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1
Benefits Derived from the 2011-2012 Regulatory
Burden Reduction Program
The document was prepared by LATIN-REG in cooperation with the Federal
Commission on Regulatory Improvement of Mexico1
Alfonso Carballo Pérez, Margherita Corina, Rafael Hernández Kotasek & Franco A. Pineda Garduño
November 2012
ABSTRACT
For the 2011-2012 Regulatory Improvement Program (PMR) in Mexico the strategy was
based on the reducing the red tape to increase Productivity and Economic Growth. Based on
the Standard Cost Model (SCM), COFEMER estimated the benefits of the actions taken by
the Federal Government departments and agencies; this was the first measurement carried
out by a country in the Americans. The resource liberation through the various actions
undertaken during the present Federal Administration was estimated in the order of 1.2 % of
the 2009 Gross Domestic Product (GDP) resulting in an effective reduction of the regulatory
burden.
Due to the right legal instruments established in the year 2000, Mexico has now the
adequate tools to carry out a constant evaluation of its regulatory collection at least every two
years. To this end, the main focus was to reduce administrative burdens on productive
activity, so that financial resources, previously dedicated to regulatory compliance, are
released in order to increase productivity in the country. Unlike previous Regulatory
Improvement Programs executed, the strategy designed for the 2011-2012 programs
established the application of the Standard Cost Model methodology in order to quantify the
benefits of the improvements implemented in the federal proceedings, and thereby
identifying the liberated resources generated to benefit individuals.
1 LATIN-REG is the Latin American Network on Regulatory Improvement and Competitiveness. This publication is
available in www.latin-reg.org and www.cofemer.gob.mx.
http://www.latin-reg.org/http://www.cofemer.gob.mx/
2
I. REGULATORY IMPROVEMENT AND ECONOMIC CRISIS
The regulatory improvement process has taken relevance in the past couple of decades
around the world due to several reasons like the current economic situation, strategies for
increasing competitiveness and a citizen-friendly government approach. This is why in the
year 2000, the Mexican congress provided tools for the federal government to lead the
national regulatory agenda to implement regulatory reform actions. As a result form this; the
Federal Commission on Regulatory Improvement (COFEMER) was created that year by
amendments to the Federal Administrative Procedure Act (LFPA)2. The article 69-E of the
Act establishes that the COFEMER’s mandate is to promote transparency in the elaboration
and application of regulations and that they generate benefits that exceed their costs and
maximize society’s benefits.
One of COFEMER’s main attributions requires a constant revision of the regulatory
framework, so for that matter, Article 69-D, Section II, of the LFPA, requires departments and
agencies decentralized federal government to submit a Regulatory Reform Program in order
for COFEMER to review at least every two years. To carry out the review and improvement,
not only in the process of regulatory reform, but in the general procedure for making
regulations, COFEMER’s agenda promoted a significant revision of the regulatory
framework.
The amendments to the LFPA in the year 2000 also established a key organism to the
successful implantation of the regulatory reform strategy; the Federal Regulatory Reform
Council was established in the Article 69-F as an intermediary between the public, social and
private sectors to gather the views of these sectors on regulatory reform. This organism was
designed as a consultative body and regulatory planner, to include the social, academic and
business sectors, as well as the government agencies which issue regulations.
The strategy for the 2011-2012 Regulatory Improvement Programs was a result of the
consensus achieved in the Fourteenth Meeting of the Federal Council for Regulatory Reform,
where it was established that the regulatory improvement programs should be targeted to
increase productivity; in order to review regulatory issues that detonate greater economic
growth.
As it was mentioned above, the Regulatory Improvement Programs were established in the
Federal Administrative Procedure Act from 2000, as the Mexican government was provided
with a number of public policy tools to do a review of the regulatory framework. This means
that this strategy works as a filter to ensure that this regulation meets quality standards in
terms of regulatory impact. Therefore, with the Regulatory Improvement Programs the
2The whole legislation can be found at: http://www.cofemer.gob.mx/documentos/marcojuridico/LEYES/lfpa.pdf
http://www.cofemer.gob.mx/documentos/marcojuridico/LEYES/lfpa.pdf
3
government has a tool with which every two years the decentralized departments and
agencies of the federal government must conduct a regulatory review of their regulatory
collection.
One of the main and innovative aspects derived from this meeting is that the 2011-2012
Regulatory Reform Programs should be motivated within an international methodology,
originally developed by the Dutch finance ministry, which has to do with cost estimates,
known as the Standard Cost Model (SCM). This methodology helps to focus efforts and to
consider proposals with the most impact and provide measurable results regarding the
liberation of resources. The council also decided to set specific targets for reducing
administrative burdens and to fully involve the productive sector given its importance.
Due to the established principles above, the new strategy for the 2011-2012 Regulatory
Improvement Program has focused on: first, measuring the economic cost of regulations, as
well as, having a strategy that really liberates financial resources; and finally, ease of
implementation, particularly that improvements would be carried out through administrative
channels to have immediate effects and the deadline could be met (14 months).
The regulatory reform is essential to trigger higher levels of productivity and economic growth
in an international context in which fiscal and monetary policy has limited impact. Currently,
macroeconomic stability in Mexico allowed having a strong economy that provides certainty
to local markets. However, Mexico has remained very moderate in terms of growth rates over
the past three decades. Similarly, given the international situation, various countries in the
world have regarded the regulatory reform policy as a tool to improve their economic
situation.
Graphic 1. GDP growth per worker
Graphic 2. Productivity Evolution in
Mexico
Source: Prepared by COFEMER.
050
100150200250300350400450500
1980 1985 1990 1995 2000 2005 2010
Vietnam Corea Singapur
Hong Kong Malasya Tailandia
México
Korea
Thailand Malaysia
Mexico
Singapore
GDP per capita
GDP per worker
Capital per
worker
TFP
0.8
1.0
1.3
1.5
1.8
2.0
2.3
2.5
2.8
19
60
19
63
19
66
19
69
19
72
19
75
19
78
19
81
19
84
19
87
19
90
19
93
19
96
19
99
20
02
20
05
20
08
4
One of the biggest problems caused by the excessive costs of an administrative regulation is
the informality of firms in developing countries; informality is reflected directly in the
companies’ factor productivity and it stalls their competitiveness. When a regulation is poorly
designed and is very costly for the entrepreneur, there is an incentive to prefer informality.
This causes serious consequences for entrepreneurs and the economy of a country.
Informality restricts companies from a range of opportunities such as access to larger
markets, have legal certainty, guaranteed property rights by the State, or to have access to
credit and financial services in order to grow. Red tape reduction strategies are fundamental
to incentive formality in businesses and increase their productivity. For example, the
relationship between informality and productivity is more evident in various Latin-American
countries. According to McKinsey & Company Colombia, productivity in the formal sector in
Colombia accounted for 41% of the productivity of the United States of America, while in its
informal sector it’s only 6% of U.S. productivity. This means that the productivity of the formal
sector is 7 times higher than the productivity of the informal sector. This creates significant
impacts on economic growth in Colombia, given that on average 58% of the workforces in
this country are in the informal sector.
The economic impact of excessive administrative burden is such that a recent study
requested by the European Commission and carried out by the Dutch consultancy ECORYS,
show that the regulations in the commercial sector cost the European Union up to €122.000
million euros each year. At a time when resources are fundamental to economic recovery,
the study concludes that the disappearance of these regulations, many of them unnecessary,
would provide benefits of €1, 220,000 million per year to the European GDP and an exports
increase of 2.1%3.
It is therefore important to conduct reviews of the regulatory collection or the regulatory
simplification, better known as Red Tape Reduction, allowing governments through the use
of tools such as the Standard Cost Model, to quantify the economic costs imposed by
regulation to subsequently establish measures designed to reduce these economic costs.
That is why COFEMER promotes the review of the regulatory collection in order to quantify
the economic cost of regulation and establish an agenda for reducing administrative burdens.
To achieve the goals set by regulatory reform in which the proceedings that are not beneficial
to a country's economic actions are removed, an internal strategy should be attended in
order to assure compliance with the reform. Considering that in many occasions the main
impediment while conducting a red tape reduction process is the structure and the
governmental apparatus, where the beneficiaries of excessive regulatory burdens are in an
opposing position and willing to sabotage any reform that eliminates their benefits; while on
3 In Holland it was discovered that the administrative burden assumed by business reached an annual amount
equal to 3.6% of GDP of the country.
5
other hand, there is weak support those who doubt the effectiveness of the policy. Therefore,
it is essential to have a set of strategies by policy makers to help implement regulatory
simplification rules despite the resistance from one or more sectors of both the public
administration and the private sector.
A good regulatory simplification process must be designed to overcome passive resistance in
the public sector. Moreover, the political strategy must be supported by a public relations
campaign to show to the public the importance of the reforms, and that the political class
commits to concrete results, and thus as stated by Mark Moore4 these relationships will
legitimize and generate value to the process of simplification.
Figure 1. Moore’s Public Strategy in the 2011-2010 PMR
Source: prepared by COFEMER
On the other side is the legal strategy, which consists in improving legal certainty and
transparency, not legal chaos. The reform of hundreds of government statutes is just one
step that requires legal concepts, tending to ensure that decisions are carried out exactly as
planned, without causing any legal confusion. For example, Mexico included in its regulatory
simplification "all business procedures”, which were defined as all applications for companies
to provide information to the public. Mexico also limited the scope of the red tape reduction to
4 According to Mark Moore (1995), the strategy of the public agencies heads must meet three basic elements:
i. The strategy must have a substantial value (it must generate valuable products at low cost). ii. It must be legitimate and politically sustainable, i.e., it must be capable to attract, continuously, authority
and money from the political environment that it must respond to. iii. It should be achievable from an administrative and operational standpoint. In this sense, the strategy
must be able to be performed by the organization with support from other areas of the government. The elements above make up what is known as the strategic triangle, or also known as the Moore's strategic triangle, without which the strategies of managers of public agencies may not create value for society.
Value.
The Reduction of regulatory costs through
improvemt implemtetions.
Sustainability.
Promotion and support from the
Federal Regulatory
Council.
Achievability.
Cooperation from the
government agencies to
implement the PMR.
6
the ministerial and government statutes, leaving the legislative laws outside the scope of the
first phase of the guillotine.
Finally, the administrative strategy is crucial because of the challenge of carrying out a
reform in government that requires broad participation of hundreds of procedures and
regulations. There are two key elements of the management strategy:
o First, the guillotine’s framework and the institutions should be formally established
and credible. This can be achieved through a government decision, like it was made
in Mexico through the LFPA which established processes, institutions, objectives and
the deadlines for completion.
o Second, the institution or institutions that perform the regulatory simplification process
should be supported by experts that manage its application and carry out a thorough
review process and independent from each of the provisions in the guillotine.
COFEMER took the initiative to review and improve the whole regulatory process to increase
their effectiveness and achieve higher level of social welfare. The review was conducted
from an integral perspective that included policies, institutions and tools used in this process.
This process took into account a horizontal and a vertical approach to include the various
institutions involved in the regulatory process as well as international experience in terms of
the regulatory reduction strategy.
II. INTERNATIONAL EXPERIENCE AND STRATEGIES DEVELOPED WHILE
IMPLEMENTING A RED TAPE REDUCTION STRATEGY
The design for the 2011-2012 Regulatory Improvement Program was planned carried out
through an analysis of international experience, which had as its main axis reducing
administrative burdens on business; in order to understand and apply good practices and
avoid the mistakes that were taken by the design of the malpractices.
In this regard, not only Mexico has benefited from this strategy; countries facing economic
crises use the red tape reduction strategy to promote development, eliminate barriers to
business and quickly recover from the crisis:
7
Table 1. International Regulatory Red Tape Reduction
Country Reform objective
Number of
Regulations
Before the
Guillotine
% of
Regulations
Eliminated in
the Reform
% of
Regulations
Simplified in the
Reform
Korea
(11 months) Regulations 11,125
48.80
% 21.70%
Mexico
(9 months) Procedures 2,038 54% 27%
Moldavia
( 6 months)
Procedures 1,130 45% 13%
Permits 400 68% 20%
Ukraine
(12 weeks) Regulations 14,000 36% 7,2%
Bosnia
(4 months)
Procedures 331 21% 23%
Inspections/
Regulations 2,473 58% -
Croatia
(9 months) Business Regulations 2,683 27% 30%
Source: Jacobs & Associates
According to international best practices, reducing the administrative burdens could reduce
business costs; in particular, if a government succeeds in removing at least 25% of the cost
of the administrative burden and simplify most of the remainder. The economic impact of the
cost reduction could be enormous; it could result in an increase in GDP between 1% and 3%.
In this regard, the Dutch Bureau of Economic Policy Analysis estimates that a 25% reduction
in the cost of administrative burdens would lead to a 1.7% increase of GDP in Europe.
Thus, reducing the administrative burden should not be done in small doses; to obtain a
successful regulatory reform it is necessary to focus on obtaining large positive impacts. It is
therefore important to undertake substantial reductions in unnecessary and inefficient
bureaucracy, because otherwise, small changes would lead to the failure of the objective, as
governments continually create more bureaucracy.
Many countries have implemented several regulatory reforms, but most have struggled to
achieve solid results, the difficulties are represented by problems in design and
implementation, including coordination between ministries and stakeholder participation. In
this sense, international best practices highlight the importance prioritizing the objectives,
identify practical solutions, implement reforms as scheduled and monitor the results. Thus,
there are three main tasks for reforming the regulation:
8
Figure 2. Main tasks for regulatory reform
Source: Prepared by COFEMER
The reform effort must control the "flow" of new regulations and the "stock" of the old rules.
To achieve the objectives, according to international best practice, an applied checklist
should be established, through the following stages:
Figure 3. Checklist
Source: Prepared by COFEMER based on Jacobs, Cordova & Associates information.
After these three stages, each government prepares a list of what regulations to eliminate or
simplify, each public agency evaluates each policy in a written document, using a simple and
standardized checklist.
Modernize the existing regulatory actions to remove barriers to entry, reduce regulatory costs and fill gaps in the regulation.
Control the regulatory flow, better tools for monitoring and evaluating the quality of new laws and regulations, and strengthen the capacity of institutions to develop and implement regulatory
instruments.
Provide institutions the capability to reform, by adopting medium-term strategies, eliminate unnecessary regulations and strengthen the capacity of institutions to encourage the
participation of private actors in the reform..
1. The government sets the scope of the guillotine. Its range may vary from narrow to wide. For example, Mexico, restricted the guillotine to procedures, which were the main source of regulatory burden on the public.
2. The government adopts a legal instrument for the guillotine, to create the processes, institutions and the schedule for the guillotine. This can be done either by law or by government decree.
3. In the decree, the government calls on all public bodies to establish, on a certain date - usually a couple of weeks - a complete list of the provisions included in the aplication of the guillotine.
9
One of the biggest problems caused by poorly designed administrative regulation is that it
generates high regulatory burdens that impose high costs to society. In almost all countries,
their governments for decades issued administrative regulations to address particular
problems. However, while designing regulations, governments did not establish mechanisms
for periodic review of the effectiveness and efficiency of such administrative regulations. To
illustrate this, the cases of South Korea and Ukraine are useful:
South Korea5 had its first efforts to boost regulatory review of its stock in 1980. However, the
results were limited in scope, as it focused on the implementation of "soft" reforms. So they
had business as allies, but the bureaucrats as enemies, and the implementation of the
approach of "bottom up "was not the best strategy. Later, in 1998, derived from the Asian
crisis, the public interest in promoting economic growth increased in Korea, so the lack of
flexibility of the economic sectors, over-regulation of business and the need to get more
foreign direct investment were emphasized. Therefore, ministers were instituted in 1998 to
eliminate 50% of each ministry regulations by the end of the year. The results were: i) from
the current regulations (11.125), 5.430 (48.8%) were eliminated, however, by 2002; the new
regulations began to increase, so that the reduction was only 33% compared with 1998. In
addition, from 1992 to 2001, the barriers to entry in the industry had dropped from 45% to
35%. Importantly, one of the most costly problems of regulation in Korea was the lack of
clarity and room for interpretation of many standards and regulatory procedures.
Ukraine6 is another country that focused on the review of its regulatory collection. The initial
motive for that country to improve its regulation was to improve relations with Western
Europe. In this sense, one of the biggest challenges was dusting the economic apparatus
and thus regulations that hindered economic development. Regulatory reform in Ukraine is
divided into three stages: i) 1998-2000, which represents the first attempt to improve the
regulatory situation, but whose implementation was weak and faced significant resistance
from local authorities and bureaucracy benefited from the deregulation ii) 2000-2004, the
plan intensified legal and practical reforms, but the bureaucratic conservatism remained and
it was impossible to implement the Regulatory Impact Assessment (RIA) correctly, SMEs
failed to join forces effectively to form a pressure group and there was an identified misuse of
authority and corruption in the executive branch, and iii) 2005, the regulatory climate
revolution with the "regulatory guillotine”, where a presidential decree ordered a quick review
5 The World Bank Group, (2008), Regulatory transformation in the republic of Korea: Case studies of reform
implementation experience, and Ha, Byung Ki, and others. (1999), The Economic Effects of Korea’s Regulatory
Reform. Seoul: Korea Institute for Industrial Economics and Trade. 6 Scott Jacobs, Astrakhan Irina. (2006) Effective and Sustainable Regulatory Reform: The Regulatory Guillotine in
Three Transition and Developing Countries, and World Bank, IFC. (2008) The State and Business: Time to remove barriers that hamper growth.
10
of existing regulations, which identified that more than half of burdensome rules and
regulations were unfriendly to entrepreneurs, thus more than 4,900 were repealed.
In this regard, in recent years, the Standard Cost Model has been adopted by a growing
number of countries such as Austria, Belgium, Czech Republic, Denmark, Estonia, France,
Germany, Italy, Latvia, Netherlands, Norway, Poland, Slovenia, Spain, Sweden, United
Kingdom, Romania, Ireland, Portugal, Turkey, Cyprus, Greece, Lithuania, Finland and
Australia.
These countries have adopted this methodology to map and measure the administrative
burdens derived from regulation, from which it was possible to define a quantitative target
and measure progress in reducing administrative burdens.
Graphic 3. Countries that have implemented a regulatory burden reduction
Source: Prepared by COFEMER based on the International Standard Cost Model Manual and the European
Press Release: http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/06/425&format=HTML&aged=1&language=EN&guiLanguage=en
0.0% 2.0% 4.0% 6.0% 8.0%
Finlandia
Reino…
Suecia
Dinamarca
Irlanda
Bélgica*
República…
Alemania
Francia
Paises…
Eslovenia
Austria
Eslovaquia
España
Italia
Portugal
Polonia
Grecia
Hungria
Costs of Regulación% of GDP
0% 10% 20% 30% 40%
Finlandia
Reino…
Suecia
Dinamarca
Irlanda
Bélgica*
República…
Alemania
Francia
Paises Bajos
Eslovenia
Austria
Eslovaquia
España
Italia
Portugal
Polonia
Grecia
Hungria
Administrative burden goal 2012
0.0% 2.0% 4.0%
Suecia
Reino Unido
Finlandia
Dinamarca
Irlanda
Bélgica*
República…
Paises Bajos
Alemania
Francia
Eslovenia
Portugal
Italia
España
Austria
Polonia
Eslovaquia
México
Grecia
Hungria
GDP estimated increase for 2025
2.2%
3.8% of
GDP on
average
for
countries
25% of
costs on
average 1.4% of GDP
on average
Hungary
Greece
Poland
Portugal
Italy
Spain
Slovakia
Austria
Slovenia Netherlands
France Germany
Czech Republic
Belgium*
Ireland
Denmark
Sweden
UK
Finland
Hungary Greece Poland
Portugal Italy
Spain Slovakia
Austria Slovenia
Netherlands France
Germany Czech Republic
Belgium* Ireland
Denmark Sweden
UK Finland
Hungary Greece
Poland
Portugal
Italy
Spain
Slovakia
Austria
Slovenia
Netherlands
France
Germany
Czech Republic
Belgium*
Ireland
Denmark
Sweden
UK
Finland
http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/06/425&format=HTML&aged=1&language=EN&guiLanguage=en
11
Once the quantification of the administrative burden (which was equivalent to 3.8% of GDP in
these countries), it provided the basis for implementing comprehensive strategies of
"trimming" these costs (goals of 25% on average) and boosting their economic growth (with
increases of 1.4% on average of GDP in the long run). Knowing the amount of burdens in
their countries has allowed them to establish a reduction target; they also have been able to
identify priority areas, deadlines and the types of actions that will allow them to achieve their
goals. However, a tool to measure the burden reduction is needed; in this case, the selected
tool was the SCM because it had been already used in a first effort to measure the costs of
regulation.
III. METHODOLOGY USED BY COFEMER TO MEASURE THE BENEFITS FROM
THE PMR
The Standard Cost Model is a regulatory impact assessment methodology used to estimate
administrative costs faced by businesses and citizens that are generated by regulations
imposed by governments. This model provides a simple and consistent method that can be
used by anyone responsible for managing and improving regulation to implement the
analysis, review and improve its regulatory collection.
There are numerous advantages in adopting the Standard Cost Model in the simplification
process:
Using the Standard Cost Model it is possible to identify those specific parts of the
regulation that generate the greatest burdens whose compliance is considered by
companies as especially burdensome.
The measurements reveal the life cycle stages in which companies incur in higher
administrative expenses; it is possible to identify the areas where the simplification
process can be promoted with greater effects;
The ranking shows where efforts should be focused to simplify regulations;
The Standard Cost Model helps ministries to identify the full costs of their
administrative burdens, contributing in directing resources within a process of
simplification;
Quantitative results can significantly help identify which loads generate greater
nuisance to businesses or what are the policy areas that companies find
inappropriate or difficult to meet.
Because of its advantages, the Standard Cost Model has been adopted by a growing
number of countries as a basic tool for regulatory revisions to their collections, and to
12
generate accurate information on their regulations to support them in the implementation of
substantial improvements. Even the Standard Cost Model has been used to implement
programs with a greater reach in order to boost productivity and economic growth.
With this perspective, the Standard Cost Model allows us to identify common or standard
activities to be held to perform a duty, which are determined by hours spent by activity and
monetize the average hourly cost. In the case of the model implemented by COFEMER, the
twelve standard activities from the original model were condensed in only eight to simplify the
process.
Table 2. Standard Activities
Standard Activities
1. Identification and
understanding of
requirements (understanding
of regulation).
Quantifies the time spent
reading the entire regulation, so
that the citizen can build an
action plan to comply with the
regulation.
2. Generation of new
information in order to
comply with red tape.
Quantifies the time that the
citizen spend in gathering new
information7.
3. Collection of pre-existing
information (information
already owned by the
individual and is not required
to get or generate).
Quantifies the time that the
citizen dedicates to submit, in a
timely manner, the information
in his possession.
4. Meetings with internal
staff (meetings with the staff
involved in comply with a
procedure).
Measures the time the citizen
dedicates to meetings with
public officials to comply with
the regulation.
5. Filling forms and reports
Measures the time spent by the
citizen in managing the
process.
6. Meeting with external Measures the time dedicated by
7 Red tape information requirements are classified in two categories: new information and pre-existing
information. The new information is that which must be obtained by the citizen through additional actions.
13
Standard Activities
services (meetings with
consultants hired by the
entrepreneur to meet the
regulation)
the citizen in meetings with
experts to help him to comply
with the procedure.
7. Generation of backup files
Allows measuring the time
spent by the citizen in
generating information backup,
from physical files to electronic
files.
8. Transportation to
government offices, waiting
times and time dedicated to
make payments
Measure the time that a citizen
dedicates to the process
management by the time spent
on transportation (return),
waiting times in banks and
government offices.
Source: Prepared by the Federal Regulatory Commission based on the International Standard Cost Model
Manual.
As already mentioned the Standard Cost Model is based on measuring the average time to
perform activities to comply with the regulation and also estimate its cost. The parameters
used in this measurement are:
Price: The monetary unit basis for the measurement, considered as a rate per unit of
time. Mostly, the price is determined by the wages of the people involved in the
administrative burden, and in the case of outsourcing, it is understood as the generated
cost per hour of service.
Time: Amount of time spent on regulatory compliance.
Quantity: Size of the population affected by the regulation, i.e. number of firms and
individuals comprising the "target population" of the regulation in a year.
Combining these elements, it is possible to obtain the basic foundation of the Standard Cost
Model: (Time) x (price) x (quantity)8. With these parameters it is also possible to estimate the
8 World Bank, “Here is Your Money: Using the Standard Cost Model to Measure Regulatory Compliance Costs in
Developing Countries”, 2010.
14
average cost of complying with regulations for businesses and citizens, and makes easier to
identify areas of opportunity in specific regulations.
In this way it is possible to identify which regulatory actions have a greater impact for the
entrepreneur, and significantly helps to know which activity is more costly. For example, if
fulfilling a certain business process requires the presence of the company´s CEO in the
government office; the procedure has a high cost, because, as we saw, the Standard Cost
Model is based on the measurement of wages (price).
The Standard Cost Model implemented by COFEMER supposed that compliance with
business regulation involve primarily four types of labor specialization: secretarial, technical,
professional and managerial. This means that the more complicated the regulation, people
with a higher degree of specialization is needed to fulfill the requirements, therefore the cost
of compliance increases for business.
The last stage of the process of reducing administrative burdens posed by Standard Cost
Model is the identification of the simplification measures. Once the activity where the cost is
relevant is located, a number of measures are posed to focus on simplifying the process of
complying with the regulation.
As mentioned before, an advantage of this model is that it allows to "carefully aim" in order to
achieve a mayor economic impact with the implementation of measures design to reduce
administrative burden. Because the Standard Cost Model disaggregates administrative
activities, we can also identify which activity "hurts more" to the entrepreneurs and pursue
reforms that generate the greatest benefits.
It is important to mention that the Standard Cost Model sets a "minimum standard" that is,
the estimates reflect the average of reality. With this setup, regulators can evaluate the
average impact of their actions, there will be cases where the cost is well above or well
below average; at least, the SCM allows us to dimension a part of the reality of the local
economic environment.
COFEMER designed a methodology in which it is possible to identify common or standard
activities that must be done in order to comply with a federal regulation, these activities are
determined by the hours spent by type of activity and are monetized by the average cost per
hour. The methodology developed by COFEMER takes into account the life cycle stages of
firms (Opening, Operation and Closure) and red tape imposed to citizens and
nongovernmental organizations (NGOs). Also, the classification was based on the
procedures that ministries and government agencies have discharged in the Federal Registry
of Procedures and Services.
15
In the Standard Cost Model developed by COFEMER, according to the procedure being
analyzed, the benefits are measured as follows:
Resource Liberation. It is the release of resources generated in the economy caused by the
simplification of procedures and the reduction in resolution times by the authority. The
release has two components: first, monetary resources are released and second, time in
man-hours is also released.
The release of monetary resources is the difference between the Aggregated Administrative
Cost prior the improvement proposals ( and the Aggregated Administrative Cost after
the improvement proposals ( .
The release in hours is obtained from the difference between the Total Time spent by
standard activity before the proposed improvements ( and the Total Time spent by
standard activity after the proposed improvements ( .
Aggregated Administrative Cost . Is the product of the sum of administrative costs
by standard activity of each procedure , times the frequency of use of the procedure,
with 𝑡=0,1. Where 0 denotes the period before the proposed improvement and 1 denotes the
period after the proposed improvements.
Aggregated Opportunity Cost ( . Is the product of natural day response from the
authority, times a measure of the cost structure of the subsector which is affected by the
process, times the interest rate.
The model was fed with the information contained in the procedures listed in the Federal
Registry of Procedures and Services at December 5, 2010. The red tape was classified into
three categories: business, citizens and associations and organizations (the cost estimation
programming was done according to the life cycle of the firm: costs for opening procedures
were estimated first, operation procedures after, then closing, and ultimately citizens):
Procedures by Category: Business (Opening, Operation and Closure), Citizens and
NGOs.
Ministry and Administrative Unit.
Instrument Type: Approval, authorization, notice, cancellation, granting,
preservation, financing, registration, license, contract model, modification, permit,
extension, registration, renewal, transfer and application.
Subsector of Economic Impact: Those found in the Reference System of 2009
Economic Census.
16
Subsequently, requirements of each procedure were classified into two categories: first, pre-
existing are those requirements that entrepreneurs or citizens already have in their
possession and do not require additional activities to get and submit them to the agency;
second, new requirements, which imply that entrepreneurs or citizens should incur in
additional activities to obtain the required information. An approximation is also made for the
distribution of working hours per participant in the completion of the procedure with respect to
the type of data and standard activities that have nothing to do with data. This exercise is
done both before and after the proposed improvements. In this sense it is important to note
that all information requirements and response times by the authority was taken from the
information recorded by government agencies in the Federal Registry of Procedures and
Services.
Based on the Standard Cost Model, standard activities and their relation with data
classification are as follows:
Table 3. Relation between Data and Standard Activities
Standard Activity Data Classification
1. Identification and
understanding of requirements New y Pre-existing
2. Generation of new information New
3. Collection of pre-existing
information Pre-existing
4. Meetings with internal staff New and Pre-existing
5. Filling forms and reports New y Pre-existing
6. Meeting with external services
Without relation to
data type
7. Generation of backup files
Without relation to
data type
8. Transportation, waiting and
payments
Without relation to
data type
Source: Prepared by COFEMER based on the International Standard Cost Model Manual.
The Opportunity Cost is the amount of resources stop flowing in the economy since the
authority takes a certain period of time to give a resolution to the entrepreneur when the
procedure is analyzed to start a business. For the process i at time t, the Opportunity Cost is
calculated as follow:
(
)
17
Donde:
: Gross capital formation in the economic subsector
: Fixed costs in the economic subsector
: Average revenue of the investors
: Red tape response time
: Economic units by economic subsector
: Annualized daily rate of return on CETES to 28 days
For procedures classified as citizen red tape, the Opportunity Cost calculation is as follows:
Given the particularities of the citizen red tape, not every procedure of this type has an
Opportunity Cost ( ). From this it was concluded that all those procedures that represent
the fulfillment of an obligation, this is due to the delay of the authority to address the potential
impacts of access to employment and thus generates a cost to citizens.
Finally the Total Economic Cost ( ), is calculated as follows:
This mean that the model from COFEMER adds a measure of the opportunity cost of the
administrative burden, originally measured by the Standard Cost Model of the Dutch Ministry
of Finance, to finally estimate the Total Economic Cost of the Procedure.
In addition, each of the measurements obtained times the frequency of use allows us to
obtain their aggregated values, being as follows:
Aggregated Total Economic Cost ( . Is the product of the sum of the Aggregated
Administrative Cost and the Aggregated Opportunity Cost , both in period t, with
t=0 (where 0 denotes the current status of the procedures).
Aggregated Administrative Cost ). Is the product of the sum of administrative costs
per standard activity for each procedure , times the procedures frequency of use, with
t=0.
Aggregated Opportunity Cost . It is the product of natural days times the daily
response by the authority times GDP per capita.
18
IV. THE REGULATORY IMPROVEMENT PROGRAMS
Regulatory simplification strategy aims to review a large number of regulations, eliminating
those that are no longer needed, without the need for lengthy and expensive legal actions for
each regulation. It is a systematic and transparent approach to review, remove, and
rationalize business regulations, which provides a quick solution to the most critical problems
of unnecessary and inefficient regulation, and creates an opportunity to build a permanent
system of quality control for new business regulations in order to prevent the recurrence of
the same problems.
Overall, the strategy of red tape reduction is guided by the answers to three key questions:
Graphic 4. Strategy Guide for the red tape reduction
Source: Prepared by COFEMER based on Jacobs, Cordova & Associates information.
Any regulation that passes the three tests is placed in the "Keep" category. If the regulation
does not pass the first two tests, it is placed in the "Remove" category. Finally, the
regulation that passes the first two tests but fails the third is placed in the "Review" category.
Then the questions that arise are: when to proceed with the removal of regulation? And when
to proceed with a simplification?
Table 4. Regulation Elimination and Simplification Criteria
1.- Is it necessary?
2.- Is it legal?
3.- Is it pro-business?
19
Elimination Criteria Simplification Criteria
When there is not a clear
purpose for the regulation within
the government structure.
When the regulation is obsolete.
When there are duplicated
regulations or the contradict each
other.
When regulations are not being
applied correctly and does not
generate added value.
When the regulation generates
little added value to the
government.
When the regulation violates the
consumer’s choice about goods
and services quality.
When regulation is not
compatible with the needs of the
market or international
agreements.
When criteria for elimination is
not met.
When forms and formats can be
reduced or clarified and that
comply with the government’s
needs.
When an authorization can be
replaced by a notification.
When an Information requirement
can be replaced by a general
rule.
Source: Prepared by COFEMER
The Regulatory Improvement Program in México (PMR)
For the 2011-2012 programs, it was established that the Regulatory Improvement Program
would be based on the Red Tape Reduction Strategy in order to increase Productivity and
Economic Growth. To this end, the main focus was to reduce administrative burdens on
productive activities, in order to free up financial resources previously devoted to regulatory
compliance, so they are directed to increase productivity in the country. For programming
and implementation, COFEMER considered the following characteristics in the 2011-2012
Regulatory Improvement Program:
• Targeted improvements
• Ease of implementation
• High impact improvements
Within the objectives of the PMR and with a previous analysis of the administrative burdens
from the measurements of 2010, a goal to reduce the regulatory cost was set. It was found
20
that by improving 25% of the federal procedures liberation of resources equivalent to 1.2% of
the national GDP was achievable.
In addition, through a public inquiry about the Regulatory Improvement Programs 2011-2012,
the participation of citizens and business was included; which completed two sections, one
for procedures and the other for regulations. Proposals for procedures serve the following
criteria:
I. Eliminate procedure.
II. Transforming the procedure in a notice.
III. Elimination of requirements.
IV. Establish or shorten deadlines.
V. Establishing silent-consent approval.
VI. Procedure automatization.
VII. Decrease the Frequency in which the procedure is required.
VIII. Extend the procedure’s validity
Along with the legal mandate that empowers COFEMER to implement, coordinate and
develop the regulatory reform process in Mexico, in recent years it has become essential to
improve the quality of regulation in the various levels of government to improve productivity,
competitiveness and the welfare of the society they represent. So to comply with
COFEMER’s mandate, a strategy of public consultation was implemented to gather
information about the public’s perception on specific regulations. During the whole process of
public consultation, 1028 opinions were received on specific regulations and they were
incorporated to the PMR procedure improvements.
Regulatory simplification through the PMR is an approach that can provide short-term
results. It is designed to reduce the costs of regulatory reform within a political and legal
system that is already overloaded with difficult reforms. The regulatory simplification process
is also known as a Red Tape Reduction Strategy. The red tape reduction can be an effective
way to reduce unnecessary bureaucracy and thereby meet a more carefully regulated
system. The combination of simplicity and speed, and the results already obtained, provide a
relatively promising basis for regulatory reform.
21
Organizational Structure for measurement and simplification of regulatory burdens
The previous programs were characterized by a schedule of actions in terms of procedures,
in order to comply with the registration requirements of the Federal Registry of Procedures
and Services and to set the agenda for expected regulations. However, these efforts were
not oriented to promote specific actions that generate improvements for business and
citizens. Therefore, it was established that the 2011-2012 Regulatory Improvement Program
would be based on the red tape reduction with the main goal of increasing productivity and
economic growth.
To that end, a technical group focused on the implementation of the methodology of
Standard Cost Model was formed to complete the measurement of burdens involved in
federal regulation and thereby identify two aspects: first identify the country´s most costly
procedures in order to carry out a process of simplification of legislation or regulatory cuts
and thus, at the end of red tape reduction calculate its impact in monetary terms, highlighting
not only the creation of public value by the program, but also show it, make it available to
society and thereby gain its support and legitimacy.
Senior and junior level economists integrated the groups organized in COFEMER. The red
tape analysis was organized by sector of expertise to which economists had been exposed
for several years. Thus, according to the subject that was analyzed, there was a senior
economist who coordinated and supervised the work performed by junior economists. Also,
the Economic Intelligence Unit was responsible for coordinating the methodology for
estimating regulatory burdens.
V. REGULATORY BURDEN MEASUREMENT RESULTS OF THE 2011-2012 PMR
The 1.2% of GDP goal of savings due to the reduction in administrative burden
proposed by the Ministries was successfully achieved. This was possible thanks to the
commitment of most of the Ministries and agencies of the Federal Public Administration and
to the compliance, over the last six years, with most of the measures on high-impact
procedures.
22
Graphic 5. Results Analysis
Source: Prepared by COFEMER
Based on the above, objectives originally proposed in the Strategy to raise Productivity and
Economic Growth (regulatory guillotine of 2nd generation) are achieved. The strategy was
presented at the XIV Regular meeting of the Federal Council for Regulatory Reform on 14
July 2011.
Graphic 6. Institutions with more actions in red tape
1. Ministry of Economy (SE, Secretaría de Economía)
2. Ministry of Communications and Transportation (SCT, Secretaría de Comunicaciones y Transportes)
3. Ministry of Health (SSA, Secretaría de Salud)
4. Secretariat of Public Education (SEP, Secretaría de Educación Pública)
5. Ministry of Agriculture, Livestock, Rural Development, Fisheries and Food (SAGARPA, Secretaría de Agricultura, Ganadería,
Desarrollo Rural, Pesca y Alimentación)
6. Agrarian Reform Secretariat (SRA, Secretaría de la Reforma Agraria)
7. Ministry of Finance and Public Credit (SHCP, Secretaría de Hacienda y Crédito Público)
8. Social Development Secretariat (SEDESOL, Secretaría de Desarrollo Social)
9. State´s Employee´s Social Security and Social Services Institute (ISSSTE, Instituto de Seguridad y Servicios Sociales de los
Trabajadores del Estado)
10. Foreign Ministry (SRE, Secretaría de Relaciones Exteriores)
Source: Prepared by COFEMER
FRPS Total High Cost Procedures
$566,536.43
$371,846.80
4.8% of GDP
3.1% of GDP
4,649 Procedures
511 Procedures
537
294 258
207 188 187 160 122 99
69
SE SCT SSA SEP SAGARPA SRA SHCP SEDESOL ISSSTE SRE
23
The institutions committed with more red tape reduction actions were the Ministry of
Economy (SE), the Ministry of Communications and Transportation (SCT), the Ministry of
Health (SSA), the Ministry of Agriculture, Livestock, Rural Development, Fisheries and Food
(SAGARPA) and the Agrarian Reform Secretariat (SRA).
The goal accomplishment represented a resource release equivalent to $ 141,270.44 million
pesos; this represents 25% savings on the total cost of all procedures registered in the
Federal Registry of Procedures and Services, which is $ 566,536.43 million pesos. This
implies that, to date, the costs imposed by the procedures registered in the Federal Registry
of Procedures and Services are close to 3.6% of the national GDP, or $ 425,065.99 million,
fulfilling the purpose of the 2011-2012 Regulatory Improvement Program to reduce
unnecessary costs to individuals and promote economic growth. As it was noted before, the
released resources are intended for productive activities rather than in regulatory compliance
costs. As the next graphic shows, the performance of the SCT, the IMSS, the SEP, the SE
and the SRA as ministries with higher contribution to resource release by concentrating 72%
of the resources released by the strategy:
Graphic 7. Institutions with greater release of resources (Millions of pesos)
1. Ministry of Communications and Transportation (SCT, Secretaría de Comunicaciones y Transportes)
2. Mexican Institute of Social Security (IMSS, Instituto Mexicano del Seguro Social)
3. Secretariat of Public Education (SEP, Secretaría de Educación Pública)
4. Ministry of Economy (SE, Secretaría de Economía)
5. Agrarian Reform Secretariat (SRA, Secretaría de la Reforma Agraria)
6. Social Development Secretariat (SEDESOL, Secretaría de Desarrollo Social)
7. Ministry of Agriculture, Livestock, Rural Development, Fisheries and Food (SAGARPA, Secretaría de Agricultura, Ganadería,
Desarrollo Rural, Pesca y Alimentación)
8. Ministry of Finance and Public Credit (SHCP, Secretaría de Hacienda y Crédito Público)
9. Mexican Institute of Industrial Property (IMPI, Instituto Mexicano de la Propiedad Industrial)
10. Foreign Ministry (SRE, Secretaría de Relaciones Exteriores)
Source: Prepared by COFEMER
31,808
25,886
21,158
13,319 10,332 8,816 8,435
6,249 3,111 2,934
24
In particular, high impact red tape and regulation improvements were implemented, resulting
high release of administrative burdens to society, for example:
Table 5. Regulatory Improvement Actions with Outstanding Results
Ministry Policy improvement Improvement actions Liberation of
administrative burden
Ministry of Communications and Transportation
87 actions to improve 62 procedures in aviation, trucking, shipping, ports, rail and multimodal transportation.
Response time reduction.
25,407 millions of pesos
Implementation of silent-consent rules.
Requirement reductions.
Ministry of Health Simplifying medical devices registration and marketing.
Registries elimination and 1.695 extensions for safe products.
18,974 millions of pesos
Import permits elimination for these 1.695 products.
Simplified registration for 98 products in a new class of low-risk IA.
Ministry of Economy Foreign Trade Procedures.
Presentation through electronic means (Single Window for Foreign Trade).
2,663 millions of pesos Federal Government trade procedures simplification.
Requirement reductions.
Ministry of Environment and Natural Resources
Red tape simplification for establishments considered stationary sources of emission to the atmosphere, that discharge wastewater, waste generators and service providers for waste management.
Requirement reductions.
7,701 millions of pesos
Impact on big industries (chemical, petrochemical, automotive, paper, metal, glass, power generation, asbestos, cement and hazardous waste).
Mexican Institute of Social Security
Facilitating IMSS pension systems procedures.
Response time reduction.
5,270 millions of pesos It benefits to 3 million 172 thousand pensioners.
More facilities for obtaining pension account loans.
25
Ministry of Agriculture, Livestock, Rural Development, Fisheries and Food
Issuance of Animal Health Mobilization Certificate.
Response time reduction.
1,707 millions of pesos
Requirement gathering in real time, according to health needs, through electronic means.
Health safety in meat flows is maintained.
Source: Prepared by COFEMER
VI. FINAL REMARKS AND LESSONS FROM THE PMR
The red tape reduction strategy proved to be an effective way to increase the society welfare
through short-term measures that can increase productivity and economic growth for the
country. Unlike previous Regulatory Improvement Programs executed, the strategy designed
for the 2011-2012 programs was based on the application of the SCM methodology in order
to quantify the benefits of the improvements implemented in the federal proceedings and
thereby identify the resource release generated to benefit individuals.
As it was mentioned before, the funds released through the various actions implemented
during the present Federal Administration were estimated in the order of $ 141,270.44 million
pesos, resulting in an effective reduction of the regulatory burden (due to administrative
burden savings) equivalent to 1.2 % of the GDP.
Graphic 10. Regulatory Improvement Program Objectives
Source: Prepared by COFEMER.
The Regulatory Improvement Programs are a key tool for the regulation´s continuous
evaluation. The main lesson from this strategy is the conjunction of two relevant tools for
25% reduction inthe Total EconomicCost out of the4,649 procedures inthe RFTyS.
$566,536.43
$424,902.3
Agregate Economic Impact Analisis(Thousands of pesos)
Total Economic Cost
Total Economic Cost with Proposals
3.6% del PIB
1.2% of GDP
Impact over the TOTALnumber of proceduresenrolled in the RFTyS .
TOTAL Proceedures
TOTAL Proceedures
4.8% del PIB
26
regulatory improvement; the PMR and the SCM represent a major improvement in the
process of evaluating regulation and provide a different approach to the regulatory
improvement policy. It is necessary to promote a horizontal coordination between
government agencies to identify areas of opportunity to make the improvement process more
dynamic and specific.
Therefore, the conjunction between these programs and the SCM methodology has become
an important tool to measure and keep track of the regulation´s evolution. Finally, the public
consultation represented a centerpiece to reveal the views of individuals and from these
opinions additional strategies that would provide greater benefits to society where generated.
Furthermore, the effectiveness of the 2011-2012 Regulatory Improvement Program
represents a key strategy in the regulatory reform process because the benefits have a direct
impact on the individuals’ welfare.