31

Dec

Impartiality Of Regulators In Goods And  Services

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Regulations – whether in goods or services – are primarily in the public interest, on grounds such as health, safety, the environment, deceptive trade practices, data privacy, public order, and national security. These have been duly codified in the WTO Agreements, such as the Agreement on Technical Barriers to Trade (TBT), the Agreement on Sanitary and Phytosanitary Measures (SPS), and the General Agreement on Trade in Services (GATS).

Use of the expression ‘such as’ implies that there may be more grounds in future, and indeed climate action, sustainability, energy efficiency, etc. have become grounds for regulation in many countries, with Europe leading the way.

Regulators are, therefore, public servants and expected to be independent and impartial.

While these are implicitly expected from regulators, these concepts are seldom clearly defined, and specific requirements are laid down in various statutes which provide for the regulation of goods and services.

There is another important aspect of impartiality that is not always clearly stated or understood.

Perception.

Impartiality is not merely about being impartial but also about being perceived to be impartial. Recalling the case of Chanda Kochar, even if she may have been absolutely professional in her conduct, the mere fact of participating in decisions related to her husband’s companies would raise valid issues of perception of impartiality.

In light of the above, let us examine the independence and impartiality of regulators since their conduct impacts the common man.

Can we define these terms?

Here are the suggested definitions:

The article argues that regulations exist to protect public interest—covering health, safety, environment, consumer protection, and national security—and must be enforced by regulators who are both independent and impartial, in reality and perception. Drawing on WTO agreements and global practices, it stresses that regulators should be free from industry influence, government pressure, and conflicts of interest. Funding regulators through industry fees, placing them under line ministries that promote the same industries, or assigning regulatory roles to export promotion bodies can undermine impartiality.
Front Foot Forward
By Anil Jauhri
The article also cautions against regulators engaging in industry “handholding,” consultancy, or certifying training providers, as this weakens credibility and objectivity. While regulators should explain new regulations through generic public training, implementation support should be handled by independent stakeholders. The author highlights India’s Sector Skill Councils as suitable bodies to develop competent industry resources, allowing regulators to focus solely on robust and unbiased regulation.

Independence - freedom of a person or organisation from the control, authority, or influence of another person or organisation

 

Impartiality - presence of actual and perceived objectivity

 

These are adapted from definitions given in ISO 17000:2020   Conformity assessment — Vocabulary and general principles with changes in italics.

 

What could affect regulators’ impartiality?

If they were to be expected to be self-sustaining, which means they charge a fee from the industry which they regulate, it could produce a distinct possibility that they hesitate in taking strong action for fear of losing revenue. Hence, the regulators are actually public services globally and funded by the state. They charge a very nominal fee, if at all, they do and there is no pressure on them to earn for themselves. Any departure from this principle can undermine the purpose of the regulation itself.

The regulators may be vulnerable to pressure from the government itself, which has led to establishing regulators as independent bodies at an arm’s length from the government – a trend which is being followed in India too – FSSAI, TRAI, or IRDA are ready examples of such separation from the government.

Another aspect that merits attention - where are the regulators parked?

Let us examine the history of regulations in India.

The Factories Act is about workplace safety in the manufacturing industry – but who is the custodian of this regulation? Not the Ministry of Industry but the Ministry of Labour.

Drug regulation is vested globally with Ministries of Health, not with Ministries dealing with the pharmaceutical industry.

The same applies to food regulation, which is again vested globally with Ministries of Health and not Ministries dealing with the food industry.

Yet another example is that of chemical regulation or environmental regulation, both of which are dealt with by Ministries of Environment globally and not Ministries dealing with industry or chemicals.

Pesticides are another example – regulated by the Ministry of Agriculture rather than the Ministry of Chemicals.

The reasoning being that Ministries dealing with that industry sector may be conflicted since their role is to look after the interests of that industry sector and promote its growth.

Going by this reasoning, the regulations under the BIS Act, where line Ministries are notifying Quality Control Orders (QCOs), are going against the traditional and global approach and are fraught with the risk of conflict of interest. Do we need to rethink this approach? Probably yes.

There is another area where this reasoning may apply.

India regulates exports also – it has a full-fledged Export (Quality Control & Inspection) Act for the purpose and indeed regulates several food items under it – seafood, dairy products, honey, etc., through the Export Inspection Council (EIC). However, there are some regulations which are placed with the commodity boards or export promotion councils whose primary mandate is to promote exports. That might also be considered a conflict of interest. How likely is a commodity board to take harsh action against exporters, which may bring down exports? A question worth asking!

Let us now examine the activities which regulators should or should not undertake.

The main mandate of regulators is to verify compliance with regulations they have prescribed – either directly through their own machinery or through the use of third-party agencies like food safety agencies used by FSSAI.

Given the above, it would be a conflict of interest for them to engage in handholding of the industry they regulate. Even certifying implementation resources or training providers would be perceived as a conflict – imagine a third-party food safety audit agency auditing a food business that shows that it has availed the services of an FSSAI-certified consultant to implement good hygienic practices or taken training from an FSSAI-approved training provider. How likely is the regulator to raise a major issue lest its own system of approval looks deficient?

However, a regulator (or accreditor or certifier) knows its regulation best, and when a new regulation is introduced, it is best placed to sensitise the industry and related stakeholders. Training is globally not regarded as a conflict of interest as long as it is generic and publicly provided. It can, however, be problematic – when a regulator visits an industry and confronts technical personnel trained by itself, how does one raise major issues which may imply the training was inadequate? Or the industry shows the certificate of training issued by the regulator himself in its defence? In-house training in an organization on the other hand, can surely be problematic and should be a strict no-no.

It should therefore be expected that the regulators conduct a series of programmes to explain their regulations to all stakeholders. But no more. The same applies to certification scheme owners and accreditation bodies.

This is the reason why the National Accreditation Board for Certification Bodies (NABCB), a constituent Board of the Quality Council of India, since its inception in 2000, never undertook training of certification or inspection bodies, a standard which has since been compromised in some way.

What if the regulators (or accreditation bodies or certification scheme owners) approve training providers or even consultants? One may be able to live with the former, although it can affect impartiality – how does a regulator question an industry whose technical personnel are trained by its approved training provider? More so, how likely is a regulator to raise an issue if the individual industry being evaluated has taken consultancy from its own approved consultant? Not likely, since if a regulator rejects an industry or raises major issues in an industry where consulting was provided by its own approved consultant, it would reflect on the competence of the regulator to approve consultants and bring them into disrepute.

In any case, given the unsatisfactory state of most regulations in India, regulators should focus on delivering robust regulation exclusively rather than get into activities which are best left to other stakeholders, especially if there are viable mechanisms available, which in this case are.

This is a perennial problem. Whenever a new regulation is brought in, or even an accreditation or certification program in the voluntary space is established, it needs two sets of resources – one for verification of compliance, which the regulators, accreditors or certifiers need and two, for implementation of prescribed standards in the industry. Both, as has been amply shown above, cannot and should not be vested with the regulator (or accreditor or certifier) due to a conflict of interest.

India has an excellent advantage in this respect, which has neither been fully recognised nor leveraged – the elaborate skill ecosystem with sector-specific skill councils. Their main mandate is to cater to industry needs and certify professionals as well as trainers. Unfortunately, there has largely been a disconnect between regulators and skill councils, even as India has issued a series of QCOs in various sectors under the BIS Act and regulations, like in telecom and medical devices, in the last few years. This needs immediate change, and skill councils need to be sensitised to cater to this aspect of industry need. The Healthcare Sector Skill Council (HSSC) and the Life Sciences Sector Skill Development Council (LSSSDC) have recently moved in this direction, and hopefully, other skill councils will follow the example.

Sector Skill Councils can set up independent systems to certify competent professionals and training providers for the implementation of regulations and standards which the industry is faced with, even voluntary standards which are in demand, especially in the global market, in certain sectors like agrifood and textiles more than others.

In conclusion, in order to uphold the highest standards of impartiality and independence, the regulators (and accreditors or certification scheme owners) should no doubt engage in explaining their regulations to stakeholders, but no more. The system for creating competent resources for the industry in the Indian context should be left to the Sector Skill Councils or other stakeholders with whom the regulators (and accreditors and certification scheme owners) should engage to help them set up an independent system. (Anil Jauhri is   ex-CEO, National Accreditation  Board for Certification Bodies and an international authority on standardisation.)

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