Introducing proportionality to Thailand’s regulatory impact assessment framework

1. The importance of using proportionality tests

Regulation is an important tool for achieving governments’ social, economic, and environmental policy objectives. Governments have a broad range of regulatory instruments reflecting the complex and diverse needs of their citizens, communities, and economy. The quality of both the regulatory environment and regulatory outcomes is strongly dependent on the quality of processes for designing regulations.

The OECD’s normative framework for regulatory policy is underpinned by the 2012 Recommendation of the OECD Council on Regulatory Policy and Governance. This represented the first international instrument on the topic of regulatory policy, which advocated for the integration of RIA within the first few stages of the public policy process for new regulatory proposals. (OECD, 2012[1]) In 2020, the OECD also published the OECD Best Practice Principles for Regulatory Policy on Regulatory Impact Assessment (OECD, 2020[2]); as well as, the OECD Best Practice Principles on Reviewing the Stock of Regulations to provide governments with practical advice for implementing their RIA and ex post review systems and strategies (OECD, 2020[2]).

Each of these OECD documents strongly advocates for the use of proportionality in the implementation of regulatory management tools, GRPs i.e. that policymakers should target RIA towards regulatory proposals that are expected to have the largest impact on society and ensure that all such proposals be subject to RIA scrutiny. The OECD further developed its guidance on proportionality in 2019 by publishing an annex to the best practice principles entitled “A closer look at proportionality and threshold tests for RIA” (OECD, 2019[3]).

Why are proportionality tests needed?

OECD countries and the EU have implemented proportionality tests for a number of reasons. First, they help to ensure that regulations with significant societal impacts are adequately assessed before being approved. Secondly, they ensure that government resources are not unduly wasted in assessing regulatory proposals or reviewing existing regulation with only minor impacts; where the costs of conducting RIA, consultation and other development process may outweigh their benefits. In turn, this also helps to avoid consultation fatigue, particularly with external stakeholders. It ensures that broader consultation is conducted where the impacts of a regulation are expected to be significant, and consultations will improve proposals. Finally, thresholds help to improve the transparency of the overall development system, where there are clear criteria that are straightforward to apply in practice.

There is a wide disparity in approaches and definitions that countries use when administrating proportionality and threshold tests based on their given political context. However, despite realising these surface differences, the core of filtering mechanisms generally works towards serving the same objectives:

• Support RIA oversight bodies to focus their efforts on those regulatory proposals where an in-depth approach is justified;

• Help to decide which analytical tools are appropriate for each situation (Cost-Benefit Analysis, Cost-Effectiveness Analysis, Risk Analysis, etc.);

• Signal the necessity of a more exhaustive RIA. Therefore, demanding the early involvement of any national body(ies) that may be responsible for this exercise and to avoid delays when requirements are not met at a later stage in the regulatory development process; and

• Contribute to a RIA report that is more consistent, effective and has substantial quality to fulfil its role as a support for the policymaking process.

Broadly speaking, the use of thresholds and proportionality for RIA can be broken into four types based on their main features, although all countries use some mix of qualitative and quantitative criteria.

1. Total impact quantitative test: The level or depth of analysis is dependent on the total impacts to society. The policymaker needs to estimate the total impacts quantitatively, usually as part of a preliminary step in the development of a new regulation.

2. Multi-criteria test: The depth of RIA is based on a mix of quantitative and qualitative criteria in a number of key areas. The criteria may include, for example, the number of affected businesses, a certain level of CO2 emissions or a subjective assessment of the significance of impacts on key sectors. Normally, these impacts are quantified, but not monetised like the other types in this list.

3. Single-issue test: The analytical depth of RIA is based on impacts to one sector or stakeholder group. For example, a full RIA is only required when business costs exceed a certain amount.

4. Discretionary with oversight test: In these systems, generally, the policymaker undertakes a preliminary RIA and then a ROB determines the level of analysis in the next step. Alternatively, an ROB gives an opinion if the level of analysis is sufficient at the end of the process.

It can be very difficult for a ROB to monitor or judge the precise level of effort put into the analysis and development of a new regulatory proposal. Despite this, OECD Member countries often recommend that policymakers have a proportionate approach to regulation without setting concrete criteria or thresholds, leaving significant discretion to policymakers. This discretionary approach makes the targeting of RIA efforts rather flexible.

Generally, the ROB checks the quality and scope of analysis at one or more stages during the development of a regulation. However, the ROB does not necessarily have sufficient information on the significance of the problem and potential impacts to know if policy teams have given a proposal due consideration. Thresholds may be one way of encouraging more analysis without leaving a high-level of discretion to policymakers.

Based on the OECD’s experience, policymakers often ignore or underplay the initial, critical aspect of the RIA process: identifying the problem. It only makes sense for policymakers to consider solutions or policy options once the magnitude of the problem is understood, particularly its causes. It is at this stage that the regulatory design process and RIA have the most impact. Often ministers or policymakers may be unwilling to change a proposal that is relatively well-developed because of the delay it may cause in enacting the policy or regulation. Therefore, the selection of the policy instrument itself at the early stage of the process will have significant impacts. This suggests that ROBs should intervene early to coax policymakers to consider a wide range of policy options for major problems.

The economic context of the country plays an important part in the depth of analysis of any particular proposal and any thresholds. In large economies like the E.U. and the U.S., relatively minor changes in regulations or directives can have impacts worth billions of euros or dollars. The time and resources spent on analysis should then be significantly more sophisticated and scale to the size of the economy. Larger economies, where small changes have large potential impacts, should apply more resources to the analysis and oversight of regulation than small countries. Nevertheless, small economies are not off the hook. In a small economy, regulations could have significant impacts per capita, so proportionally more analysis may be worthwhile, if there may be significant impacts on any one sector or stakeholder group. (OECD, 2019[3])

Ideally, the existence of a problem and its significance should be developed before the stage of legislative planning. Many countries develop annual legislative plans. One might think that at this stage, policymakers should make a quick analysis of the scope of the issue, stakeholders affected, and the magnitude of potential impacts. Based on this preliminary analysis, a decision could be made on the depth of RIA necessary. The ROB should then evaluate the legislative plan checking the decisions of individual ministries and government agencies on the anticipated depth of RIAs necessary and potentially suggesting adjustment.

Proportionality tests across the OECD

Looking across the OECD, an increasing number of member governments are introducing requirements for RIA to be proportionate to the significance of anticipated impacts (see Figure 1), thereby following the OECD Best Practice Principles on RIA. However, approximately 15% of OECD Members still do not have any proportionality requirement in place.

Figure 1. More OECD Members have introduced requirements for RIAs to be proportionate to the significance of anticipated impacts

Note: Data are based on 34 OECD Member countries and the European Union.

Source: Indicators of Regulatory Policy and Governance (iREG) Surveys 2014, 2017 and 2021.

As mentioned previously, a common method across OECD Members for establishing proportionate ex ante analysis is to introduce a threshold test, to determine whether a regulatory proposal warrants more in-depth RIA. In parallel with the proportionality requirement, the use of threshold test has increased across OECD Members, though only 15 jurisdictions have implemented such a process for primary laws, and 18 jurisdictions for secondary legislation (see ). The most common proportionality method implemented amongst OECD Members is a threshold, expressed both in quantitative and qualitative terms, and only one OECD Member (Canada) uses a solely quantitative threshold test. Examples of both qualitative and quantitative approaches to threshold tests are set out in Box 1.

Figure 2. There is an increasing use of threshold tests to determine the depth of RIA

Note: Data are based on 34 OECD Member countries and the European Union.

Source: Indicators of Regulatory Policy and Governance (iREG) Surveys 2014, 2017 and 2021.

Box 1. OECD Governments have introduced a mixture of quantitative and qualitative threshold tests

OECD governments have introduced a mixture of quantitative and qualitative threshold tests:

• Denmark has a threshold for doing ex ante impact assessments using the SCM-method, which is 4 million Danish Kroner in running costs. The threshold was made out of the experience from the baseline measurements and expected to cover at least 95 % of the overall burdens. When they assess the consequences to be above the threshold, they use external consultants to do a more thorough report based on interviews with businesses.

• The South Korean test requires quantitative RIA to be undertaken if it affects more than 1 million people, impacts greater than WON 10 million, there is a clear restriction on market competition, or a clear departure from international standards.

• In Canada if a regulatory proposal has no anticipated costs, departments are required to: i) state the regulation has no cost, and ii) provide a corresponding rationale for why there are no costs. Regulations with costs of less than CAD 1 million are considered low cost and departments must provide at least a qualitative analysis of the costs and benefits. Regulations with costs of over CAD 1 million require quantitative and monetised cost benefit analysis wherever possible and in the absence of data rigorous qualitative analysis is required.

• In Australia, a Preliminary Assessment determines whether a proposal requires a RIA for both primary and subordinate regulation (as well as quasi-regulatory proposals where there is an expectation of compliance). A Regulation Impact Statement is required for all Cabinet submissions. This includes proposals of a minor or machinery nature and proposals with no regulatory impact on business, community organisations or individuals. A RIA is also mandatory for any non-Cabinet decision made by any Australian Government entity if that decision is likely to have a measurable impact on businesses, community organisations, individuals or any combination of them.

Source: (OECD, 2019[3]) (Government of Canada, 2018[4]).

Proportionality tests and exemptions

Proportionality tests also serve as a way of exempting certain regulations from some impact assessment procedures. As can be seen from Figure 3, nearly half of OECD Members now have exceptions to conducting RIAs where regulations are introduced in response to an emergency, and several members have used this mechanism to bypass their RIA requirements for some of the regulations introduced in response to the pandemic. A further four OECD Members (Chile, Denmark, New Zealand, and Portugal) have introduced the exception to conducting RIA in case of emergency in their regulatory practices in the past three years, although in most cases this mechanism was introduced before the COVID-19 pandemic. A range of other emergency-based regulatory policy measures have been introduced by OECD Members (Box 2).

However, the OECD has found that “emergencies” sometimes made up more than 50 per cent of avoided RIAs (for example the Slovenia Regulatory Policy Review (OECD, 2021[5])). Ministers and policymakers who are under political pressure to develop a regulation could easily abuse exceptions to RIA for emergencies. This points to the importance of having robust regulatory oversight of exceptions to conducting RIAs and other GRPs, with a ROB scrutinising whether the rationale for granting these exemptions are legitimate.

Figure 3. More OECD Members do not require RIA where regulations are introduced in response to an emergency

Note: Data are based on 34 OECD Member countries and the European Union.

Source: Indicators of Regulatory Policy and Governance (iREG) Surveys 2014, 2017 and 2021.

Box 2. The COVID-19 pandemic has resulted in a raft of regulatory policy changes relating to RIA

Some OECD Members introduced changed RIA procedures:

• In Belgium, no impact assessment was conducted for COVID-related regulatory proposals and the oversight body, the Impact Assessment Board, was not consulted on such proposals.

• The United Kingdom provided a summary of impacts document in support of its initial response to the COVID-19 pandemic.

• COVID-related regulations passed in Slovenia were not subject to an ex ante impact assessment, however there is a requirement to undertake impact assessment after a period of two years.

… and some members changed institutions

• Australia created the National COVID-19 Commission Advisory Board to provide timely and direct advice from a business perspective to support the Government’s management of COVID-19 and its plans for economic recovery.

• The Czech Republic restored the National Economic Council (NERV), a body which had been originally established to assist the government in putting forward economic reform measures in the aftermath of the global financial crisis. The NERV collaborated in creating the Czech Recovery and Resilience Plan with the Ministry of Industry and Trade, which has six focus areas including a digital transition; research, development, and innovation; and institution, regulation and business support in response to the COVID-19 pandemic.

Source: (OECD, 2021[5]).

Proportionality tests and ex post reviews

The OECD Best Practice Principles for Reviewing the Stock of Regulation outline two main approaches to ex post reviews, which should be used in combination (OECD, 2020[6]). One approach is systematic and “programmed” for high impact regulations while the other is ad hoc to ensure that problem areas outside of programmed reviews can be identified. The Best practice Principles also outline the importance of including explicit provisions in agency budgets for ex post reviews to ensure funds are not re-allocated to other issues seen as more urgent. A proportionality test that highlights high impact regulation that should be subject to ex post review can help administrations better plan and ensure funds are earmarked for such reviews.

For high impact regulations, especially where such regulation is innovative and/or its effects are less certain, governments should embed the requirement for ex post review directly in the legislation. It follows that such regulations would be determined to be high impact and subject to “full RIA” at the proportionality stage, and that they should also be prioritised for ex post review. A common approach to embedding the requirement for an ex post review into the legal framework of subordinate regulations is through sunsetting clauses. Such clauses effectively allow a regulation and its requirements to lapse if they are not reviewed and re-made within a given timeframe. Some examples of how various OECD countries embed the requirement ex post review early in the policy cycle are included in Box 3

Box 3. Examples of embedded review requirements

• Hungary’s RIA guidance material provides that in the development of regulatory proposals, all proposals indicate whether it is necessary for an ex post evaluation to be defined in the legislative act. This indicates on a case-by-case basis whether an ex post evaluation will take place, and if so when it is expected.

• Pursuant to Article 8 of the Framework Act on Administrative Regulations, all new and amending Acts and subordinate statutes in Korea must provide for an effective review period, which in general should not exceed five years.

• In the United Kingdom, a statutory review is required of all subordinate regulations where those regulations affect either business or a voluntary or community body. The report must set out the objectives to be achieved, assess the extent to which they have been achieved, assess whether those objectives remain appropriate, and if they remain appropriate – assess the extent to which they could be achieved in a less onerous manner. The first report is due within five years of the commencement of the subordinate regulation, with subsequent reviews to be conducted within the next five years.

Source: (OECD, 2020[6]).

While planned reviews of high impact regulation are useful to ensure they remain fit for purpose and do not impose any more costs than are necessary to achieve their goals, the OECD also recommends that administration undertake ad hoc reviews of regulation. In this context, the OECD’s Best Practice Principles for Reviewing the Stock or Regulation outline that “high priority should be given to reviewing [existing] regulations that have a) wide applications across the economy or community and b) potentially significant impacts on citizens or organisations – i.e. ‘breadth and depth’ – and for which there is c) prima facie evidence of a ‘problem’” (OECD, 2020[6]). The principles go on to state that all three of these criteria should be met for a give regulation to be high priority, for example a regulation with wide coverage but little impact should not be prioritised over high touch, high impact regulation. Furthermore, prima facie evidence of a problem is important to obtain internal (administrative) and external stakeholder buy-in to help address the issue at hand. This method of prioritisation can act as a substitute for a proportionality test when such a test was not done at the beginning of the policy cycle (as would be the case for most Thai regulation) or for regulations that may have been deemed low impact at the outset hence an ex post review may not have been “programmed”, but have since shown to be higher impact than initially thought. OECD countries have varying ways to prioritise ad hoc reviews in practice, two useful examples that involve stakeholders are discussed in Box 4.

Box 4. Involving stakeholders in reviewing the existing stock of regulation

Denmark’s Business Forum for Better Regulation

The Business Forum for Better Regulation was launched by the Danish Minister for Business and Growth in 2012. It aims to ensure the renewal of business regulation in close dialogue with the business community by identifying those areas that businesses perceive as the most burdensome and propose simplification measures. These could include changing rules, introducing new processes or shortening processing times. Besides administrative burdens, the Forum’s definition of burdens also includes compliance costs in a broader sense as well as adaptation costs (“one-off” costs related to adapting to new and changed regulation).

Members of the Business Forum include industry and labour organisations, businesses, as well as experts with expertise in simplification. Members are invited by the Ministry for Business and Growth either in their personal capacity or as a representative of an organisation. The Business Forum meets three times a year to decide which proposals to send to the government. So far, the proposals covered 13 themes, ranging from “The employment of foreign workers” to “Barriers for growth”. Interested parties can furthermore submit proposals for potential simplifications through the Business Forum’s website. Information on meetings and the resulting initiatives is published online.

Proposals from the Business Forum are subject to a “comply or explain” principle. This means that the government is committed to either implement the proposed initiatives or to justify why initiatives are not implemented. As of October 2016, 603 proposals were sent to Government, of which so far 191 were fully and 189 partially implemented. The cumulated annual burden reduction of some initiatives has been estimated at 790 million Danish crowns. Information on the progress of the implementation of all proposals is available through a dedicated website. The results are updated three times a year on www.enklereregler.dk. The Business Forum publishes annual reports on its activities. The Danish Minister for Business and Growth also sends annual reports on the activities of the Business Forum to the Danish parliament.

UK Red Tape challenge

The government-wide strategy for reducing the stock of existing regulation, the “Red Tape Challenge”, launched in 2011, was led jointly by Ministers from the Cabinet Office and the Department for Business, Innovation and Skills. The RTC is an example of open, collaborative policymaking including the use of digital crowd sourcing which prompted 30 000 comments and over 1 500 detailed submissions.

Source: (OECD, 2015[7]) (OECD, 2019[8]).

OECD recommendations for proportionality tests

The OECD report “A closer look at proportionality and threshold tests for RIA” (OECD, 2019[3]), surveyed the international evidence of governments that have introduced proportionality tests, and made the following recommendations:

1. Determining the scope of the development process should start at an early stage when policymakers are evaluating the problem - potentially even before considering the need for intervention - and identifying regulatory and non-regulatory alternatives. Preferably, this process should start already in the phase of legislative planning.

2. An oversight body should assess whether the regulator has characterised the problem correctly, including its magnitude, when the regulator has the greatest flexibility in formulating a regulation or policy. The earlier policymakers understand the magnitude of the problem, the better the government may target resources to developing solutions.

3. During the early stage of RIA, policymakers should begin to introduce the/an economic rationale and data to determine the scope of the issue. This does not mean an in-depth analysis at an early stage (e.g. a well-developed cost-benefit analysis). Policymakers should be broadly scanning an issue, before undertaking an in-depth analysis. This guideline follows suggestions from Renda (2011) for the EU.

4. The time and resources devoted to the development of regulation and its analysis should relate to the size of the impacts, the size and structure of the economy, the impacts per capita, the possible flexibility of the policy, and the relative resources of the government.

5. If a country chooses to use quantified thresholds for RIA, they should be inclusive and base the thresholds on the size of impacts across society, rather than any sector or stakeholder group. There may be a risk in using one single value threshold. If one stakeholder group is disproportionately affected but the total impacts are below the threshold, countries may miss out on the benefits of doing RIA.

6. Regulations should only be exempt from completing the RIA process in genuinely unforeseen emergencies, when a significant delay could objectively put the wellbeing of citizens at risk. Oversight bodies should be very critical of ministries that overuse and abuse such exemptions. Ministries should also be required to conduct an ex post evaluation to ensure that the regulation was effective after a defined period of time.

7. Regulations with limited policy options or flexibility (e.g. transposition of EU directives or supranational laws) might have a less rigorous process. When fewer policy options or instruments are available, even if the impacts may be quite significant, policymakers have less flexibility to improve a policy at this stage. Despite this, governments should be mindful that EU directives or other supranational instruments might still have a degree of flexibility in their implementation.

8. The time and resources for regulation development and analysis should also scale with the capacities of the government. It is important that governments continuously build the expertise of policymakers in RIA and of oversight to make analysis more effective. Governments must build capacities in ministries before they can require significant levels of analysis.