Regulatory Impact Assessment Case Study

Better regulation. An important aim of the regulatory policy of the European Union is to develop and promote the methods of good governance among the institutions of the Community and among Member States. Governance concerns the way in which governments use their powers. It is the process of making and implementing decisions in and by public institutions while conducting public affairs, managing public resources, and enforcing regulations and involving stakeholders such as companies, consumers and public authorities. A well-defined component of good governance is the policy area aiming at “better regulation", which consists of actions to generally improve the regulatory environment, to reduce bureaucratic burdens, to design better laws for consumers and businesses. [99]

Regulations are not the only means of implementing policies. In fact, in the European practice of RIA it is one of the major tasks of the analysis to clarify whether the regulation submitted for RIA is needed at all. Besides and instead of issuing new regulations or modifying existing rules, governments may resort to subsidy instruments or to the so-called open methods of coordination which also play a considerable role in this respect. The latter governance strategy consists of (a) collecting good practices of public policies, and best examples of how companies comply with those policies, (b) comparing and analysing them at consultative meetings [100] in order to find benchmarks (c) disseminating these benchmarks and supporting their applications with the help of subsidy schemes and (d) following the results of the previous efforts in the member states. [101]

Small- and medium size enterprises in the EU face an increasingly complicated legal and administrative environment, which has reduced their competitiveness and in some cases has even rendered them relatively weak and vulnerable in the international competition [bib_38]. Therefore, the EU has set the aim of improving the quality of regulations affecting SMEs by way of centrally supported and coordinated actions, including the institutionalisation of regulatory impact assessments and consultations with the concerned interest groups in order to simplify the body of rules affecting SMEs. [102]

Regulatory Impact Assessment, as a tool for improving regulations, has been increasingly applied during the past two decades both in the central organisations of the European Union and in its member states [bib_39]. Since the 1980s a continuous effort can be observed to assess the impacts of European legislation on small and medium sized companies. [103] Already in the 90s the impact assessments of several hundreds of drafted directives were issued in publications on paper and later on the Internet. [104] In practice this means that drafts of regulations are regularly submitted to be tested according to pre-defined criteria.

Involvement of consultancies. In Europe several research and consulting institutions have specialised for the calculation of the costs of following up on regulatory rules. Certain working processes of RIA have been frequently outsourced from the public sphere into the private sphere and the involved private think tanks have brought new methods and extra knowledge to the relevant research. Impact assessments outsourced to external consulting firms by the Directorate General (D.G.) Enterprise of the European Committee usually take 9-12 months to be completed and may cost between EUR 50.000 and 400.000.

Involvement of stakeholders. In addition to relying on expert analyses, regulators frequently meet with representatives of the regulated stakeholders (companies and consumers) on formal and informal interest reconciliation meetings. The task of these consultations is to examine (a) whether the regulation is implemented by the appropriate level of public administration (subsidiarity), and (b) whether the burdens imposed by the regulators on those who are being regulated are not overly exaggerated (proportionality).

Up to 2001, the central organisations of the European Union have prepared impact assessments about planned and issued regulations by using the following criteria:

  • Impact on budgets. This form of impact assessment examines the fiscal consequences of the measures.

  • Environmental impact assessments. The purpose of these assessments is to reveal the influence of the measures taken by the Union on the environment. Its methodology has been laid down by the Environmental Directorate, but environmental impact assessments have to be carried out by all the other directorates of the EU.

  • Business impact assessments. The purpose of these impact assessments is to issue legal rules that burden enterprises within the Union to a reasonable extent only.

Around the year 2000, the demand towards clearly shaped, institutionalised impact assessment systems was growing stronger in the European Union . [105] Critics of the existing and operating budgetary, environmental and business impact assessment systems have emphasised that these systems had little connection with each other, had become inflexible and bureaucratic. Consequently, the need has been formulated to simplify and to standardise these systems. Moreover, it was suggested that impact assessments should be made mandatory in relation to every important regulatory initiative of the Union, including the ex post impact assessment of each essential legal rule every five year. Regarding impact criteria, the recommendation was made to extend the scope of impact assessments to social impacts as well.

Parallel to the demand for an extended character, requirements concerning the quality of the assessments were also growing. It was claimed that impact assessments should become an organic element of the political process, should reduce the risks of regulatory failures, and should contribute to the transparency of the regulatory reform which aims to establish good governance. Mandatory periodic consultations with entrepreneurial interest groups should be only the first step in introducing an overall regulatory management policy reform in the long run.

RIA in the context of competitiveness . These critical judgements have become more intensified following the Lisbon strategy of 2000, which has laid special emphasis on the competitiveness of enterprises. Against this background, several high level forums of the EU urged the European Committee to address the impact of administrative burdens on competitiveness with the help of impact assessments.

In particular, it has become particularly important to dynamically reduce compliance costs imposed on enterprises by EU regulations. It was understood that if these costs remain high, productivity cannot be improved and the economy cannot grow because the compliance with bureaucratic regulations absorbs the energies and resources of enterprises. Moreover, these compliance costs are often passed over to consumers, thus interfering with the distribution of incomes which further raises questions of fairness. The high level of these costs also reduces the international competitiveness of European companies, especially if overseas competitors can operate in an environment of lower regulatory costs. Extremely high regulatory costs can undermine the success and the rationale of the regulation itself, since they compel many companies to break the rules, with the consequence that law obeying enterprises which dutifully follow the regulations suffer from further competitive disadvantages.

In 2002, following the evaluation of several experimental impact assessment projects, a new method of impact assessment has been introduced in the European Union . [106] Various Directorates of the Committee of the European Union are now obliged to carry out impact assessments in accordance with a uniform framework and uniform methods. A new framework has been created which allows examining the regulations against the established criteria of economic, social and environmental consequences and confronting the draft rule with the articulated interests of the interest groups affected by the planned regulation. According to the new regulation of impact assessment, first a preliminary impact assessment of the main suggestions is prepared, and an extended, deeper impact assessment is carried out only if the results of the preliminary impact assessment indicate that more detailed assessment is necessary.

In January 2004 the financial ministers of Ireland , the Netherlands , Luxembourg , Great Britain, Austria and Finland put forward a suggestion concerning the further reform of the regulatory system of the European Union . [107] In this document they urged the elaboration of a standard European method which would be suitable for measuring the administrative burdens caused by regulations. They suggested that, following 2005, the EU should carry out the impact assessment of all new directives by means of a common, approved methodology in order to simplify regulations in a systematic and institutionalised way, both on the level of the European Union as well as in its member states.

Despite continuous reforms, the impact assessment system of the EU is still changing. In 2006, on behalf of the European Committee, an independent board evaluated and summarised the observations and experiences of the Regulatory Impact Assessments having been carried out on behalf of the central organisations of the European Union since 2002, i.e. since the introduction of the new system of impact assessments. [108] The most important deficiencies were found to be the following:

  • It is difficult to acquire data for the completion of the RIA.

  • The quantification of indirect impacts and non-evident benefits is rather problematic.

  • For the completion of high quality RIAs, expertise and resources are often missing.

  • RIAs frequently define alternative policy options that are not adequate or are not realistically evaluated.

  • Quite often the procedure of the RIA is not clear enough.

  • Consultation with the interest groups is often abandoned.

  • Often there is no appropriate coordination between the political decision makers and the staff responsible for implementing the measures.

  • It often occurs that no quality control is being carried out for RIA activities.

  • It often occurs that a RIA will be prepared only in the latest phase of the decision making process.

Despite ongoing reforms, in 2006 there was still no centralised EU institution for impact assessments, and most of the member states did not have an appointed and adequately authorised organ for the execution of impact assessments. However, a further institutionalisation of regulatory impact assessment is necessary, if the EU wants to reach its declared aims of reducing bureaucratic burdens. In 2006, the European Committee issued a declaration claiming that up to 2012, the administrative burdens of the enterprises caused by EU and member states regulations would be reduced by 25%. According to model calculations, this development would result in an expected 1,5 % increase of the GDP as well as increased investments of up to 150 billion Euros which, in turn would create many new workplaces. [109]

Regulatory Impact Assessment in the central organisations of the EU

The Member States of the European Union have taken various measures to introduce RIA systems in their regulatory policies. The pioneer of this trend is the government of the UK, but all Western European states have taken some kind of initiatives in order to obtain feedback about the quality of regulatory activity. By doing so, governments have taken steps to develop the dialogue between regulators and those affected by the regulations, to improve the structure of impact assessment methodologies, and to integrate the use of RIAs into the rule making process. Guide books have been published in a number of EU member states on how to prepare regulatory impact assessments [110] , with special respect to the assessment of the impacts exerted on small enterprises. Several Member States of the EU have launched training projects about impact assessment for public servants.

RIA guides invariably point out that the authenticity of the assessment depends on whether it is based on reliable data that are suitable for making robust, possibly quantitative inferences that even non-professionals understand well. The guides recommend the quantification of the costs and benefits in monetary units wherever possible and the application of rigorous methods. In cases when the benefits originating from the introduction of the regulation cannot be expressed in terms of money, quantification is still desired, e.g. by making statements about the expected number of lives saved, or about expected changes in the volume of pollution, etc. In cases where a complete monetisation of the expected impacts is not possible, evaluators should refer to the most significant cost or benefit items that will change as a result of the regulation.

In Europe the public administration of the United Kingdom shows the best example for a continuous, institutionalised quality control of regulatory activities. The UK government has been preparing regulatory impact assessments since 1988. [111] The work is coordinated by the so-called Better Regulation Executive, whose office is part of the Prime Minister’s Office. Its task is to supervise the quality of the regulatory activity of the government, to improve regulatory policy, to develop the methodological devices needed for preparing clear and consistent RIAs and for applying them throughout the policy process.

Impact assessments are carried out not only concerning UK national regulations, but also concerning European Union legal rules affecting public bodies, private organisations (such as small enterprises) or non-governmental organisations.

During the first decade of RIA activity in the U.K., most regulatory impact assessments have analysed regulatory proposals about small- and medium size enterprises [112] and about competition issues. In recent years, impact assessment has been extended to the policy areas of health care, sustainable development, the enforcement of equal opportunity rights and regional development. Moreover, impact assessments have been used as methodological instruments deregulation, that is, for identifying unnecessary legal rules and for facilitating the process of their withdrawal.

The guidelines of RIA activity have highlighted that efforts invested in regulatory impact assessments should be proportional to the likely effects of the proposals. In those special cases, when the expected effects of a regulation are negligible, there is no need for a detailed RIA. The assessments should pay special attention to the key indicators of compliance cost.

An evaluation of recent RIA activities in the UK. Impact assessment activities of the UK government are regularly evaluated by independent experts. In 2006 an evaluation prepared by the National Audit Office [113] covered the work of four government departments, namely, the Department for Culture, Media and Sport (DCMS), the Department for Trade and Industry (DTI), the Home Office, and that of the Department for Transport (DfT).

The above mentioned Report of the National Audit Office has produced the following findings. In 2005 various organisations of the British government completed ca. 200 regulatory impact assessments to examine the effects of a number of bills (legal drafts). Government departments routinely employ external experts with background in economics and statistics to prepare RIAs. The responsible public servants, in particular the “drafters" of regulations share the relevant legal, administrative and statistical information by using the Intranet network of the particular government department. The final form of the legal rule that is signed by the Minister of that government department which has submitted the proposal must clearly refer to the results of the RIA by stating that “the benefits of the regulation justify its costs". This statement must be justified with the help of the quantitative and qualitative techniques of RIA or, if this is not possible, then the remaining uncertainties must be clearly indicated.

Most legal rules affecting companies are issued by the Department for Trade and Industry. Among them, the above mentioned Report has evaluated the Regulatory Impact Assessments of the following regulations:

  • A modification of legal rules concerning labour courts,

  • A law on labour relations issued in 2004,

  • A law about increasing the minimum wage

and others.

The above mentioned Report of the National Audit Office was based on a large sample of already completed regulatory impact assessments, and all of which have been evaluated against various criteria. A selection of the most important evaluation criteria goes as follows:

  • Did the RIA examine all relevant options?

  • Did the RIA examine, whether the purposes of the regulation were clear, the intervention was rational?

  • Was the RIA conforming to the methodological directives issued by the Better Regulation Unit?

  • Did the RIA apply innovative techniques?

  • Did the RIA apply quantitative and qualitative assessments, including cost-benefit analyses and sensitivity analyses?

  • To what depth has the RIA examined the impacts of the regulation, its enforcement and compliance?

  • Was the „afterlife" of the regulation followed in the framework of so-called monitoring or ex post evaluation exercises?

  • Were the competition distorting or competition influencing effects of the regulation examined?

  • Have consultations taken place with affected stakeholders and have their opinions been taken into consideration in the RIA?

Based on the above findings, the Report has evaluated the individual departments by using the following criteria:

  • According to the depth of the administrative culture of impact assessment. Here the evaluators may assess the proactive behaviour of the organisation, as measured e.g. by the time elapsing from the preparation of impact assessment to the legal rule coming into force;

  • According to how deeply impact assessments are integrated into political process;

  • According to how much stress is laid upon the exploration of the economic consequences of the legal rule.

The evaluators have found that a wide range of RIAs have only met the requirements formally: such analyses were considered to be of a weak quality. On the other hand, a well defined group of RIAs were profoundly integrated into the process of decision making: such RIAs were highly appreciated. In between the two extremes were those, which proved to be useful information but their role in improving regulatory quality was limited.

According to the summarised evaluation of the National Audit Office, the quality of impact assessment activity was rather disappointing in that year. Although the culture of impact assessment preparation has been found highly developed in the UK, the surveyed analyses were, in many cases, not convincing enough, and their presentation was often not quite clear. RIAs were suitable for questioning the necessity of a regulation in certain individual cases only. Apart from this, however, most RIAs have played a very valuable communicative role and have enhanced the clarity of decision making in the particular government departments. RIAs were often prepared too late, so that they were often not in compliance with the political intentions.

The evaluators of the National Audit Office have recommended that RIAs should concentrate more on providing statements about expected economic impacts, instead of just producing statements of purely administrative character. The analyses should more effectively be integrated in the processes of decision-making; they should more clearly reveal the alternatives faced by politics. RIAs should, to a larger extent, rely upon the knowledge and work of external experts and these experts should take bolder initiatives when revealing alternative courses of action for public servants.

In the Netherlands regulatory impact assessments have been carried out since 1985, both for laws and decrees. Impact assessments have been carried out in every government department, an activity which until 1994 was co-ordinated by the Ministry of Justice and after that year - as the interdependence between regulatory quality and competitiveness was increasingly recognised - it became assigned to the Department of Economy.

In the Netherlands , during the first years of impact assessment activity, the major methodological tools were checklists, which were flexibly applied in order to assess the quality of regulations against various criteria. [114]

From 1993 to 2000 the impact assessment method MISTRAL was used, an approach which is focusing at revealing the compliance costs of the regulation but paying not enough attention to the benefits of the measures. The data collecting method of the MISTRAL was based on taking representative samples from paper-based, telephonic, personal or electronic interactions between enterprises and the authorities. These interactions were then assessed in order to determine their demand in terms of resources such as time and money. In case of regulations which have compelled the entrepreneurs to turn to consultants or accountants, the price of such services were interpreted as regulatory burdens and added to the previous items.

MISTRAL was used for pointing out that in the Netherlands, between 1993 and 1998, the administrative burdens imposed on small enterprises by regulations, as expressed in monetary terms, were increased by almost one quarter. Based on these measurement results, the government has undertaken important steps. An important measure was that the company databases used by government agencies were merged, resulting in a single database used by every public authority. Moreover, law enforcing agencies were forbidden to request enterprises to provide data already existing in this database. These authorities had to justify their demands when requesting data from companies.

In 2000 in the Netherlands the internationally harmonised Standard Cost Model (SCM) has replaced the MISTRAL impact assessment method. The new procedure has pointed out compliance costs of regulations, but also tried to take into consideration the benefits of the measure as well.

In Belgium a legal rule, introduced in 1988, established a government office (ASA) which was responsible for the simplification of administrative procedures. This agency annually surveys the existing administrative procedures introduced by authorities for companies and households, and measures the time demanded for compliance, as well as the complexity of compliance activity. The arising burdens will be added up and weighed according to the number of those enterprises and households which are affected by the given administrative procedure, thus getting an index which reflects the total load of administrative burdens.

In Germany , a uniform work flow was introduced in 2000 for the federal ministries, prescribing that every law and decree must be justified with the help of a regulatory impact assessment (Gesetzesfolgenabschätzung, GFA). These assessments must be structured according to a previously defined template. [115] However, as the experiences of the first few years have shown, the initiative did not work out well. The public servants working in the relevant ministries were very critical towards the introduction of GFA and have expressed their opinion that the standard methodology was overcomplicated. Regarding the regions of Germany (Bundesländer), although the legal institution of impact assessment has appeared in most departments of the regional governments, until 2005 only a few sample projects of regulatory impact assessment were implemented altogether.

In Sweden it was the SimPlex rule of 1998 which first announced that government offices were obliged to make an impact assessment in each case when putting forward a new legal rule or a modification of an existing one. Based on the methodology attached to the rule, the institution issuing the regulation was supposed to answer 12 questions, the majority of which being connected with the expected influence exerted on small- and medium size enterprises.

Since 2002 the Central Chamber of Industry and Commerce of the country evaluates the performance of impact assessment activity and, connected with this, the regulatory environment of enterprises. The 2006 report of the Chamber on regulatory activity has contained a sharp criticism of the government. [116] According to this report, despite the ambitious plans concerning the simplification of legal rules, the administrative burdens of SMEs have increased in Sweden , while the general quality of regulatory impact assessments remained steadily low.

Regulatory Impact Assessment in Western European member states of the EU

From the middle of the 90s the governments and the legislative bodies of every Central and Eastern Europe an country have worked on harmonising their legal systems with the collection of legal rules of the European Union , called "Acquis Communautaire". In each potential member country of the EU, plans were prepared for each policy area to introduce the respective European Union regulations. These plans have defined the government agencies responsible for drafting and implementing the necessary modifications and for this activity deadlines were set. These activities were guided by various legal provisions. [117]

For the small- and medium sized enterprises of the candidate countries of the EU, the Europeanising reform of the legal system was important not only for the purpose of operating in a more up-to-date regulatory environment. [118] Even more importantly, export-oriented enterprises increasingly felt the limitation that their goods and services were allowed to the European market only if these products met the security, health, environmental and other requirements as defined by the rules of the European Union. One of the tasks of legal harmonisation was to develop the legal framework for the enforcement of these rules.

In most candidate countries – including Hungary , Lithuania and later Croatia - the work of legal harmonisation was accompanied by the preparation of impact assessments. The procedure of impact assessments did not follow a uniform methodology or genre, rather, the approach of this applied research has derived methodological ideas (a) partly from the impact assessment activity of the EU operating since 1986 and the resulting „Fiche d’impact" documents, and (b) partly from the experiences of the Better Regulation Office run by the Government of the U.K. since 1988.

In the candidate countries in many cases these impact assessments have considerably contributed to working out a system of argumentation to be applied at the accession negotiations that were preceding the joining of these countries to the EU. Typically, while developing the impact assessment documents, national governments were receiving pressure from two sides: (a) on the one hand, from the side of the organisations representing the interests of those stakeholders (e.g. companies) that were affected by the regulations to be modified and (b) on the other hand from the negotiating partners of the European Union whose task was to facilitate and accelerate the approximation of legal rules, to facilitate and to control their implementation.

Hungary offers an example of how the strategy of impact assessment was devised. In this country the government departments (ministries) in charge of preparing the approximation of legal rules were not in the position of financing large scale detailed impact assessment projects. In fact, their possibilities in this respect were rather limited. The lack of sufficient resources has led to the implementation of relatively cheap impact assessment strategies: government departments have decided either to apply the “comprehensive" or the „in-depth" approach.

“Wide-not-deep" approach. Government departments applying this approach have produced impact assessments for the legal approximation of every regulation of their policy area. However, the source of these impact assessment reports was a meta-research based on the secondary usage of available materials, i.e. existing analyses made previously for other purposes were analysed in the context of legal harmonisation.

Table 4.2. Box 9.

Legal approximation in the field of environment protection

In 1997 an impact assessment project of the Ministry of Environment Protection of Hungary has followed a “comprehensive" strategy [bib_40]. The underlying research was outsourced to an external consultant company.

The consultants have collected, first of all, several hundreds of Hungarian legal rules belonging to the jurisprudence of the Ministry and have associated these Hungarian legal provisions with the corresponding European Union legal sources in environment protection. Following this, the consultants have collected all those applied research results from the preceding decade which have analysed the impacts of the policy pursued in the field of the regulation in question. Furthermore, the consultants have made interviews with all relevant experts and case workers in the Ministry, including those responsible for enforcing the existing regulations and those responsible for international relations. Based on these materials and findings, the consultants have prepared an impact assessment report, which was structured according to the areas to be regulated by the Ministry, i.e. the protection of air, water, soil, the management of waste, wastewater, noise, etc.

Due to the fact that the financial resources allocated for the research were limited, the consultants have made only a secondary analysis of the already existing several hundreds of impact documents, and no attempt was made to meet the representatives of those stakeholders that were affected by the regulations, i.e. the enterprises, the local governments and other institutions did not have opportunity to tell their opinion about the influence the environmental regulation exerted on them,.


„In-depth" strategy. An alternative strategy of impact assessment of legal approximation goes as follows. Experts of the regulating agency choose a typical European directive under their jurisdiction, which has been designated to be transposed into national legislation. Researchers perform a thorough, detailed examination of its expected impacts and draw conclusions to a wider group of directives, in order to learn wider ranging lessons referring to a whole policy area or to the legal and institutional environment of the concerned sector. Such examinations are based on a wide ranging collection of primary data, which may involve a questionnaire based survey, stakeholder meetings and a series of interviews with a relatively wide circle of the representatives of the regulating institutions and the regulated enterprises. Such projects are suitable for the analysis of the legal, institutional, and economical aspects of the act of legal harmonisation.

Table 4.3. Box 10.

Impact assessment of the EU Electromagnetic Compatibility Directive in Hungary

The „in-depth" strategy was followed, for example, by the Ministry of Industry and Trade, in 1996, when this government agency examined the potential impacts of a particular European technical regulation to be introduced in Hungary . The Ministry had the study prepared as a „pilot project" which means that, on the one hand, on the basis of the impacts of the specific directive they made conclusions concerning the effects of the introduction of other EU directives, and, on the other hand, on the basis of the methodological experiences resulting from this specific project, they intended to carry out other impact assessments, too.

In this project, the so-called EMC (Electromagnetic Compatibility Directive) [a] was selected to represent a much wider regulatory area, the so-called New Approach technical regulations of the EU. The EMC directive was selected because its introduction affected the whole system of technical regulation of product markets, including standardisation, conformity assessment, accreditation and metrology. Moreover, the regulation affects a wide range of enterprises [bib_41].

In Hungary as in all post-socialist countries, the implementation of the New Approach technical regulations of the EU have put an end to the situation whereby the safety and environmental compatibility of every electric and electronic product had to be checked and testified by independent accredited conformity assessment bodies. Companies have obtained the right to assess the conformity of their low voltage electric products by themselves. The impact assessment has touched upon sensitive points, because the regulation to be introduced has abolished the monopolistic position of designated bodies such as quality control institutes or laboratories. At the time when the survey was made, these organisations were still owned by the state, but in the course of the coming decade they all became privatised.

The Ministry entrusted an external consultant company to prepare a detailed impact assessment about the introduction of the EMC Directive into Hungarian law [bib_42]. The method of the research was defined by the sample selection instructions and by determining the interview outlines both for interviews to be made with regulators and with the regulated companies.

The success of the research was critically dependent on the selection of the subjects – i.e. the stakeholders - to be interviewed with the help of deep interviews. The survey has covered a wide range of those enterprises of the electronic, electrotechnical and precision engineering sector that have been affected by the planned introduction of the legal rule. Most of these enterprises were successor companies of former large state owned companies that had split into privately owned small or medium sized enterprises during the decade preceding the research, some of them joint ventures.

The guiding principle of the interviews was the same in every case. First, interviewers had to explain the planned modification of the legal rule. After that, the respondents – most of them quality managers of companies - were asked to explain, how the operation, the cost structure and the competitiveness of their enterprise would change if the regulation was introduced.

The main finding of the survey was that the reform of product conformity assessment has affected smaller businesses to a smaller extent, but larger enterprises, exporting firms and enterprises in foreign ownership were affected advantageously.


Table 4.4. Box 11.

Impact assessment of the EU Low Voltage Directive in Lithuania[a]

The "in-depth" strategy of impact assessment was used by the Lithuanian government in 2000 when it has initiated a research on the potential institutional and sectoral impacts of introducing European product safety technical regulations in national law.

The pilot study was prepared by external consultants for the Committee for European Integration of the Lithuanian government [bib_43]. The research has revealed what would be the potential impacts of introducing the technical regulations of the EU on Lithuanian producers of low voltage appliances, on organisations performing conformity assessment and on government agencies enforcing technical regulations.

The substantive results of the study have outlined the expected institutional and economic impacts of introducing the European Union’s Low Voltage Directive into Lithuania. The methodological and didactical result of the project was that it gave a blueprint of preparing impact assessment reports for Lithuanian government departments which were responsible for adopting a wide range of European legal rules. The study made recommendations for sampling procedures, for the compilation of questionnaires and defined templates for the optimal choice of report structure, i.e. for the subtitles of the final study. [b]

In a subsequent methodological paper suggestions were made for revealing the impacts of the entire system of legal harmonisation on one single individual enterprise [bib_44].


Since 1989 various Hungarian government administrations have made repeated efforts for reforming the regulatory environment. [119] Regulatory Impact Assessment was one of the tools that were widely recommended for improving the legal environment, but the method was applied only in several isolated projects or short lived campaigns. [120]

For several years, while Hungary was a candidate country of the EU, the efforts to harmonise Hungarian regulations with those of the EU gave a significant impetus to assess the impacts of legal harmonisation [121]. During the 1990s government decrees have been issued which have rendered the performance of ex ante and ex post Regulatory Impact Assessments mandatory for public administration agencies. Other regulations have defined the methodology of regulatory impact assessments and have declared that impact assessments must be accompanied by consultations with the representatives of affected companies and citizen groups. [122] However, these decrees were never consistently enforced or implemented due to insufficient institutional conditions.

The initiatives of the Ministry of Justice. In Hungary it is the Ministry of Justice which is responsible for regulatory policy, for the simplification of the regulatory framework and for the quality of legal rules. In 2002, within the Ministry of Justice, for a limited period of time, a department was formed, responsible for impact assessments and deregulation. This department has created training materials for public officials [123] and implemented pilot projects which have assessed the impact of specific legal rules. [124]

The initiatives of the Ministry for Economy. The Ministry for Economy and its legal successors are responsible for creating stable, transparent and predictable regulatory framework and institutional conditions for the operation of companies. The reduction of administrative burdens was one of the most important aims of Hungarian small and medium sized business development policy [125] since the basic political changes of 1989 following the transformation of the socialist system into a functioning market economy [bib_44]. Hungarian SME development policy has been harmonised with the respective European policies. The principles of this policy were laid down in several Hungarian laws and international documents, e.g. in the influential document entitled „A European Charter for Small Enterprises" which in 2002 has been signed among other EU Member States by the Hungarian government as well. [126]. In various declarations the government has obliged itself to shape the regulatory environment of SMEs in a way that transaction costs can be reduced to a low level both for transactions between companies and between companies and government agencies [127], [128]. It is the level of these transaction costs that are central indicators of regulatory impact assessments. Finally, the law concerning small- and medium size enterprises has also made the performance of impact assessments compulsory in cases of modifications of legal rules which affect SMEs. [129]

Consultation. Since the political changes of 1989 interest reconciliation between regulators, consumers, entrepreneurial groups and other stakeholders was regarded as an organic part of the Hungarian legislative process [bib_46] However, the depth and quality of consultations about specific regulations and policies varies widely, depending on which government agency enters into consultation with entrepreneurial interest groups.

One of the tasks of the country’s economic chambers – also put down by law – is, to give expert opinions about drafts of propositions and bills of economic subject. [130] In 2003 Hungarian government departments have sent 250 materials to the Hungarian Chamber of Commerce and Industry and have asked feedback in form of stakeholder opinions. [131] The Chamber has established an economic research institute which performs a questionnaire based survey among entrepreneurs several times a year, in order to collect their opinion about the business climate and also about the current changes taking place in the administrative and institutional environment. [132]

Certain online debate forums have also been created to facilitate these consultations. Thus, for example, in the years 2006-2008 the Ministry of Economy and Transport has maintained an online forum on its website for collecting the opinions of entrepreneurs about regulations. [133]

Deregulation refers to the invalidation of those legal rules which have become unnecessary. [134] After the political changes of 1989 several Hungarian government administrations have implemented extensive deregulation projects which have invalidated thousands of legal rules in two waves: between 1989 and 1991, and between 1995 and 1998. According to data provided by the Ministry of Justice, since 1990, at least seven thousands legal rules: laws, government decrees and ministerial orders have been invalidated. Officially, in 2007 a deregulation programme was in force, according to which ministries and local governments are obliged to periodically update and streamline the body of regulations issued by them. This activity must be based on impact assessment for which the administrative procedures must be created. [135] In practice, however, deregulation efforts have not reached their aims: on the contrary, between 1990 and 2004 the number of valid Hungarian legal rules has been significantly increased, whereby approximately half of the new rules were modifications of already existing rules. In many cases these modifications were needed due to the fact that the original rules had not been based on a corresponding impact assessment and were issued without proper consideration of their impacts.

In Hungary the legal basis of impact assessment activities is satisfactory, but the institutions entrusted with performing these assessments refer to chronic shortage of resources. For this reason, RIAs are prepared only occasionally. Some isolated impact assessment projects are carried out by various government departments: these are progressive initiatives, but these projects do not represent a critical mass which could have a considerable influence on the entire regulatory environment of enterprises. The ongoing few impact assessment projects are not coordinated and in most cases are not supported by consultations with entrepreneurial interest groups and other interest representations. A powerful political will and a long term view are needed to spread the culture of impact assessment in the Hungarian public administration.

Impact assessment culture in Hungary

Regulatory Impact Assessment in Central and Eastern Europe

In the United States , on the basis of the Paperwork Reduction Act accepted in 1980, all federal offices have to ask the Office of Management and Budget (OMB) for permission, in case they intend to collect data from enterprises or households. [136] Public agencies obtain such permissions only if it can be justified that the planned data collection is necessary, and those who are affected will not be burdened too much. Based on this rule, during the past 25 years, annual plans have been compiled to restrict the information collecting activity of federal agencies. These bureaucracy reducing plans are based on impact assessments, which estimate the number of hours used for compliance by enterprises or households. Governmental offices are obliged to reduce this index at a rate that is annually defined in advance.

Moreover, it is the responsibility of federal Office of Management and Budget (OMB) to assess bills before they come into force. [137] The obligation to perform impact assessment and the range of recommended methods that can be applied for such purposes have been stated in a federal decree. [138] This legal rule makes it compulsory for federal offices to perform economic impact analyses not only for assessing the expected impacts of legal rules but also in case of any other significant measure or decision that has been proposed by federal agencies, covering the policy areas of taxation, environment protection, public health, safety, labour or social protection.

The federal rules on impact assessment are complemented by a further act of regulatory policy which concerns the flexibility of regulations. According to this Act regulators must take into consideration the needs and opinions of small enterprises when planning, issuing and implementing measures. [139]

It is enlightening to analyse the impact assessment methods recommended in the Executive Order 12866 on „Regulatory Planning and Review". According to this rule, every impact assessment consists of three components:

( A ) The justification of the fact that the proposed measure is necessary. A legal rule is needed only if one of the following causes exists: (1) Failure of market mechanisms. Such a failure can be the effect of a natural monopoly, market predomination, the insufficient information of the customers, or the prevalence of substantial externalities. Externalities are effects of a market transaction on other, external stakeholders or on the environment, irrespectively to whether this effect was intended or not intended by the buyers and the sellers of this market transaction. (2) Even if there are no market failures, a regulative intervention must be justified if it influences prices, production and sales quotas, compulsory qualitative norms and limitations to entry of the market.

( B ) The analysis of alternative regulatory approaches or non-regulatory solutions. Federal regulation is needed only in those cases, when a problem cannot be solved in an alternative way. Examples for alternative approaches are court proceedings or various subventions. In case of health, safety or environmental issues it is strongly recommended to demand the achievement of certain essential requirements or levels of results, while it is not recommended to define prescriptive standards and norms in the medical or technical sense. Moreover, it is strongly recommended to segment the regulation which means, that different requirements should be set up for the different layers of the population or for different entrepreneurial groups.

( C ) The analysis of costs and benefits. In case of all examined alternatives costs and benefits must be compared with a so-called baseline scenario, i.e. with the hypothetical situation that the regulation in question has not been / will not be introduced at all. Whenever possible, all costs and benefits have to be expressed in monetary terms. If this is not possible, the impact assessor should refrain from applying artificial solutions. Long term effects which can be expressed in financial terms, should be discounted, that is, their present value must be calculated. The analysis of uncertain outcomes must be accompanied by risk analyses and the level of uncertainty should be clearly stated. Risk should be interpreted as outcomes with known probability distribution, while uncertainty should be interpreted as a situation in which the probability distribution of the possible outcomes is not known. Uncertainty may be the result of lack of data, lack of scientific knowledge, or may be the result of the fact, that certain phenomena are basically unpredictable. In case of uncertainty the decree recommends to clearly disclose the lack of information concerning risks, benefits and costs.

The decree supports the usage of the following quantitative methods: simulation, sensitivity analysis [140], Delphi methods [141] and meta analysis. [142] If an economic analysis relies on hidden assumptions, these assumptions should be clearly stated. If several alternative starting hypotheses can be assumed, then it is recommended to perform a sensitivity analysis by using the major starting hypotheses as bases of inference. It has been observed that the impacts of a legal rule are not equally distributed among various social layers with different incomes, with regard to race or gender. Analogously, impacts on businesses may differ according to company size or industrial sector. Therefore, impact statements should be segmented as deep as scientifically feasible. The time pattern of impacts also must be clearly stated, since what is good for one generation, can damage the next one.

The evaluation of benefits is especially complex because when the benefits of legal rules concern health and safety, these values cannot be expressed in monetary terms. It is recommended to express the benefits of such rules by computing the average number of annually saved human lives or casualties.

Costs, however, can be expressed with the help of monetary concepts much more easily. Such are, for example, the compliance costs of the private sector and the administrative costs of the government. Each calculated cost item has to be compared with those costs that would arise if the regulation had not been implemented - but all other conditions would be the same. Certain cost items are transferring the burdens from one stakeholder to another one, but do not increase the total social costs. Such are, for example, insurance costs, which do not reduce, in reality, the social costs of an accident, but transfer them on to the insurance companies. Such transfer costs lead to a redistribution of the burdens attributable to the legal rule. Similarly, if the aim of the analysis is to calculate social costs, then the net price of an item that was purchased for complying with a regulation should be taken into consideration: If, for example, as a consequence of a legal rule it becomes unavoidable to buy some sort of appliance, then the value added tax is not to be calculated as social cost, since this is not a cost appearing on the social level, this being only some kind of redistribution between the purchaser and the state.

The provisions contained in the above quoted legal rules can be regarded as the self limitation of the federal state. Several member states of the USA have their own regulatory impact assessment systems. [143]

Regulations reducing bureaucracy and their implementation

In the USA the quality of legislation is evaluated not only by organisations of the government but also by non-governmental organisations, by advisory firms, universities and by research institutions of public policy, in other words, by „think tanks". The independence think tanks is secured by the fact that they do not rely on any support from governmental bodies. The quality of economic analysis on which impact assessments are based, is improved by the fact that the analytical results of competing organisations are published. In comparison, in Europe the institutional background of impact assessment is relatively weaker.

The United States has established the „Small Business Administration " in 1976 with the aim of institutionalising small enterprise development on the level of the federal government. This government agency has a department called „Office of Advocacy" whose task is to reduce the disadvantageous influences exerted on small enterprises by the measures of the federal legislation and regulation. This department not only performs impact assessment research but additionally runs a counselling section for SMEs and represents the interests of small businesses in the rule making process on the federal level. In 2007 the Small Business Administration had 10 regional centres on the territory of the USA with local representations.

Federal government offices of the US regularly publish reports about the cost effects of regulations on American small enterprises. In 2005 the „Office of Advocacy of the Small Business Administration " implemented a survey among small- and medium size enterprises about the cost effects of federal regulations. [144] In the report small enterprises are defined as enterprises with less than 20 employees. In the United States these make up 90% of all enterprises.

Policy areas . The report divides federal regulations into four main categories: economic regulations affecting home markets and foreign markets, labour regulations, environmental regulations and the administration of tax regulations. Let us have a more detailed look at the fields of regulation as evaluated in the report.

  • Economic regulations. These rules limit or stimulate access to the market, the use of certain inputs or production methods, influence the choice of outputs, the definition of prices and participation in international trade or investments. The following regulators belong here: those concerning quotas and customs, the ones putting limitation to competition, those concerning prices, and those limiting production or employment.

  • Labour rules. This group contains rules connected with payments, allowances, the safety of labour and labour hygiene, legal rules concerning human rights as effectuated at the places of work. The study assesses the impacts of 25 different legal rules and orders at length, which embrace most of the regulations in effect at workplaces in the USA in the year 2000. Quite importantly for small businesses, 6 out of these 25 important labour statutes make exceptions for enterprises employing less than 20 people. Such is, for example, the „Age Discrimination in Employment Act" prohibiting discrimination depending on age or the „Americans with Disabilities Act" prohibiting discrimination against the disabled: some provisions of these legal rules are not extended to enterprises with less than 20 employees.

  • Measures aimed at the protection of the environment. Cost effects of environmental regulation are published in the environmental impact assessment reports of the U.S. Environmental Protection Agency. This government agency has prepared impact assessments to every important environment protection rule issued before 2004.

  • Taxation rules. The report does not calculate or evaluate the tax burden on companies. However, it is concerned with calculating compliance costs in terms US dollar values which are due as a consequence of tax administration, i.e. by spending time on filling out the forms issued by the federal tax administration. Calculating with realistic hourly wages they express, in terms of money, how long the collection of data and the filling of the forms takes for an average enterprise. The above calculations cover the administrative efforts of firms and entrepreneurs devoted to filing profit tax, national insurance and federal personal income taxes.

Sectors. The report divides the American economy into the following five sectors: (a) manufacturing (b) retail and wholesale trade, (c) services, (d) health care, and (e) others.

Cost types. Direct costs attributed to federal legal rules have been divided into two groups: (a) costs to be paid by government agencies and (b) costs to be paid by the enterprises of the private sector. The report deals with the latter only. Let us take, for example, a decree connected to environment protection. In this case the report does not deal with implementation or enforcement costs, that is, with those which increase the expenditures of the executive authority. On the other hand, the report estimates (a) the costs of those additional environmental investments of the enterprise, which were imposed on the enterprise by the legal rule, (b) the costs caused by additional paperwork and (c) the expenses paid out to experts, The report does not touch upon the cost effects of regulations on the level of the member states or settlements. At the same time, it embraces those expenses which have to be paid by consumers as a consequence of enterprises passing on to their customers the extra costs imposed on them by the regulation.

Results. The main numerical result of the research is that compliance costs of SMEs imposed on them by the federal legal rules exceed an annual amount of 1.000 billion dollars, a sum which makes up more than one tenth of the national income.

Table 22. Estimated value of compliance costs caused by federal regulations United States of America, 2004

Field of regulation

Estimated annual effect, billion USD

Rules of economical character

591

Labour rules

106

Environmental rules

221

Taxation rules

195

The total of federal regulations

1.113


Source: [Crain 2005]

Compliance cost s per one employee are dependent on the size of the enterprise and here an inverse relation can be observed. For example, in cases of small enterprises in the manufacturing industry, compliance costs per one employee amount to twice as much of the same expenses of those in a medium sized enterprise. On the other hand, economic and labour related regulations affect medium and larger enterprises more. The reason for this is that small enterprises are, in many cases, exempt from a certain part of labour regulations.

Impact of the federal regulations on small enterprises in the USA

Assessing the administrative environment of enterprises in the USA

Croatia and the EU have signed a Stabilisation and Association Agreement in late 2001. In this document Croatia has committed itself (Article 73) to harmonise its technical legislation with that of the EU within six years after the entry into force of this Agreement at the latest (Article 5). Thus, compared to EU candidate countries, which have committed themselves to introduce free movement of goods legislation upon accession, Croatia had much more time to carry out these changes.

In 2001 a RIA study was prepared as part of a wider impact assessment project initiated by the Ministry of European Integration of Croatia . The project was implemented with the help of foreign consultants [bib_47]. The assessed directive was the so-called Low Voltage Directive (LVD), which regulates the free movement and the safety of low voltage electric equipment within the EU. At the time of the RIA project LVD was not yet introduced into Croatian law, but following its planned introduction, a wide range of Croatian small, medium, and large enterprises were to be affected by this technical regulation.

The Pilot Project approach . The impact analysis of the introduction of the LVD directive was a tool to understand the consequences of the reform in a wider area of technical regulations affecting product markets. The scope of technical legislation was much wider than what was analysed in the RIA study. However, it was expected that the selection of a fairly typical and widely implemented regulation, that of the Low Voltage Directive, would ensure that the study would reveal the most likely occurring benefits, costs, impediments and risks.

Table 4.6. Figure 9.: Simplified scheme of impact mechanism of European legislation for ensuring the free movement of goods [a]

Vertical legislation for product sectors

Directives on the free movement of:

Low Voltage equipment

Radio equipment and telecommunications terminal equipment

Machinery

Gas Appliances

Lifts

Other product sectors

Individual products may be subject to more than one relevant vertical regulations

Horizontal legislation for setting up

Standardisation

Product markets, e.g. markets of low voltage equipment

Accreditation

Conformity Assessment / testing / inspection

Metrology

Market surveillance


The planned changes in the conformity assessment regime. As in other post-socialist countries, legal harmonisation was expected to abolish the previous rules that had prescribed the mandatory safety testing and certification of every electric equipment by independent bodies. In the previous conformity assessment regime these procedures had to be implemented before putting these products on the market, and were to be applied for all product types, whether home made or imported, whether high or low voltage, whether previously certified in other countries or not. On the other hand, in contrast, the new rules to be introduced were to allow manufacturers to certify their low voltage electric products by themselves, provided they have used the conformity procedures defined in the regulations. In accordance with the institutional model of the EC, standardisation was to be transformed from a function of the government into a private sector activity, and standardisation, certification and accreditation became institutionally separated from each other. In well defined cases the application of standards was not any more mandatory.

The institutional setting. The institutions that protect Croatian consumers from dangerous electronic appliances getting on their market are the customs body, the market surveillance and the certification bodies. The planned reform was to introduce a system, whereby the respective roles and responsibilities of these institutions had to be changed thoroughly. In particular, by abolishing the mandatory certification, the influence of the certification bodies were bound to decrease, and the tasks of the other two organisations (the customs body and the market surveillance) was expected to increase. The cooperation among the above mentioned three institutions had to be strengthened.

Policy context: legal harmonisation as part of Europeanisation process

The research design in Croatia was identical to that of a previous Lithuanian project. This was also a pilot project where the impacts of the same EU Directive were used to draw inferences to the impacts of legal harmonisation in the field of technical legislation.

The aims of the Croatian project were the following:

  • Exploration of specific impacts. It was required that the study should be a valid impact assessment on its own right. Besides formulating the impacts on the affected enterprises, it should also estimate the implementation costs of legal approximation of EU technical legislation for the Croatian state. In particular, it was expected that the results (a) will facilitate the planning of the government’s budget and (b) will be helpful during the accession negotiations of Croatia with the European Community by providing explanation on when and how the regulation should be introduced or its introduction delayed.

  • Spreading of methodology. A parallel aim of the project was to reveal how the EC directives should be introduced and enforced cost efficiently in Croatia , including the analysis of the necessary institution development tasks. The project was implemented in order to illustrate the method of in-depth impact assessment in the case of a fairly typical directive. One of the didactical outcomes of the project was that a book was published in Croatian language about the recommended method of the regulatory impact analysis for the Croatian governmental bodies [bib_48].

  • Administrative co-ordination. It was expected that the project (a) will help to coordinate the cooperation of different governmental bodies responsible for legal harmonisation, (b) will demonstrate the feasibility of impact assessment for the relevant government departments and subordinate government agencies and (c) will provide information for enterprises, public institutions and households concerning those changes that the introduction of EC regulations will bring for them.

  • International relations. The project was expected to demonstrate towards the European Community that Croatia will carry out the Stabilisation and Association Agreement between the EC and Croatia. [145] This document has guaranteed for Croatia to benefit from the advantages of the unified European market if, among others, the country adjusts its technical legislation to that of the EU and removes the remaining barriers to trade from its conformity assessment system.

Information sources. The impact assessment study was based on the analysis of documents and on interviews made with all relevant stakeholders: the responsible ministries, the office for consumer protection, the most important certification bodies, the bureau of standards, with chambers of commerce representing the interests of the affected sectors, and with the experts and decision makers of a sample of producing and trading enterprises affected by the regulation. [146]

The economic activity affected. The research has revealed that low voltage products have accounted for more than half of the turnover of Croatian industrial plants producing electric devices, radios, televisions, and communication devices, medical, precision and optical appliances. Among the affected industrial companies there were approximately 10 to 20 larger businesses, employing more than 100 people, and about 100 smaller companies. This industrial sector was in deep recession due to outdated techniques, lack of investments, delayed or unfinished privatisation, and the loss of foreign markets and because of a strong import competition due to relatively open markets. These factors have led to decreasing production and employment in the sector during the years preceding the research.

Impacts. The analysis of the interviews has shown that on the long rum the planned change of technical legislation will have a positive overall influence on the industrial sector producing electric appliances. It was expected that the reform will indirectly contribute to the development of a better industrial structure by facilitating foreign investments and by contributing to a bigger tax income of the government.

The expected winners of the interventions were as follows. As a consequence of legal harmonisation...

  • ...the importers of low voltage electronic devices manufactured in the EC will enjoy the benefits of the abolishment of the compulsory qualification.

  • ...the individual consumers as well as households and institutions will enjoy the benefits of livelier competition, provided that the market inspection will reliably remove unsafe products.

  • ... Croatian enterprises already producing low voltage electronic devices for EC export, will gain advantages against those local producers who will have to adjust their products and technologies to the new requirements.

The expected losers of the interventions were as follows. As a consequence of legal harmonisation...

  • ..., due to the abolishment of mandatory certification of low voltage electronic devices, certification institutions operating in the field of electrotechnic products (there were seven such bodies in Croatia ) will lose most of their income resulting from this activity.

  • ...some of those smaller Croatian producers who will not be able to update their technologies to comply with the new safety requirements will be crowded out from their traditional markets.

  • ...producers and importers of countries outside the EC, will have to face additional compliance costs, because of the adaptation to the new administrative procedures necessary for conformity assessment.

  • ... consumers with preference for cheaper electrotechnic devices can expect their choice becoming limited, because enterprises can be expected to pass some of their additional costs on them.

Table 23. Significance of various impacts of the Low Voltage Directive in Croatia

3 = very strong impact, 2 = medium impact, 1 = low impact and 0 = no impact.

Element

Topic

Score

Economic significance

Number of employees affected

2

Number or firms affected

2

Changes in output level

2

Changes in export level

2

Legal and administrative impacts

Legal harmonisation

3

Need to establish new institutions

1

Need to reorganise institutional structures

3

Need for training of public servants

2

Technical impacts

Technical adjustment difficulties

1

Lack of knowledge and experience

2

Public attitude

Public perception of effects of the measure

2

Increases in costs

Costs to industry generally

1

Costs to small businesses

3

Costs to the government

2

Costs to consumers

1


In the framework of the impact assessment project open workshops were organised where all relevant stakeholders were invited. These occasions were used by the representatives of certification bodies to ask the government and the EC for support. Certification bodies have faced the risk of losing the bulk of their incomes, closing a number of laboratories and dismissing several hundreds of employees.

The report has recommended to take measures in order to alleviate the undesired side affects of the regulation. The recommended form of these measures was to implement well targeted direct subsidy projects and to subsidise consultancy services on behalf of affected SMEs and certification bodies.

Eventually, four years later, in 2005 Croatia has partially harmonised its legislation with the New and Global Approach directives, and LVD was transposed as a part of these measures. The country has adopted legislation aiming at transposing the Acquis on lifts, machinery, gas appliances, low voltage equipment, pressure equipment and simple pressure vessels. However, at the end of 2007 further amendments, horizontal legislation and institutional development of notified bodies still were needed to achieve full alignment with the Acquis.

Case Study “Croatian RIA": Introducing EU technical regulation in Croatia

Прямо перед ним над деревьями возвышалось Аюнтамьенто - старинное здание ратуши, которое окружали три акра бело-голубой мозаики азульехо. Его арабские шпили и резной фасад создавали впечатление скорее дворца - как и было задумано, - чем общественного учреждения.

За свою долгую историю оно стало свидетелем переворотов, пожаров и публичных казней, однако большинство туристов приходили сюда по совершенно иной причине: туристические проспекты рекламировали его как английский военный штаб в фильме «Лоуренс Аравийский». «Коламбия пикчерз» было гораздо дешевле снять эту картину в Испании, нежели в Египте, а мавританское влияние на севильскую архитектуру с легкостью убедило кинозрителей в том, что перед их глазами Каир.

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