## **Box 3. What the PMR survey means by “command and control” regulation**

The contrasting use of “command-and-control” and “incentive-based” regulation appear to have been brought into common usage by Schultze who wrote in a 1977 lecture about economic efficiency: “We tend to see only one way of intervening – namely removing a set of decision from the decentralized and incentive-oriented private market and transferring them to the command-and-control techniques of government bureaucracy” (page 6) In this context, the PMR attempts to measure the extent to which the cost of new regulation is assessed, and whether alternatives are considered before implementing new regulations. About half of the indicator weights are allocated to the following two questions (the full make-up of the indicator is provided in Annex table A2.5):

## **Regulators are required to assess alternative policy instruments (regulatory and non-regulatory) before adopting new regulation. (Current answer: yes).**

**Explanation.** The use of a wide range of mechanisms for meeting policy goals, not just traditional regulatory controls, helps to ensure that the most efficient and effective approaches are used. Approaches may include green taxes and subsidies, voluntary agreements, information programs such as eco labeling, self-regulation, permit-trading schemes, and performance-based regulation (where a sector or industry must comply with a standard but can broadly choose how to meet it).  Note that the question only refers to whether the obligation exists as a specific provision in a specific legislative act, not whether the spirit of it is in fact respected.   A positive answer to the question would require the existence of a normative act explicitly ruling out regulation as the default option

## **Guidance has been issued on using alternatives to traditional regulation. (Current answer: no).**

**Explanation.** The regulatory process is governed by a standard procedure, outlining the steps to be taken to issue new regulation. For instance, the procedure may include binding ex ante regulatory impact assessment (RIA).  Box 3 offers a discussion of alternatives to traditional regulation.

# **Outward Oriented Policies**

60. Observance and implementation of the rules for membership of the World Trade Organization (WTO) and, even more strongly, the European Union (EU) has led to a significant reduction of barriers to trade and investment in Romania since the start of transition. Romania’s foreign trade policy has been driven most of all by the commitments of the EU Eastern Enlargement project, promoting bilateral trade liberalization initially with the EU and EFTA and, subsequently, with other preferential partners of the EU. The Pan-European Agreement on the Cumulation of the Rules of Origin, combined with the gradual removal of tariffs on all industrial products by January 2002<sup>11</sup> , and the harmonization of technical standards has led to Romania’s participation in a _de facto_ free trade area for industrial products (World Bank, 2004). The removal of tariffs on agricultural and agro-processed goods, in January 2007, as Romania joined the Common Agricultural Policy (CAP) has completed the liberalization of trade with the EU.

> 11 As prescribed by the European Association Agreement between the EU and Romania, signed in 1993.

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