Regulations are the rules that govern the everyday life of businesses and citizens and one of the key levers by which governments act to promote economic prosperity, enhance welfare and pursue the public interest. To achieve these objectives and ensure regulations are of high quality and fit-for-purpose, a systemic governance framework is needed. In that sense, regulatory policy refers to the set of rules, procedures and institutions by which governments develop, implement and evaluate regulations. Recognising the critical importance of regulatory policy, OECD countries adopted in 2012 the OECD Recommendation of the Council on Regulatory Policy and Governance, which sets out the instruments and institutions that help governments prepare better new rules and improve existing rules.

Stakeholder engagement is a central and fundamental pillar of regulatory policy. The central objective of regulatory policy – ensuring that regulations are designed and implemented in the public interest – can only be achieved with help from those subject to regulations, be they citizens, business, civil society or other members of the community. Stakeholder engagement allows governments to collect better evidence as a basis for their decisions. It aims to improve the quality of the rule-making process by getting more diverse inputs and opinions from those who will be affected by government’s decisions. Moreover, engaging affected parties in the process of developing new regulations has shown to increase the sense of ownership and to lead to better compliance with regulations. A transparent regulatory process increases credibility and trust in regulatory institutions.

Regulatory Impact Assessment (RIA) is a key policy tool that provides decision makers with detailed information about the potential effects of regulatory measures on the economy, environment and social arrangements. It is therefore a core tool for evidence-based policy making. It is defined as the systematic process of identification and quantification of benefits and costs likely to flow from regulatory or non-regulatory options for a policy under consideration. By strengthening the transparency of regulatory decisions and their justification, RIA may also bolster the credibility of regulatory responses and increase public trust in regulatory institutions and policy makers. The use of RIA has expanded over the past 30 years to become universal across OECD member countries; however, there is no single model that is followed in implementing this regulatory policy tool. The design and evolution of RIA systems has taken into account the institutional, social, cultural and legal context of the relevant country or jurisdiction.

There is a fundamental value in assessing the effectiveness of regulation once it is in force. It is only after implementation that the effects and impacts of regulations can be fully assessed, including direct and indirect incidence and unintended consequences. Regulations may also become outdated as the result of a change in societal preferences or technological advancement. Consequently, regular reviews are needed to ensure that regulations are still necessary, relevant and fit for purpose. Evaluation of regulations is mainly carried out ex ante through the Regulatory Impact Assessment process while ex post evaluation remains the least developed of the regulatory tools. Administrative simplification, on the contrary, has been widely used both in OECD and LAC countries. It encompasses the reduction of administrative requirements to comply with regulation and moves from a simple review of norms to the quantification of the administrative burdens and better targeting of the simplification efforts.

A competition-friendly regulatory environment can help raise living standards by stimulating investment, trade and employment. Competition provides the incentives for firms to allocate resources efficiently and contributes to diffusing innovation more rapidly, which may help bridge the persisting productivity gap between the LAC region and advanced economies. It also benefits consumers by facilitating a broader choice and better quality of products at a lower price. There are two important elements to a competition-friendly regulatory environment. First, regulations must be designed in a way that enhances competition and lowers entry barriers encouraging firms to innovate and improve efficiency without being too heavy a burden on companies. Second, these regulations must be complied with or enforced in a transparent and cost-effective way. The OECD Indicators of Product Market Regulation (PMR) are a comprehensive and internationally comparable set of indicators that measure the degree to which policies promote or inhibit competition in areas of the product market. The overall PMR indicator aggregates information in the areas of state control, barriers to entrepreneurship and barriers to trade and investment. A high score of the composite indicators signals that regulatory conditions are less favourable to competition.