Regulation frames the relations between the public sector, businesses, and civil society, and shapes how markets function in an economy. Regulation can enhance welfare in society through the protection of public health, environment and other public goods, the promotion of fair competition, and market efficiency; however, the opposite is also true, regulation can generate unnecessary costs, stimulate inefficient resource allocation, and restrain innovation, growth, and jobs.
Despite improvements in recent years, inadequate regulatory frameworks in Latin America and the Caribbean (LAC) have generated unjustified costs. For instance, according to estimates from Mexico’s National Commission for Regulatory Improvement, the economic cost of regulatory procedures at different levels of government represented 8.4% of the country’s gross domestic product (GDP) in 2016.
The different regulatory impacts upon society largely depend on regulation’s quality and effectiveness. As the OECD (2011) points out, effective regulation facilitates informed policy-making decisions about what, when, whom and how to regulate, always meeting public interest’s principles and goals. And regulatory quality and effectiveness can only be achieved through a strong governance to bridging the gaps between regulatory design, implementation, and evaluation of outcomes.
Unfortunately, in the case of the tourism sector in LAC, regulatory policy is affected by a weak governance framework, generally characterized by an enormous fragmentation and high informality rates in the private sector, insufficient participation by local communities, limited public technical specialization and budget resources for planning, implementing, and evaluating sectoral policies, and low levels of public interagency and public-private coordination. For example, an analysis by the IDB in a South American destination found that two-thirds of tourism companies have never had any type of relationship with tourism authorities. And this is not an isolated case in the region.
These constraints in tourism governance make it difficult for sectoral regulation to respond to global accelerated changes that are having a disruptive effect on both global and regional tourism activity, and hinder investment in practices, tools, and institutions to ensure regulatory quality and effectiveness.
The challenges to effectively design, implement, and evaluate regulation in the tourism sector can be summarized in three interrelated phenomena:
- The growing complexity of the regulatory framework applicable to the tourism sector:
The areas traditionally regulated in tourism are mainly related to the taxonomy of tourism activities, jurisdictions of tourism institutions, rights and obligations of both consumers and tourism companies, and public instruments for promoting tourism. The scope of these areas gives rise to complexity in the sectoral regulation due to the need to cover different legal disciplines: while the administrative classification of tourism companies and their disciplinary regime are ruled by public law, the relations between subjects that participate in the provision of tourist services are governed by private law.
Moreover, in addition to the specific nature of tourism activities, tourism has also a transversal character, which implies that different public Administrations – not only the tourism one – influence the development of the sector. Along with the regulation related to the economic management of the sector (which is traditionally included in labor, investment, or transport regulations, among others), new public interest motivations have emerged that are generating additional and more multifaceted regulations such as, for example, those related to environmental sustainability and climate change. These new regulations require a significant investment and the need to develop new legal knowledge from tourism companies, with emphasis on the support required by micro, small, and medium-sized enterprises.
2. Accelerated technological changes which are influencing new rules of the game for the tourism ecosystem:
Technology is one of the factors that is transforming the tourism sector by leaps and bounds and is generating new regulatory challenges. For example, tourist accommodation platforms have generated controversial discussions on their effects on housing prices, neighborhoods development or competition with pre-existing tourism operators. As a consequence, most countries have approved or modified the regulation on tourist accommodation, trying to protect the situation in effect prior to the arrival of these platforms through restrictions to the provision of their services -such as time or geographic ones-. But it is still necessary to understand whether this regulatory approach adequately deals with the positive effects of technology or if, on the contrary, it is reducing them. In any case, the rapid pace of technological developments will continue, especially with the current exponential progressions in AI, bringing significant new ethical and technical challenges to regulatory frameworks.
3. Difficulty in meeting the multi-layered criteria associated with smart regulation in the tourism sector:
Smart regulation means regulating better, as a precondition for regulatory quality and effectiveness. The basic generally accepted criteria for considering a regulation to be smart are necessity, proportionality, adequate timing (opportunity), the use of evidence to foresee and evaluate the outcomes, and transparency. However, there is an inherent conflict between the lengthy and deliberate processes required to fulfill these criteria and the velocity of the growing regulatory complexity and technological changes occurring globally.
Certainly, the shortcomings in LAC tourism governance do not help to overcome this tension for the adequate application of smart regulation principles. One example can be found in the use of empirical evidence. Only evidence can predict and evaluate the effects of current or potential regulations. But the use of evidence for the design, implementation and evaluation of regulation is not yet a generally adopted path. A paradigmatic example of regulation that is usually established without prior evidence is related to fiscal incentives. To stimulate Foreign Direct Investment (FDI) in the tourism sector, many countries have developed tax exemptions, of various kinds and for long periods of time. However, some recent studies in LAC have compared the levels of tourism investment achieved in countries with a higher incidence of tax incentives versus countries with a lower occurrence, finding little difference between the two groups. Quite the reverse, the costs of managing these incentives and the number of economic resources that are not collected reach significant magnitudes. These results showcase the need to reinforce public-private coordination to better identify private investment determinants and to better inform fiscal regulation in the sector.
Tourism Law Observatory for LAC
To strengthen regional tourism regulatory policy in the face of the growing complexity and volatility of the global environment, the IDB is working jointly with UN Tourism, the specialized agency of the United Nations responsible for the promotion of responsible, sustainable and universally accessible tourism, in the creation of the first Tourism Law Observatory for LAC.
The main objective of this digital Observatory, which will be launched early 2025, is to increase the capacity of LAC’s tourism regulatory framework to adapt to the global challenges faced by tourism, reinforcing its value as a policy instrument and its capacity to formalize new models of tourism governance. More specifically, the observatory aims at: (i) becoming a regional technical forum to promote smart tourism regulation in LAC; (ii) promoting relevant technical and policy conversations for the optimization of the sectoral regulatory framework; (iii) providing evidence that allows tourism authorities to lead and participate in regulatory processes in their respective countries, especially in those promoted by other administrations that affect the tourism sector; (iv) collecting and sharing the concerns and interests of professionals, entrepreneurs and local communities in destinations with respect to regulations enforceable in the tourism sector; and (v) driving regional regulatory cooperation, helping to manage complex, interconnected, and rapidly changing cross-border risks and policies, through shared regulatory work.
The Observatory will support tourism authorities to integrate new ways of designing/implementing/evaluating tourism regulations through the application of the best possible practices, new ideas, knowledge, tools, and the activation of regional and global action networks. These will include the proposal of new forms of participation throughout the regulatory cycle and accountability mechanisms over the outcomes.
This digital Observatory aligns with the current IDB’s Tourism Sector Framework, specifically with its fifth strategic line of action to improve the regional tourism governance framework. It is expected that the Observatory will become a milestone for the development of new coordination mechanisms to optimize the quality and effectiveness of LAC´s tourism regulatory framework, under the guidance of smart regulation principles.
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