America’s greatest tool of economic statecraft to outcompete China may be an unassuming regulatory review office in OMB.
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In the era of strategic competition with the People’s Republic of China (PRC), U.S. policymakers are largely united in expressing the need for a whole-of-government response to economic and technological challenges. Despite this bipartisan imperative, a mandate to address economic statecraft is entirely absent from the mission of numerous federal government agencies and offices—from the Environmental Protection Agency (EPA) to the Department of Labor—that could play a major role in America’s response to the PRC’s activities. Thus, the question of how to fully leverage the president’s entire Cabinet to meet economic statecraft imperatives or respond using the entire executive branch remains an enduring challenge.
The answer to this question, however, might lie with a little-known government agency: the Office of Information and Regulatory Affairs (OIRA).
The Comprehensive Threat From the PRC
Both the Biden and Trump administrations have viewed strategic competition with the PRC as of the utmost importance to U.S. national security and the international order. This competition includes a traditional military component but also involves economic, diplomatic, information, and technological competition. The PRC has been on a decades-long campaign to strengthen its economy, develop world-class technologies, and modernize its military, all in an effort to replace the United States as the preeminent global power. It has sought to achieve these objectives through a steady campaign of economic warfare, including through stealing American technologies, unfair trade practices, and economic coercion of companies and countries. Simultaneously, it has aggressively attempted to control entire supply chains to reduce U.S. economic security, minimize systemic shocks felt in the PRC, and increase American reliance on the PRC—all under the auspices of its stated objective of self-reliance from the West, which is the original decoupling effort between the two economic powers. Furthermore, the PRC has increasingly promoted its techno-authoritarian norms globally, through extraterritorial enforcement of its laws and transnational repression, surveillance technology exports, and control over global standards-setting bodies.
The United States has never before faced such a formidable economic and technological rival. Countering the PRC’s whole-of-society campaign against the United States will require America to leverage more than its military capacity—and it will require focused efforts to compete and win economically and technologically. It will also obligate America’s allies, partners, and those who do not want to see the Chinese Communist Party lead the world to work together in new ways. To position the United States to be successful in this pursuit, its government will need to meaningfully implement a comprehensive, whole-of-government approach to thwart the PRC’s concentrated efforts to displace America as the world’s economic, military, and political hegemon.
The United States’s core national security agencies, such as the Department of Defense and the Central Intelligence Agency, are deeply focused on the PRC challenge. So, too, are interagency bodies, such as the U.S. Committee on Foreign Investment (CFIUS) and Team Telecom. Much of the rest of the government, however, is disconnected from the U.S. national security apparatus and therefore does not work to address concerns about the risks the PRC poses. Traditionally, these parts of the government—such as the departments of the Interior, Transportation, and Health and Human Services—focus instead on traditional and equally important policy matters that are disconnected from national security.
OIRA Basics
OIRA was initially established in the Paperwork Reduction Act of 1980 to exist inside the Office of Management and Budget (OMB) and to oversee and coordinate regulations among agencies. In 1981, President Reagan, through Executive Order 12291, codified the OIRA procedure for reviewing agency rules and substantially increased OIRA’s importance, leading it to review thousands of regulations per year.
The modern OIRA review framework was established in 1993 with President Clinton’s Executive Order 12866. Under this framework, OIRA functions as the clearinghouse for every federal agency’s “significant regulatory actions,” defined in Section 2(f) of the order as any regulation that (a) has an economic impact greater than $100 million, (b) conflicts with another agency action, (c) materially alters some other program, or (d) raises novel legal or policy issues. One effect of Executive Order 12866 was to focus OIRA on a smaller number of more important regulations, with the number reviewed falling from thousands to a few hundred in the 1990s.
In simplified form, the OIRA review process has two components. First, each agency must annually submit its “regulatory plans” for the year to OIRA justifying each “significant regulatory action” the agency intends to implement in the coming year. This justification primarily takes the form of an economic cost-benefit analysis. Second, OIRA reviews individual proposed rules and can return them for further consideration to the agency to ensure that “each agency’s regulatory actions are consistent with applicable law, the President’s priorities, and the principles set forth in this Executive order and do not conflict with the policies or actions of another agency.”
OIRA review generally focuses on ensuring the predicted benefits outweigh the costs, and agencies are often careful to ensure their major rules do not run afoul of OIRA. For example, if the EPA wants to implement a new rule on pollution, OIRA reviews it to ensure the environmental and long-term economic benefits outweigh the costs to industry. If OIRA assesses that the EPA’s rule is too onerous, cost ineffective, or impermissible given executive intent, it will advise the EPA to modify or abandon the rule. Through this process, OIRA has been described as the regulatory “counselor” and “gatekeeper.”
Every president since Clinton has maintained OIRA’s basic structure though modestly altering its procedures and priorities to reflect their priorities. President George W. Bush, for example, ordered tweaks to OIRA procedures that would, among other things, centralize greater control over administrative agencies in the White House, though these were soon repealed when President Obama assumed office. Obama issued his own series of modest reforms to OIRA procedure through Executive Order 13563, which increased public input into the process to minimize government isolation in rulemaking and called for analysis of existing regulations to reduce or remove overly burdensome rules. Under President Trump, OIRA sought to limit overregulation and ensure agencies were hewing closely to their statutory authority. By contrast, just last year, President Biden issued a series of modest reforms to the OIRA process, perhaps most notably expanding the array of “benefits” that could be included in OIRA’s cost-benefit analysis, which likely facilitated an increase in rulemaking. For example, last August, OIRA released draft guidance to agencies on accounting for “ecosystem services benefits” in their regulations, and last November, OMB issued a circular letter to agencies providing a detailed analysis of how they should standardize their analysis of costs and benefits for the purposes of OIRA review. Additionally, last October, following a directive in President Biden’s Executive Order 14036, “Promoting Competition in the American Economy,” which broadly directed the executive branch to promote competition through 72 different initiatives, OIRA issued guidance to agencies on how to account for their regulations’ effects on market competition. These adjustments to how presidents view OIRA’s responsibilities and subsequently execute its duties in the rulemaking process show that presidents have altered OIRA’s oversight mandate to shape the regulatory process according to their priorities. In a similar vein, a purposefully worded executive order could align to the growing national security challenges America is facing.
What an Executive Order Could Look Like
Rather than remake the federal government, a president who sought to leverage the interagency system for great power competition could issue a simple executive order directed at OIRA. This executive order could be short and, if properly done, would make four minor amendments to Clinton’s Executive Order 12866. First, the president would order every agency that submits its regulatory plans and individual proposed rules to OIRA to justify how every one of its proposed major rules advances American strategic objectives regarding the PRC. Second, the executive order would require OIRA, when reviewing any proposed rules, to ensure that each rule is advancing these strategic objectives. Third, the president would order the National Security Council and the Office of the Director of National Intelligence to coordinate with OIRA to ensure that it has a full understanding of what American national security objectives are, what the PRC’s national security objectives are, and how proposed regulations would impact American interests.
Some statutory authorities through which agencies regulate might limit their ability to consider national security, but many such statutes offer incredibly broad grants of authority that have led presidents to direct agencies to consider in their rulemaking everything from the effects their rules have on competition policy to federalism. Furthermore, even when statutes are silent as to national security considerations, the president has broad constitutional power to direct and control subordinates under the Take Care Clause. Therefore, the president has the ability to require officers within the executive branch to consider American national security imperatives while carrying out their other responsibilities. Moreover, when statutes are silent on national security, under Justice Robert Jackson’s formula in Youngstown Sheet & Tube Co. v. Sawyer, “congressional inertia, indifference or quiescence may sometimes, at least, as a practical matter, enable, if not invite, measures on independent presidential responsibility” on matters of national security. Courts are particularly deferential given the president’s constitutional responsibilities under Article II to protect national security, not to mention the federal government’s constitutional mandate to protect states against invasion.
An additional change to the OIRA review process would be to subject the so-called independent agencies—the Federal Trade Commission (FTC), the Federal Communications Commission, the Securities Exchange Commission (SEC), the Consumer Financial Protection Bureau (CFPB), the Federal Energy Regulatory Commission (FERC), and so on—to OIRA review. Such an addition would be of vital importance, given the immense power these agencies wield—often without a thought for economic statecraft. While controversial, the current Supreme Court is increasingly skeptical about the independence of such agencies and is increasingly committed to presidential control of the executive branch. Moreover, even the Biden administration is less committed to the idea of the unitary executive than the Supreme Court or a potential future Republican administration might be—for example, Biden has issued orders such as the “Promoting Competition” executive order mentioned above that direct certain action from these independent agencies.
Incorporating OIRA as a strategic instrument of national power would be a comprehensive reform to federal policy that would have immediate and profound implications for American economic and strategic competition with nations such as the PRC. The rulemaking process could be transformed with the National Security Council and the Office of the Director of National Intelligence helping to coordinate a review mechanism with OIRA to ensure that regulations are crafted to meet the threat from the PRC. Regulators that had always thought of their role as either maximizing economic benefits and minimizing costs or, for example, balancing safety for the environment against harm to industry, would suddenly have to consider how their rulemaking was affecting America’s overall strategic posture. Rule makers would have to confront how their major rules would alter American economic and financial security and resilience, the strength of the American defense industrial base, relationships with American allies, technological supremacy, and more. Regulations would be approved only if they were advancing America’s strategic interests, including against the PRC.
A few examples can help illustrate the effects of such an executive order. If the EPA considers regulating pollution from automobiles, it would have to consider whether its rule would harm U.S. auto manufacturers and jobs while also giving a comparative advantage to those in the PRC. If FERC were to review rules on pipeline permits, it would need to assess if the rules advance the United States’s and its allies’ energy security and minimize its reliance on adversaries, such as China and Russia, in energy supply chains. Every new Food and Drug Administration regulation would be aimed, at least partially, at promoting a secure and resilient medical supply chain. When OIRA reviews the Federal Aviation Administration’s newest rules governing the certification of foreign aircraft, OIRA would look beyond airworthiness and safety to also ensure that the FAA is protecting the U.S. market from predatory technology transfer from Chinese firms, such as COMAC. If the FTC promulgates rules governing mergers, it would have to consider the effects of competition policy on American strategic competition with the PRC. The SEC could not impose regulations governing financial market transparency without first considering national economic security risks stemming from PRC-U.S. financial linkages and the geopolitical importance of continued American hegemony. When the Department of Labor is considering rules governing employee pension plans, it would have to consider whether investments are fueling China’s military-industrial complex. The U.S. Patent and Trademark Office would ensure that U.S. intellectual property policy maximized America’s technological advantage over China’s strategic technologies. The Department of the Interior would prioritize the national security benefits of a domesticated critical mineral supply chain when issuing rules regarding mining such materials on federal lands. Agencies passing rules on permitting regulations would seek to ensure easy access to permits for strategically vital industries. The Department of Health and Human Services would issue rules to reduce the presence of Chinese biotechnology and genomics companies in the health care industry. The examples can continue indefinitely.
Such a change to OIRA review would likely increase OIRA’s workload, although over time it would condition the proposing agency to adopt the practice before drafting actual rules, which would normalize the requirement akin to the other national security reviews (for example, CFIUS, Team Telecom). We imagine that formal or informal designees from the National Security Council and the Office of the Director of National Intelligence would assist OIRA in its national security-based reviews along with other relevant agency components. Over time, OIRA would probably need to hire additional expert staff who are knowledgeable about national security and economic statecraft to fully implement its mandate. One of the primary beneficial effects of such an executive order would be the imperative at OIRA and at every agency under OIRA’s jurisdiction to increase its competency and fluency in matters of economic statecraft. Agencies across government would be on notice that their national security reasoning could be reviewed in court under the Administrative Procedure Act; therefore, these agencies would have every incentive to study these issues far more than at present and hire necessary additional staff, ensuring that economic statecraft is top of mind in all facets of the regulatory process.
Some observers might argue that such an executive order would constitute a “technical barrier to trade” under World Trade Organization (WTO) rules by prejudicing other countries, national security serves as a broad exception to the general WTO bar on technical barriers to trade. This is an exception the U.S. government employs regularly. Moreover, given the PRC’s long and extensive history of violating WTO rules, there is a compelling argument that the United States is no longer bound by WTO limits on its actions toward the PRC. After all, under Article 60 of the Vienna Convention on the Law of Treaties, “[a] material breach of a multilateral treaty by one of the parties entitles … a party specially affected by the breach to invoke it as a ground for suspending the operation of the treaty in whole or in part in the relations between itself and the defaulting State or international organization.” In any event, even if, as a matter of international law, the WTO would pose limits to the U.S. government’s ability to regulate economic statecraft, as a matter of domestic law, the constitutional imperatives of national security override any treaty obligations.
As the United States matures its thinking about economic statecraft and advances the concept of aligning disparate government agencies into a whole-of-government approach to support a broader national and economic security agenda, it seems apt for the U.S. to consider that one of the most immediate steps to deliver this outcome already exists. Through such an executive order, the White House could swiftly ensure that the U.S. government functions through a whole-of-government framework to address both the immediate and future challenges that America faces. Working within the current structure of the American government and exhausting all available resources seems prudent for any president who wants to either respond to the PRC or pursue America’s own economic statecraft strategy.
– Adam Chan, David Rader, Published courtesy of Lawfare.
