The Potential Emergence of a Transatlantic Regulatory Partnership

Few regulatory developments over the past five years hold greater potential significance than the February 2013 decision of the United States and the European Union to begin negotiating a formal regulatory partnership agreement as part of the Transatlantic Trade and Investment Partnership (TTIP).

The decision came in response to requests from over 80 industry groups on both sides of the Atlantic who petitioned the U.S.-EU High-Level Working Group on Jobs and Growth to reduce the often divergent and sometimes conflicting regulatory requirements that apply to goods moving in transatlantic trade. Industry asserted that such requirements act as a substantial barrier to trade on products subject to such requirements, with an impact equivalent to a 26 percent tariff in the case of automobiles. Industry also argued that many of these regulatory inconsistencies serve no real purpose since both the United States and European Union have strong, though different, regulations protecting health, safety and the environment. According to a recent study streamlining just 25 percent of these different-but-equivalent requirements would save producers and consumers over $200 billion per year.

Such streamlining could take one or more of four possible forms:

1. Harmonizing new regulations so that U.S. and EU producers can design and manufacture to a single standard;
2. Recognizing each other’s separate standards as mutually equivalent (where they are, indeed, equivalent), so that meeting either standard will allow market access;
3. Allowing each side to certify the conformity of exported products with the regulatory requirements of the importing party, so that just one conformity assessment is required; or
4. Sharing or reciprocally accepting data or analysis that informs regulatory decisions on either side.

TTIP negotiators are now working on coordinating regulatory requirements in nine different industry sectors. But they also recognize that forging a truly comprehensive regime for regulatory cooperation will take time. Regulators are reluctant to abandon longstanding rules and practices. Industries have invested billions of dollars or euros in designing products and production processes to satisfy two distinct sets of regulatory specifications. In the time available for TTIP talks (the goal is to conclude the agreement by the end of 2016), negotiators cannot hope to erase all regulatory inconsistencies even in the nine sectors under active discussion, much less all the others.

Recognizing this constraint, the TTIP delegates are also negotiating a “horizontal chapter” to guide ongoing regulatory cooperation efforts long after the TTIP talks are concluded. Indeed, this horizontal chapter may well prove to be the most important thing to emerge from the TTIP in the regulatory sphere.

How should negotiators approach the task of designing a transnational administrative process for U.S.-EU regulatory cooperation over the long term? This project faces four main challenges that must be resolved for U.S.-EU regulatory cooperation to succeed. In a recent article I examine these challenges and ways to meet them.

First is the challenge of integrating regulatory cooperation into the daily routine of agency life. The TTIP Agreement does not write on a clean slate. Serious efforts to promote U.S.-EU regulatory cooperation have been ongoing since 1990 with at best mixed results. Industry complains that transnational cooperation is not a sufficient priority for regulators who remain narrowly focused on advancing their own regulatory agendas in their own idiosyncratic ways.

To address this problem, prominent industry analysts have proposed the creation of a U.S.-EU Regulatory Cooperation Body (RCB) modeled on the U.S.-Canada Regulatory Cooperation Council. This regulatory body would be charged with setting priorities for regulatory cooperation initiatives, establishing deadlines, and getting results. The RCB might even be empowered to receive and review petitions from stakeholders for possible new initiatives. Industry also wants TTIP to establish new requirements for agencies to perform a Regulatory Compatibility Assessment of major new or amended regulations. Regulators would be asked to adopt approaches that are compatible with the regulations of their transatlantic partner, or else explain in convincing terms why they have not done so.

Proposals for “turbo-charging” regulatory cooperation, however, raise a second challenge: that of assuring that regulatory standards are not compromised. Some civil society groups note that the TTIP regulatory cooperation initiative is motivated by trade and jobs concerns rather than the goal of strengthening regulatory protections. They worry that the new “cooperative” regime will be used to pressure line regulators to lower health, safety, environmental, and financial standards in the interest of promoting trade. At a minimum, such a regime may ossify regulators’ efforts to raise standards.

For example, critics point out that while mutual recognition may be harmless when U.S. and EU health, safety, or environmental standards are truly equivalent, U.S. and EU standards are not always equally protective. In cases where U.S. and EU standards are not actually equivalent, mutual recognition essentially accepts the lower standard. In such cases, any system that creates a presumption in favor of mutual recognition of standards is effectively generating pressures to lower a regulatory standard on at least one side of the Atlantic. Moreover, critics worry that creating an external body to oversee regulators and require them to maximize “compatibility” will generate pressures on agencies simply to accept the other side’s regulations as equivalent, even when they are not equally protective.

Clearly, if mutual recognition and regulatory compatibility assessment are to be accepted as useful tools rather than industry levers for downward pressure on standards, they must be accompanied by a balanced multi-stakeholder consultation process that includes non-industry watchdog groups in the process. Mutual recognition should be extended only where true equivalence is demonstrated. And regulatory compatibility assessments should be driven by clear-eyed policy analysis, not by simplistic cost-benefit tabulations that marginalize real (but non-monetized) benefits.

Third is the challenge of assuring adequate agency resources. Layering a “Regulatory Compatibility Assessment” on top of existing requirements for cost-benefit analysis (U.S.) and Impact Assessment (EU) could operate as an unfunded mandate on agencies, stretching their resources and further ossifying an already glacial regulatory process on both sides of the Atlantic, making timely regulation ever more difficult. To address this problem, the regulatory cooperation project should be supported by a small annual levy on industry to defray the incremental costs of deliberation. There is ample precedent for such a fee on both sides, and it would pay for itself many times over in more effective and less costly regulation.

Finally, there is the challenge of assuring fair access and transparency. Civil society groups are alarmed by the secrecy of the TTIP negotiating process itself. In stark contrast to EU practice, the U.S. side has refused to disclose or take comment on its TTIP proposal for regulatory cooperation. Instead, the U.S. policy is to divulge its positions only to a handful of cleared advisors—mainly from industry—who are themselves sworn to secrecy. As a result, it is impossible for the general public to know what the official U.S. proposal for the horizontal chapter is. This problem could be easily solved. The TTIP regulatory cooperation negotiating process should be opened up, immediately, on the U.S. side, as it already is on the EU side. TTIP regulatory cooperation is all about increasing transparency in the regulatory process. That value should be reflected not only in the final agreement but in the TTIP negotiating process itself.

In sum, TTIP regulatory cooperation may change regulatory history. But whether those changes are for better or worse may well depend, in large part, on how these four challenges are addressed.

This essay is part of The Regulatory Review’s sixteen-part series, RegBlog@5.

Richard W. Parker is a Professor of Law and the Policy Director of the Center for Energy and Environmental Law at the University of Connecticut School of Law. An expert on administrative law and transnational governance, he is advising the European Commission on legal and policy issues surrounding the negotiation of the Regulatory Cooperation chapter of TTIP. The views expressed in this essay are entirely his own. A copy of his recently-published article on this subject may be found on the Social Science Research Network.