Federal regulations continue to pose a financial burden to manufacturing, according to a report published by the Manufacturers Alliance for Productivity and Innovation (MAPI). Several trade and government groups offer their assessments of the situation.
The costs to manufacturing brought by federal regulations have increased an average of 7.6 percent annually since 1998, NERA Economic Consulting reported for MAPI. Since 1981, federal agencies have promulgated 2,302 regulations that affect manufacturers.
Of those regulations, 270 are considered “major,” meaning they are determined by the government to have an annual economic effect of $100 million or more. Minor regulations receive no cost-benefit analysis because their impact cannot be determined, industry advocates point out. So the real economic drag could be larger.
The number of major regulations has risen over the last three presidential administrations. During the Clinton era, major regulations affecting manufacturing averaged 36 per year. The number was 45 per year during the Bush administration, and now is 75 per year during Obama’s tenure, the MAPI report states. NERA’s analysis concluded that “the load will reduce manufacturing output by up to 6 percent over the next decade and by as much as $500 billion this year alone.” The MAPI report is an update to a more extensive analysis released in 2012.
Federal agencies are required to ensure that when new regulations are issued “that the benefits justify the costs, consider public participation and adopt flexible approaches to rulemaking,” said Emily Cain, a spokesperson for the White House Office of Management and Budget (OMB). “The federal government should be smart about how it regulates and not impose unjustified regulatory burdens.”
Cain called the Obama administration’s approach “a cost-effective, evidence-based, 21st-century regulatory system” that “maintains a balance between protecting the health, welfare, and safety of Americans and promoting economic growth, job creation, competitiveness, and innovation.”
Erik Glavich, director of infrastructure, legal, and regulatory policy for the National Association of Manufacturers (NAM), told IMT that the MAPI study “reinforces the idea that manufacturers are disproportionately burdened by regulation.” The report highlights the issue of cumulative regulatory burdens, he said. “The issue is not just with new regulations, but all the old regulations just sitting there,” so new regulations, he explained, “become duplicative, adding inefficiencies within the regulatory system and uncertainties to the costs our members face.”
MAPI CEO Stephen Gold agrees that new regulations have a cumulative effect.
“The problem is that the system allows so many regulations to be added every year on top of those that came before,” he said. “The different agencies all add their own regulations, but they’re not talking to each other. Over the years, they simply get layered one on top of the other. Having those thousands of rules interacting with each other is acting as an economic drag.”
Not all regulation affects members of the Association For Manufacturing Technology (AMT), said Pat McGibbon, vice president for industry intelligence and engagement for the group, which represents manufacturing equipment suppliers and distributors. He said, however, that some “regulations need to be changed to help our industry and many of our customers get back on the acceleration path of the early 90s.”
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For example, export controls on manufacturing equipment “may be totally worthless,” he asserted. “They were originally put in place in the 1940s to prevent other countries from obtaining the technology used for creating atomic weapons. That technology is now readily available anywhere, but we still have these same regulations in place. All it does now is hinder the ease with which our technology reaches global markets. Other countries are gaining the advantage because of this.”
AMT’s members are also affected negatively by the conflict minerals rule scheduled to come into effect in May 2014, McGibbon said. The rule requires manufacturers to report whether their products contain certain minerals – such as gold, tin, tantalum, and tungsten-based ores — the sales of which are known to finance armed conflict in the Democratic Republic of Congo.
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“Meanwhile, conflict-diamonds represent a double-digit percentage of the world supply,” while conflict-metals represent only “a minuscule portion of the total use of these metals worldwide,” McGibbon said. What’s more, “unlike diamonds, they can be smelted into metal from other sources, making it practically impossible to ascertain whether a supply is clear or not even after spending enormous resources to do so,” he said.
The rule “is going to cost millions and have no impact except to price U.S. products out of the export markets,” McGibbon said.
The burden of federal regulation on manufacturers could be alleviated, according to some experts. Next week, IMT will explore how that might be done.