National Regulatory Agencies Essay ⋆ Business Essay Examples ⋆ EssayEmpire

Anyone doing business in countries outside the United States can safely assume that they will encounter government agencies regulating every direct and indirect aspect of commerce. Just as is the case in the United States, these agencies enforce regulations governing establishing a business, taxes, costs, prices, financial transactions, pollution, wages, workplace safety, and import and export duties. What the business person cannot assume is that working with regulatory agencies overseas will be the same as it is in the United States. Nor can the person assume that regulations and regulatory agencies will be similar even when nations have a common membership in an organization such as the European Union (EU), Southern Common Market (Mercado Común del Sur [Mercosur/Mercosul]), or Association of Southeast Asian Nations (ASEAN). Each nation’s regulations are a product of its history, culture, and politics as well as attitudes toward the conduct of business.

The nation’s openness or hostility toward business, and foreigners, its current economic situation, and even the nature of its civil service all have a bearing. A European nation with a long history of equal trade will have regulatory agencies that operate differently from those with a colonial background. In the latter case, an assumption of exploitation by more highly developed nations may create a basic distrust of outside business interests. A nation that, until recently, possessed a state-run, centralized economy may also present challenges to Western business interests. In addition to these factors, one may find regulatory bodies that may require special handling in either intangible or concrete ways to ensure their cooperation. Another factor, one that will apply mostly to nations with a long history of commercial law and regulation, is deregulation. The decrease in regulations governing business can also affect the attitudes of regulatory agencies and their representatives in the interpretation of the remaining rules.

While businesspeople have always had to contend with the regulatory agencies of their own country as well as the nation with which they are doing business, it will not be unusual in the future to incorporate planning for how the business enterprise will contend with international regulatory agencies. Organizations such as the EU, International Monetary Fund (IMF), World Trade Organization (WTO), or the World Bank will increasingly affect international business in the future. One example of national regulation moving to an international basis has been the European Aviation Safety Agency, an EU agency that came into being in 2003 with the aim of replacing the national aviation safety agencies in Europe that have functioned similarly to the U.S. Federal Aviation Administration (FAA). In the gap between national rules and agencies and those international rules and agencies that supplant them, U.S. businesses will have to become familiar with the rules and workings of both levels of agency.

International treaties, the Kyoto Protocols governing emissions is but one example, while not binding on U.S. companies in the United States, can affect overseas subsidiaries. These agreements would be enforced by the regulating agencies in the country where the American concern will do business.

Globalization has accelerated this factor in some part because it creates new situations that were never covered by law and that were never dealt with by regulatory agencies. There can be a regulatory vacuum in these instances, an area where businesses must tread cautiously. The result of new legislation, especially where there appears to be a sacrifice of either national self-interest or an unfair or illegal advantage, can create a backlash. A possibility of that kind of reaction can arise in situations such as occurred in Germany in 2005. In that year, the Wall Street Journal reported that lobbying members of Germany’s parliament by commercial interests was growing. Along with the growing awareness of this activity was the awareness that it was not adequately regulated. Legislation was subsequently introduced to begin to prevent potential abuse. In a different country with a different set of assumptions and tradition, the effect on regulation and the government agencies charged with carrying them out could have been different, introducing a new complexity for international businesses working in that country.

Regulation does more than impose restrictions and rules on foreign investors and businesses that enter a country to do business. It should also provide the guarantee that the foreign investments will be safeguarded, that investors will receive their returns in a fair way, and that the intellectual property, financial, and other rights will be protected. However, the regulating agencies themselves and the way they function are also important. While regulations may seem clear, how regulatory agencies enforce them may be less clear. The transparency of the process and what is required by the business, what the agency does and how long and complicated its process are critical. In addition to wide latitude given to regulatory agencies in some nations, other organizations that are independent of financial or commercial agencies will also come into play. For example, in Brazil, which is hardly a unique case, there is the law and the regulating agency, but there are also courts at several levels that may provide a third, and often binding, interpretation of the regulations.

Another factor that business people must be aware of is that agencies in various countries will have changing sets of responsibilities and reporting relationships. Unlike the U.S. government in which organizations are relatively stable, a minister’s portfolio (that is, his or her set of responsibilities) can change with some frequency. An example of this has been recent changes in the responsibilities of the finance minister in Germany and France. In many instances, there will be a title change accompanied by a shifting of subordinate departments (e.g., workplace safety or ensuring a percentage of native employees). Thus, with a new organizational identity, new reporting relationships, and perhaps new agendas set by the new minister, the manner in which the regulating agency can change can be dramatic. Of course, certain areas such as environmental regulation would be outside the purview of finance ministers and must also be considered.

Prior to contacting and working with regulatory agencies, the businesspeople must have done their homework. Success depends on exhaustive research with legal and business experts, especially when both the regulations and the character of the agencies can change. Illustrative examples, however, can provide an idea of the complexity as well as an idea of the general attitude toward business, especially U.S. business.

France

As an example, many regulatory agencies in France report to the minister of the economy, industry, and employment, who answers directly to the prime minister. While not directing all agencies, this ministry governs most aspects of employment, business, consumer issues, and industry. The U.S. businessperson coming to France must remember that while a great deal of direction comes from agencies at the federal level (i.e., national-level agencies), there are other entities. There are regulatory agencies that function on the state, provincial, or geographical department level. Localized agencies will be encountered not only in France but everywhere. The differences in complexity will vary. The manner in which a company conducts business with all of the agencies in France differs greatly from Germany or, more especially, nations such as China or Russia.

In France, and once again this will be the case in several countries, regulatory agencies have a great deal of leeway in how they enforce the regulations. In France, whether the agency will administer regulations in the spirit or the letter of the law may depend on the ministry or agency policy. In other countries, this will be true as well. Further, in some countries such as Russia or China, an individual government employee can and may choose to exercise a very personal reading of a regulation.

Another consideration for those working with French agencies (as well as those conducting business in other countries) is the degree to which the business person can understand and see the processes the agency conducts. That means understanding process and having the ability to petition when there are differences of opinion. In France, the degree of transparency for international business operations has improved from where it was a few years ago. Further, the standards by which the French will allow U.S. products to enter the country has become more defined and clear. However, and this is common throughout the EU, EU-level standards are in force. In France, as is the case throughout the EU, where there are no EU standards, the national standards as enforced by the nation’s appropriate regulatory agency will apply.

Germany

Regulation in Germany can also be quite complicated. As is the case in France, the minister of finance will manage several regulatory agencies. In this case, however, there are several German ministries, all of whom report to the federal chancellor, that contain regulatory agencies. These would include the federal ministries for environment, nature conservation, and nuclear safety; economics and technology; food, agriculture, and consumer protection; labor and social affairs; and economic cooperation and development.

The German business regulatory context is complex. The basis for Germany’s economy for a long time has been the export of its products and so the nation has a highly developed sense of international business. Admittedly, this outlook and its history are more developed in what was West Germany than in the former German Democratic Republic, but the gap has decreased. In addition, especially since the arrival of Angela Merkel as chancellor, there has been a movement in Germany to reduce regulations, and as a consequence, the effects of regulatory agencies on international business.

Germany’s economy and international commerce, however, are still highly regulated. The number of regulatory agencies is not small and dealing with the extensive bureaucracy that administers what many consider to be an excessive set of regulations can be a complex experience. In Germany, as in other countries, regulatory agencies exist at the federal, state, and local levels, so a U.S. business concern must interact with a wide variety of agencies. Non-German businesses do have opportunities to petition to have grievances resolved and German regulatory agencies have been effective in handling these procedures fairly. Foremost among these has been the Cartel Office, which oversees many aspects of international business.

Despite the heavy degree of regulation and existence of a large number of agencies in these and other Western countries, they are relatively minor compared to the complexity of regulation and its implementation that businesses encounter in Russia.

Russia

In 1991 the Union of the Soviet Socialist Republics (USSR) ceased to exist. Constituent republics such as Latvia, Lithuania, Estonia, Belarus, Ukraine, and others became independent nations. The center of the old USSR, Russia, became what was supposed to be a free-market state. Initially, it appeared to be an excellent place for international companies to establish businesses. What these companies have encountered, however, is a complex system of regulation and bureaucracy. A major contributing factor has been Russia’s regulating agencies. There is an increasing body of laws and regulations that are coming into being that are increasingly consistent with international standards such as those required by the WTO. There is still a substantial gap between what the law says and how it is implemented and enforced by the agencies.

The Russian business regulatory bureaucracy can be characterized as having a high degree of capriciousness, obtuseness, and corruption. Any businessperson going to Russia could do worse than to read short stories of Gogol in the Tsarist times, stories of Bulgakov in Stalinist Russia, and some historical research to understand what could be best described as the care and feeding of apparatchiks (the operators within government agencies).

The U.S. government reports that incidences of these difficulties have decreased in recent years, but they still do exist. In 2002 Transparency International placed Russia 21st in a list of 21 nations in what it called its Bribe Payers Index. Placing the country last on the list indicated that it was where a business was most susceptible to paying bribes. The Transparency International 2007 corruption index placed Russia at 146 out of 180 nations. One year before, it had ranked 121 on the list, the recent survey indicating that corruption is becoming substantially worse.

There have been government initiatives to reduce corruption in these agencies. It was declared by President Vladimir Putin in 2006 to be a priority and it is assumed that his successor, Dmitry Medvedev, will continue the effort; the results have not yet shown any substantial improvement.

It ought to be noted that while Russian regulatory agencies have one of the worst reputations in this regard and are presented here as an example, they are not unique. The degree and effects of corruption within regulatory agencies is a factor that must be researched by any company wishing to engage in business in another country.

In the background of Russian regulatory agencies, however, is the body of regulations and laws and how they were introduced as well as the nation’s experience with free commerce and its regulations. The Russian Federation in the few years of its existence has undergone dramatic changes. The change from an entirely state-directed central economy to one in which perhaps 75 percent has been privatized has been rapid and uneven. There have been no real precedents in Russian history that could be followed. Additionally, much that underlies Western assumptions of regulation and how it is applied do not exist. Combined with the high degree of politicization that exists in Russia on all levels, from the federal to the local, and a higher degree of local autonomy than one might expect, the application of regulations can vary widely. In addition, there can be what would be illegal or extralegal actions performed by the regulatory agencies themselves, such as expropriations of property or enterprises on the local level.

China

In many ways, the regulatory agency situation in China is similar. There is much confusion in the body of laws and regulations. China’s evolutionary path has, like Russia’s, been one of transition from a totally state-dominated economy to an international economy where transparent regulations are supposed to be applied uniformly.

Chinese regulatory agencies all ultimately report to the executive branch of the government of the Peoples’ Republic of China. The main executive organization, under the premier, is the State Council. It comprises vice premiers and ministers who direct the nation’s affairs. Within the State Council, there is the Ministry of Commerce, which contains several departments (both specialized and general) that regulate international trade. Its departments are responsible for areas such as foreign investment, importing and exporting, and WTO affairs. Specialized departments include those dedicated to working in the areas of West Asian and African affairs, international trade and economic affairs, and foreign trade. There is one department that handles only issues relating to Hong Kong, Macao, and Taiwan.

Additionally, the State Administration for Industry and Commerce governs many aspects of market regulation. According to the Chinese government, its current (2008) functions include developing and implementing the laws and regulations for industry and commerce, registration and licensing of businesses, quality of goods, intellectual property, contracts, and investigating illegal activities such as pirating goods.

While the degree of corruption existing in Chinese regulatory agencies may not be as great as is the case in Russia, there is a great deal of variation in how agencies can interpret laws and regulations. This last factor has become a serious matter to some companies looking to do business in China. In addition, the Chinese business environment is so large that the Chinese government cannot enforce all regulations to include those regarding intellectual property rights. The recall of Chinese toys in 2007 because of lead paint is another example of regulations not being enforced by China’s regulatory agencies.

Finally, there is the complexity of dealing with many agencies that further complicates the process of working with regulatory agencies. In a situation that exists in some other nations as well, not only do these agencies govern companies coming into China but also domestic Chinese companies looking for international investors. As an example, in 2000, the Chinese government decreed that any Chinese Internet company that wished to sell its shares abroad had to receive approval from three different agencies: the China Securities Regulatory Commission, the Ministry of Information Industries, and direct approval from the State Council itself.

In addition to government regulatory agencies, there are trade associations that either have a voice in regulation and its enforcement or at least some degree of influence. Government regulatory agencies can be assumed to govern every aspect of commerce to include banking and securities as well as manufacturing, providing services, or export and import.

States may claim that they are governed by laws and not people, but the fact will remain for businesspeople that a body of laws and regulations can be interpreted quite differently at different levels and locations. Assuming that business and commercial laws and regulations are enforced uniformly within a country or that all agencies at the federal level will have the same amount of scope for interpretation will be a serious mistake. To understand the nature of these organizations requires extensive research, but there is assistance on a number of different fronts. Organizations such as Transparency International regularly report on the degree of corruption that exists in a nation’s governmental agencies that regulate business. Both the U.S. State Department and Commercial Service provide information not only on a nation’s commercial laws, but also its regulatory agencies. The World Bank provides an extensive collection of documentation from the perspective of ease of doing business in a country, an index that can provide background on the ease of dealing with a particular nation’s regulatory agencies.

Bibliography:

John Braithwaite, Global Business Regulation (Cambridge University Press, 2000);
Alena V. Ledeneva, How Russia Really Works: The Informal Practices That Shaped Post-Soviet Politics and Business (Cornell University Press, 2006);
Glenn Morgan and Lars Engwall, eds., Regulation and Organizations: International Perspectives (Routledge, 1999);
Ito Takatoshi and Anne Krueger, eds., Deregulation and Interdependence in the Asia-Pacific Region (University of Chicago Press, 2000);
Transparency International, transparency.org (cited March 2009);
Gunnar Trumbull, Contested Ideas of the Consumer: National Strategies of Product Market Regulation in France and Germany (European University Institute, 2000);
United States Congress, Commission on Security and Cooperation in Europe. The Yukos Affair and Its Implications for Politics and Business in Russia (U.S. Government Printing Office, 2007);
United States Government International Trade Administration, www.ita. doc.gov (cited March 2009);
World Bank, www.doingbusiness.org (cited March 2009).

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