The industries represented by the Alliance for a Competitive European Industry welcome the European Commission's drive to achieve better regulation at the EU level, based, among other documents on the four Communications on governance, on better regulation, on consultation of stakeholders and on impact assessment. These Communications and recent follow up documents represent a major achievement of the Commission and an essential step in the improving the governance of the European institutions towards the achievement of the Lisbon objectives.
In addition, the conclusions of the past Competitiveness Council meetings, especially under the Irish and Dutch presidencies in 2004, which have stressed the need to "further improve the use of the impact assessments provided by the Commission across all policy areas as an aid in its decision making process" and to make a "wider use of impact assessment" are welcome.
A critical element to achieve better regulation is the use of a clear, transparent Impact Assessment method, consistently and throughout the legislative process. In the present paper, the industries, all of which have experience of recent impact assessments, put forward a number of essential principles which, they feel, must be observed and suggest a number of practical steps.
European industry is very concerned about the increasing volume of EU legislation that it has to contend with and requirements that often exceed those of other economic regions of the world. Uncoordinated and often inconsistent regulation is endangering the smooth and equitable operation of the internal market.
There is a serious risk that the current process of legislation places an unjustified burden on intra-Community trade and results in a significant threat to the EU's competitiveness vis-à-vis the other trading blocks. It creates a competitive advantage for products coming from outside Europe that benefit from less stringent requirements in terms of both manufacturing processes and conditions, and product assessment, standards and liability. It is making Europe less attractive to investors and constitutes a disincentive for maintaining manufacturing capacities and employment within the European Union.
These practices are at odds with the Commission's 2002 and the Council's 2003-2004 commitments toward better regulation. To improve the policy development process, contain the flow of new regulation and ensure its quality, a well managed impact assessment system should be used which will highlight both benefits and negative effects of particular legislation. It could also be used to evaluate alternatives to legislation.
Impact assessment in practice
The European manufacturing industry fully supports the objectives of quality regulation to which the Commission, the Parliament and the Council have committed jointly. There are, however, a number of deficiencies in the practical application of impact assessment to legislative proposals, which can have significant implications.
- Impact assessment is often a one-off exercise when the Commission submits its proposal to the Parliament and Council. Assessing the effect of proposed legislation should be regarded as a continuous process, from the Commission's preliminary impact assessment of the draft proposal to evaluating the implications of the changes in the adopted, transposed, and finally implemented EU policy or legislation
- To achieve its policy objectives the regulator has a choice of alternative policy options, e.g. voluntary agreements, use of guidelines and harmonized standards, communication campaigns to targeted stakeholders, or even maintaining the status quo. Impact assessment can assist the regulator to make an informed decision on the policy option which would be most appropriate to achieve the objectives, thereby eventually avoiding resorting to regulation when other options could be more effective
- Impact assessment can also be used very effectively when considering alternative solutions for implementation of a policy measure. This will often demonstrate that rather than the EU experts prescribing solutions in areas where their expertise is limited, the choice can safely be left to the economic actors
- While direct and indirect effects on business can generally be quantified rather easily, the environmental or social benefits are subject to more qualitative and subjective considerations. In those cases, a robust cost-effectiveness analysis pertinent to a given environmental target would be more valuable than a cost-benefit comparison alone, helping to provide essential information about attainability and affordability of policy objectives
- The Commission should aim at achieving a coherent regulatory environment, avoiding inconsistent and conflicting legislation that may result in a heavy administrative burden to industry.
Implementation aspects
The implementation of a high quality impact assessment process is essential to ensure the quality and appropriateness of the legislation and its acceptance by stakeholders. Therefore, there should be a clear and visible commitment to creating an assessment system that can operate professionally and transparently and that has the visible high-level political support. This should:
- Ensure transparency, professionalism and independence
- Help handling complexity: there is no generally accepted single methodology to balance between the three pillars of sustainable development. This could lead to considerable discrepancies between benefits and cost estimates. Uncertainties generally vary in the limited range of a factor of 1 to 2 for costs, while on the other extreme, estimates of health benefits, particularly where science often fails to bring certainty may vary within a range of 1 to 100
- Provide funding: because impact assessment is costly
- Provide extensive staff training: so far, very few desk officers in the Commission are knowledgeable of the criteria and methodologies for conducting quality impact assessments
- Ensure early and continuous co-ordination between the Commission Unit in charge and other relevant DGs concerned. However, hierarchical structures and time constraints, which are exacerbated by political pressure from both Member States and MEPs, constrain the ability of Commission officials to meet this requirement. Consequently, desk officers only run the compulsory 10-day inter-service consultation at too late a stage — when the draft legislation proposal is almost ready for submission to the College of Commissioners.
Practical recommendations
Toward a quality assessment system: process
There is a need for a more transparent, systematic and fully balanced, high-quality assessment system to operate within the Commission and inter-institutionally, which has high-level political support:
- Each DG needs adequate expertise and resources in respect of its portfolio to be able to carry out the impact assessment process, in a transparent manner with timely involvement of stakeholders;
- In the long term, and to ensure a truly sustainable policy development process, European manufacturing industry would like to see all impact assessments carried out by an external body reporting to the Council and to the European Parliament, independent from the Commission's desk officers. In the absence of such a body, there is a need for an expert horizontal central unit that assumes the role of in-house consultative body as proposed in Communication COM(2004) 274. This unit, e.g., within the Secretariat General, could assist, co-ordinate, control and eventually arbitrate the choices made between the criteria and impact assessment methodologies, and could even request further assessment if the questions, allegations, etc. are not sufficiently substantiated by facts and figures that are consistent and verifiable by all parties. For instance, it should especially check whether external (global) factors, competitiveness, innovation capacity and benefits have been duly taken into account and have been assessed using the right methodology and the appropriate uncertainty factors. The unit should also check compliance with the Commission's Guidelines on Impact Assessment. The Secretariat General should oppose submission to the Commission of legislative proposals that are not accompanied by an impact assessment that meets the basic criteria set out in the Guidelines for Impact Assessment;
- There is a need for a staged process that reflects the process of policy development. Amendments by Parliament and Council that have a major effect on the initial proposal, particularly with regard to the economic aspects, should be re-submitted for assessment to the Commission in a timely fashion, with due respect of the deadlines imposed by the legislative process;
- All the Commission's proposals should be subject to impact assessment and be measured against their contribution toward achieving the Lisbon objectives.
Toward a quality assessment system: content
Balanced and high quality impact assessments are needed using a transparent and generally accepted standard policy development process providing:
- An ex ante assessment of economic, social and environmental impacts of proposed regulatory measures: sustainable development requires sustainable legislation;
- A transparent justification of policy choices and a clarification for all stakeholders of the unavoidable trade-offs between economic, social and environmental aspects of a planned policy;
- Extensive stakeholder consultations which aim at securing true 'win-win-win' solutions by considering equally and proportionately the three pillars of Sustainable Development;
- Consideration for a range of options, including 'no action' (How would it be otherwise possible to seriously consider reducing over-regulation, if the same policy objectives could be equally met and often at much lower costs by well targeted, clear, and monitored self-regulation?);
- Explicit recognition and rating of uncertainty factors in estimates of both costs and benefits;
- A continuous assessment process throughout the entire legislative process, from draft proposal to final adoption, which involves all European institutions;
Conclusions
The Council, European Parliament and European Commission need to provide concrete support to the gradual introduction of new and coherent methods for impact assessment on all major EU initiatives and to commit themselves to increasing their inter-institutional co-operation, both of which are essential to achieving better regulation. In the long-term, and to ensure a truly sustainable policy development process, European manufacturing industry would like to see all impact assessments carried out by an external body reporting to the Council and European Parliament, independent from Commission desk officers.
If the Commission draws from the experience of successive impact assessments by establishing a centralized quality control system that fine tunes the process on the basis of practice, the EU institutions will have made an essential step towards adopting better regulation principles in accordance with OECD standards.
This is an edited version of an Alliance for a Competitive European Industry position paper, calling for a more systematic approach to business impact assessment of EU policies and regulations. The paper is supported by UNICE and 11 major European Federations, including CEPI, representing the interests of some 6,000 large companies and 1.7 million SMEs with a combined output of nearly 5,000 billion euro turnover (2001). These companies employ about 23 million people in the EU.
