Trading up: the prospect of greater regulatory convergence in North America

Business (CFIB) estimates that Canadian business annually spends $33 billion or 2.6 percent of Canada's GDP in complying with this profusion of regulatory activity. 2Similar orders of magnitude in the United States and Mexico underline the critical importance of regulations to modern life and suggest the need to consider the economic impact of subtle cross-border differences. 3 Canadians, Americans, and Mexicans look to their governments to pursue largely similar goals and objectives in their regulation of the market and in managing risk.Canadians may insist that they want to remain a distinct entity north of the US border, but they also expect many of the things that Americans demand and they look to government to ensure that they get them.Mexicans have made great strides in the last two decades in modernizing their regulatory regimes and bring them up to the standards of Canada and the United States.As work at the OECD and elsewhere has made clear, competent jurisdictions seek and achieve fundamentally similar regulatory outcomes.Continuing differences are more likely to be matters of detail and implementation than of fundamental design and objectives.Nevertheless, the regulatory differences that persist and new -often small -differences that emerge in regulatory design, objectives, implementation, and compliance procedures, impose costs and maintain distortions that undermine the three economies of North America achieving their full potential.As the World Bank points out: "the cost of complying with regulations is a key determinant of a country's competitiveness and investment climate.These costs can be direct, such as capital and operating costs, or indirect, in the form of reduced innovation, investment, and productivity.Many governments are developing new initiatives to reduce the compliance costs of achieving pubic policies, which, when properly implemented, can reduce regulatory costs and improve policy results."(World Bank 2006).The regulatory "output" in all three countries may be roughly identical, but the United States disposes of much larger regulatory resources than does either Canada or Mexico; as a result, US regulatory "input" is roughly ten times that of Canada and even more than that of Mexico.Common sense suggests that all three countries can both reduce their costs and gain superior results by aligning more deliberately with each other and benefiting from much larger joint regulatory effort in selected areas, from drug approvals to environmental standards.Canada's smaller resource level 2 In its latest survey (Jones and Graf 2001), the Fraser Institute indicated that between 1975 and 1999, over 117,000 new federal and provincial regulations were enacted, an average of 4,700 a year.It estimated administrative costs to have reached $5.2 billion by 1997/98, compliance costs $103 billion, and "political" costs (regulation-related lobbying) $10.3 billion, adding up to the equivalent of more than 12 percent of Canadian GDP.The CFIB (2005) estimate of $33 billion is limited to business compliance costs.Such estimates are at best an inexact science but do provide an indication of orders of magnitude.Canada's Policy Research Initiative is looking at better ways to measure the extent and costs of Canada's regulatory regimes.See Ndayisenga and Downs (2005) and Ndayisenga and Blair (2006).3 An extensive survey of these costs in the United States has been catalogued by the Cato Institute.In a 2004 limited to federal regulations alone, it reported that: The 2003 Federal Register contains 71,269 pages. In 2002, the Register contained a record 75,606 pages. Regulatory agencies issued 4,148 final rules in 2003. In the 2003 Unified Agenda, agencies reported on 4,266 regulations that were at various stages of implementation throughout the 50-plus federal departments, agencies, and commissions, an increase of 2 percent from the previous year. Of the 4,266 regulations now in the regulatory pipeline, 127 are "economically significant" rules that will have at least $100 million in economic impact.Those rules will impose at least $12.7 billion yearly in future off-budget costs. Of the 4,266 regulations now in the works, 859 affect small business. The five most active rule-producing agencies, which accounted for 46 percent of the rules under consideration, were the Departments of Treasury, Transportation, Homeland Security, and Agriculture, and the Environmental Protection Agency. Regulatory costs are more than twice the $375 billion budget deficit. Regulatory costs of $869 billion are equivalent to 7.9 percent of U.S. gross domestic product, estimated at $10,980 billion for 2003. Federal regulatory costs of $869 billion combined with outlays of $2,158 billion bring the federal government's share of the economy to some 27 percent. Regulatory costs also exceed all corporate pretax profits, which totaled $665 billion in 2002 (Crews 2004).Mark Crain calculates that the total cost of the federal regulatory burden had risen to US$1.1 trillion by 2004 (Crain 2005; see also Crain and Hopkins 2001).

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