Trump’s new Executive Order: Reducing Regulation and Controlling Regulatory Costs

Photo Credits: Gage Skidmore (CC BY-SA 2.0)

Photo Credits: Gage Skidmore (CC BY-SA 2.0)

“The biggest such act our country has ever seen”. With these words Donald J. Trump announced his new Executive Order entitled “Reducing Regulation and Controlling Regulatory Costs last January 30.

This E.O. represents Trump’s view about regulatory management and introduces some relevant novelties in a quite stable approach to regulatory oversight followed so far by the last three U.S. Presidents.

The executive order focuses on the burden that regulations impose and deals with three main aspects of the U.S. federal regulatory system: the total amount of regulatory costs introduced every year, the number of regulations introduced and deleted and the powers of the Office of Management and Budget’s (OMB) Director.

As to the first point, for the first time a differentiated regulatory cap is introduced. For 2017 the threshold is zero: it is required that any cost associated with new regulations will be offset by the elimination of existing costs associated with previous regulations. However, from 2018 onwards, the OMB Director will set, for each agency, a total amount of incremental costs that will be allowed, so that the net increase or decrease in total regulatory costs will be predefined for each fiscal year (the entire process being linked to the budgetary cycle).

As to the second point, a one-in-two-out mechanism is established, something that recall similar experiences in other countries (like UK and Canada). For each new regulation agencies have to identify at least two existing regulations to be repealed. An implicit deregulatory effect will then be produced and the combination of the regulatory cap and the one-in-two-out rule aims to reduce both the number of regulations and their total costs. And even if the requirements of E.O. 12866 are not modified, the new system seems to abandon (at least partially) the cost-benefit approach to regulation, looking only at the cost side, something welcomed by a part of the business’ community.

Finally, the order ensures a large discretion to the OMB Director. He could provide writing advice for exceed the 2017 zero cap and could authorize agencies to go beyond the total incremental cost allowance set every year. The Director could also approve the issuance of regulations not included on the Unified Regulatory Agenda. Other important powers deal with the definition of the specific provisions that will allow for the concrete implementation of the E.O. In fact, the Director will provide agencies with guidance related not only to very technical details (e.g. on the measurement of regulatory costs, on the processes for accounting for costs in different fiscal years, etc.), but also to very substantial aspects (like the “standards for determining what qualifies as new and offsetting regulations” and the circumstances “which might justify exceptions to the E.O. provisions”). An interim guidance addressing the requirements related to the regulatory cap for Fiscal Year 2017, in the form of Q&As, was published on February, 2 on the White House website.

But what is the scope of the new E.O.? It is directed to “executive departments or agencies”, excluding independent agencies. The definition of regulation used in the act is very general: “an agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy or to describe the procedure or practice requirements of an agency”. Only a few exceptions are provided for: regulations issued with respect to a military, national security, or foreign affairs function of the United States; regulations related to agency organization, management, or personnel; any other category of regulations exempted by the Director of the OMB. So the “one-in-two-out” system is not limited to some sectors and will probably affect especially regulations whose benefits cannot be measured in terms of “less red tape”. At the same time, the executive order repeatedly specifies that its measure will be implemented “to the extent permitted by law”, so it should not cover rules required by statutes. Moreover, OIRA interim guidance clarifies that the E.O.’s requirements for Fiscal Year 2017 “apply only to those significant regulatory actions, as defined in Section 3(f) of Executive Order 12866, an agency issues between noon on January 20 and September 30, 2017. This includes significant final regulations for which agencies issued a Notice of Proposed Rulemaking before noon on January 20, 2017”.

In the end, the new E.O. will require some time and implementation tools to produce significant effects. Meanwhile, it will spark a heated debate.

(Francesco Sarpi)