Transatlantic Regulatory Cooperation: Background and Analysis

Congressional research reportDec 22, 2011

Ask Donna

What actually matters in this document.

Text

Transatlantic Regulatory Cooperation:

Background and Analysis

/name redacted/

Specialist in International Trade and Finance

December 22, 2011

Congressional Research Service

7-....

www.crs.gov

RL34717

CRS Report for Congress

Prepared for Members and Committees of Congress

Transatlantic Regulatory Cooperation: Background and Analysis

Summary

Commercial ties between the United States and the 27-member European Union are substantial,

growing, and mutually beneficial. However, differences in regulatory approaches limit an even

more integrated marketplace from developing. To deal with this situation, a variety of

government-to-government efforts have been created to dismantle existing regulatory barriers and

to prevent new ones from emerging. These efforts fall under the rubric of transatlantic regulatory

cooperation (TRC) and are at the heart of today’s U.S.-EU economic relationship.

This report is intended to serve as an introduction and primer on a complicated, broad, and often

highly technical set of issues. Since the mid-1990s, both U.S. and European multinational

companies have viewed divergent ways of regulating markets for both goods and services as the

most serious barriers to transatlantic commerce. The primary reason why these companies seek to

achieve greater harmonization in standards and regulatory procedures is to reduce costs imposed

by having to comply with two different sets of regulations and standards.

TRC must deal with a number of key differences between the United States and EU concerning

approaches to regulation. These differences involve political support for regulation and public

attitudes towards risk and transparency. Until they converge or are re-aligned, a transatlantic gap

in regulatory policies is likely to persist.

Regulatory cooperation is an umbrella concept that incorporates a broad range of activities. At

one end of the spectrum are information exchanges and dialogues among regulators that are

designed to build trust and confidence. At the other end of the spectrum are activities designed to

harmonize regulatory approaches through acceptance of common principles and standards. In

between are activities that involve varying degrees of intrusion into the autonomy of regulators.

TRC initiatives have made progress in reducing costs to businesses and consumers in some

sectors, but not in others. One of the key obstacles to more extensive cooperation frequently cited

is the domestic orientation of regulatory agencies involved in the process. To promote more

effective TRC, two policy options are commonly advanced: (1) attracting high-level political

support and (2) increasing dramatically the involvement of legislators (Congress and the

European Parliament). The Transatlantic Economic Council (TEC), which was created in April

2007, was designed, in part, to generate the kind of high-level political support that previous

initiatives may have lacked.

At the last TEC meeting, held in November 2011, the two sides agreed to avoid creating new and

unintended barriers to trade and investment, especially in emerging technologies, such as

nanotechnology, biobased food, and cloud computing. The leaders also encouraged regulators on

both sides to implement common regulatory principles and best practices.

TRC has been mostly an executive branch driven process. Yet, through authorization and

appropriations of the many different regulatory agencies involved in TRC, Congress could play a

more central role if it decided to move in this direction. As domestic regulation takes place in an

increasingly integrated transatlantic marketplace, Congress will be called upon to balance the

often competing demands of trade expansion and barrier reduction against domestic health and

safety concerns.

Congressional Research Service

Transatlantic Regulatory Cooperation: Background and Analysis

Contents

Introduction...................................................................................................................................... 1

U.S.-EU Regulatory Barriers ........................................................................................................... 2

Rationale for Transatlantic Regulatory Cooperation ....................................................................... 3

Economic Rationale................................................................................................................... 4

Political Rationale ..................................................................................................................... 5

Counter-Arguments ................................................................................................................... 6

U.S.-EU Differences in Regulatory Approaches ............................................................................. 7

Political Cycles.......................................................................................................................... 7

Values and Public Preferences................................................................................................... 8

Transparency and Rule-Making ................................................................................................ 8

Institutional Capacity to Undertake Reforms ............................................................................ 9

Forms of Transatlantic Regulatory Cooperation............................................................................ 10

Information Exchanges and Dialogues.................................................................................... 10

Mutual Recognition Agreements ............................................................................................. 11

Harmonization/Agreement on Regulatory Standards.............................................................. 12

Results of Past Initiatives at Regulatory Cooperation ................................................................... 13

Highlights of Past Initiatives ................................................................................................... 13

Accomplishments .................................................................................................................... 14

Disappointments ...................................................................................................................... 16

Obstacles and Options for More Extensive Cooperation ........................................................ 17

The Transatlantic Economic Council............................................................................................. 18

Role of Congress............................................................................................................................ 19

Appendixes

Appendix A. Congressional Hearings on Transatlantic Regulatory Cooperation.......................... 22

Appendix B. U.S.-EU Regulatory Cooperation by Sector, U.S. Regulatory Agency, and

Committee Oversight.................................................................................................................. 23

Contacts

Author Contact Information........................................................................................................... 24

Congressional Research Service

Transatlantic Regulatory Cooperation: Background and Analysis

Introduction

The United States and the 27-Member European Union (EU) share a huge, dynamic, and

mutually beneficial economic partnership.1 Not only is the U.S.-EU commercial relationship,

what many call the transatlantic economy, the largest in the world, it is also arguably the most

important.2 While the transatlantic market is today highly integrated due in large part to a massive

amount of foreign direct investment by both U.S. and European companies in each other’s

markets, differences in regulatory approaches, standards, and philosophies militate against the

development of an even tighter and more integrated marketplace. Regulatory differences are also

behind some of the most politically sensitive bilateral trade disputes.

To deal with this situation, a variety of government-to-government efforts and transatlantic

dialogues have been created to increase understanding between policymakers and regulators on

both sides of the Atlantic, to minimize existing regulatory barriers, and to prevent the emergence

of new regulatory barriers. These efforts, falling under the rubric of transatlantic regulatory

cooperation (TRC), are seen as being important to today’s U.S.-EU economic relationship.

Proponents maintain that TRC undertakings can not only prevent disruptive and costly trade

disputes from occurring, but also spur trade and investment flows by reducing costs for producers

and consumers on both sides of the Atlantic.

Since the establishment of the New Transatlantic Agenda (NTA) in 1995, there have been a

number of new TRC initiatives, all aimed at removing or reducing regulatory barriers to trade.3

While each of these initiatives has made some progress toward reducing regulatory burdens,

many U.S. and European companies heavily engaged in the transatlantic marketplace maintain

that the results have not been materially significant.

At the 2007 U.S.-EU Summit, leaders of the EU and United States committed their governments

to increasing the efficiency and transparency of transatlantic economic cooperation and to

accelerating the reduction and elimination of barriers to international trade and investment with

the ultimate objective of achieving a barrier free transatlantic market. They also agreed on a

Framework for Advancing Transatlantic Economic Integration (the Framework) and created a

new institutional structure, the Transatlantic Economic Council (TEC), to advance the process of

regulatory cooperation and barrier reduction. Headed on both sides by ministerial-level

appointees, the TEC is designed to oversee the efforts outlined in the Framework, with the goal of

accelerating progress and guiding work between the Summits.4

Whether the TEC will herald a new era of more effective cooperation remains to be seen. Much

could depend upon whether the TEC can exert enough political leverage to convince regulators to

make reforms that will result in reduction of regulatory barriers between the EU and the United

For background on the European Union, see CRS Report RS21372, The European Union: Questions and Answers, by

(name redacted) and (name redacted).

For background on EU-U.S. commercial ties, see CRS Report RL30608, EU-U.S. Economic Ties: Framework, Scope,

and Magnitude, by (name redacted); and CRS Report R41652, U.S.-EU Trade and Economic Relations: Key Policy

Issues for the 112th Congress, by (name redacted).

The NTA committed the United States and EU to work together to achieve four major goals, including the expansion

of world trade and closer economic relations. Implementation of the agenda is guided by a joint EU-U.S. Action Plan

which is coordinated by a group of senior level officials.

For background on the 2007 U.S.-EU Summit and the TEC, see http://www.whitehouse.gov/infocus/eusummit/2007/.

Congressional Research Service

Transatlantic Regulatory Cooperation: Background and Analysis

States, as well as increase the role that legislators on both sides of the Atlantic play in the process.

Six TEC meetings have been held since it was established in 2007, the most recent in November

2011 in Washington, DC.

This report is intended to serve as an introduction and primer on a complicated, broad, and often

highly technical set of issues. It is presented in seven parts: the first section describes the nature

and scope of U.S.-EU regulatory barriers; the second section explains the rationale for regulatory

cooperation; the third section highlights the differences in U.S.-EU regulatory approaches; the

fourth section examines the various forms of regulatory cooperation; the fifth section evaluates

the results of past initiatives at regulatory cooperation; the sixth section analyzes the creation and

operation of the Transatlantic Economic Council; and the last section highlights the role of

Congress in transatlantic regulatory cooperation. This report will be updated as events warrant.

U.S.-EU Regulatory Barriers

Since the mid-1990s, both U.S. and European multinational companies (MNCs) have viewed

divergent ways of regulating markets for both goods and services as the most serious barriers to

transatlantic commerce. Redundant standards, testing, and certification procedures are seen by

these companies as far more costly and harmful than any trade barriers imposed at the border,

such as tariffs or quotas. While the purpose of many regulations is to protect consumers and the

environment, divergent domestic regulations and standards can affect the competitive position of

firms, helping some and disadvantaging others by affecting the importation of products not

produced or grown according to those requirements.5

To the extent that product standards differ, exporters may find their goods prohibited from certain

markets or subject to expensive re-labeling, re-packaging, or re-testing. For example, European

winemakers intending to sell in the U.S. market must label their bottles according to U.S.

requirements, which are different than EU requirements. Similarly, U.S. exports to the EU of

poultry washed with anti-microbial treatments have been blocked for years by different health

and safety standards.

Different regulations add to the cost of doing business on both sides of the Atlantic and serve as

non-tariff barriers to trade in many different economic activities and sectors. These include but

certainly are not limited to differences in accounting and financial reporting requirements,

antitrust or competition procedures, consumer protection (safety and health) standards,

environmental regulations, and personal data transmission. Each of these divergences can

materialize into politically charged disputes and threaten the functioning of the transatlantic

market.

In no area has this been a greater problem than in chemicals. In this sector, the United States and

EU have fundamentally different regulations on issues such as genetically modified organisms

(GMOs), hormones, and the registration and restriction of chemical substances. In the case of

GMOs, these differences have translated into longer authorization times and stricter standards for

approval, release, and marketing of GMOs in the EU than in the United States Moreover, GMOs

Daniel C. Esty, “Regulatory Competition in Focus,” Journal of International Economic Law (2000), pp. 215-217.

Congressional Research Service

Transatlantic Regulatory Cooperation: Background and Analysis

have been the subject of a long and bitter trade dispute brought before the World Trade

Organization.6

Pharmaceuticals is another sector where regulatory differences have been described as not only

significant, but also bewildering. Just in the area of drug approvals, primary regulatory elements

governing testing protocols, submission of clinical data, and certification of good manufacturing

practices vary considerably between the United States and EU. Moreover, within the EU, where

public health policy is still a national prerogative, rules and protocols can vary greatly from

member state to member state. Because each member state has its own rules and protocols, it can

be quite expensive for pharmaceutical companies to achieve marketing authorization throughout

the EU or even a subset of countries.7

Another example comes from the automotive sector, where American and European car makers

sell similar products in the United States and Europe. But there are different standards and testing

requirements for all kinds of parts, ranging from headlights, wiper blades, light beams, and seat

belts to crash standards—which critics maintain are without measurable differences in safety

benefits. There are even multiple crash test dummies of the same or similar size and purpose—a

clear example of where regulatory requirements diverge.8

Despite the salience of regulatory barriers in transatlantic commerce, a comprehensive, sector-bysector study or inventory of regulatory barriers has not been undertaken. Proponents argue that

such a report could identify regulatory differences that impose substantial burdens on transatlantic

commerce and possibilities for their reduction or convergence without compromising either U.S.

or EU health and safety priorities. In 2003, the European Commission (EC) proposed that such a

study be undertaken and jointly funded, but the U.S. government did not back the initiative. Both

sides, however, note the major regulatory divergences that are considered trade barriers in their

respective annual trade barrier reports. In the 2008 U.S. trade barriers report, for example, 12

pages are devoted specifically to EU regulatory barriers.9

Rationale for Transatlantic Regulatory Cooperation

Efforts to enhance TRC draw on both economic and political justifications and are strongly

supported by business interests and governments on both sides of the Atlantic. At the same time,

Reinhard Quick, “Transatlantic Regulatory Cooperation on Chemicals—An Idealist’s Dream?,” German Marshall

Fund Academic Research Conference, Ford School, University of Michigan. Available at

http://www.fordschool.umich.edu/news/events_details/re_coop_and-comp_08/, and Gregory C. Shaffer and Mark A.

Pollack, “Reconciling Regulatory Differences: The Ongoing Transatlantic Dispute over the Regulation of

Biotechnology,” in The Future of Transatlantic Economic Relations, edited by David M. Andrews, Mark A. Pollack,

Gregory C. Shaffer, and Helen Wallace, Robert Schuman Centre for Advanced Studies, 2005, pp. 220-221.

Keith Maskus and Yin He, “Trans-Atlantic Regulatory Cooperation in Pharmaceuticals: An Intellectual Property and

Trade Perspective,” German Marshall Fund Academic Policy Research Conference, May 8-9, 2008, Ford School,

University of Michigan, p. 8. Available at http://www.fordschool.umich.edu/news/events_details/

reg_coop_and_comp_08/.

Vann H. Wilber and Paul T. Eichbrecht, “Transatlantic Trade, the Automotive Sector: The Role of Regulation in a

Global Industry, Where We Have Been and Where We Need To Go, How Far Can EU-US Cooperation Go Toward

Achieving Regulatory Harmonization,” German Marshall Fund Academic Policy Research Conference, Ford School,

University of Michigan, p. 7. Available at http://fordschool.umich.edu/news/events_details/re_coop_and_comp_08/.

Office of the U.S. Trade Representative, 2008 National Trade Estimate Report on Foreign Trade Barriers, pp. 9-21.

Available at http://www.ustr.gov.

Congressional Research Service

Transatlantic Regulatory Cooperation: Background and Analysis

within the United States, some interests, mostly academics, see greater benefits derived from

regulatory competition and independence, whereby each side is free to maintain its own approach

to regulating consumer, health, and environmental issues. The case for non-cooperation or at least

caution is also based on concerns that domestic health and safety standards may be compromised

by a process that is driven substantially by business interests and stakeholders and could be

affected by a “race to the bottom” regarding U.S. and EU standards.

Economic Rationale

The primary reason why many export industries seek to achieve greater harmonization in

international standards is to reduce costs associated with complying with two different sets of

regulations and standards. To the extent that transatlantic regulatory standards and procedures

differ, the costs of engaging in transatlantic commerce increase.10

A good example comes from the auto industry. According to a trade association, a U.S.-based

producer of light trucks looked into exporting a model to Europe and found that its design was

incompatible with a European regulation on exterior edge projection (the United States has no

comparable standard). The truck was never exported because it would have required a major and

costly re-design. The same truck manufacturer then undertook to ensure that another model on the

drawing boards would have maximum export potential built into its design. In order to sell this

product in Europe, the manufacturer reportedly utilized 100 unique parts, incurred an additional

$42 million in design and developmental costs, and committed an additional 130 people to the

program. Yet, the performance of the vehicle, in terms of safety, was unchanged. European-based

manufacturers face the same issues in reverse when contemplating selling a European-designed

model in the United States. These separate regulations, in turn, may cost manufactures millions of

extra dollars to comply with, but may result in no changes in the vehicle in terms of safety or fuel

economy.11

A 2005 OECD study is often cited to illustrate how costly regulatory barriers are to producers and

consumers on both sides of the Atlantic. This study estimates that regulatory divergences between

the United States and Europe costs the United States a sum that is equivalent to 1%-3% of GDP

annually.12

In addition to cost savings that might be derived from the harmonization of regulations so as to

facilitate open markets, it is argued that regulatory cooperation between states will help ensure

that regulatory standards will not serve as obstacles to freer trade or unfair trade advantages.13

David Vogel, “Can it be done? Suggestions for better regulatory cooperation between the US and Europe,”

Transatlantic Thinkers #7, BertelsmannStiftung, p. 3. Available at http://www.bertelsmann-stiftung.de/cps/rde/xchg/

bst_engl/hs.xsl/prj_7072-7084.htm.

Vann H. Wilber and Paul T. Eichbrecht, “Transatlantic Trade, the Automotive Sector: The Role of Regulation in a

Global Industry, Where We Have Been and Where We Need To Go, How Far Can EU-US Cooperation Go Toward

Achieving Regulatory Harmonization,” German Marshall Fund Academic Policy Research Conference, May 8-9, 2008,

p. 5. Available at http://fordschool.umich.edu/news/events_details/re_coop_andcomp_08/.

OECD Working Paper No. 432, On the Benefits of Liberalizing Product Markets and Reducing Barriers to

International Trade and Investment: The Case of the United States and European Union May 26, 2005.

The initial impetus for promoting a transatlantic dialogue on regulatory standards was the European Community’s

1992 internal market program. At the heart of this program was an effort to establish European-wide standards.

Progress along these lines raised concerns in the U.S. business community that the new standards and regulations could

be used to disadvantage U.S. exporters and products.

Congressional Research Service

Transatlantic Regulatory Cooperation: Background and Analysis

Just as internal regulatory divergences can become a source of competitive advantage or trade

tension, proponents of regulatory convergence assert that differences in emissions standards,

labeling requirements, and attitudes towards public health risks between countries can become a

market access barrier for foreign products or provide domestic producers with “unfair”

competitive advantages.

Proponents of regulatory cooperation maintain that it could have the effect of preventing a

welfare-reducing “race to the bottom” as jurisdictions seek to advance the competitiveness of

their own industries through lax regulation or lower standards. This rationale for regulatory

cooperation served to justify a large expansion of federal legislation and institutions in the United

States in the areas of environmental regulation, consumer protection, health and safety, and labor

protections. Similar fears of trade distortions and races to the bottom led to the implementation of

sweeping harmonization programs and centralized legislation in the EU.14

Cast in the context of the global economy, some view TRC as a way for the United States and EU

to promote global regulatory standards. In the absence of world standards, the United States and

Europe are often competing for acceptance of their respective regulations in third markets.

Proponents of TRC indicate that the net effect of this competition is that India and China can play

the United States off against Europe, developing their own technical standards and financial

regulations, complicating world trade for everyone.15

Political Rationale

Supporters of TRC note that since the end of the Cold War, the United States and Europe have

been searching for various ways to bolster the foundation of the relationship. Absent the common

enemy embodied in the threat posed by the former Soviet Union, both sides have felt freer to

pursue their own narrow economic and political interests. In the process, trade disputes have

appeared to increase in frequency, focusing often on differences in regulation, rather than the

traditional barriers of tariffs and subsidies.

To deal with the joint task of giving the relationship a new rationale as well as bolstering overall

ties, numerous attempts have been made since the 1995 NTA to enhance transatlantic economic

cooperation. In this context, efforts to advance regulatory cooperation have been part of attempts

to reinvigorate and upgrade the bilateral relationship. Annual summits, attended by the U.S.

President, the President of the European Commission, and the President of the European Council,

have been the venue for bringing high-level political attention and focus on efforts to enhance

transatlantic regulatory cooperation. Regulatory cooperation, now entailing an expanding group

of stakeholders and networks, has become a significant component of the U.S.-EU economic

relationship. Supporters argue that through such cooperation the partners may be able to find

ways to amicably and expeditiously resolve commercial disputes, as well as establish joint

approaches to a number of common regulatory challenges that have global importance.16

Daniel C. Esty and Damien Geradin, “Regulatory Co-opetition,” Journal of International Economic Law (2000),

235-255, p. 236.

Transatlantic Policy Network (TPN), Completing the Transatlantic Market, February 2007, pp. 6-7. Available at

http://tpnonline.org.

Simon J. Everett and Robert M. Stern, “Condemned To Cooperate?,” German Marshall Fund Academic Policy

Research Conference, May 8-9, 2008, University of Michigan, p. 7. Available at http://www.fordschool.umich.edu/

news/events_details/re_coop_08/.

Congressional Research Service

Transatlantic Regulatory Cooperation: Background and Analysis

Because the United States and European Union collectively represent over 50% of global

production, in areas where they can agree on a common regulatory policy or approach, they are

well-positioned to promote it globally. Where they disagree, there is often deadlock, reflecting the

equal size of their economies and markets.17

While there are other forums (such as the World Trade Organization and international treaties) to

promote regulatory cooperation, they are seen as having shortcomings. The WTO, for example,

promotes regulatory cooperation by giving some international standards legal effect, nudging

WTO Members to actively participate in international standardization bodies. It also puts national

provisions to the test in various committees and offers its members a platform to facilitate

regulatory cooperation.18 But the number of transatlantic regulatory differences that fall within

the scope of WTO rules constitute a relatively small proportion of the regulatory policies and

procedures that involve firms on both sides of the Atlantic. Moreover, the few regulatory-based

trade disputes that the WTO has decided sometimes exacerbate rather than lessen tensions

between the United States and EU.19 For this reason, it is argued that the United States and EU

need to develop bilateral mechanisms for coordinating their regulatory policies.20

Counter-Arguments

Although there is strong support for TRC among business and government leaders on both sides

of the Atlantic, the concept and rationale have their critics. This opposition is based, in part, on an

alternative view of the benefits of regulatory competition as opposed to a centrally adopted

regulatory framework constructed through regulatory cooperation. These mostly academic critics

see benefits in variations in regulatory approaches across jurisdictions (either intra-state or

interstate) as a way of disciplining overarching governments and creating incentives for

bureaucratic efficiency. They argue that regulatory competition leads to the adoption of standards

of varying stringency that efficiently match the needs and desires of each jurisdiction. Because

conditions, tastes, and incomes tend to vary across jurisdictions, this school of thought maintains

that an optimal regulatory policy for one jurisdiction will not necessarily be optimal for another.

Some consumer groups caution against the influential role that business groups play in

transatlantic regulatory cooperation. The concern is that safety and health concerns may be

compromised if business groups play such a prominent role in negotiations over testing

requirements and standards for their own products. Rather than reducing barriers per se, the Trans

Atlantic Consumers Dialogue maintains that the purpose of regulatory cooperation between the

United States and EU should be to promote higher health and safety standards, thereby improving

consumer welfare on both sides of the Atlantic.21

Gregory Shaffer and Mark Pollack, “How Hard and Soft Law Interact in International Regulatory Governance:

Alternatives, Complements or Antagonists?,” German Marshall Fund Academic Policy Research Conference, May 8-9,

2008. University of Michigan, p. 5. Available at http://www.fordschool.umich.edu/news/events_details/

reg_coop_andcomp_08.

Reinhard Quick, “Regulatory Cooperation—A Subject of Bilateral Trade Negotiations or Even for the WTO?,”

Journal of World Trade Law 42(3), 2008, p. 405.

David Vogel, op. cit., p. 4.

Ibid., p. 5.

Trans Atlantic Consumer Dialogue, “Position Paper and Resolution on Horizontal Regulatory Initiatives in EU-U.S.

Regulatory Cooperation,” February 2007. Available at http://www.tacd.org/cgi-bin/db.cgi?page=view&config=admin/

docs.cfg&id=322.

Congressional Research Service

Transatlantic Regulatory Cooperation: Background and Analysis

Opponents of TRC assert from this perspective that a great number of centralized regulatory

programs should be dismantled and regulatory powers should be decentralized. They believe that

regulatory cooperation also reaches its limits where there is lack of institutional architecture to

enforce decisions.22

U.S.-EU Differences in Regulatory Approaches

Transatlantic regulatory cooperation must deal with a number of key differences between the

United States and EU concerning approaches to regulation. Key differences bear on political

cycles affecting regulation, public preferences and tolerance for risk, attitudes towards

transparency, and institutional capacities to undertake regulatory reforms. These key

differences—whether they pertain to product safety, environmental protection, securities trading,

or customs procedures—in how regulations are developed and applied, in turn, raise challenges

about whether and how to merge, harmonize, or converge the varied approaches. Until the

regulatory structures themselves become more convergent or aligned, the major divergences in

regulatory policies are unlikely to disappear.

Political Cycles

Over the last 50 years, the political cycles of regulatory policy stringency and expansion in the

EU and the United States have not moved together. In the process, many important European and

American regulations have diverged.23

Beginning in the 1960s, many U.S. regulatory standards were likely more comprehensive and

stringent than those adopted by the EU and most member states. The United States was typically

first to identify new consumer and environmental risks and more likely to adopt relatively riskaverse or precautionary standards for dealing with those risks. For example, from the early 1960s

through the mid-1980s, American standards for the approval of new pharmaceutical products

were more stringent than in any EU member state, and American automobile emission standards

were consistently more stringent than those adopted in Europe. The United States also restricted

the use of lead in gasoline more rapidly than did Europe and also acted more aggressively to

restrict the use of ozone-depleting chemicals.24

But over the last 15 years, a number of European standards have become more stringent and

comprehensive than U.S. standards.25 For example, European standards for the approval and

labeling of genetically modified (GM) foods and seeds are far more stringent than those adopted

by the United States. Recently approved legislation on chemicals (Registration, Evaluation, and

Authorization of Chemicals or REACH) has made European standards for the approval of both

existing and new chemicals much more demanding than in the United States The EU has also

Reinhard Quick, op. cit., p. 401.

David Vogel, op. cit., p. 14.

Ibid., p. 7.

At the same time, in 1980s and throughout much of the 1990s, much of U.S. policy was driven by efforts to reduce

the costs of protective regulations on American companies and, thus, improve the performance of the American

economy.

Congressional Research Service

Transatlantic Regulatory Cooperation: Background and Analysis

moved more aggressively than the United States to impose restrictions on greenhouse gas

emissions.

However, in the aftermath of rising concerns about the safety of imported products and the

financial crisis caused by the proliferation of sub-prime mortgages, support for more aggressive

regulatory actions is rising in the United States. If the pendulum in the United States swings back

towards increased regulation, this may narrow some of the current transatlantic regulatory

divergences.26

Values and Public Preferences

Some transatlantic regulatory differences reflect different public preferences and values. For

example, many European consumers tend to prefer “naturally produced” foods, while many

American consumers are more accepting of products produced by advanced forms of agricultural

production. This difference helps to explain, in part, why Europe has imposed restrictions on the

use of growth hormones for both beef and dairy cows, while the United States has not. It also

explains, in part, the relative lack of political controversy in the United States surrounding the

introduction of biotechnology compared to the more negative response to this technology in

Europe.27

The United States and EU also operate two different systems of risk management. As in the case

of GMOs, the U.S. system is relatively science-based and prefers to regulate once significant

problems have been identified. This approach has strong support of farmers, industry, and

government officials. On the European side, the public tends to favor a more cautious approach,

preferring to regulate out of precaution before a problem has occurred. The food safety scandals

of the 1990s increased the resolve of EU member governments to put in place ever more strict

regulation for the pre-approval, traceability, and labeling of all GMOs, independent of their

individual safety characteristics.28

Transparency and Rule-Making

The United States and EU provide for very different degrees of public participation in rulemaking. In the United States, Congress passes laws, but generally grants broad authority to the

administrative or regulatory agencies to implement those laws through regulations. On occasion,

Congress also provides specific direction to these agencies.

Regulations proposed by U.S. administering agencies are subject to considerable public input due

in large part to the requirements of the U.S. Administrative Procedures Act (APA), the Freedom

of Information Act, and the Government in the Sunshine Act, which permit public scrutiny of

regulatory activity. A myriad of laws, executive orders, and bulletins ensure that transparency

remains part of the regulatory process. Federal agencies are required to publish in the Federal

analytic justification behind it.

Jackie Calmes, “Both Sides of the Aisle See More Regulation,” New York Times, October 14, 2008, p. 1.

David Vogel, op. cit., p. 6.

Gregory C. Shaffer and Mark A. Pollack, op. cit., p. 221.

Congressional Research Service

Transatlantic Regulatory Cooperation: Background and Analysis

EU directives (which serve the same function as U.S. regulations) tend to be developed by the

European Commission without as much input from either the public, business, or elected

officials. The European Parliament, however, has to approve or pass the directives (legislation)

proposed by the Commission. While the EU has a number of “better regulation” procedures and

guidelines, it has no effective equivalent to the APA.29

Recognizing that the United States and EU have become each other’s most important stakeholder,

both sides may have an interest in ensuring that the other will have the opportunity, method, and

forum for participating constructively in each other’s regulatory process.

Institutional Capacity to Undertake Reforms

There also major differences in institutional capacities to undertake regulatory reforms. The EU’s

institutional framework is well suited to making regulatory changes. In broad terms, the EU has

developed as a regulatory state with the European Commission taking a leading role in

coordinating European wide regulatory policies in pursuit of building a Single Market. The

Commission has ample authority to coordinate cooperation on transatlantic regulatory issues. The

regulatory culture within the EU internal market is considered “trade friendly” because EU and

national regulators operate with dual missions to promote free trade within the internal market

while ensuring public safety. But enforcement is usually left to member states, which often results

in a different levels of enforcement and different treatment of European and U.S. companies.30

In general, U.S. regulatory agencies have the mandate and funding to focus on domestic

regulatory issues and they enjoy a fair amount of independence on policy and implementation

matters. However, the United States lacks a clear-cut institutional mechanism to coordinate

cooperative efforts. And neither the Commerce Department nor the Office of U.S. Trade

Representative (USTR), the lead agencies for U.S. undertakings in the realm of transatlantic

regulatory cooperation, have authority to overhaul domestic regulatory policymaking. While

Commerce and USTR may bring the heads of U.S. regulatory agencies to the negotiating table,

the regulatory agencies are not usually funded nor mandated to engage in TRC activities.31

An added structural complication on the U.S. side is the role that states play in regulating

activities, particularly professional services. Insurance, banking, private pension fund

management, and professional services such as engineering and architecture are all subject to

state regulation (and some sectors exclusively).32

Testimony of Gerard Depayre, Deputy Head of Delegation, European Commission to the United States, “U.S.-EU

Cooperation on Regulatory Affairs,” Hearing Before the Subcommittee on European Affairs of the Committee on

Foreign Relations, U.S. Senate, 108th Congress, 1st session, October 16, 2003, p. 20.

Kalypso Nicolaidis and Rebecca Steffenson, “Managed Mutual Recognition in the Transatlantic Marketplace,” in

The Future of Transatlantic Economic Relations, p. 147.

Maria Green Cowles, “Calming the Waters: The Rebirth of the Transatlantic Business Dialogue,” in The Future of

Transatlantic Economic Relations, p. 285.

Kalypso Nicolaidis and Rebecca Steffenson, p. 152.

Congressional Research Service

Transatlantic Regulatory Cooperation: Background and Analysis

Forms of Transatlantic Regulatory Cooperation

Regulatory cooperation is an elastic concept that subsumes a broad range of activities. At one end

of the spectrum, these activities may include simple discussions and sharing of information

between regulators—most often on prospective regulations. At the other end of the spectrum,

these activities may involve attempts at harmonizing regulatory approaches through acceptance of

common principles and standards. In between are activities that involve varying degrees of

intrusion into the autonomy of regulators. One such category is agreements that recognize each

other’s standards or certification procedures. These agreements are known as MRAs or mutual

recognition agreements. The line between each category can be arbitrary and vague, and there are

other activities associated with regulatory cooperation that may not fall neatly into one of the

above categories.33

To date, most efforts at transatlantic regulatory cooperation have been associated with

information exchanges and dialogues. Considerable efforts have also been made at negotiating

MRAs for a range of goods, as well as other attempts to recognize the adequacy of each others

standards in specific areas such as data privacy and accounting. Little has been undertaken in

regard to harmonization of standards. What follows is a short elaboration of activities that apply

to each of these regulatory activities.

Information Exchanges and Dialogues

The most basic form of regulatory cooperation involves the establishment of a working group or

dialogue for an exchange of information. The group, which may be comprised of technical

experts or regulators from different jurisdictions, may meet on an ad hoc and informal basis or

may be more structured. A primary objective of these consultations may be to better understand

technical differences in standards or regulations and to consult with each other prior to new

regulations becoming effective.

Making an effort to work with or consult with each other prior to new regulations becoming

effective is viewed as one way to minimize unnecessary regulatory barriers. The exchange of

people and information is also expected to build trust and confidence, with the hope of making

for more informed and coordinated regulations and may eventually lead to agreement on what

constitutes best regulatory practice.

While an exchange of views and a discussion of different issues will not necessarily bring about a

meeting of the minds in the technical assessment of a certain field of regulation, it is a necessary

first step if convergence is to take place. Where there is no attempt at dialogue, efforts to restrain

unilateral legislative actions that could create new regulatory barriers are unlikely to be

successful.34

In the transatlantic context, a number of U.S. regulatory agencies (e.g., the Securities and

Exchange Commission, the Food and Drug Administration, the National Highway Traffic

Administration, and the Occupational Safety and Health Administration) have engaged in these

Alan O. Sykes, “Regulatory Competition or Regulatory Harmonisation? A Silly Question?,” Journal of International

Economic Law (2000), pp. 257-264.

Reinhard Quick, “Regulatory Cooperation,” op. cit., p. 402.

Congressional Research Service

Transatlantic Regulatory Cooperation: Background and Analysis

kinds of information exchanges and non-binding dialogues with their European counterparts over

the past decade. These exchanges were encouraged by the Guidelines on Regulatory Cooperation

and Transparency which the United States and EU negotiated as part of the 1998 Transatlantic

Economic Partnership (TEP). The guidelines were intended to enhance cooperation between EU

and U.S. regulators in the development of technical regulations and specifically referred to

regular consultation, exchange of data and information, as well as informing one another at an

early stage on planned new regulation.

Since 2004, the annual U.S.-EU summits have reinforced efforts at regulatory cooperation. A

Roadmap for Regulatory Cooperation provides a framework of specific activities in 15 different

sectors (e.g., pharmaceuticals, telecommunications equipment, food safety, and auto safety).

Subsequent summits have prescribed cooperation for “lighthouse projects” in the fields of

intellectual property rights, secure trade, financial markets, innovation, and technology, as well as

the elimination of obstacles to investment. In addition, a High Level Regulatory Cooperation

Forum, comprised of regulators from both sides, was established to find common ground on

horizontal issues such as risk assessment, cost-benefit analysis, and impact analysis when

promulgating regulations.

Mutual Recognition Agreements

A stronger form of cooperation involves MRAs. This cooperation entails an agreement by

regulators to accept products or services from another jurisdiction under specified conditions, so

that actors complying with the regulations of one jurisdiction will be considered to be in

compliance with the rules in another jurisdiction. These kind of agreements can focus on the

mutual recognition of conformity assessment certifications or the alignment of relevant standards.

Under full recognition of standards, companies, for example, could sell pharmaceuticals in the

United States after meeting European standards without first obtaining FDA approval. An

agreement on conformity assessment procedures is a smaller step, requiring domestic regulators

to accept the competency of their foreign counterparts to conduct product testing, inspection, or

certification. The basic premise behind this kind of MRA is that products could be tested once

and considered to have been tested in both markets.35

In 1998, the United States and EU completed an MRA for testing and certification requirements

covering multiple sectors, including telecommunications and information technology equipment,

pharmaceuticals, electronics, electromagnetic compatibility, sports boats, and medical devices.

The MRA did not provide for mutual recognition of product standards, but it identified

certification bodies in the exporting country that could assess the conformity of a range of traded

goods with standards of the destination country. The MRAs, thus, introduced competition

between assessors or certification bodies.

Competition among certification entities was familiar in Europe, where private firms had long

provided certification, but was new in the United States, where government agencies had

dominated the process. As a result, while some U.S. officials believed that the MRAs would lead

Testimony of Stuart Eizenstat, European-American Business Council, Hearing on U.S.-EU Cooperation on

Regulatory Affairs, Subcommittee on European Affairs of the Committee on Foreign Relations, U.S. Senate, 108th

Congress, 1st session, October 16, 2003, p. 29.

Congressional Research Service

Transatlantic Regulatory Cooperation: Background and Analysis

to cheaper and more rapid certification, others were concerned about its implications for product

safety.36

The MRAs did not result in any kind of binding legal agreement between the United States and

the EU. Rather they were accomplished through an exchange of letters between the heads of the

relevant regulatory agencies. To be implemented successfully, MRAs require that regulators on

both sides of the Atlantic have confidence that the other side will not try to attract more business

by being deliberately lax. Similarly, regulators need to recognize that each other’s safety

standards and inspection requirements are basically equivalent.37

Harmonization/Agreement on Regulatory Standards

The strongest form of regulatory cooperation involves harmonization or agreement on the same

standards or rules applied across jurisdictions. This could extend not only to regulatory targets

(e.g., the permissible level of a particular pollutant in each jurisdiction or reserve requirements

among banks), but also to the manner by which regulators ensure compliance with their

regulations.

In the transatlantic context, few precedents exist for acceptance or adoption of similar or identical

standards. While there have been numerous political declarations calling for regulatory

convergence and harmonization, few changes have been enacted in each side’s existing laws that

would move their regulatory regimes in this direction. The transatlantic market, of course, is not a

single market with common institutions pushing for further economic integration. But various

stakeholders, frustrated by the slow progress in transatlantic regulatory cooperation, have made

proposals that could push the two sides in the direction of adopting a new institutional

architecture, such as a binding regulatory cooperation agreement.38

Those who see a binding treaty or regulatory cooperation agreement as necessary institutional

architecture to achieve a transatlantic single market point to EU integration as a model. In moving

towards the completion of a Single European Market, the Commission issued a white paper that

listed the pieces of legislation requiring harmonization, and simultaneously identified the

institutional mechanisms to achieve specified ends.39

U.S. public support for such an approach could depend on whether the goal of such a treaty or

legal agreement was the development of identical legislation or comparable legislation. If the goal

was identical legislation, much resistance to this kind of deeper integration could be expected

from a number of quarters. This is particularly true from stakeholders who view movement in this

direction as leading to a loss of regulatory autonomy for U.S. authorities. If the goal was the

Charan Devereaux, Robert Z. Lawrence, and Michael D. Watkins, “The U.S.-EU Mutual Recognition Agreements,”

in Case Studies in US Trade Negotiations, in Making the Rules, Vol. 1, Institute for International Economics, 2006, p.

304.

Stuart Eisenstadt, op. cit., p. 24.

The U.S. Chamber of Commerce, for example, has proposed an Agreement on Regulatory Cooperation (ARC), a

legally binding regulatory cooperation agreement that would oblige both sides to operate under a common set of

regulatory principles and core beliefs. The ARC would require regulators to assess the cost impact of forthcoming

regulations on transatlantic commerce, adopt other’s best practices where possible, and utilize a similar methodology to

assess costs and benefits of proposed regulations. See Chamber of Commerce of the United States, Correspondence to

U.S. Office of Management and Budget and to the Secretariat General, European Commission, February 8, 2008.

Reinhard Quick, “Regulatory Cooperation,” p. 401.

Congressional Research Service

Transatlantic Regulatory Cooperation: Background and Analysis

development of similar or comparable legislation that facilitates mutual recognition, much less

resistance perhaps could be expected.40

Results of Past Initiatives at Regulatory Cooperation

The United States and EU have pursued a variety of policy initiatives and new mechanisms over

the past 15 years to reduce or eliminate regulatory barriers. The results have been mixed. A

number of these initiatives have been successful in some regulatory areas, while transatlantic

regulatory cooperation has not made material differences for businesses or consumers in some

other sectors. Assuming it is concluded that stronger regulatory cooperation is desirable, an

assessment of past efforts could be useful.

Highlights of Past Initiatives

Beginning in 1990 with the Transatlantic Declaration, regular U.S.-EU summits were initiated to

reinvigorate and upgrade the bilateral relationship. Attended by the U.S. President, the President

of the European Commission, and the President of the European Council, the summits were

intended to bring high-level focus to cooperative activities. Successive summits have led to a

number of agreements relating to transatlantic regulatory cooperation:

•

At the 1995 summit in Madrid, the United States and EU formally adopted the

New Transatlantic Agenda (NTA) in an effort to provide a new foundation for the

partnership. The NTA was accompanied by a detailed action plan. In addition, the

NTA set up a comprehensive and regular government-to-government dialogue, as

well as four dialogues between stakeholders on both sides of the Atlantic. These

included the Transatlantic Business Dialogue (TABD), the Transatlantic Labor

Dialogue (TALD), the Transatlantic Environmental Dialogue (TAED) and the

Transatlantic Consumer Dialogue (TACD).

•

Pursuant to the NTA, the two sides focused particular attention on problems

posed by divergent standards and certification systems. In addition to promoting

the convergence in regulatory systems, efforts were undertaken to negotiate

MRAs covering several sectors. In 1998, MRAs affecting sectors such as

electrical equipment, pharmaceutical products, telecommunications, and

information technology equipment were reached.

•

At the 1998 summit in London, the Transatlantic Economic Partnership (TEP)

was created to improve bilateral economic and trade relations and to help create a

more open world trading system. The TEP established deadlines for particular

actions within the areas of regulatory cooperation, mutual recognition, and

consumer product safety.

•

At the Bonn Summit in June 1999, a Joint Statement on Early Warning and

Problem Prevention Mechanisms was adopted. The warning system was designed

to identify regulations, preferably still in draft form, that might contribute to nontariff barriers to trade.

Ibid.

Congressional Research Service

Transatlantic Regulatory Cooperation: Background and Analysis

•

At the 2000 U.S.-EU Summit in Lisbon, the Consultative Forum on

Biotechnology was established to improve communication and understanding on

the various concerns involved in biotechnology.

•

At the May 2002 summit in Washington, the two sides reached agreements on

Guidelines for Regulatory Cooperation and Transparency. These sought to take

the idea of an early warning system a step further by encouraging U.S. and EU

regulatory agencies to consult on a voluntary basis, sharing work plans that

identify areas of anticipated regulatory action for the coming year and offering

opportunities for reaction before regulations are finalized.41

•

Moving towards a more systematic cooperative approach, a Roadmap for EUU.S. Regulatory Cooperation and Transparency was developed in June 2004. It

listed 10 specific projects for regulatory discussion and also expanded the

approach to horizontal initiatives.

•

The 2005 EU-U.S. Summit produced a second Roadmap for EU-U.S. Regulatory

Cooperation and Transparency and expanded the list to 15 sector-specific

projects. It also established two new dialogues. One was between the European

Commission and Office of Management and Budget on transparency and

methodologies for impact and risk assessment, in order to improve understanding

of each other’s regulatory systems. A second, a High-Level Regulatory

Cooperation Forum, was tasked to develop a joint regulatory work plan based on

mutual best practices. Its members include senior U.S. and European

Commission officials, academics, business executives, and other officials.

Accomplishments

Among the accomplishments are the following:

1. Most observers would agree that new mechanisms for dialogue and information exchange have

improved mutual understanding and day-to-day working relationships among economic

regulators in a wide range of sectors; Arguably, cooperation is now far deeper, broader, more

decentralized and routine than it had been before in areas such as pharmaceuticals, medical

devices, financial services, and marine equipment.

2. The NTA process and related efforts at regulatory cooperation fostered closer relationships

among many stakeholders, including business people representing the major corporations

investing in both Europe and the United States. In particular, the TABD, representing a

transatlantic coalition of big businesses on both sides of the Atlantic, developed into an “effective

framework for enhanced cooperation between the transatlantic business community and the

governments of the European Union and the United States.”42

3. The NTA and subsequent summits enhanced on-going efforts to increase the compatibility of

U.S. and EU approaches to competition policy. According to one observer, much convergence in

The Atlantic Council of the United States, Risk and Reward: U.S.-EU Regulatory Cooperation on Food Safety and

the Environment, Policy Paper, November 2002, p. 7.

Maria Green Cowles, “Calming the Waters: The Rebirth of the Transatlantic Business Dialogue,” p. 278.

Congressional Research Service

Transatlantic Regulatory Cooperation: Background and Analysis

substantive standards has been achieved voluntarily through the exchange of ideas and

institutional learning processes.43

4. MRAs (discussed previously) covering over $50 billion in trade were implemented in three

sectors, leading to significant cost savings for U.S. businesses; several of the agreements provided

for U.S. and EU testing facilities to recognize each other’s standards over time, thus allowing

firms to have products tested only once on either side of the Atlantic. The Commerce Department

estimated that the agreement would save U.S. industries more than $1 billion in testing and

certification costs.44

5. The 2002 Guidelines for Regulatory Cooperation promoted a number of procedural steps that

most likely have facilitated a more effective dialogue. These steps included arrangements to

permit sharing of non-public information between regulators. The Roadmap for Regulatory

Cooperation now provides a framework for consultations and dialogue in 15 different sectors

(e.g., pharmaceuticals, telecommunications equipment, food safety, and auto safety) with a focus

on prospective regulations and reducing regulatory barriers.

6. The U.S.-EU Safe Harbor Agreement was implemented in 2002. This agreement provided an

innovative mechanism whereby U.S. firms could be certified as meeting the EU’s more

demanding data privacy requirements for exporting personal data.

7. In February 2004, the United States and EU signed an MRA on marine safety equipment

covering $150 million to $200 million annually in two-way trade.45

8. The U.S.-EU High Level Regulatory Cooperation Forum, established in 2005, has focused on

methodologies for generating good regulatory practices. To the extent both sides are able to

develop a methodological framework that ensures the comparability of regulatory reviews, with

an emphasis on risk assessments, cost/benefit analysis, and trade and investment impacts,

unilateral legislative initiatives, and the creation of new regulatory barriers can be curtailed.

9. By 2006 the Financial Markets Regulatory Dialogue had reported some progress on

recognizing each others’ financial standards in specific areas.46 In particular, progress has been

made on gaining the mutual acceptance by 2009 of the equilevance of accounting standards—that

is, the U.S. Generally Accepted Accounting Principles (GAAP) and International Financial

Reporting Standards (IFRS). This will make it easier for European companies to raise capital in

the United States and for U.S. companies to raise capital in Europe.47

Robert Anderson, “Competition (Antitrust) Policy: What Balance of Cooperation and Regulation in the Transatlantic

Sphere?,” German Marshall Fund Academic Policy Research Conference, May 8-9, 2008, Ford School, University of

Michigan, p. 5. Available at http://www.fordschool.umich.edu/news/events_details/reg_coop_and_comp_08/.

Maria Green Cowles, “Calming the Waters: The Rebirth of the Transatlantic Business Dialogue,” p. 280.

Charon Devereaux, Robert Z. Lawrence, and Michael D. Watkins, “The U.S.-EU Mutual Recognition Agreements,”

p. 348.

Elliott Posner, “Market Power without a Single Market: The New Transatlantic Relations in Financial Services,” In

The Future of Transatlantic Economic Relations: Continuity Amid Discord, July 2005.

Andreas Noelke, Johan Wolfgang Goethe Universitat, “Transatlantic Regulatory Cooperation on Accounting

Standards: A ‘Varieties of Capitalism’ Perspective,” German Marshall Fund Academic Policy Research Conference,

May 8-9, 2008, Ford School, University of Michigan. Available at http://fordschool.umich.edu/news/events_details_/

reg_cop_and_comp_08/.

Congressional Research Service

Transatlantic Regulatory Cooperation: Background and Analysis

Disappointments

Specific disappointments include the following.

1. Enthusiasm for mutual recognition as a regulatory strategy faded when three of the six

agreements failed to become operational by established deadlines.48 In the view of some analysts,

these MRAs were never implemented due to the U.S. reluctance to recognize the equivalency of

European certifiers. In the pharmaceutical and medical device sectors, for example, the FDA had

continuing doubts about the capability of some EU member states to oversee high pharmaceutical

standards in laboratories. In the electrical equipment sector, OSHA refused to cede its right to

designate which laboratories in Europe could evaluate and certify new electrical products for sale

in the United States.49 A related obstacle on the European side was the EU inclination to regulate

at the European level, only to leave enforcement to Member States, which often results in

different levels of enforcement and different treatment of European and U.S. companies.50

2. Irrespective of annual summits, the TEP, by some accounts, went into hibernation from 1998 to

2004. Despite the many recommendations and political declarations issued during this time

period, there were few material accomplishments.51

3. Pieces of legislation adopted unilaterally by both sides in 2002 served to put a break on

regulatory cooperation by violating the 2002 Guidelines on Regulatory Cooperation and the

“Early Warning System.” On the one side, the EU imposed its views on how to regulate

chemicals by adopting legislation known as REACH, which affected the testing and approval of

chemicals, without much input from U.S. stakeholders. On the other side, the United States

adopted legislation (Sarbanes-Oxley), which reformed public accounting standards, without

taking into account EU views. Both pieces of legislation created considerable difficulties for

transatlantic businesses, from companies attempting to raise capital to firms that manufacture

everyday goods.

4. Despite extensive efforts at cooperation for nearly two decades, the transatlantic regulatory

divide remains large in the area of chemicals. The two sides still maintain fundamentally different

regulations on issues such as hormones, genetically modified organisms (GMOs), cosmetics, and

the registration and restriction of chemical substances. U.S. and EU regulators continue to operate

with starkly different regulatory philosophies and styles. And the record of transatlantic

regulatory cooperation in this sphere has been highly contentious, prompting the United States to

file a legal complaint with the WTO.52

Kalypso Nicolaidis and Rebecca Steffenson, “Managed Mutual Recognition in the Transatlantic Marketplace,” p.

148.

Gregory Shaffer, “Managing U.S.-EU Trade Relations Through Mutual Recognition and Safe Harbor Agreements:

‘New’ and ‘Global’ Approaches to Transatlantic Economic Governance?”, 9 Columbia Journal of European Law, 2977 (Fall 2002), p. 43.

Stuart Eizenstad, op. cit. p. 26.

Reinhardt Quick, “Regulatory Cooperation,” p. 399.

Reinhardt Quick, “Transatlantic Regulatory Cooperation on Chemicals—An Idealist’s Dream?,” German Marshall

Fund Academic Policy Research Conference, May 8-9, 2008, Ford School, University of Michigan. Available at

http://fordschool.umch.edu/nes/events_details/reg_coop_and_comp_08/.

Congressional Research Service

Transatlantic Regulatory Cooperation: Background and Analysis

5. There has been lack of material progress in many other sectors, such as autos, and

pharmaceuticals. Moreover, past TRC initiatives have tended to be fragmented, poorly

coordinated, and lacking in political accountability for success and failure.53

Obstacles and Options for More Extensive Cooperation

In evaluating the history of past initiatives, a number of observers have pointed to several key

obstacles to more effective regulatory cooperation. High on this list are the independence of

regulatory agencies involved, the lack of committed resources for transatlantic regulatory

collaboration, and the sheer complexity of the undertaking. To promote more effective TRC by

overcoming these obstacles, three policy options are often put forth: (1) attracting high-level

political support for TRC; (2) increasing dramatically the involvement of legislators on both sides

in the process; and (3) developing an institutional architecture that can prioritize the problems and

challenges that need to be addressed.

Regulatory cooperation, particularly mutual recognition, requires domestic regulators to accept

the competency of their foreign counterparts to conduct product testing. A key obstacle, however,

is that regulators remain accountable to domestic legislators for the product standards that are

applied both to domestic and foreign products. As a result, regulators on both sides of the Atlantic

are generally reluctant to transfer authority to a foreign body, and the MRA negotiations

demonstrated that some regulatory bodies are more reluctant than others.54

Based on the premise that enhanced regulatory cooperation, particularly through mutual

recognition, will never happen if matters are left to individual regulatory agencies, high-level

political pressure is commonly prescribed. Such pressure, either from the White House, the

Congress, or both, may be employed to convince regulators to adopt reforms that result in a

reduction of barriers between the United States and EU and/or to make greater efforts to

accommodate transatlantic interests when promulgating new regulations.

Successful regulatory cooperation also requires resources for the necessary meetings and

dialogues to take place. At least on the U.S. side, the regulatory agencies have no dedicated

budgets to support these activities. Accordingly, some stakeholders, such as the U.S. Chamber of

Commerce, have proposed that Congress consider the creation of specifically funded mandates to

enable U.S. agencies better participate in these transatlantic dialogues.

The scope of the transatlantic regulatory agenda is also extremely broad and technical.

Encompassing most regulatory agencies, ranging from the Food and Drug Administration (FDA)

and the Consumer Product Safety Commission (CPSC) to the National Highway Traffic Safety

Administration (NHTSA) and the Environmental Protection Agency (EPA), and diverse sectors,

ranging from pharmaceuticals and cosmetics to telecommunications and marine safety, the status

of the agenda at any one time is not easy to ascertain. To move issues forward that are by their

nature abstract and technical, some observers have called for creation of a institution that is

capable of setting priorities and deciding on which issues are ripe for resolution with the help of

higher-level political intervention.

Testimony of Kathryn Hauser, U.S. Executive Director of the Transatlantic Business Dialogue, House Committee on

Financial Services, “The U.S.-EU Economic Relationship: What Comes Next?,” June 16, 2005, p. 9.

Kalypso Nicolaidais and Rebecca Steffenson, p. 145.

Congressional Research Service

Transatlantic Regulatory Cooperation: Background and Analysis

The Transatlantic Economic Council

Predicated on the notion that past initiatives failed to make significant progress in enhancing

regulatory progress, the Transatlantic Economic Council (TEC) was established in April 2007 at

the U.S.-EU Summit as a key component of the Framework for Advancing Transatlantic

Economic Integration. Created as a new entity by German Chancellor Angela Merkel (then EU

Council President), European Commission President Barroso, and President Bush, the TEC is

designed to provide minister-level political guidance for implementation of a work program as

outlined by the Framework to foster regulatory cooperation and to reduce or eliminate regulatory

burdens to trade. The Summit leaders also created an advisory group to the TEC and invited the

U.S. Congress, along with the European Parliament, to accept a new, more substantive role in

transatlantic regulatory cooperation by becoming part of an advisory group. In short, the TEC and

the Framework are designed to deal with some of the suggested shortcomings (described above)

of previous transatlantic regulatory initiatives: lack of high level political leadership and not

enough involvement of legislators and other stakeholders in the regulatory process.

The TEC consists of two co-chairs (ministerial-level appointees with cabinet rank) from each

side, as well as a number of EU Commissioners and U.S. Cabinet members for the broad-ranging

policy areas covered in the Framework. Permanent members of the TEC include the Secretaries

of the Treasury and Commerce and the U.S. Trade Representative and the European

Commissioners for External Relations, for Trade and Internal Market and Services. In addition,

other U.S. Cabinet members and European Commissioners may participate when the agenda

covers issues falling under their jurisdiction.55

Given that the two TEC leaders are cabinet-level appointees, the TEC was expected to have the

kind of high-level political support that previous efforts at economic integration may have lacked.

Such clout, it is argued, may be needed to persuade domestic regulators to yield some of their

authorities or to better cooperate with their counterparts across the Atlantic in harmonizing

regulatory approaches.56

TEC efforts to foster cooperation and reduce regulatory barriers focus on two main types of

issues: (1) differences in regulatory processes and approaches; and (2) sectoral or bilateral

barriers and disputes. The goal in the first issue area is to find ways to reduce barriers to

transatlantic economic integration posed by new regulations and or prevent them from happening.

The primary avenue for accomplishing this objective entails efforts to reform, harmonize or

converge regulatory processes, both through the development of comparable methodologies to

assess risk and do cost-benefit analysis and intensified interactions among regulators. How

regulations are developed and applied can have a large impact on the how companies do business

not only in the transatlantic marketplace, but in third markets as well.

The goal in the second issue area is to reduce barriers to transatlantic integration caused by

regulations in specific sectors. This is to be accomplished by intensified sector-by-sector

cooperation, including the promotion of the 2002 U.S.-EU Guidelines for Regulatory Cooperation

To co-chair the TEC, the Obama Administration appointed Michael Froman, Deputy National Security Advisor for

International Economic Affairs, National Economic Council. The EU co-chair is the EU Trade Commissioner, Karel

De Gucht.

For more information on the TEC, see Section IV in the U.S.-EU Framework for Advancing Transatlantic Economic

Integration, April 2007, available at http://www.whitehouse.gov/releases/2007/04/20070430-4.html.

Congressional Research Service

Transatlantic Regulatory Cooperation: Background and Analysis

and case-by-case examination of specific projects called for by the Roadmap for Regulatory

Cooperation.57

In the first three years (2007-2009) of its five-year history, the TEC was used primarily as a

mechanism to try to resolve a number of longstanding bilateral trade disputes, most notably the

EU’s ban on imports of chlorine-washed poultry. Efforts to harmonize regulations on a sector-bysector basis also proved difficult due to political and bureaucratic resistance on both sides to

revise existing laws and regulations. In late 2010, the two sides agreed to focus future efforts on

aligning regulations and standards in emerging or new technologies, (such as nanotechnology or

electric cars) well before laws or regulations have been promulgated. Accordingly, at their fifth

recent meeting, held in Washington on December 17, 2010, the TEC agreed to a work program

focusing on sectors where regulatory cooperation can help preclude unintended trade barriers.

Among the highlights of this TEC meeting, the two sides agreed to develop a process to

implement compatible approaches for the regulation of new and innovative sectors, with the hope

of avoiding trade disputes due to different regulations. The meeting also provided new impetus

for regulatory cooperation in specific sectors such as electronic health records, energy-saving

products, and electric vehicles, as a way of reducing costs and preempting unnecessary obstacles

to exports. Finally, the TEC meeting launched an Innovation Action Plan designed to strengthen

joint efforts to promote innovation and the commercialization of emerging technologies.58

At its sixth meeting held in November 2011, TEC leaders reviewed accomplishments in 2011 and

established priorities for 2012. Among the accomplishments, the TEC noted a number of steps

taken to develop a transatlantic market for electric vehicles and endorsed a work plan for emobility, electric vehicles, and related infrastructure. As in many other areas supported by the

TEC, it remains to be seen whether the results will prove tangible and commercially significant.

This is due, in part, to the fact that regulatory cooperation is difficult and technically demanding

work, with wide differences between the two sides concerning approaches to regulation.59

Role of Congress60

Since it began nearly two decades ago, transatlantic regulatory cooperation has been for the most

part a wholly run undertaking between the executive branches and independent regulatory

agencies on both sides of the Atlantic. By and large, TRC exchanges and dialogues have been

confined to regulators and officials of the executive branches on both sides of the Atlantic. The

Guidelines on Regulatory Cooperation and Transparency, in fact, do not apply to Congress or the

European Parliament.

The role of Congress in transatlantic regulatory cooperation in the past has been limited mostly to

oversight hearings (see Appendix A for a listing) and the introduction of a few resolutions.61 But

The Regulatory Cooperation Roadmap provides a framework of dialogues in 15 different sectors, including

pharmaceuticals, telecommunications equipment, food safety, and auto safety.

International Trade Reporter, “Transatlantic Council Meeting Advances Regulatory Cooperation, Innovative

Strategies,” 27 ITR 1963, December 23, 2010.

See CRS Report RL34717, Transatlantic Regulatory Cooperation: Background and Analysis, pp. 7-9.

For additional information, CRS Report RL34735, Transatlantic Regulatory Cooperation: A Possible Role for

Congress, by (name redacted) and Vincent Morelli.

Congressional Research Service

Transatlantic Regulatory Cooperation: Background and Analysis

Congress has on occasion taken actions that have both thwarted and facilitated regulatory

cooperation. For example, on the one hand, some Members of Congress became concerned in the

late 1990s that the MRAs the administration was negotiating could harm consumers and

undermine health and safety standards. As Representative Henry Waxman (D-CA) put it, “there is

no question that international agreements of this kind can enhance the efficiency of commerce,

but it is equally clear that they can potentially depress American health and safety standards.”

According to one observer, such concerns made some U.S. regulators reluctant to participate in

the MRA negotiations.62

On the other hand, Congress also passed legislation directing the FDA to support efforts of the

Department of Commerce and USTR to implement MRAs. In the Food and Drug Administration

Modernization Act of 1997 (P.L. 105-115), a bill to speed the FDA approval process for new

drugs and medical devices, a provision directed the FDA to support the efforts of Commerce and

the Office of the U.S. Trade Representative to implement MRAs. According to the same observer,

inclusion of the MRA language in the legislation was an important step toward finishing the

agreement.63

These examples highlight a larger and more pivotal role Congress could play in regulatory

cooperation if it chose to become more involved. To the extent that an overwhelming domestic

orientation of regulatory agencies is a problem in moving TRC initiatives forward, Congress has

the power through both the authorization and appropriations process to mandate that U.S.

regulators cooperate. Congress can also ensure that the U.S. agencies involved in regulatory

cooperation have the necessary budgetary and organizational resources to get the job done.

Conversely, if Congress views transatlantic initiatives as moving too far in the direction of trade

expansion at the expense of safety and health concerns or other priorities, Congress can make it

difficult for U.S. agencies to continue on that course of action.

Beyond providing guidance to U.S. regulatory agencies on TRC initiatives, Congress also could

play a bigger role in preventing new legislation from causing new transatlantic regulatory

barriers. Currently, taking the transatlantic impact (trade and investment effects) into account is

not considered in any structured or formal fashion during the legislative process. Yet, political

declarations from past U.S.-EU summits backed by the transatlantic business community, have

urged a more institutionalized process for making Congress more aware of the potential impact of

new legislation on transatlantic trade.

How this could be done is the subject of considerable speculation. One of the factors that has to

be considered is the wide range of congressional committees that have primary jurisdiction over

issues that are high on the agenda of TRC. As shown in Appendix B, many different authorizing

committees have primary jurisdiction over some of the main regulatory agencies involved in TRC

(...continued)

In December 2006, the Senate passed a resolution (S.Res. 632) calling for the completion of the Transatlantic Market

by 2015. The resolution also called for a jointly funded, cooperatively led study of existing barriers to transatlantic

trade and investment, including sector-by-sector estimates of the costs and benefits of removing such obstacles and a

timetable for their removal.

Congressman Henry Waxman, Hearing before the House Subcommittee on Oversight and Investigations of the

Committee on Commerce, “Imported Drugs: U.S.-EU Mutual Recognition Agreement on Drug Prescriptions,” 105th

Congress, 2nd session, October 2, 1998, p. 4.

Charan Devereaux, Robert Z. Lawrence, and Michael D. Watkins, “The U.S.-EU Mutual Recognition Agreements,”

p. 339.

Congressional Research Service

Transatlantic Regulatory Cooperation: Background and Analysis

activities. On the House side, the Energy and Commerce, Transportation, Judiciary, and

Agriculture Committees all have important oversight roles. Counterpart committees on the Senate

side include Commerce, Science, and Transportation, Health Education, Labor, and Pensions,

Energy and Natural Resources, Environment and Public Works, and Agriculture. Notably absent

from this list are the committees charged with overall responsibility for oversight of transatlantic

relations, the Senate Foreign Relations and the House Foreign Affairs Committees, and the

committees that have primary jurisdiction over trade and investment issues, Senate Finance and

the House Ways and Means.

Currently, the only formal institutional link between Congress and transatlantic regulatory

cooperation is through the Transatlantic Legislators Dialogue (TLD), an inter-parliamentary

exchange between selected Members of the House of Representatives and the European

Parliament. The TLD serves as an advisor to the TEC, but its membership and function have

raised questions concerning how well it can carry out its role as an advisor to the TEC.64

Much of this begs the question whether Congress should be an advisor or a participant in the TRC

process, including the annual U.S.-EU Summits. While a more proactive role for Congress would

likely enhance the political basis of support for transatlantic regulatory cooperation, it is by no

means certain that there is a consensus in favor of developing the necessary mechanisms and

mandate to move in this direction.

The TLD as currently structured does not include members of the Senate on the U.S. side. For more information on

the role of the TLD, see pp. 10-16 of CRS Report RL34735, Transatlantic Regulatory Cooperation: A Possible Role

for Congress, by (name redacted) and Vincent Morelli.

Congressional Research Service

Transatlantic Regulatory Cooperation: Background and Analysis

Appendix A. Congressional Hearings on

Transatlantic Regulatory Cooperation

House Committee on Commerce. Imported Drugs: U.S.-EU Mutual Recognition Agreement on

Drug Prescriptions. October 2, 1998, 32p.

House Committee on Commerce. The EU Data Protection Directive: Implications for the U.S.

Privacy Debate. March 8, 2001, 48p.

House Committee on Financial Services. The EU’s Financial Services Action Plan and Its

Implications for the American Financial Services Industry. May 22, 2002, 122p.

House Committee on Financial Services. U.S.-EU Regulatory Dialogue and Its Future. May 13,

2004, 106p.

House Committee on Financial Services. U.S.-EU Regulatory Dialogue: The Private Sector

Perspective. June 17, 2004, 79p.

House Committee on Financial Services. U.S.-EU Economic Relationship: What Comes Next?

June 16, 2005, 86p.

House Committee on International Relations. Transatlantic Trade Agenda: Conflict or

Cooperation? September 29, 1999.

House Committee on International Relations. Recognizing the Continued Importance of the

Transatlantic Relationship and Promoting Stronger Relations with Europe by Reaffirming the

Need for a Continued and Meaningful Dialogue Between the U.S. and Europe. October 29, 2003,

16p.

Senate Committee on Foreign Relations. U.S.-EU Cooperation on Regulatory Affairs. October

16, 2003, 55p.

Senate Committee on Foreign Relations. U.S.-EU Regulatory Cooperation on Emerging

Technologies, May 11, 2005, 62p.

Congressional Research Service

Transatlantic Regulatory Cooperation: Background and Analysis

Appendix B. U.S.-EU Regulatory Cooperation by

Sector, U.S. Regulatory Agency, and Committee

Oversight

Sectora

Pharmaceuticals

U.S. Regulatory Agencyb

Food and Drug Administration (FDA)

Committeesc

House: Energy and Commerce;

Senate: Health, Education, Labor,

and Pensions and Commerce

Science and Transportation

Automobile Safety

National Highway Traffic Safety

Administration (NHTSA)

House: Energy and Commerce;

Information and

Communications Standards in

Regulations

Department of Commerce, National

Institute of Standards and Technology

(NIST)

House: Energy and Commerce;

Cosmetics

FDA

House: Energy and Commerce;

Senate: Commerce, Science and

Transportation

Senate: Commerce, Science and

Transportation

Senate: Health, Education, Labor,

and Pensions

Consumer Product Safety

Consumer Protection

Enforcement Cooperation

Consumer Product Safety Commission

(CPSC)

House: Energy and Commerce;

Federal Trade Commission (FTC)

House: Energy and Commerce, and

Judiciary;

Senate: Commerce, Science, and

Transportation

Senate: Commerce, Science and

Transportation, and Judiciary

Unfair Commercial Practices

FTC

House: Energy and Commerce, and

Judiciary;

Senate: Commerce, Science, and

Transportation, and Judiciary

Nutritional Labeling

FDA

House: Energy and Commerce, and

Agriculture;

Senate: Heath, Education, Labor and

Pensions, and Agriculture

Food Safety

FDA

House: Energy and Commerce

Agriculture;

Senate: Commerce, Science, and

Transportation, and Agriculture

Marine Equipment

U.S. Coast Guard

House: Transportation and

Infrastructure;

Senate: Commerce, Science, and

Transportation

Congressional Research Service

Transatlantic Regulatory Cooperation: Background and Analysis

Sectora

Eco-Design

Chemicals

U.S. Regulatory Agencyb

Committeesc

Environmental Protection Agency (EPA);

Department of Energy Office of Efficiency

and Renewable Energy

House: Energy and Commerce and

Science;

Environmental Protection Agency

House: Energy and Commerce ;

Senate: Energy and Natural

Resources

Senate: Environment and Public

Works

Energy Efficiency

EPA and Department of Energy

House: Energy and Commerce

Senate: Energy and Natural

Resources

Medical Devices

FDA

House: Energy and Commerce;

Senate:

Telecommunications and Radio

Communications Equipment

Federal Communications Commission and

Department of Commerce, National

Institute of Standards and Technology

House: Energy and Commerce ;

Senate: Commerce, Science, and

Transportation

Source: CRS.

These sectors are identified in the 2005 Roadmap for Regulatory Cooperation, http://www.ustr.gov?

World_Regions/Europe_Middle_East/Europe/US_EU-Regulatory-C.

These agencies are also identified in the 2005 Roadmap for Regulatory Cooperation.

Depending on the focus of each sectoral initiative, other committees could also have oversight

responsibilities. Regarding appropriations, the appropriations subcommittees would tend to vary as well.

For example, the House and Senate Appropriations subcommittees on agriculture have jurisdiction over

FDA’s appropriations. This arrangement reflects, in part, the agency’s origin within the Department of

Agriculture as the Bureau of Chemistry in 1862.

Author Contact Information

(name redacted)

Specialist in International Trade and Finance

#redacted#@crs.loc.gov, 7-....

Congressional Research Service

EveryCRSReport.com

The Congressional Research Service (CRS) is a federal legislative branch agency, housed inside the

Library of Congress, charged with providing the United States Congress non-partisan advice on

issues that may come before Congress.

EveryCRSReport.com republishes CRS reports that are available to all Congressional staff. The

reports are not classified, and Members of Congress routinely make individual reports available to

the public.

Prior to our republication, we redacted names, phone numbers and email addresses of analysts

who produced the reports. We also added this page to the report. We have not intentionally made

any other changes to any report published on EveryCRSReport.com.

CRS reports, as a work of the United States government, are not subject to copyright protection in

the United States. Any CRS report may be reproduced and distributed in its entirety without

permission from CRS. However, as a CRS report may include copyrighted images or material from a

third party, you may need to obtain permission of the copyright holder if you wish to copy or

otherwise use copyrighted material.

Information in a CRS report should not be relied upon for purposes other than public

understanding of information that has been provided by CRS to members of Congress in

connection with CRS' institutional role.

EveryCRSReport.com is not a government website and is not affiliated with CRS. We do not claim

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.