Enhanced metrics to measure the Regulatory impact

A proposal to enhance metric used when calculating business compliance costs

1. Enhanced Metrics to Measure the Regulatory Impact Daniel Zygankov , Center for Program and Policy Evaluation, St. Petersburg Alexander Belyaev ,Center for Program and Policy Evaluation, St. Petersburg Inaugural Conference of the International Association on Regulation & Governance "Regulatory Governance in a Changing World" Panel Session "The Politics and Performance of Regulatory Agencies”, June 18, 2024

2. Approaches to regulatory impact measuring Standard Cost model (developed and introduced in the Netherlands, 2002-2004) : only information costs measuring       - SCM has been historically the basis for many administrative burden reduction / red-tape cutting programs, and introduction of the “One In - One(Two, X) Out” procedure      - since 2011 the SCM has been used to assess information costs for citizens and public        bodies (Germany, the European Commission, Belgium, the Netherlands) European Commission (Guideline 2007): administrative costs are measured by SCM, compliance costs – case by case (general economical analysis ) Germany ( National Regulatory Control Council Guidelines, 2016) - compliance costs, incl. information costs - measuring based on single methodology (extended SCM) USA/UK/AU – Cost-benefit analysis 2

3. Known lim it s of the SCM & CBA approaches Not only compliance cost constitute the regulatory burden end-users have to bear, but also: Business operations downtime costs (labor costs + operating costs) opportunity costs (profit lost) For the end users are the information costs ‘invisible’ as rule (shadow ones) in opposite are the downtime costs & lost profit more understandable The benefits part of a CBA is mostly based on probabilistic scenarios, relates to the future, addresses vast spectre of beneficiaries and therefore can only rarely be standardised Besides reflects the CBA often the political preferences of the special interest groups behind the regulation 3

4. Дальнейшее развитие подходов к расчету стандартных издержек 4 4 Information costs Labor costs Acquisitions Substantive costs Compliance regulatory costs Labor costs Acquisitions 1.1. Information costs (labor costs + acquisitions) 1.2. Substantive costs (labor costs + acquisitions) 1.3. Business operating downtime costs ( labor costs + operating costs) 2. Opportunity costs (Profit lost) Extended regulatory costs Cost measuring model: Proposals to enhancement . 1. Benefits 2. Hard macroeconomic indicators Benefits VS. VS.

5. Conclusions Since society has the right to know about the full regulatory cost during regulation drafting (both – primary and subordinated), the public bodies should measure full costs as mentioned earlier ( even in the case of emergency legislation, i.e. without RIA / public consultations)  Besides comparing cost vs. benefits should be extended by comparing costs vs. macroeconomic indicators (in related industry, i.e. revenue, profit, investments, tax burden) This new approach could be introduced into integrated impact assessment procedures through a number of new metrics like mentioned - at supranational, national and subnational levels of public governance Last but not least , the “One In – One Out” approach should be used to compensate full calculated cost for business and citizens (to keep regulatory pressure constant) 5

6. 6 ANNEX. EXPANDED MODEL APPLICATION EXAMPLES (Eurasian Economic Union member states, 2019-2023) Regulatory obligation(s) Industry Avg administrative (paper) cost, bln . rub. / year Avg compliance cost, bln . rub. / year Avg losses, bln . rub. / year Avg opportunity cost, bln . rub. / year Avg Industry profitability, % Industry Turnover, bln , rub. / year Compliance costs as % of Turnover Obligations of veterinary and sanitary control of aquatic biological resources (ABR), in Russia Fishing industry 13,56 13,56 -- 1,49 11 % 364 3,72% Mandatory labelling of jewelry production Jewelry 15,59 15,59 5,5 2,27 14,6 % 240 6,49% Obligations for the minimum and maximum number of fully equipped beds in oncology departments Healthcare 0,12 13,45 -- 1,62 12,1 % 334 4 ,0% Submitting data on production and tracking of batches of grain / grain products, in Russia Retail 4,93 4,93 -- 2,43** 14,29% 46000 0,01% Compliance on mandatory designated naval control points for fishing vessels Fishing  industry -- 6,28 16,2 0,69 11 % 364 1,72% *) Average on the 3 Years horizon, high one-time cost in the 1. Year.

7. Contacts Web http://cppe.tilda.ws/ X.Com @smartregulation E-mail [email protected] 7