Monday, May 5, 2014

The Future of International Regulatory Cooperation

by Nina Hart

On February 27 and 28, 2014, New York University School of Law hosted a symposium on “New Approaches to International Regulatory Cooperation,” featuring a mix of academics, government officials, and practitioners.  Co-sponsors were the Atlantic Council, the U.S. Chamber of Commerce, and the ABA Section of Administrative Law & Regulatory Practice.  Following up on the theme of the Symposium with some of its participants, this post aims to introduce readers to the concept of international regulatory cooperation (IRC), and some of the challenges facing the relevant actors.

Since the development of the General Agreement on Trade and Tariffs in 1947, and its successor, the World Trade Organization, the international community has been systematically engaged in negotiations to reduce trade barriers.  While a main target of these negotiations has been tariffs, nations have also acknowledged that non-tariff barriers (NTBs) pose similar impediments to efficient markets and optimal conditions of competition.  As symposium organizer Neysun Mahboubi, a Research Scholar at the Center for the Study of Contemporary China at the University of Pennsylvania, notes, “Many seem to agree that the first generation of trade issues, which focused primarily on tariff levels, has largely been resolved.  What remains to be addressed in present and future trade agreements are non-tariff barriers.”

In recent years, the focus on non-tariff barriers (NTBs) has expanded to include nations’ divergent regulatory regimes.  Michael Fitzpatrick, currently Senior Counsel for General Electric, worked in the White House Office of Information and Regulatory Affairs (OIRA) during both the Clinton and Obama Administrations, and led the IRC efforts during much of Obama’s first term.  He notes that during the Clinton Administration, IRC was not discussed very much, but it now has become a focus for the Obama Administration.  “This is the future,” he suggests.  “We live in a global economy, and are increasingly linked economically by trade, as well as socially and culturally via social media and the arts.  This more global environment forces us all to think about how our own regulations impact others around the world, especially with respect to trade and economic growth.”  

Executive Order 13609

On May 1, 2012, President Obama signed EO 13609, which signaled the Administration’s commitment to promoting international regulatory cooperation.  In particular, the EO charges executive agencies with considering the international effects of their regulations and considering regulatory approaches already adopted by the international community when drafting new regulations.

Significance of the EO

The history of the EO itself lends support to Fitzpatrick’s comment that IRC is increasingly relevant in an age of increased globalization.  In 1991, the Administrative Conference of the United States (ACUS) issued a report, recommending that agencies develop systematic ways of interacting with their foreign counterparts.  Twenty years later, ACUS revisited the issue and studied whether agencies had implemented any of the 1991 recommendations.  The 2011 study determined that agencies had increased their coordination with foreign agencies, including through mutual recognition of domestic standards, cooperation during the rulemaking stage, and information sharing for enforcement purposes.  The study also indicated that the need for such coordination had dramatically increased, and that, based on this level of need, the extent of agency cooperation was insufficient.  After considering these 2011 findings, the Obama Administration decided to draft and release EO 13609.

EO 13609 emphasizes several things.  First, although the Executive Order does not impose new requirements on agencies, the EO “clarifies and highlights the importance of IRC,” according to Adam Schlosser, Director of the Center for Global Regulatory Cooperation at the U.S. Chamber of Commerce.  The issuance of the EO also signals an increased awareness by political actors of the need for IRC.  Further, it is a step toward institutionalizing IRC as a norm for agencies and the public, although, as discussed below, democratic legitimacy concerns remain.

Challenges to Implementation

As discussed above, the 2011 ACUS Recommendation noted that while executive agencies have increased their efforts towards IRC since 1991, the extent of cooperation and methods of doing so could be improved.   One reason for the uneven attempts by agencies to communicate and interact systematically with their foreign counterparts is related to what might be termed “agency culture.”  Because domestic issues are typically the focus of regulations, agencies’ concerns have traditionally been on domestic effects.  Without additional pressure from OIRA or the White House, the needed “paradigm shift” in agency thinking is unlikely.  As Schlosser indicates, “Regulators are cautious by nature, and do not make rapid changes, so they need encouragement from a higher level.”  The EO is an example of political pressure that can impress on agencies the importance of IRC, but a more sustained effort to encourage international coordination is required to transform the idea of IRC into an institutional norm.

Transatlantic Trade & Investment Partnership (TTIP) Negotiations

In June 2013, the United States and European Union announced that they would begin negotiating the terms of the TTIP Agreement.  The mutual goal is to increase market access and eliminate trade barriers in numerous economic sectors.  Topics for negotiation include services; market access; competition; trade facilitation; sectoral regulatory issues; regulatory cooperation and coherence; investment; textiles; labor and environment; intellectual property rights, and technical barriers to trade.  Of particular relevance here is the overall goal of removing unnecessary or duplicative regulatory burdens from market actors.  Fitzpatrick argues that the TTIP negotiations are looking for ways to promote better coordination between the U.S. and EU “where the regulatory objectives on both sides are functionally the same and where the regulations have achieved essentially the same protective outcomes, but where the regulatory paths taken are different.”  The theory, he adds, “is that these regulatory differences are highly inefficient, adding cost and burden.  These added costs and burdens are passed through the economic system from the regulated entities to consumers, with no added benefit in terms of protecting health, safety, or the environment, for example.”  More information on TTIP is available at http://www.ustr.gov/ttip and http://ec.europa.eu/trade/policy/in-focus/ttip/about-ttip/.

Significance of TTIP

TTIP is one of the most recent multilateral efforts to recognize that important issues related to trade remain unresolved, and that these issues may have a better chance of being resolved through free trade agreements (FTAs) rather than through the WTO.  Specifically, the WTO negotiations, which are called “rounds,” may be unable to reach any meaningful resolution on these issues due to the nature of the institution and the complexity of the issues.  The number of countries involved in rounds is much higher, and their trade needs and willingness to compromise varies.  Thus, reducing the number of actors involved – in this case, including only the United States and the EU – reduces the number of divergent preferences.  In the context of TTIP negotiations, the two parties have fewer preferences to accommodate, and therefore may be able to address these NTBs in a meaningful way.  As noted above, the nature of NTBs is such that their elimination requires deeper commitments from governments, and working through the WTO, which is large and requires unanimous consent for the imposition of new obligations, is not always conducive to extracting such commitments.  

TTIP is also significant in the attention it draws to the idea that unnecessary regulatory divergence is often inefficient for companies and for governments.  As noted above with respect to EO 13609, the inefficiencies may appear self-evident, but in order to eliminate these NTBs, there must be political and public pressure to do so.  As Fitzpatrick notes, “high level political leadership is key.”  Thus, the ongoing negotiations themselves help publicize the existing inefficiencies and need for resolution.

 Challenges to Negotiations & Implementation

TTIP faces criticism on a variety of points.  Some critiques are more readily addressed and rebutted than others.  For instance, some critics have argued that TTIP will lead to a regulatory “race to the bottom.”  However, as Mahboubi notes, “this is a counter-intuitive objection for interested parties in the US to make, considering that the EU generally has the more stringent labor, safety, and environmental standards, for instance.”  Fitzpatrick adds that this concern is overstated because the “EU regulators, or U.S. regulators for that matter, would never agree” to water down their own regulations.  “The focus should, and will, be on removing or preventing unnecessary and costly differences in regulatory approaches when both sides are seeking to achieve, or achieving, the same outcomes.” 

Another criticism is that IRC requires too great a relinquishment of sovereignty.  While there is always a question of sovereignty with respect to international cooperation, Fitzpatrick points out, “there is a nonnegotiable floor for each party”; in other words, each party will decide how deeply to bind itself and opening the door will not create a domino effect such that sovereignty will be continuously eroded.

Other concerns have gained more traction, and generated more debate.  For instance, there is an ongoing debate about whether harmonization of standards (i.e. each nation adopts the same standard) or mutual recognition (i.e. each nation retains independent standards, but accepts the assessments done in the other nation) is the better approach to IRC.  Fitzpatrick notes that TTIP does not require one method over another, but focuses exclusively on better “coordination” and “coherence,” which may result from one or more of many methods, including harmonization, mutual recognition, or use of common data sets or testing methodologies.  Despite this, part of why the debate may persist is that much uncertainty exists as to which regulations will be affected and how they will be affected.

A somewhat related concern is that TTIP and other FTAs attempt to “Americanize” the standards and procedures used to promulgate regulations.  As Francesca Bignami, Professor at the George Washington University Law School, has argued, administrative procedures and regulatory frameworks are designed in each nation to further the goal of public accountability.  Public accountability requires that agencies be responsive not just to regulated parties but also to the legislature and the general public, and therefore it can be challenging to design administrative law that ensures responsiveness to these multiple constituencies.  For example, American administrative procedure has been found in some academic studies to produce a “bias towards business.”  See, e.g., Jason Webb Yackee & Susan Webb Yackee, A Bias towards Business?  Assessing Interest Group Influence on the U.S. Bureaucracy, The Journal of Politics, Vol. 68, No. 1, Feb. 2006, 128–39, available at http://journals.cambridge.org/action/displayAbstract?fromPage=online&aid=1962820; Wendy Wagner, Revisiting the Impact of Judicial Review on Agency Rulemaking: An Empirical Investigation, 53 Wm. & Mary L. Rev. 1717 (2012). 

This potential bias is of concern because FTAs such as TTIP place significant emphasis on creating administrative procedures that allow for extensive input from the private sector actors who have a direct and immediate stake in regulatory outcomes.  Furthermore, the specific type of administrative procedure that has been advanced in the FTA context appears to reflect American regulatory practice.  Thus, Bignami states, “the process risks being skewed towards one set of actors.”  In particular, there is a risk that the framework will be “open only to certain private actors with the extensive resources necessary to take part in the many levels of regulation that are now emerging.” 

Schlosser counters that TTIP does not attempt to impose American procedures, but to develop a better overall regulatory process.  He asserts that, the EU should actively offer methods to improve the U.S. system as well.  He further notes, “it is important for other nations to criticize the United States, and, by doing so, we can all take from each other and improve the final result.”  Bignami argues that this is a far more difficult issue to resolve than others may acknowledge, but there may be ways for FTAs to address it.  She suggests two things for negotiators to consider as a first step toward resolving this issue.  First, negotiators should consider providing “some public funding for public interest groups so that they can conduct research in the many technical areas covered by regulation and thus give meaningful feedback.”  Second, FTAs could include “a duty to ensure representation and consideration of transatlantic consumer, environmental, and other public interests in whatever process is eventually hammered out.”  Prof. Bignami explains her arguments in greater detail here: http://www.iconnectblog.com/2012/10/designing-administrative-law-free-trade-vs-accountability-networks/.

Looking to the Future

Negotiations on TTIP are ongoing, and whether an agreement will be reached remains to be seen.  On the issue of IRC more broadly, political and economic forces seem to be aligning in its favor, and likely will continue to do so regardless of how the TTIP talks end.  There is much to be gained through IRC; for instance, Prof. Bignami notes that multilateral agreements can be a way for the parties “to develop common standards and values that bind together the trading blocs.”  However, the success of these agreements will depend on the presence of political will, and the legitimacy will depend on the precise procedures and mechanisms for representation put in place. 

Further elaboration on the ideas debated at the symposium will be available in late Spring 2015, when the presented papers will be published in Volume 78 of Duke Law School’s Journal of Law & Contemporary Problems.

1 comment:

  1. Thanks for posting this; but if it were in a larger, darker font it would be a lot easier to appreciate!

    ReplyDelete