Adopting a Critical Approach to Regulatory Uniformity & Harmonisation

1. Adopting a Critical Approach to Regulatory Uniformity & Harmonisation Rex Deighton-Smith Centre for Regulatory Studies Monash University

2. Harmonisation means a range of different things • Strict uniformity • (template legislation – e.g. National health practitioners registration) • Close harmonisation • Template legislation plus state specific elements (e.g. Building Code of Australia) • Looser harmonisation • Model legislation (e.g. Model Rail Safety Act) • Loose harmonisation • Common essential requirements (former OHS “national standards” agreements) • Mutual Recognition – an alternative approach

3. Some (recent) history • No state-wide uniformity in Victorian building regs until 1970s (RRU 1990) • But close national harmonisation in building regs achieved by the early 1990s • Close harmonisation in food regulations by the same time, and looser harmonisation in OHS & environmental regs • Rapid expansion of the range of harmonisation schemes in subsequent years. • Current CoAG “seamless national economy agenda” a significant driver of this trend

4. Benefits of harmonisation • Harmonisation is a means and not an end • What benefits do regulators say are available? • Reduced manufacturing costs • Greater labour mobility • Reduced complexity, hence • lower administrative burdens • Greater compliance • Regulatory “modernisation” (thus, better quality) • Equity? (Means vs ends?)

5. Costs of harmonisation • An intensive user of often scarce regulatory resources • Regulatory inflation (due to “race to the top”): • Increasing the stringency of regulation • Expanding the scope of regulation • Reductions in regulatory quality? • (e.g. OHS – onus of proof issue) • Reduced scope to accommodate efficient differences • Loss of regulatory competition & its benefits

6. Benefits of harmonisation - in practice • Many of the “theoretical” benefits identified are difficult to observe in practice, eg: • Limited number of regulatory inconsistency issues identified in rail regulation consultations • OHS Act RIS – “the model Act will confer an overall marginal to small net benefit” - & net costs for small business • Similarly small benefits (c. $8m) identified in Marine Safety RIS, plus benefit/cost ratios near to 1:1 • Context of usual “optimism bias” of RIS

7. Costs of harmonisation – in practice • Some experience suggests costs/difficulties are frequently under-estimated or overlooked • E.g. National health practitioner registration: • Administrative issues in processing registrations • Unanticipated increases in registration costs/fees • Concerns re: accessibility/effectiveness of disciplinary structure • Implications of this experience for the national trades registration proposal?

8. Governance issues • Even where harmonisation has potential benefits, institutional rules can cause concerns. Eg: • Ministerial Council voting rules • Often a qualified majority (two thirds) requirement • Takes little account of difference in jurisdiction size • E.g: Vic + NSW + Qld = 77% of the population – but can still be outvoted. • Contrast the EU “dual majority” requirement: • Minimum number of countries in favour; • Must represent 65% of the total EU population

9. Governance issues (2) • Lack of political control in some areas – eg: • Food Standards IGA states : • The Council must approve a draft standard unless one of seven specified criteria (i.e. faults) are met; • In this event, any member of the Council may require FSANZ to review the standard; • If FSANZ resubmits the standard (with or without amendment), the Council can only request a second review on a majority vote; • If FSANZ submits the standard a third time, the Council may amend or reject the draft standard.

10. The broader context • Incentive issues suggest harmonisation may be favoured where benefit/cost outcomes are negative: • Harmonisation favours an increased Federal role in state areas of regulation – thus likely to be favoured by fed govt • Has benefits to industry, but few (apparent) costs • Hence, a strong incentive to lobby for it • But societal benefit/cost balance can be very different • Has uniformity become an end in itself? • Is it a conventional wisdom that “uniformity is good”?

11. Mutual Recognition • Adopted in 1992 • Drew from the EU precedent • Concept was that MR could often • Achieve most of the benefits of uniformity • At substantially lower cost • Two PC inquiries conclude it has been only partly successful • Attempts to implement it have often increased the focus on regulatory differences • Uniformity schemes sometimes result - a perverse outcome

12. Implications for harmonisation processes? • Balance of benefits and costs will differ greatly across areas of regulation • The model used also affects this balance • We cannot assume a priori that benefits will exceed costs • There are strong incentives favouring harmonisation • Thus, we need a critical approach to harmonisation proposals • Regulators suggest this is increasingly lacking – EG:

13. National partnership agreement to deliver a seamless national economy • “...to implement a co-ordinated national approach ..” in 18 areas, including: • A new National Construction Code • Food regulation • Product safety regulation • OHS laws • The health workforce • Licensing of tradespeople • Environmental assessment and approvals • Development assessment • Wine labelling

14. Addressing the problems How to ensure systematically that: • Harmonisation/uniformity is only pursued when net benefits are likely to result; • When it is pursued, the most appropriate model is used; • Specific regulatory choices are optimal; and • The dynamic quality of the resulting regulatory structure is safeguarded

15. Improved approaches to harmonisation • Improving understanding of the benefits and costs • Adopting a rigorous threshold test • Before the RIS process • Largely qualitative & “principles based” • Consideration of the best model of harmonisation • Comment by OBPR? • Improving CoAG RIA processes • A role for state regulatory reform offices? • A “relaunch” of Mutual Recognition