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Tuesday, January 17, 2012

Transatlantic Regulatory Cooperation: Background and Analysis

Raymond J. Ahearn
Specialist in International Trade and Finance

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.

Date of Report: December 2
2, 2011
Number of Pages:
Order Number: RL
Price: $29.95

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