Promoting International Trade and Investment through Regulatory Coherence

1. Promoting International Trade and Investment through Regulatory Coherence Paul Piquado August 2014

2. Today’s discussion: • Introduce the concept of “regulatory coherence” • Review new WTO good regulatory practice (GRP) principles under development • Briefly survey FDI economic research in regards to transparency and regulatory coherence • Review U.S. regulatory procedures and key regulatory coordination and review processes and mechanisms • Consider the benefits of whole-of-government solutions

3. What is “regulatory coherence?” • Relatively new concept • Closely linked to the principles of good regulatory practices (GRP) • Focus placed on the goals of GRP • Also suggestive regarding the meansfor achieving GRP

4. New WTO GRP Principles under Development Transparency and Public Comment Mechanisms for assessing policy options, including the “need to regulate” Internal (domestic) coordination mechanisms Minimizing burdens on economic operators Implementation and enforcement Mechanisms for review of existing technical measures Mechanisms for taking into account the needs of developing countries

5. FDI Correlates Strongly with Transparency “Our simulations have also shown that not only the relationship between transparency and FDI inflows is positive but this relationship is in fact quite strong.” “The relatively more transparent are the country's policies and institutions, the more attractive is the country to foreign investors.” “An improvement in a country's ranking by only a few points will significantly improve the country's attractiveness to foreign investors and should lead to a correspondingly large marginal inflows of FDI.” (Zdenek Drabek and Warren Payne (2001), “The Impact of Transparency on Foreign Direct Investment,”WTO Staff Working Paper ERAD-99-02.)

6. FDI also Correlates with Good Institutional Governance • Review the Basics of Foreign Direct Investment • Introduction to WTO TBT Agreement • Five Core TBT commitments • Common TBT compliance problems • Discuss key good regulatory practices (GRPs) • Questions & Answers

7. FDI also Correlates with Good Institutional Governance

8. Trade Correlates with FDI and Institutional Governance “Trade, which captures the overall level of openness of each country in any given year, relates positively to FDI. That is, countries that are open to international business are associated with higher levels of FDI.” “As trade volume as a percentage of GDP increases one unit, all else constant, FDI increases by about 14 million dollars.” “A single unit increase in institutional quality leads to an average increase of about 204 million dollars per year in FDI.” (David Wernick, Jerry Haar, and Shane Singh (2009). "Do Governing Institutions Affect Foreign Direct Investment Inflows? New Evidence from Emerging Economies," International Journal of Economics & Business Research 1(3).)

9. Related Studies on Trade, FDI, and Institutional Governance: “Where regulation is burdensome and competition limited, [business] success tends to depend on whom one knows.  But where regulation is transparent, efficient, and implemented in a simple way, it becomes easier for aspiring entrepreneurs to compete, innovate, and grow.” (Source: Doing Business 2013, World Bank) Maya Schmaljohann (2013). “Enhancing Foreign Direct Investment via Transparency? Evaluating the Effects of the EITI on FDI,” University of Heidelburg Discussion Paper Series, No. 538. Jennifer Tobin and Susan Rose-Ackerman (2011). “When BITs Have Some Bite: The Political-Economic Environment for Bilateral Investment Treaties,” The Review of International Organizations, Volume 6, Number 1. Elizabeth Asiedu and Donald Lien (2011). "Democracy, Foreign Direct Investment and Natural Resources." Journal of International Economics, 84(1). Axel Dreher, HeinerMikosch, and Stefan Voigt (2010). "Membership Has Its Privileges - the Effect of Membership in International Organizations on FDI." CESifo Working Paper Series, (3231).

10. U.S. Regulatory Process: (a) Notice • A notice of a proposed regulation is published in the U.S. official journal, the Federal Register. • Notices are also published for significant revisions or amendments. • In addition, the U.S. Government typically notifies to the WTO Secretariat approximately 90-100 measures annually. (Reference: Administrative Procedures Act, 1946)

12. U.S. Regulatory Process: (b) Comments • Comments are accepted. • No restrictions on who may submit comments; any interested person may participate. • Equal treatment of all comments received. • Agency considers comments as it determines if and how to regulate.

13. U.S. Regulatory Process: (c) Final Rule • A final regulation, including a final technical regulation or CAP, is published in the Federal Register. • All significant comments received are addressed by the agency and published in the final regulation.

15. A whole-of-government approach will normally: • Add rationality/predictability to the regulatory process • Increase regulatory accountability to the public • Prevent conflict between ministries/agencies • Bolsters international business confidence. • Helps avert unnecessary obstacles to trade before they become the topic of international concern. • Improves a nation’s relative position for attracting FDI.

16. Summary • Introduced “regulatory coherence” as international trade and investment policy • Reviewed new WTO GRP principles under development • Briefly surveyed FDI economic research in relation to transparency and regulatory coherence • Reviewed U.S. regulatory procedures • Considered steps toward developing whole-of-governmentprocedures

17. Thank You! For questions, contact: Paul Piquado Paul.Piquado@trade.gov Bryan O’Byrne Bryan.O’Byrne@trade.gov +1.202.482.0705