulatory failure be identified, because the regulation cannot remedy the market failure or solve the identified problem, or the cost of doing the latter is too high, it is advisable to stop and think whether it is worth continuing.
Several elements must be taken into account when thinking about the level of compliance. First, how to get that potentially affected groups voluntarily comply with the proposal. This is easier if regulation is reasonable and legitimate, if the cost of doing so in that way is not very high, or if the noncompliance would lead to major problems. The groups that tend to comply voluntarily are those that abide by the law.
Second, consider how efficient the inspection and oversight actions will be to increase the compliance rate. This means establishing if there are enough resources that can be used for such purpose and be able to detect problems at the appropriate time.
Third, consider whether it is valid to apply sanctions to those who fail to comply and if those sanctions will suffice to modify their behaviour, in order to increase the degree of compliance.
In general, if compliance rates tend to be low, it is essential to be able to detect or reduce noncompliance through implementation actions. If this cannot be done, then a failure in regulation may occur. It means reconsidering the regulatory proposal and check if there is an alternative mechanism that could be more effective.
As part of the high-impact RIA, it is advisable to define the following:
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Detailed programme of oversight and inspection tasks, including specific information on the resources needed to implement and operate the system.
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Detailed programme of sanctions and penalties for noncompliance, and the necessary resources to implement and operate the system.
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Detailed description of other measures that will be employed to increase the compliance rate, such as information campaigns, agreements with enterprise chambers, among others; and the necessary resources to implement and operate these measures.
The costs and benefits identified in this step must be included in the impact evaluation, which would compel to reassess the net benefit expected from the regulatory proposal; hence, a feedback link is included between this step and step 12 which, in turn, should lead to a comprehensive reassessment of the alternatives to address the public policy problem.
14. High-impact RIA step: measures to monitor and evaluate regulation
Ministries and entities must define, in this step, the measures that will be established to check the performance of regulation. These measures must include information and indicators to calculate the progress in the accomplishment of the public policy objective to be achieved through the regulation. The information and defined indicators must be clear enough so ministries or entities, as well as the public at large, notice that the problem identified in step 3 is addressed by applying the regulation, and to what extent the public policy objective defined in step 4 is achieved.
Additionally, the indicators that will allow evaluating the performance of regulation after a certain period of being applied must be defined in this step. In order to close the regulatory governance cycle, it is necessary to ensure that the public policy objectives set to be achieved at the outset —by issuing and applying the regulation— be truly accomplished. This evaluation must be carried out after a fairly long period that allows to appreciate the impact of regulations and that offers, at the same time, the opportunity of making the necessary amendments to regulations, including its elimination, if the objectives are not accomplished or that the public policy problem disappeared. Some OECD countries generally use a 3 to 5-year period to carry out the so-called ex post evaluation of regulations (OECD, 2015[2]).
In this step, the ministries or government entities must define a priori the information and indicators to be used in the ex post evaluation. The indicators to assess the regulation may or may not coincide with the monitoring indicators.
See further information on how to define the measures to monitor and evaluate regulation in Box 8.6.
Monitoring of regulation
Monitoring is a systematic process to collect, analyse and use information to measure the progress in the achievement of the public policy objectives set in the regulatory proposal. Monitoring a regulatory proposal allows to identify if the regulation is being applied as expected or, as appropriate, if there is a need for implementing other measures. In order to carry out an adequate monitoring of our regulatory proposal we need to identify:
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What evidence do we need?
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When and how it must be collected?
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Who must collect it and from whom will it be obtained?
To this end, we must establish indicators that allow us to measure the performance of the regulatory proposal. These indicators must be defined, they must be measurable and measured in a given time. We must consider the following characteristics to obtain the information:
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The search for information must be exhaustive, that is, we must consider both qualitative and quantitative information.
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The cost of data collection must be proportional to the benefit expected by obtaining that information.
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To avoid requesting duplicate information, particularly, information that has been previously requested.
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The collection and use of the collected information should be timely; otherwise, it entails the risk that the information be useless and an excessive cost be generated.
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Last, transparency and the usefulness of information must be guaranteed during this process.
Evaluation of regulation
The evaluation of existing policies through the ex post impact analysis is necessary to ensure that regulations are effective and efficient. In some circumstances, the formal processes of the ex post impact analysis can be more effective than the ex ante analysis to inform about the ongoing policy debate. This may be the case, for instance, if regulations are drawn up under pressure to implement a rapid response. At an early stage of the public policy cycle, attention should be paid to the performance criteria for the ex post evaluation, that includes reviewing whether the objectives of regulation are explicit, what data will be used to measure performance, as well as the allocation of institutional resources. It can be difficult to allocate scarce public policy resources to review an existing regulation; likewise, it is necessary to systematically schedule the review of the regulation to ensure that the ex post evaluation be performed.
In order to carry out an ex post evaluation it is necessary, first, to identify and collect information on indicators that allow to measure the degree to which objectives have been accomplished, as well as the level of compliance and the effects of the regulation. These indicators should normally be determined in the framework of an ex ante evaluation, when applying some of the methods established to calculate the impacts (cost-benefit analysis, cost-effectiveness analysis, multicriteria decision-making analysis, among others).
The ex ante evaluation and the ex post evaluation are similar in the sense that the quality of regulation is assessed in both processes. Nevertheless, while the ex ante evaluation performs a probabilistic exercise to calculate the possible impacts that a future regulation will have once it is implemented, the ex post evaluation involves a verification exercise that requires gathering the information about compliance and the effects on the operators or regulation market during a certain period.
Thus, while the ex ante evaluation aims to predict the impact of a regulation based on a prospective analysis; the ex post evaluation is defined as a critical appraisal, supported by evidence, of whether a regulation meets the needs it intends to satisfy, and if it achieves the expected effects. The ex post evaluation goes beyond to assess whether or not something happened, it focuses on assessing the causality (that is, whether the action taken modified behaviours and produced the expected changes, or both).
The following must be defined in the high-impact RIA:
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Detailed plan to collect the necessary information and create the relevant indicators to measure the monitoring of regulation performance, including the periodicity of the collection and specific information on the resources needed to implement and operate the system.
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Detailed strategy for the ex post evaluation of regulation, including the collection and creation of indicators while the regulation is implemented to subsequently prepare the assessment, the periodicity of collection, and specific information on the resources needed to implement and operate the system.
Once this step is defined, the ministries or government entities must reevaluate the expected costs and benefits of the regulation which, in turn, must lead to a reassessment of the regulatory proposal to confirm whether it is the best public policy alternative.
15. RIA step: The complete RIA and the regulatory proposal are subject to i) public consultation and the ii) oversight body
Once all the sections of the RIA are completed and the regulatory proposal finalised, both must be sent to the public consultation process and the oversight body of regulatory policy.
16. RIA step: Involvement with stakeholders as part of the consultation process
In this step, the regulatory proposal and its RIA are made available to the public for review and comment. According to recommendation 23 of the previous chapter, consultation must have the following characteristics:
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The regulatory proposal and the corresponding RIA should be made available for consultation for a minimum of 30 business days.
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Regulated parties should be able to comment on both the regulatory proposal and the RIA.
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The Ministries and agencies issuing regulations must reply all comments and, at the end of the process, issue a document summarising all the comments received and the actions that will be taken to address the relevant ones.
The experience of the Ministry of Environment (MINAM), documented in Chapter 5, can be useful to implement this system.
17. RIA step: assessment by an oversight body
Simultaneously with the previous step, the oversight body of regulatory policy would review whether the RIA meets the criteria established in the respective guidelines. According to recommendation 8, the oversight body should have the capability to reject regulatory proposals whose RIAs do not meet the required standards.
18. RIA STEP: regulatory proposal and RIA are redeveloped due to the feedback, and reforwarded to the oversight body
In this step, the ministries and government entities must modify both the RIA and the regulatory proposal, using as input the information from the consultation process as well as the remarks by the oversight body.
19. RIA step: final opinion from the oversight body
The oversight body reassesses the draft RIA and the modified regulatory proposal, sent by the ministries and government entities and delivers its final opinion.
20. Sending to the CCV if applicable
In this step, the regulatory proposals with an impact on several sectors of the economy would be reviewed by the CCV as it currently happens. It should be noted that the report Regulatory Policy in Peru: Assembling the Framework for Regulatory Quality (OECD, 2016[3]) recommends that:
…the regulatory impact assessment should be part of the assessment from the CCV. The analysis that has to be carried out by the MEF, the PCM and the MINJUSDH should be done before the draft regulation goes to the Vice-ministerial Coordinating Council, with an adequate period to carry out the analysis. The opinion issued by the Coordination Council on Regulatory Policy or the oversight body on the draft regulation and the RIA should be considered as part of the assessment of the CCV.
21. Publication of the regulation
This step includes all the applicable administrative and legal processes that currently exist in Peru prior to the publication in the Official Gazette El Peruano, such as the approval of the Council of Ministers for certain types of regulations.
Moderate-impact RIA
Figure 8.2 contains a flowchart of the model process for the moderate-impact RIA proposal. As the steps listed below are the same as the ones for the high-impact RIA, it is not necessary to repeat their description:
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1. A potential public-policy problem arises
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2. RIA step: early consultation
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3. RIA step: definition of the problem
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4. RIA step: definition of the public policy objectives
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5. RIA step: definition of alternatives to the regulation
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6. RIA step: initial assessment of the impact of the alternatives
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7. RIA step: Is regulation the best option?
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8. Development of the regulatory proposal
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9. Diffusion of the proposal
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10. RIA step: criteria to select the type of RIA
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11. RIA step: moderate-impact RIA?
Should the criteria be met, the ministries or government entities will prepare the moderate-impact RIA.
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12. Moderate-impact RIA step: impact evaluation, cost-benefit analysis in monetary terms
As opposed to the high-impact RIA, in the case of the moderate-impact RIA is appropriate to perform a qualitative cost-benefit analysis, or resort to another impact evaluation technique that be less demanding to express in monetary terms the benefits and costs.
Doubtlessly, the cost-benefit analysis should always be the preferred option; but given the nature of the regulatory proposal of moderate impact, other techniques as the cost-effectiveness analysis or the multicriteria analysis are adequate. See further details in Box 7.8.
In any case, when it comes to moderate-impact regulatory proposals, a detailed qualitative description of the benefits and costs should be included.
As in the case of high-impact regulatory proposals, it should be proven that, among the alternatives considered, the regulatory proposal is the one offering the greatest net social benefits. For this, the benefits and costs of the alternatives identified in step 5 must be reevaluated, and a general reassessment must be made to decide which alternative offers the highest net benefits. For this reason, Figure 8.2 includes a feedback link between this step and step 6. If the regulatory option is the one with the highest expected net social benefit, the process to issue the regulation would continue.
13. Moderate-impact RIA step: measures to ensure compliance with the regulation
An essential part of the regulatory governance cycle is to implement and enforce regulation, as illustrated in Figure 1.4. For this reason, in this step, ministries and government entities must describe in a general way the proposed strategies to maximise compliance by regulated parties with the obligations stated in the regulatory proposal.
Box 8.5 includes further information on the measures to ensure compliance with the regulation.
As part of the moderate-impact RIA, it is advisable to define the following:
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General strategy of oversight and inspection tasks;
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Description of the programme of sanctions and penalties for noncompliance,
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Description of other measures that will be used to increase the compliance rate, such as information campaigns, agreements with enterprise chambers.
14. Moderate-impact RIA step: measures to monitor and evaluate regulation
In this step, ministries and entities must describe the measures that will be established to check the performance of regulation. These measures must include information and indicators to calculate the progress in the accomplishment of the public policy objective to be achieved through the regulation. The information and defined indicators must be clear enough so ministries or entities, as well as the public at large, notice that the problem identified in step 3 is addressed by applying the regulation, and to what extent the public policy objective defined in step 4 is achieved.
Additionally, the indicators that will allow evaluating the performance of regulation after a certain period of being applied must be defined in this step. In order to close the regulatory governance cycle, it is necessary to ensure that the public policy objectives set to be achieved at the outset – by issuing and applying the regulation – are truly accomplished. This evaluation must be carried out after a fairly long period that allow to appreciate the impact of regulations and that offer, at the same time, the opportunity of making the necessary amendments to regulations, including its elimination, if the objectives are not accomplished or that the public policy problem disappear. Some OECD countries generally use a 3 to 5-year period to carry out the so-called ex post evaluation of regulations (OECD, 2015[4]).
In this step, the ministries or government entities must define a priori the information and indicators to be used in the ex post evaluation. The indicators to assess the regulation may or may not coincide with the monitoring indicators.
See further information on how to define the measures to monitor and evaluate regulation in Box 8.6.
The following must be defined in the moderate-impact RIA:
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Detailed plan to collect the necessary information and create the relevant indicators to measure the monitoring of regulations performance, including the periodicity of the collection.
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Detailed strategy for the ex post evaluation of regulations, including to collect and create indicators while the regulation is implemented to subsequently prepare the assessment, and the periodicity of the collection.
As the steps listed below are the same as the ones for the high-impact RIA, it is not necessary to repeat their description:
15. RIA step: The complete RIA and the regulatory proposal are subject to i) public consultation and the ii) oversight body
16. RIA step: involvement with stakeholders as part of the consultation process
17. RIA step: assessment by an oversight body
18. RIA STEP: regulatory proposal and RIA are redeveloped because of feedback, and reforwarded to the oversight body
19. RIA step: final opinion from the oversight body
20. Sending to the CCV if applicable
21. Publication of the regulation
Exemption from RIA
This report presents two proposals for the RIA exemption process: for regulatory proposals that do not create costs to regulated parties, and for draft proposals included in an exemption list. Both are explained below.
Exemption from RIA for draft proposals included in an exemption list
The suggested process for the exemption from RIA for draft proposals included in an exemption list is shown in Figure 8.3. This process assumes the existence of the exemption list mentioned in recommendation 11. See some examples that could be included in that list in Box 7.3.
The process includes the following steps:
1. Development of the regulatory proposal
The very nature of the normative provisions that could be included in the exemption list implies zero compliance costs to regulated parties. Consequently, it is possible to expect that for this type of regulatory proposal it is not necessary to go through the steps of identification of the problem, definition of objective, and so on. On the contrary, it is certain to assume that the process begins with the development of the proposal.
2. Diffusion of the proposal
According to the type of regulation intended to be issued, the ministry or entity responsible establishes the co-ordination with the appropriate entities. It is possible that the steps 1 and 2 are carried out simultaneously, because the preparation of the regulatory instrument is usually made jointly. However, for didactic purposes, in this report the two steps are shown sequentially.
3. RIA step: criteria for the exemption from RIA
The previous chapter recommends that Peru must establish criteria for the exemption from RIA, that includes a list of regulatory proposals, which could be exempted from the Regulatory Impact Assessment (see recommendation 11).
4. RIA step: Is the regulatory proposal included in the list?
Should the regulatory proposal be in the exemption list, the ministries or government entities must prepare the request for the exemption from RIA. The list should be as detailed as possible in order to avoid ministries and agencies using loopholes to be exempted from carrying out the RIA.
5. Exemption from RIA step: to prepare and send the request for the exemption from RIA
The ministry or government entity prepares the request for the exemption from RIA and sends it to the oversight body for its assessment.
6. Exemption from RIA step: assessment of the request
The oversight body assesses the exemption request. First, it must verify whether the normative provision is actually in the list. Second, even if the normative provision is in the list, the oversight body must determine whether it does or does not create any cost for regulated parties.
Only when both criteria are met, the oversight body must issue the exemption approval. In any other case, it must ask to the ministry or entity to prepare a RIA.
If the latter occurs, and considering that there is already a regulatory proposal, it would be advisable that the ministries or government entities begin the process of preparing the RIA in the step 3 of the moderate-impact RIA or high-impact RIA, taking into account that the first part of both processes is the same.
As the steps listed below are the same as the ones for the high-impact/moderate-impact RIA, it is not necessary to repeat their description:
7. Sending to the CCV if applicable
8. Publication of the regulation
Exemption from RIA for regulatory proposals that do not generate costs to regulated parties
It is possible that a regulatory proposal does not generate costs to regulated parties (see some examples in Box 7.3). In those cases, the model process suggested to request the exemption from RIA is shown in Figure 8.4.
As the steps listed below for this process are the same as the ones for the high-impact/moderate-impact RIA, it is not necessary to repeat their description:
1. Potential public-policy problem arises
2. RIA step: early consultation
3. RIA step: definition of the problem
4. RIA step: definition of the public policy objectives
5. RIA step: definition of the alternatives to the regulation
6. RIA step: initial assessment of the impact of the alternatives
RIA step: Is regulation the best option?
8. Development of the regulatory proposal
9. Diffusion of the proposal
The aforementioned steps are expected to be the same as the ones for the standard RIAs, because the proposals falling into the no-costs assumption may be legitimately attempting to solve a public policy problem. Hence, the importance of following the steps mentioned above.
10. Exemption from RIA step: criteria for the exemption from RIA
The previous chapter recommends that Peru must establish criteria for the exemption from RIA, that includes the criterion of exempting normative provisions not generating costs to regulated parties (see recommendation 11).
11. Exemption from RIA step: Does the regulatory proposal generate costs?
In this step, the ministry or government entity must be in a position to determine whether or not the regulatory proposal generates costs to regulated parties. Specifically, once step 6 is performed—“Initial assessment of the impact of the alternatives”—ministries or government entities are able to determine if the normative provision meets the criteria of zero compliance costs. Should it be the case, the exemption request must be prepared. Otherwise, step 11 of high impact or moderate impact RIA must be followed to determine the thoroughness of the analysis.
12. Exemption from RIA step: to prepare and send the request for the exemption from RIA
The ministry or government entity prepares the request for the exemption from RIA and sends it to the oversight body for its assessment.
13. Exemption from RIA step: assessment of the request
The oversight body assesses the exemption request. It must carefully review if the regulatory proposal really does not generate any cost to regulated parties. If so, it must issue the exemption approval. Otherwise, it must ask the ministry or government entity to prepare a RIA.
If the latter occurs, it would be advisable that the ministries or government entities begin the process of preparing the RIA in the step 3 of the moderate-impact RIA or high-impact RIA, taking into account that the first part of both processes is the same. After beginning the RIA process in step 3, the ministries or government entities could reassess the RIA process carried out so far, including a reassessment of costs.
As the steps listed below are the same as the ones for the high-impact/moderate-impact RIA, it is not necessary to repeat their description:
14. Sending to the CCV if applicable
15. Publication of the regulation
References
[1] European Commission (2015), Better Regulation Guidelines, http://ec.europa.eu/smart-regulation/guidelines/docs/swd_br_guidelines_en.pdf (accessed on 26 April 2018).
[3] OECD (2016), Regulatory Policy in Peru: Assembling the Framework for Regulatory Quality, OECD Reviews of Regulatory Reform, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264260054-en.
[4] OECD (2015), OECD Regulatory Policy Outlook 2015, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264238770-en.
[2] OECD (2015), Regulatory Policy in Perspective: A Reader’s Companion to the OECD Regulatory Policy Outlook 2015, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264241800-en.