Le blog du CEPII

Regulatory coherence is more easily said than done

Regulatory coherence is claimed to be the core of the potential economic stakes in the TTIP. As the 9th Round of Negotiations is being convened in New York City, time has come for discussions to take a more concrete form.
By Sébastien Jean
 Post, April 23, 2015

A revised proposal by the EC (not yet publicly available, but already leaked) will be discussed, which proposes principles to put regulatory cooperation into practice. It promotes establishing a cooperation through early information on regulatory acts, as well as stakeholder consultations and more systematic impact assessments. The objective “to seek increased compatibility between their respective regulatory frameworks, where appropriate” is stated, without prejudice of the method followed in each case, be it mutual recognition of equivalence, harmonization, harmonization of essential requirements, or simply shared legal or administrative guidelines. To implement and monitor this process, the proposal also plan establishing a Regulatory Cooperation Body, composed of representatives of both parties, a novelty for the European Union.

Such principles echo business sector’s concerns, emphasizing that the lack of coherence between regulations is costly, hampering competitiveness and growth. While several broad studies already proposed tentative general assessments, more specific and detailed analyses and proposals are required to move forward, and this is not an easy task. The updated position published in March by the European Commission on cosmetics provides an illustration: it dropped any reference to the mutual recognition of lists of allowed and prohibited substances, hence recognizing that differences in this area are unbridgeable. More generally, as discussions move on, the complexity of bringing so different systems to higher coherence is more evident, as is the difficulty to present convincing, material evidence fleshing out general claims. Even in the automobile sector, frequently referred to as the archetypal example of unnecessary regulatory costs, coming with hard numbers about the equivalence between regulatory practices and the corresponding costs and benefits proves difficult. Witness, the study commissioned by representatives from the sector will not be presented in New York as initially expected. It is now increasingly clear that no one-size-fits-all solution will really help in this matter. What is more, finding straightforward examples of specific cases where equivalence can be proven, significant costs can be avoided, and business representatives agree on the way forward, proves more difficult than anticipated.

As a matter of fact, regulatory and standardization systems differ widely on both sides of the Atlantic. Exchanges and collaboration between regulatory bodies have been on-going for more than twenty years, with results largely deemed insufficient so far, despite the conclusion of several sector-specific mutual recognition agreements, as well as the establishment of various institutionalized dialogues. Embedding such discussions in the context of a treaty negotiation is a way to force regulatory agencies to come to the negotiation table, even when their own objectives and status do not give them many incentives to do so. But it does not mean than a suitable compromise is easily found.

Meanwhile, concerns are voiced that such regulatory cooperation may unduly reinforce lobbies’ influence on the regulatory process, and give disproportionate importance to trade considerations with respect to regulatory objectives. Can this regulatory cooperation process can be made more fruitful without jeopardizing the equilibrium of each partner’s regulatory process? This is what negotiators must now prove. The overarching principle stated by the European Commission’s negotiators is that an agreement should not lead to any lowering of European standards, regarding food safety, health, environment or any other legitimate regulatory objective. This principle is sound, because trade policy has no legitimacy in altering choices reflecting collective preferences, and resulting from fully legitimate institutional processes. The difficulty is now to show that this principle is compatible with economic benefits worth the negotiating pain. Economic studies suggest this should be the case, but putting it into practices proves highly complex. Beyond the mere timeline -now that even the chief European negotiator has publicly recognized that an agreement will not be concluded under Obama’s administration-, the challenge is for negotiators to find a way to combine these constraints, and to convince that their solution is both legitimate and worth being implemented. Regulatory coherence is more easily said than done.

To find more about regulatory coherence:

Olivier Cadot & Julien Gourdon , 2015"NTMs, Preferential Trade Agreements, and Prices: New evidence," Document de travail CEPII, 2015- 01, février.

Julien Gourdon , 2014"CEPII NTM-MAP: A Tool for Assessing the Economic Impact of Non-Tariff Measures,Document de travail CEPII, 2014-24, décembre.

"TTIP is about regulatory coherence", Billet du blog du CEPII, 8 décembre 2014, par Lionel Fontagné, Sébastien Jean.

"TTIP et convergence réglementaire : jusqu'où aller et qu'en attendre ?", Conférence du Club du CEPII, vendredi 13 février 2014. 
Trade & Globalization 
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