Regulatory Impact Analysis (RIA) has become an international standard tool for evaluating the potential impacts of regulations prior to their adoption and implementation. Even though RIA has gained international acceptance and has spread rapidly over the last thirty years, especially in OECD member countries, we know little about how effective RIA systems are in practice.
Since not all regulatory proposals have the same importance in terms of their impact and scope, countries with RIA systems have focused their efforts and resources on preparing and reviewing RIAs in accordance with the principle of proportionality*, which sets that the greater the potential impact or importance of the regulation, the greater the level and depth of analysis, and more time and greater public resources should be allocated to its review. To make this principle operational, RIA systems use specific criteria to determine which regulations require more complex and in-depth analysis. These decision rules can be schematically classified into three main types: (1) quantitative and/or qualitative criteria, (2) economic thresholds, and (3) a combination of both. In turn, these rules can generate two types of response. On the one hand, they can determine whether some regulatory projects should be exempted from the requirement to prepare an RIA and, on the other hand, for those regulatory proposals that should be subject to an RIA, they can differentiate between different levels and scopes of analysis (i.e., types of assessment or RIA).
The Mexican system has configured a proportionality rule under the concept of compliance costs.
In our recent research “The Regulatory Review system in Mexico: the proportionality rule under the compliance cost concept” we have tried to assess the effectiveness of the criteria used in Mexico as part of its proportionality rule. In the following lines we succinctly describe the main findings.
Mexico uses a two-step proportionality rule. The first step is used for identifying regulatory proposals that require RIA and consists of determining whether the draft regulation imposes compliance costs on private parties (citizens and companies). If the regulatory project does not impose compliance costs on private parties, the regulator may request an exemption of RIA**. In a second stage, the Mexican government uses a regulatory impact calculator to measure the potential impact of regulations that do involve compliance costs. This consists of answering a short questionnaire*** with multiple choice answers, that is used to determine the level of impact of the regulation and thereby the type of RIA to be prepared: a moderate or simplified impact RIA or a high impact or extensive RIA.
According to the Mexican system, regulatory proposals have compliance costs for private parties when one or more of the following actions is met:
These criteria have been used directly as a decision rule to operationalize the principle of proportionality. In this sense, the Mexican system has configured a proportionality rule under the concept of compliance costs. As mentioned above, if the regulatory proposal does not imply compliance costs on private actors the regulator may request an exemption of RIA.
Using data from the Mexican regulatory oversight body, CONAMER, we reviewed the period between January 2010 and November 2020 in which 8,042 RIA exemption requests were submitted. To analyze these regulatory proposals, we thoroughly reviewed a random sample of 63 files along two dimensions of analysis:
We identified that the effectiveness of the compliance cost rule in the 2010-2020 period ranges from 65 to 71.4 percent, which means that maximum in 7 out of 10 regulatory proposals the proportionality rule is adequately applied and fully captures potential impacts of regulations. Two major problems undermine the effectiveness of the proportionality rule. On the one hand, we found there are inconsistencies in the application of the criteria of the concept of compliance costs. A finding related to this problem is that in the last 3 years the proportion of regulatory proposals without compliance costs has steadily increased from 72 percent (in 2017) to 88 percent (in 2020) of all regulatory proposals reviewed under the compliance cost rule in that period, meaning that in 2020 almost 9 out of every 10 proposals reviewed by CONAMER under this rule were exempted from RIA.
On the other hand, the rule is limited to catch and assess regulatory proposals with significant potential impacts at the meso and macro levels, for instance regulations with impacts (direct or indirect) on specific economic sectors, population groups or geographic areas. This limitation results from the fact that the criteria of compliance costs focus only on the analysis of micro level costs to citizens and enterprises.
Using data from the Mexican regulatory oversight body, CONAMER, we reviewed the period between January 2010 and November 2020 in which 8,042 RIA exemption requests were submitted.
The effectiveness of proportionality rules lies at the heart of RIA systems. A high level of RIA exemptions resulting from inconsistencies or limitations of these rules may not serve the purpose of screening regulations ex ante and assessing the costs they impose on society, hence the interest in assessing how effective these rules are.
This research is the first of its kind in Mexico, with it we seek to encourage an informed public and academic dialogue and debate that allows to improve the performance of regulatory policy, through the study of the evidence offered by RIA systems. This is also true for other countries, including those with mature RIA systems that use different mechanisms to target or discriminate regulatory proposals but whose effectiveness / efficiency has not yet been assessed. We also hope that this experience may be useful to Latin-American countries that are beginning the implementation of RIA, such as Brazil, Colombia, Peru and the Dominican Republic, among others, to integrate proportionality rules from the design stage of the regulatory review process that may help them to better manage the regulatory flow and anticipate possible failures of its rules and take corrective actions in a timely manner.
* The concept of proportionality used here refers to the concept as used in the field of RIA and regulatory reform, and differs from the proportionality doctrine used in legal analysis to adjudicate rights conflicts in different legal systems. For a brief explanation of this doctrine see, Mordechai Kremnitzer and Raanan Sulitzeanu-Kenan, “Protecting Rights in the Policy Process: Integrating Legal Proportionality and Policy Analysis ”, International Review of Public Policy [Online], 3:1 | 2021, Online since 15 March 2021, connection on 10 September 2021. URL: http://journals.openedition.org/irpp/1974; DOI: https://doi.org/10.4000/irpp.1974
** Article 71 of the General Law for Regulatory Improvement (GLRI).
*** This questionnaire includes questions about the characteristics of the regulation, such as the sector to which it belongs, the economic processes involved, the number of consumers and economic units regulated, and the type of legal provision.