Regulatory Convergence in the TTIP: Facilitating Trade and Cooperation in the Transatlantic RegionBy Samuel Benka // Tuesday, June 10, 2014
The prospect of regulatory convergence between the U.S. and EU has become a hot topic in the current Transatlantic Trade and Investment Partnership negotiations. While trade agreements traditionally have dealt mostly with lowering tariffs, provisions on regulatory cooperation are a new addition to trade agreements with the TTIP going beyond what any previous agreement has ever attempted to accomplish.
Regulatory convergence seeks to address non-tariff barriers (NTBs) to trade. The horizontal chapter in the TTIP on regulatory convergence is the most ambitious ever proposed in a free trade agreement aiming to reduce these NTBs. Some of the most promising areas where regulatory cooperation can lead to substantial gains are in the auto safety, chemicals, and pharmaceuticals fields.
The TTIP seeks to address the remaining tariffs between the EU and the U.S., which average about 3-4 percent, but the real benefits of the agreement will come from removing NTBs, the biggest obstacle to trade exchanges today.
The EU and the U.S. take different approaches to regulation in a number of sectors. As a general rule of thumb, the United States has gone through extensive deregulation on the federal level during the last three decades while the EU has increased regulatory demands on its member states.
Several sectors in the TTIP could make significant improvements and cut unnecessary red tape. It is estimated that somewhere between 10-20 percent of the cost of a product traversing the Atlantic is attributable to divergent regulations.
For instance, European and American auto safety requirements could be better harmonized in order to reduce costs for manufacturers and drive down prices to consumers. The U.S. and EU auto safety standards and tests differ in many details but afford similar levels of safety. What this means for manufacturers is that they have to run tests twice in order to get cars approved in both markets. One study estimates that these extra tests end up adding about 25 percent to the cost of American made cars in the EU.
Chemicals is another industry that could benefit greatly from regulatory convergence. The German Chemical Industry Association (VCI) is pushing for mutual recognition of each others chemical industry regulations. This would be useful with regards to chemical inputs for medicines. Both the EU and the U.S. have strict but divergent standards for testing the safety of these inputs. Mutual recognition of these safety standards would keep companies on both sides of the Atlantic from going through inspections twice, thus saving them money and time.
The European Chemical Industry Council (CEFIC) and the American Chemistry Council (ACC) have proposed several steps aimed at reducing duplicative practices in the chemical industry. Some of the steps outlined by CEFIC include:
– Cooperation in the prioritization of chemicals that need to undergo assessment
– Approximation of methods in chemical assessment
– Intensive exchange of information, including cooperation on newly arising topics
– Cooperation and exchange of information on data between public agencies in charge of chemicals
Pharmacology is another industry that could benefit from greater transatlantic cooperation. The U.S. and the EU are the world leaders in pharmaceutical research. In a position paper on the TTIP, the Biotechnology Industry Association (BIO), which represents companies from both the U.S. and the European Union, states that it requests that USTR pursue a distinct and targeted set of sectoral outcomes on bio-pharmaceuticals as part of the TTIP negotiations on regulatory convergence and cooperation.
The TTIP could continue the process of integration between the American Food and Drug Administration (FDA) and its European counterpart the European Medicines Ageny (EMA) that has been taking place under the Transatlantic Economic Council and the High Level Regulatory Cooperation Forum for some years. Progress has been made in coordinating inspections assessing the compliance with Good Manufacturing Practices (GMP) and Good Clinical Practices (GCP). The TTIP presents an opportunity to deepen this integration.
Food safety regulation is another possible area, although progress here will be difficult. The EUs employment of the vaguely defined precautionary principle, which dictates that a food product has to be proved safe for human consumption before it can be approved for sale on the European market, has come under heavy criticism in the U.S.
Of course much of the debate hinges on what either side considers sufficient evidence. Beef containing certain hormones, for decades deemed safe for human consumption in the United States, has been banned in the EU as well as genetically modified organisms (GMOs). The U.S. has taken the EU to the WTO over its beef hormone ban where both the dispute settlement body and the appellate body have ruled in favor of the U.S. In spite of the verdicts, the EU maintains its bans.
The U.S. Grains Council has expressed concerns with the EU stance against importing GMOs (biotechnology) from the U.S. The EU has already used its leverage in other FTAs with African countries, compelling these countries to refrain from planting GMOs in order to avoid the EU ban when exporting to the continent. At this time it is unlikely that the U.S. will open up the European market to GMOs.
Because of the sheer size of the EU and U.S. economies the TTIP has the potential to set regulatory standards on a global level. TTIP rules could become world standards which countries wishing to join the partnership in the future would have to adhere to. In this sense it creates an excellent opportunity for a global race to the top. This would not only benefit the transatlantic region but the entire world trade system.
Image Credit: “Trade and Investment” courtesy of the EU Delegation in the United States
Subscribe to: Posts (Atom)