Jan. 30 (Bloomberg) -- On Jan. 18, while the headlines in the U.S. focused on the war in Iraq, the new Democratic Congress, and actress Lindsay Lohan's alcohol problem, the Bush administration rewrote the book on federal regulation.

President George W. Bush issued an executive order curbing the power of agencies to regulate industry through ``guidance'' - - informal advice that falls short of official rules yet can still cost companies millions of dollars to comply with. The order, which also calls on agencies to project the cost of new rules, among other demands, gives the White House more power to review how they regulate corporate behavior.

The amendments are ``the most serious attempts by the executive branch to control the regulation mills of the hundreds of federal agencies,'' said William Kovacs, vice president of environment, technology and regulatory affairs at the U.S. Chamber of Commerce, the nation's largest business lobby.

The story behind those changes illustrates how important the competing sides consider rule writing. Even subtle word changes can have significant effects on what the chemical, oil, homebuilding, pharmaceutical and other highly regulated industries must spend.

``It's another thumb on the scale,'' said Sally Katzen, who headed the Office of Information and Regulatory Affairs, the top regulatory job, in the Clinton administration. ``There will be more boxes to check, more I's to dot, more T's to cross, and more analysis.''

574 `Guidance Documents'

Federal agencies issue guidance to interpret key policy and technical questions, often at the request of industry. The Labor Department's Occupational Safety and Health Administration, for example, issued 574 guidance documents between 2001 and 2005, many directed at the construction industry.

Though the guidance isn't legally binding, companies pay close attention to it. More than 30 individuals and groups, including those representing funeral directors and ornithologists, filed comments about ``good guidance practices'' for a bulletin issued with the executive order.

Some, such as the Arlington, Virginia-based American Chemistry Council, said it was ``frequently beneficial'' for agencies to have the flexibility to issue guidance without a formal rule-writing process. Still, the council and most others who filed comments backed the plan to rein in the practice because of concern that guidance amounted at times to back-door rule writing.

Guidance should be subject to oversight by the Office of Management and Budget and public notice and comment, they argued.

`Legislative Rule'

General Electric Co., the world's second-largest company by market value, said the Environmental Protection Agency issued guidance on how to clean up toxic chemicals, which a court ruled in 2002 was actually a ``legislative rule.'' The Fairfield, Connecticut-based company recommended that agencies be required to maintain a list of all guidance documents on their Web sites.

Sanofi-Aventis SA, France's largest drugmaker, said guidance documents ``can have significant impact on our business as well as on the ultimate lives of our customers -- patients.''

The Paris-based company, whose U.S. headquarters is in Bridgewater, New Jersey, recapped an experience where the Centers for Medicare and Medicaid Services switched its payment policy on four drugs last year, after the final rule had been approved.

Bush's executive order told agencies they must submit to the White House budget office for review any guidance that has an impact of $100 million or more on the economy and make such significant interpretations available to the public for comment.

Kovacs said the chamber's complaint about guidance ``was one of the first issues we talked about'' with John Graham, the administration's first regulatory czar at OMB.

Curing Market Failure

Another change requires agencies to state in writing ``the specific market failure'' that it intends to cure with a new rule. Insufficient competition can be a sign of such a failure, OMB officials said. Or the government may have to order nutritional labeling because there otherwise would be a lack of information for consumers.

The market-failure concept has taken on new emphasis with the Bush administration. The president nominated Susan Dudley, the former head of the regulatory program at the Mercatus Center, a free-market-oriented research group at George Mason University in Arlington, to replace Graham in the top regulatory job at OMB. Dudley wasn't confirmed by the Senate in the last Congress and is now a top aide in the budget office.

Public Citizen, a Washington-based nonprofit group that monitors regulation, charged that Dudley will use a market- failure standard to create economic barriers to protection the public needs.

Pandering to Business

Under the Bush executive order, regulators also now will have to estimate the total costs and benefits of planned rules. And the process will be overseen in each agency by a political appointee, another provision that public interest groups oppose.

``There is no question who this panders to,'' said Rena Steinzor, a University of Maryland law professor who is critical of administration regulatory policy. ``It's something business has wanted.''

Jeffrey Rosen, OMB general counsel, said, ``Simply put: what we are doing here is `good government.' We are building upon a process that has been used by presidents of both parties to try to institutionalize best practices.''

Criticism of the changes is ``a tempest in a teapot,'' said Paul Noe, an adviser to Graham who is now a Washington lawyer. ``The executive order promotes better-informed and more accountable regulatory decisions.''

Congress should be paying attention to the president's action because he is usurping the authority the lawmakers gave the agencies to regulate, according to Peter Strauss, a professor at Columbia University law school.

``It's maybe not surprising that having lost control of the Congress, the president is doing what he can to increase control of the executive branch,'' Strauss said.

To contact the writer of this column: Cindy Skrzycki at cskrzycki@bloomberg.net.

Last Updated: January 30, 2007 00:05 EST