Annex B. Sectoral studies
The OECD’s Environment, Health and Safety (EHS) programme for chemical safety represents a rare case in which the benefits and costs of international regulatory co-operation have been assessed quantitatively, and demonstrates how this co-operation can support administrative efficiency. This is achieved primarily through the Mutual Recognition of Data (MAD) system, which ensures the acceptance of chemical test results across the OECD and generates estimated annual savings of EUR 309 million. The system is also accessible to countries that adopt comparable testing methods, quality standards and levels of protection beyond the organisation’s membership.
Overall, the programme is credited with the development of a common language and classifications, alignment of testing methods, and strong industry support. The MAD system thus illustrates various key functions of international regulatory co-operation in chemical management, including exchanging technical and policy information and administrative burden-sharing. This generates several benefits, such as the reduction of duplication of testing procedures, of non-tariff barriers, and of delays for marketing new products; as well as better management of cross-border risks through enhanced availability of safety data and pooled administrative resources.
The case study highlights a number of challenges to be aware of for the effective pursuit of IRC. For instance, a shift in chemicals production beyond the OECD countries may come with the risk of losing in relevance and legitimacy, the increased complexity and political sensitivity of the technical areas to be addressed once the most consensual topics have been agreed upon, the methodological difficulties of quantifying the benefits of the system, and the uncertainties related to budgetary reliance on member country contributions, particularly in times of budgetary constraints.
The OECD Working Party on Consumer Product Safety illustrates how a joint platform can help countries manage transboundary risks to consumer safety, in a world of rapid and largescale flows of goods and services. The primary objectives of this body include promoting the exchange of information on product safety within and between countries, supporting research on product safety issues, encouraging systematic methods for monitoring and assessing key developments, enabling co-operation between OECD members and non-members on areas of mutual interest, and facilitating harmonisation of product safety requirements and data collection methods.
These processes support regulators and customs authorities in the detection of product safety issues across jurisdictions, foster a consistency in requirements that is conducive to a favourable business environment, and assist consumers in making informed choices and avoiding injury. Challenges arise from legal constraints to cross-border information-sharing, inconsistent approaches to data collection across countries, and garnering sufficient resources to continuously update the information base. The OECD Committee on Consumer Policy aims to address these existing legal constraints to cross-border information sharing, particularly with the draft Implementation Toolkit on Legislative Actions for Consumer Protection Enforcement Co-operation (OECD, Forthcoming[2]).
The OECD Model Tax Convention underscores the importance of co-operation for the effective administration of taxation systems and the reduction of unnecessary obstacles to cross-border trade and investment. This instrument enables the co-ordination of internationally-agreed standards for the elimination of double taxation and the prevention of tax evasion, which have formed the basis for some 3 500 bilateral tax treaties. This is supported by the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes, which enables the automatic exchange of tax information across jurisdictions, facilitates the implementation of international tax transparency standards, and carries out monitoring and peer review activities to promote compliance. In addition, the Convention oversees the adoption of common standards, improves the exchange of tax information across jurisdictions, limits regulatory arbitrage, facilitates the interoperability of tax systems, and provides for conflict avoidance and resolution.
These activities contribute to the promotion of shared forms of understanding, comparable approaches, and enhanced co-ordination among tax administrations. However, they are limited in effectiveness by differences in domestic transposition of instruments and institutional set-up.
The identification and prosecution of anti-competitive practices increasingly requires co-operation among competition authorities, as firms’ engagement in these practices spans multiple jurisdictions. The normative foundation for co-operation in this area is the comity principle, whereby countries reciprocally engage in taking each other’s vital interests into account when conducting their law enforcement activities. The direct, competition-specific forms of co-operation identified include formal instruments such as national legal provisions and agreements between jurisdictions or competition authorities, as well as informal arrangements such as technical assistance and information exchange. Co-operation between competition authorities is also facilitated through instruments with broader application, including Mutual Legal Assistance Treaties (MLATs), extradition treaties and letters of request. The coverage of these measures can be bilateral, regional or multilateral in nature.
The key benefits emerging from co-operation in competition enforcement include improved effectiveness in providing a remedy for illegal conduct and efficiency by reducing investigation costs and risks of inconsistencies, as well as a reduced need to share confidential information. The core challenges involve prohibitions on the exchange of confidential information, differing definitions of what constitutes confidential information, language barriers, practical difficulties of co-ordination, and resource constraints.
Established in 2011, the Canada-US Regulatory Cooperation Council (RCC) arose out of the need for the regulatory infrastructure between these countries to correspond to their level of economic interconnectedness. The RCC is a bilateral arrangement which aims to facilitate regulatory alignment in agriculture and food; transportation; health, personal care products and workplace chemicals; the environment; nanotechnology; and small business ties; with a view to enhancing administrative efficiency and boosting trade and investment. This arrangement enables several forms of co-operation, particularly in the upstream phases of the policy cycle. These include information exchange, research collaboration, common labelling and classifications, mutual recognition, harmonised testing and inspection, shared reference to international standards and standard setting, and joint regulatory development.
The key success factors underpinning the RCC include high-level, sustained commitment across governments; increased levels of protection; strong stakeholder involvement; and a drive to address the systemic constraints barring deeper forms of co-operation. The primary challenges faced involve the lack of robust quantitative evidence for regulatory co-operation – which arises from methodological difficulties – and the federal-only nature of the arrangement.
Over the past 10-15 years, regulatory co-operation in the European Union’s energy sector has become progressively formalised. Through a series of energy reform packages, there has been a movement from softer, informal modes of co-operation towards an increased emphasis on binding commitments and institutionalised oversight. The core objectives underpinning this process in its current form focus on enhancing competitiveness, developing a sustainable energy system, and ensuring security of supply. The primary means through which the European Union seeks to fulfil these objectives include fostering an effective internal market in electricity and gas, setting minimum standards and harmonising technical provisions, overseeing the development of regional energy systems, and enhancing co-operation between national energy regulators. The central actor driving this process is the Agency for the Cooperation of Energy Regulators (ACER), which is supported by an advisory council, deliberative fora, and sectoral industry associations.
There is a comprehensive suite of mechanisms available to support energy co-operation, ranging from information exchange; agenda setting; the formulation of rules, norms and standards; and monitoring and data collection; to supervision and enforcement, dispute resolution and crisis management. In order to fully realise the economic, environmental and security benefits of international regulatory co-operation in the energy sector, several challenges must be addressed. These include entrenched regulatory paths, concerns of regulatory sovereignty, uneven distributions of costs and benefits across countries, institutional differences, technical difficulties, and diverging perceptions of national interests.
The Global Risk Assessment Dialogue demonstrates the role of information exchange and collaborative work in facilitating the development of shared frameworks for understanding, common terminologies and classifications, and the comparability of approaches. This initiative is designed to improve mutual understanding of risk assessments across jurisdictions and foster methodological and substantive consistency in this area. This has occurred through two overarching international conferences on risk assessment, as well as five multilateral working groups in particular thematic spheres. The key actors involved are the scientific community within government agencies and research institutions. The primary activities pursued in this forum concern the development of a common risk assessment terminology, promoting alignment in the communication of uncertainty, fostering reliable and comparable exposure assessments.
The benefits arising from these forms of activity include enhanced transparency, reduced duplication of work, improved knowledge flow, enhanced trust and confidence, and increased scientific integrity. The core issue facing the dialogue is sustaining momentum without high-level political commitment, as well as a lack of institutionalised co-operation and organisational infrastructure.
The global nature of the financial sector and its recent vulnerability to crisis highlights the need for international co-operation in prudential banking regulation and supervision, in order to improve the management of systemic risks and ensure global financial stability. The central actor in this regard is the Basle Committee on Banking Supervision (BCBS), which is supported by the Financial Stability Board (FSB), the International Accounting Standards Board (IASB), and global committees of securities regulators (IOSCO) and insurance supervisors (IAIS). The three pillars of the BCBS’s activity are the co-ordination of responsibilities for cross-border banks, the facilitation of exchange of information on national supervisory arrangements and best practices, and setting minimum standards to foster regulatory harmonisation and contribute to levelling the playing field. The primary instruments mobilised in support of these objectives are standards, which are based on knowledge-sharing and subject to monitoring and data collection.
The benefits identified include the improved management of financial risks, enhanced administrative streamlining and supervisory efficiency, greater commonalities of understanding in relation to financial rules, and better co-ordination among banking authorities. By contrast, the key challenges involve narrow membership and coverage, ongoing difficulties of co-ordination among the relevant bodies, and inconsistency in the implementation of standards.
The emergence and rise of transnational private regulation is driven by the expansion in cross-border trade, divergences in good governance and rule of law across jurisdictions, rapidly shifting market dynamics, and the increased complexity of a variety of policy domains. The primary actors involved in this process are firms, non-governmental organisations, and epistemic communities. The most frequent type of co-operation pursued is technical and sector-specific, but there has been a recent trend towards more generalised forms. The key instruments developed and implemented in this area are voluntary standards, which regulate behaviour less through formal compliance mechanisms and more through considerations of cost-efficiency, self-interest and reputational aspects. The study highlights the challenges of these schemes, in particular the risk of capture. It calls for their evaluation by public policymakers, which would contribute to their legitimacy and in-depth scrutiny, and encourage policy makers/regulators to identify areas in which they can complement or substitute for public frameworks.
The management of transboundary water resources raises ecological, health and economic challenges, which must be addressed through co-ordinated action among the countries involved. International regulatory co-operation has yielded significant results in this area, exemplified by the negotiation and signing of 295 international water agreements since 1948.
The core instrument governing engagement within and between these actors is the Helsinki Convention, which establishes a minimum framework for agreements between riparian states and the management of transboundary watercourses. This sets out three overarching principles for these parties to observe: the precautionary principle, the polluter-pays principle, and the inter-generational principle. The co-ordinated management of transboundary water resources is further supported by membership of international organisations, facilitating formal regulatory co-operation partnerships between countries through UN regional bodies, establishing dedicated organisations to monitor and implement agreements, the provision of financial support for co-ordination, and the implementation of EU conditionalities.
This contributes to progress in managing cross-border risks and externalities, improved environmental management, increased food and energy production, poverty reduction, transparency and work-sharing across governments, and improved economic integration between co-ordinating states. However, the realisation of these benefits is contingent upon addressing challenges associated with the complexities of managing water resources, uneven distributions of costs and benefits, differences in economic development and governance capacities, and broader political tensions.
Air pollution is a classic example of a cross-border policy challenge that offers opportunities for a range of IRC mechanisms. Countries have set up a multiplicity of co-operation efforts to promote air quality and curb transboundary pollution, involving a range of actors and different levels of government. Successful examples include the Canada – United States Air Quality Agreement (Air Quality Agreement) and UNECE’s Convention on Long-range Transboundary Air Pollution (CLRTAP). China, Japan and Korea have stepped up their efforts to improve air quality. All countries have unilaterally adopted international environmental standards, collaborate bilaterally on data exchange, technical assistance and capacity-building, and engage in various multilateral environmental programmes, research projects, and joint ministerial meetings. However, a comprehensive regional science-based approach to address transboundary pollution is yet to emerge in North-East Asia. The experience and practices built around the Air Quality Agreement and the CLRTAP provide a useful example to countries keen in establishing similar joint mechanisms.
The joint review and approval of Metacam, a veterinary drug, by the regulatory agencies of Australia, Canada and New Zealand reveals how international regulatory co-operation through the agreement on common language and approaches can contribute to animal health, administrative efficiency and increased trade flows. In practice, this involves an alignment of definitions with regard to residue, harmonised maximum residue limits and a combined regulatory decision. This co-operation arrangement builds on a climate of mutual trust and confidence in the respective regulatory system of the partner countries, which partly stems from their collaboration in two key international fora: the International Cooperation on Harmonisation of Technical Requirements of Veterinary Medicinal Products (VICH) and the Codex Committee on Residues of Veterinary Drugs in Foods (CCRVDF). It is also driven by significant economic and trade incentives, with New Zealand and Australia as leading suppliers of livestock and Canada being a major importer. The simultaneous review of Metacam by the three countries yields important benefits in terms of improved animal health and safety; administrative streamlining and reduced duplication of regulatory efforts; greater international coherence in procedures and decision-making processes; and enhanced trade and consumer choice.
The Equipment Energy Efficiency (E3) Programme is a bilateral arrangement for regulatory co-operation between Australia and New Zealand, which facilitates cost reductions, minimises administrative duplication and enhances environmental management, in particular through the development of joint standards. The central objective of this programme is to establish minimum environmental performance standards and integrated labelling requirements for energy equipment. This is underpinned by the Greenhouse and Energy Minimum Standards (GEMS) Act in concert with the Intergovernmental Agreement (IGA), which spans the various states and territories of Australia as well as New Zealand. The mechanisms of co-operation include a shared registration system and information exchange related to monitoring, verification and enforcement activities. The primary benefits of this form of international regulatory co-operation include economic gains through reduced energy costs, energy efficiency through lowered consumption, enhanced environmental performance through a reduction in greenhouse gas emissions.
The collaborative development and harmonisation of vehicle regulations through the World Forum for Harmonisation of Vehicle Regulations (WP.29) aims to improve road safety, contribute to enhanced environmental performance and energy efficiency, and facilitate trade. The primary benefits of Australia’s participation in this forum and adoption of its standards include increased trade, investment, and consumer choice (90% of its vehicles are imported); progress in managing cross-border risks; and administrative efficiency through international burden-sharing in the production of standards. By contrast, challenges arise from diverging priorities and positions among participating countries and national differences in vehicle production profiles and consumption patterns. These are supplemented by the additional costs of monitoring and participating in the relevant international regulatory processes, as well as the length of these processes vis-à-vis their national equivalents.
A focused look into twelve cases of trade-related international regulatory co-operation confirm that trade costs are frequently perceived as significant prior to regulatory co-operation, and conversely, data confirms that IRC can reduce costs and burdens for international trade. This study encompasses a range of sectors (wine, organic products, household appliances, pesticides, vehicles, and seeds), modes of participation, institutional frameworks, levels of commitment, and co-operation mechanisms, demonstrating varying effects of IRC. Overall, among the specific IRC mechanisms examined, the most frequent and pronounced effects were found in mutual equivalence of rules and mutual recognition of conformity assessment procedures, with producers and exporters named as the greatest beneficiaries. Benefits were also reported, although less systematically, for the other mechanisms examined, such as the development of international standards, or the convergence or even harmonisation of rules and conformity assessment procedures, as well as for other stakeholders including importers and consumers. The key factors underpinning the success of these initiatives include the clarification of nomenclature, terminology and concepts; exchange of information regarding regulatory requirements or practices; and the existing of dedicated committees or working groups, particularly in the absence of a formalised framework for co-operation. Respondents also underscored the importance of well-functioning regulatory operational co-ordination; the exchange of research and data across jurisdictions; and supportive political leadership.
References
[5] Kauffmann, C. and C. Saffirio (2020), “Study of International Regulatory Co-operation (IRC) arrangements for air quality: The cases of the Convention on Long-Range Transboundary Air Pollution, the Canada-United States Air Quality Agreement, and co-operation in North East Asia”, OECD Regulatory Policy Working Papers, No. 12, OECD Publishing, Paris, https://dx.doi.org/10.1787/dc34d5e3-en.
[6] OECD (2017), “Trade Costs in Regulatory Cooperation: Findings from Case Studies”, http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=tad/tc/wp(2016)17/final&doclanguage=en.
[1] OECD (2013), International Regulatory Co-operation: Case Studies, Vol. 1: Chemicals, Consumer Products, Tax and Competition, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264200487-en.
[3] OECD (2013), International Regulatory Co-operation: Case Studies, Vol. 2: Canada-US Co-operation, EU Energy Regulation, Risk Assessment and Banking Supervision, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264200500-en.
[4] OECD (2013), International Regulatory Co-operation: Case Studies, Vol. 3: Transnational Private Regulation and Water Management, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264200524-en.
[2] OECD (Forthcoming), Implementation Toolkit on Legislative Actions for Consumer Protection Enforcement Co-operation.