Round two of the NAFTA negotiations wrapped up early this week, without any major new developments. Of course, it is still very early in the process, and until the parties propose actual text for particular chapters, it is difficult to assess how bargaining will unfold. However, there are some issues where the positions of Canada, Mexico and the United States are fairly well known. One such issue, which Canada raised in the second round, is the inclusion of provisions on regulatory cooperation. As I’ve written with my colleagues in a recent working paper, a chapter on regulatory cooperation would be beneficial to an upgraded NAFTA.
First, as traditional tariff barriers have decreased over time, many of the remaining trade frictions take the form of so-called non-tariff barriers. Among these are the various regulations and standards that different countries utilize to regulate their product markets. There are a wide range of reasons these rules may differ—protectionism, consumer preferences, or divergence resulting from regulating in silos. The first of these is already addressed at the World Trade Organization (WTO). The second can entail things like consumer attitudes towards genetically modified foods (GMOs). The third is the range of issues that make up the bulk of what would be addressed in any type of regulatory cooperation forum. Examples include differences in the dimming technology for headlights used in vehicles, or the size of soup cans.
In 2011, there were two bilateral initiatives between the U.S. and Canada and between the U.S. and Mexico to address this type of regulatory divergence (outside of the NAFTA framework). The initiative with Mexico, the High-Level Regulatory Cooperation Council, did not achieve much progress, though Mexico has remained a supporter of regulatory cooperation initiatives. However, the U.S.-Canada Regulatory Cooperation Council had some notable successes, though progress has been very slow. For example, Health Canada and the Federal Drug Administration created a common electronic submission process that allows for a single application to both agencies for pharmaceutical and biological products; progress was also made in establishing mutual recognition of foreign animal disease zoning, as well as a joint review process for crop protection products. Given that this initiative has been in place for six years, however, criticism of the limited number of outcomes is not misplaced.