Why regulatory cooperation?
TTIP is a unique trade agreement, because instead of dealing with tariffs and import quota negotiations, it largely focuses on non-trade barriers (NTBs) created by differences in regulations.
“TTIP aims to go further than any other trade policy agreement,” EU trade chief Cecilia Malmström remarked. “It is technically complex, since a regulation is not a tariff whose trade impact is numerically obvious. And it’s politically complex, since the issue at stake in a regulation on the environment or health and safety, for example, goes beyond economics.”
The credo is as follows: By lowering differences and cutting down unnecessary costs due to the duplication in product development, testing and manufacturing, it is possible to boost trade, growth and jobs.
Cutting red tape and saving money are usually the number one arguments used to push regulatory cooperation.
Big companies believe that a successful TTIP agreement will boost competitiveness if non-tariff barriers, which can be as high as 20% in the car industry and food and drink sector for example, can be dismantled.
Despite stakeholders’ resistance, negotiators are trying to forge a unified approach to regulation that will end the need for some products to be tested by two sets of safety bodies, or inspection agencies on either side of the Atlantic, even though there are equivalent levels of health safety, security and environmental protection.
The cost of that duplication is ultimately borne by the customers who buy the products. Making regulations more compatible does not mean accepting lower standards of safety, of course, but adopting the best features of two systems that were created with the same aim of protecting consumers, the Commission keeps repeating.
EU-US regulatory coherence: Not starting from scratch
For years, the EU and the US have worked to align their regulatory systems better. The two partners are not starting from scratch. Indeed, TTIP would represent only one form of international regulatory cooperation, among others.
Since the adoption of the Transatlantic Declaration in the 1990s, a number of transatlantic dialogues between regulators have been launched.
In 1998, at the London Summit, the EU and the US launched the Transatlantic Economic Partnership (TEP) which helped frame the Guidelines on Regulatory Cooperation and Transparency in 2002.
At the June 2005 EU-US Summit, the two partners signed the Roadmap for EU-US Regulatory Cooperation, in order to provide a framework for cooperation on a broad range of important horizontal and sectoral areas, which helped strengthen cooperation and spur greater dialogue between the US Office of Information and Regulatory Affairs (OIRA) and the Commission’s Secretariat General, which also oversees better regulation in the EU.
This experience eventually helped pave the way for the US EU High Level Regulatory Cooperation Forum (HLRCF) in 2005, to further promote best practices in such cooperation.
By 2007, when the Transatlantic Economic Council (TEC) was founded, transatlantic regulatory cooperation was booming. For example, at that time the US Food and Drug Administration (FDA) informally estimated that its officers were having over 1,000 substantive contacts a year with their European counterparts in DG SANCO, the European Medicines Agency (EMEA), and the European Food Safety Authority (EFSA).
Yet, all this has not really delivered great results, except for the one example often quoted in both sides of the Atlantic: the EU-US Bilateral Aviation Safety Agreement, under which the Federal Aviation Administration, and the European Aviation Safety Agency agreed to accept each other’s certifications for Boeing and Airbus airplanes.
>>Read: EU, US negotiators mull concrete steps for TTIP
Despite decades of cooperation, both at the governmental and legislative levels, EU and US policymakers too often fail to mutually understand each other's positions, giving rise to "regulatory differences”, concedes Alberto Alemanno, Jean Monnet Professor of EU Law at HEC in Paris.
But TTIP has the potential to transform cooperation if approached correctly. A sound framework could encourage regulators to proactively consult and communicate with each other.
“TTIP could encourage a paradigm shift in the mindset of regulators to consider some of the broader international costs and benefits of what they are doing,” said Peter Chase of the US Chamber of commerce.
Arguably, if regulatory cooperation and convergence is possible for airplanes, which are among the most regulated products on the market, one can wonder why this could not be possible also for cars and other vehicles, or for medical devices.
If you can do it for planes, why not cars?
The EU's impact assessment document on the proposed deal leaves no doubt about the benefits of TTIP for the car industry. According to the assessment, motor vehicles and parts account for 47% of the anticipated increase in exports and 41% of the increase in imports in the most ambitious scenario.
EU-US auto-related trade currently accounts for some 10% of total trade between the two regions. Together, the EU and the US account for 32% of global auto production and 35% of global auto sales.
According to the Commission, current automotive non-tariff barriers (NTBs) are equivalent to an ad valorem tariff of around 26%
At DG Trade, they reckon that overcoming trade barriers could see a rise in this trade of anything from 70% to 350% between 2017 and 2027.
“Manufacturers currently face unnecessary redesign and redevelopment costs to produce cars for export to the US in order to meet safety standards which differ to those in the EU,” explained ACEA Secretary General Erik Jonnaert.
“This does not add additional safety protection. Where EU and US standards are, in their outcomes, effectively equivalent, we should be able to agree on mutual recognition. For future regulations, we should aim for harmonisation and encourage regulators to work more closely together to find common solutions.”
>>Watch: European car manufacturers back TTIP deal
This discourse is even more relevant when new products are being developed, like electric vehicles and self-driving cars.
BMW sales chief Ian Robertson said in an interview that the technology available today is "more than capable" to drive the car in many situations, but regulation requires that drivers keep their hands on the wheel. "We're in a phase where technology has overtaken regulation, and the question is how quickly do the two align," he said.
Beyond the auto industry: pharma, chemicals & Co.
The auto industry has a lot at stake in TTIP but it’s not the only industry. Negotiators have singled out nine sectors in which to reach concrete regulatory compatibility within TTIP (cars, pharmaceuticals, medical devices, cosmetics, pesticides, ICT, chemicals, and engineering).
>>Read: EU, US trade talks seek to advance regulatory pillar
Chemicals regulation differs significantly between the EU and the United States. BUND said over 1,300 chemical cosmetics additives and more than 80 pesticide substances are banned in the EU, but approved for use in products made in the US. This discrepancy is indicative of the very different legal situation in the two regions.
In the U.S., a comparatively small number of chemicals are banned and industrial enterprises are not required to prove a substance’s safety.
The EU, on the other hand, regulates according to the principle of “no data, no market” for chemicals manufacturers. Before a substance is allowed on the market, the company must provide proof of its harmlessness. Under this precautionary principle, bans and permission restrictions may also be implemented if final proof of a chemical’s risks has not yet been submitted.
“The precautionary principle which applies to us here, should under no circumstances become a bargaining chip,” said BUND chairman Hubert Weiger in Berlin.
“Allegedly necessary harmonisations or so-called mutual recognition within the framework of TTIP should not be allowed,” Weiger argued.
Meanwhile, the US House of representatives passed in June legislation to overhaul toxic chemical safety laws. Passed on a 398-1 vote, the bill would require the Environmental Protection Agency (EPA) to review chemicals in products and issue risk management regulations.
Lawmakers said that the Toxic Substances Control Act (TSCA) law, originally enacted in 1976, was overdue for a rewrite. “The time is now to update this outdated law,” said Republican Congressman John Shimkus, the bill’s author.
The legislation has broad support from a range of stakeholders, including the chemical distribution industry. Such a move could arguably play in favour of better regulatory cooperation within TTIP.
>> Read: TTIP a threat to EU chemical safety standards, German NGO says
On pharmaceuticals, for example, regulators work closely together, with the aim of limiting the duplication of inspections.
In Europe, universal healthcare is a source of national pride, as well as a constant subject of debate. The inclusion of a healthcare chapter in the ongoing TTIP talks has already triggered heated reactions from health organisations, who are wary of American-influenced liberalisation of a heavily regulated sector.
In the United States, the Food and Drug Administration (FDA) has been slower in approving some new cancer drugs and medical devices than the European Medicines Agency (EMA). TTIP advocates contend that increasing coordination may bring benefits to pharmaceutical companies by reducing compliance costs.
Douglas Gregory, executive director for European Government Affairs at Amgen, an American multinational biopharmaceutical firm, stressed healthcare had to be distinguished from other sectors.
"In other sectors, we are looking at mutual recognition of end-products, so that a product approved in the US can be sold in Europe and vice versa," Gregory said. "In healthcare, we are talking about how we can build closer collaboration between our regulatory authorities," he told a panel debate organised in March by the American Chamber of Commerce in Europe.
Sébastien Goux, the EU's TTIP lead negotiator on pharmaceuticals, said intensifying the exchange of information was the main focus of the talks.
>>Read: TTIP’s healthcare chapter to focus on medicines approval
Where there are different health regulations between the EU and US, for example on data protection for patients, the different systems will be respected. The Commission does not see TTIP as harmonising these rules, the Bercero said.
Similar discussions are taking place chemicals, where cooperation is limited because of the significant differences in the regulatory regimes—for example, on chemicals.
“Regulation on chemicals in the US is much less strict than in Europe. We have REACH. They have the TSCA, which does not require the same type of examination of chemicals. The scope for doing regulatory cooperation is very limited,” explained EU TTIP negotiator Ignacio Garcia Bercero, in an interview with EURACTIV.
How weak are US laws for toxic chemicals? Only eleven ingredients are restricted from cosmetics in the US, versus over 1300 in the EU. Under a law dating back to 1976, US regulators have only been able to restrict the use of only five of over 60,000 industrial chemicals that were presumed safe when the law was adopted, including asbestos.
>>Read: TTIP means trading away better regulation
The ‘Regulatory Cooperation Body’
To further regulatory coherence beyond the sectoral approach, negotiators are trying to agree on a framework which will allow regulators to work more closely together in developing new regulations and reviewing existing ones.
The EU and the US share many similarities in their approaches to regulation. Nevertheless, there are important differences in both the procedures and policies for developing and implementing regulation.
To begin with, there are differences between who does the regulating. In the US, the executive branch agencies accountable to the President develop and implement regulation, while legislation from Congress tends to be relatively general in nature. In Europe, regulation is initiated by the Commission and ultimately decided by the Council and the European Parliament.
The Commission published a proposal for a chapter on regulatory cooperation in February. In May, after listening to stakeholders’ concerns, it published and updated text.
Experts insist that the provisions should:
· Establish the explicit goal of making US and EU regulatory regimes increasingly compatible;
· Provide the necessary tools to regulators to achieve this;
· Create an institutional framework to oversee and guide this process.
The Commission has submitted a proposal to create a number of new procedures (early warning, regulatory exchange, joint examination) and structures (focal points, Regulatory Cooperation Body, Joint Ministerial Body).
“These are procedures that have a cost which will be shouldered by taxpayers,” said the BEUC’s Monique Goyens, noting that TTIP-induced benefits for companies' risk are neutralised by bureaucracy.
The new procedures could also slow down new regulations, or activate reviews of existing ones, she said.
Imagine the Commission takes a regulatory initiative in the context of an ambitious circular economy package which would oblige suppliers to inform consumers about the availability of spare parts (thereby also creating incentives to repair and creating EU ‘green jobs’), Goyens writes in her blog.
Even before it has submitted a draft proposal, the executive will have to inform the US about its idea. Supposedly, the Commission will take account of these comments in drafting its act. If not, the regulatory chapter would allow the US to again put in motion a regulatory exchange leading to it having a disproportionate influence.
Business and NGOs divide
Businesses and NGOs are split on regulatory cooperation. Businesses on both sides of the Atlantic want coordination to be hardwired into the deal.
But NGOs are concerned. They say that even if US-origin GMOs (genetically modified organisms), chlorinated chickens or hormone beef are not included in the negotiation, they could easily be allowed in the long term via this system of regulatory cooperation.
Thirty-three NGOs signed a joint declaration of their “deep concern and firm opposition” to such cooperation on rules, arguing it will drive down standards in areas such as chemicals, food standards and financial services.
“The proposal by the European Commission suggests a rather complex and lengthy procedure, where business will be awarded rights to demand information and to be part of negotiations on regulatory measures. The system includes an early warning mechanism to allow industry lobby groups to react promptly to proposed regulation, as well as surveillance of EU member states' new regulations to ensure that they comply with the pro-business objectives of TTIP,” according to a report by the Corporate Europe Observatory.
Commissioner Malmström repeatedly tried to quiet speculation and untangle misunderstanding.
“With TTIP, we want to build bridges between the EU and US regulators to make regulation more compatible – without lowering health, safety, environment or consumer protection standards,” she said when the Commission published the first proposal on regulatory cooperation.
“I have set put limits on regulatory cooperation in the proposals we have made to the United States, which are available online,” Malmström told MPs and MEPs recently.
“The limit is this: Nothing in this agreement will water down EU regulation in favour of people or the environment, now or in the future. That means I will make sure that TTIP will not change our European laws on hormone treated beef or GMOs for example.”
The hot potato
Indeed, the stickiest area in TTIP is the food and agriculture sector. The EU and US have fundamentally different approaches to the issue of food safety.
For meat production, the US lacks federal standards for food production at farm level. US federal legislation only begins to apply once the animal enters the slaughter house, meaning no overarching rules for veterinary drug use, no specific rules for use of antibiotics and no animal welfare rules.
This completely contradicts the EU's regulatory approach of minimising the risks to environment and human health at every step of the food production process, from field to fork
Combined agricultural and food trade between the US and the EU was roughly €19 billion in 2013. About 8% of EU agri-food imports come from the US; about 13% of EU agri-food exports go to the US.
Compared to trade in the industrial sector, agriculture is quantitatively of limited importance in present EU-US trade relations. So, it has the potential to be much larger considering the size of the two economies.
But if trade is liberalised without regulatory convergence, EU producers may face adverse competitive effects, a European Parliament report found. But if regulatory convergence were to level the playing field, there would be a risk of downward harmonisation, insists the report, mentioning the use of GMOs, presticide and food safety measures in the meat sector.
The Commissioner in charge of Agriculture, Phil Hogan, reassures that if a product contains genetically modified corn, it will still be labelled as such in the future seeking to dispel fears that consumer protection standards could suffer under planned trade agreements with the US and Canada.
The Irish politician said he would not allow any compromises with regard to consumer protection standards. Hogan, who took office as Agriculture Commissioner just a few months ago, spoke in an interview with the Süddeutsche newspaper.
>>Read: Agriculture Commissioner promises GMO labelling, despite TTIP
“TTIP seems to be already having an impact on how food laws are discussed and changed before it’s even finalised,” said Friends of the Earth’s Magda Stoczkiewicz.
The United States decided in January to lift its long-standing ban on EU beef imports, which followed the spread of Bovine Spongiform Encephalopathy (BSE), or mad cow disease, in Europe, in the 1990s.
The reopening of the US market started with Ireland, the member state which according to the Commission provided about 70% of exports to the US when the ban was enforced.
>>Read: Lifting of US beef ban 'not a TTIP trade off', EU says
Copa-Cogeca and FoodDrinkEurope, the sector’s business federations, have joined forces and identified a list of measures which should be addressed.
For example, in the fruit and vegetable sector, phytosanitary barriers prevent European fruit from entering the US market. It is also important to ensure European quality produce protected by EU legislation on Geographical Indications (GIs) are recognised by the US in any agreement.
In an interview, Copa-Gogeca chief, Pekka Pesonen, said that full meat trade liberalisation is not an option. “It is crucial not to endanger the Common Agriculture Policy (CAP),” he said.
Asked about harmonising regulatory standards, he insisted: “We are not touching the law. Each side has the right to make law. But we want to limit excessive controls, red tape and administrative burdens which costs sharply for producers and are not necessary. For example, what is the justification to have five controls before the pre-clearance system for EU citrus fruit?”
Win-win for SMEs
Regardless of the controversies, everybody agrees that lowering regulatory differences has the clear advantage to open further opportunities for small and medium-sized enterprises, which are the backbone of the EU and US economies.
SMEs are already big winners from transatlantic trade. 150,000 SMEs exported to the United States in 2012, accounting for 28% of all EU exports there.
“The inclusion by negotiators of a specific chapter on SMEs is clearly a step forward. They represent 99% of all businesses in the EU, but currently face significant regulatory obstacles in the transatlantic market,” said AMCHAM EU managing director, Susan Danger.
>> Read: AmCham EU: Parliament’s TTIP recommendations can lead to a robust deal
According to the Commission, however, SMEs still struggle to comply with technical rules and regulation, as well as accessing information about what regulation applies to their product. They also find it cumbersome to comply with customs rules, which can become very costly and act as de facto trade barriers.
The dedicated TTIP chapter is supposedly addressing the specific needs of SMEs.
“We want the Chapter to contain concrete smart regulation principles which will reduce the burden of legislation on small firms. Any future legislation the US or EU produce should be drafted with the smallest firms in mind,” said David Caro, president of the European Small Business Alliance.