Regulatory Cooperation in the Transatlantic Trade and Investment Partnership: Institutional Structure and Democratic Consequences

October 20, 2015 • Cato Online Forum
By Alberto Alemanno

The Transatlantic Trade and Investment Partnership (TTIP) is not occurring in a vacuum. In recent decades, governments across the world — including the European Union and the United States — have cooperated to harmonize and coordinate policies “behind the borders” through a variety of efforts at the multilateral, regional, and bilateral levels. These efforts have been driven by the trade liberalization agenda, which views domestic regulatory action as a potential barrier to international trade.

While the World Trade Organization has been largely successful in removing barriers to trade at the border, it is proving less effective in the behind the borders fight against nontariff barriers (NTBs) — especially those emerging from regulatory differences across countries — making NTBs today’s most prominent obstacle to trade.1 NTBs consist of national regulatory measures that had not necessarily been subject to international scrutiny before, and that often serve legitimate objectives, such as protection of the environment and the health and safety of citizens.2

Given the seeming inability of the WTO and other trade arrangements to effectively address these concerns, the European Union and the United States appear willing to go beyond traditional international treaty‐​making to explore new avenues of international regulatory cooperation. In addition to the traditional commitment to eliminate tariffs in free trade agreements, the central tenet of TTIP is represented by the Horizontal Chapter on Regulatory Coherence, an innovative approach to international regulatory cooperation (IRC).

The Horizontal Chapter of TTIP
This central component of TTIP would contain a framework for future cooperation in order to provide a “gateway” for handling sectoral regulatory issues between the European Union and the United States. This would apply to all measures of general application, including both legislation and rules — regardless of the level at which these regulations are adopted and by whom — that have effects on transatlantic trade. The development of such a framework for transatlantic regulatory cooperation — which is likely to be accompanied by the establishment of a Regulatory Cooperation Council (RCC) or “Body” to ensure the continued operation of the framework — raises many important questions. This is particularly true in relation to the widespread concern that regulatory cooperation may compromise the principle of regulatory autonomy, thus depriving sovereign countries of their prerogatives.

To debunk some myths and possibly refocus the public debate generated by the ongoing negotiations, a few fundamental points must be made.

Rationale and the Preservation of Regulatory Autonomy
In order to promote compatibility of regulations across the Atlantic, TTIP provides a new kind of cooperation mechanism that embeds for the first time the application of good regulatory practices (e.g. early warning, early regulatory cooperation, consultation, transparency, impact assessment, etc.) into a trade agreement.3 This horizontal discipline will enable the regulators — generally upon the request of one of the two parties — to enter into a permanent dialogue. The EU and U.S. authorities would explore possible avenues to attain compatible outcomes or coordinated approaches, either on pre‐​existing regulations or new proposals, through the conclusion of, inter alia, mutual recognition (of substantive standards or the results of conformity assessment) agreements or best practices. Should the regulators identify areas for convergence (such as marketing authorizations for pharmaceuticals, cosmetics or technical standards for car headlights), their agreed commitment will become legally binding within a sectoral annex4 and subject to an ad hoc enforcement mechanism.

This is set to lead the distinct, often competing, worlds of trade and domestic policymaking to meet and coexist within an international agreement. At the same time, however, the agreement is not set to substantially alter the parties’ respective approaches to making legislation or rules. Indeed, neither the EU nor the U.S. legislative or regulatory systems will be modified by TTIP. The parties will merely commit to synchronize their respective regulatory systems, but will never regulate jointly.

Despite being neutral to the operation of each party’s constitutional systems, this agreement will inevitably entail some limitations on regulatory autonomy. As previously described, the European Union and the United States are not limiting themselves to concluding a traditional FTA‐​plus agreement (one that obligates the parties to go beyond their WTO commitments, reciprocally). In fact, they are striving to develop a new model of economic integration based on a permanent international regulatory cooperation mechanism. Although TTIP falls short of establishing an internal market between the two sides of the Atlantic (i.e., no joint decision‐​making power is foreseen), it is set to create the conditions for prompting a new awareness in the minds of the respective regulators: that of the extraterritorial impact of their existing and proposed regulations.

Moreover, in the process of creating a permanent mechanism, TTIP will become a ‘living agreement’ where new areas of cooperation can be identified without the need to re‐​open the initial international agreement or to modify each others’ institutional frameworks.5

It is on this issue that the public’s attention should be focused. Indeed, although TTIP is not supposed to alter existing regulations or adopt joint standards, its commitment to regulatory coherence through the cooperation mechanism will inevitably push regulators in that direction. The process of determining the equivalence of two separate sets of standards requires going back to a previous internal political decision, which inevitably will lead to a reopening of the legislative and rulemaking processes. In other words, while an agreement regarding equivalence or mutual recognition reached within a regulatory dialogue would not formally modify domestic regulatory requirements, which remain unchanged vis‐​à‐​vis the domestic product or service, it implies a departure from it in relation to the imported products or services. This may prompt fundamental accountability problems as the operation of TTIP may result in regulatory processes that appear detached from the previously agreed policy choice, and therefore the policy preferences of the regulated.

In these circumstances, it is crucial for there to be some form of democratic oversight — possibly a multi‐​stakeholder mechanism — that could be capable of objectively assessing the legitimacy of regulatory proposals and challenges that emerge in the process. While there is a case for building a role for the European Parliament and U.S. Congress (as well as the public), it is not clear whether the ongoing negotiations currently envision a mechanism for this.

As Pascal Lamy recently observed, TTIP and its proposed regulatory cooperation chapter epitomize the emergence of a ‘new generation’ of trade agreements. While the old world of trade was a world where production was national and obstacles to trade were about protecting that production, today’s world of trade is about protecting consumers from the risks stemming from an increasing transnational global supply chain of goods and services. The regulatory chapter of TTIP embodies the shift from the ‘administration of protection’ to the ‘administration of precaution’. This new version of the old divide between tariffs and non‐​tariff measures explains much of the difficulty faced by the negotiators — as well as the public — when engaging with this proposed agreement.

It is in the light of the above that, contrary to current institutional and popular narratives accompanying its negotiations, the fate of TTIP’s success rests less with issues of transparency or fears of a “race‐​to‐​the‐​bottom” and more with its capacity to guarantee legitimacy and accountability once in operation. That is where the focus of the TTIP debate should be. Rather than working exclusively to demonize and kill the TTIP, civil society organizations and political parties might focus their efforts on trying to shape the agreement for the better.

1 See D.Y. Kono, ‘Optimal Obfuscation: Democracy and Trade Policy Transparency, (2006) 100 American Political Science Review, pp. 369–384.
2 A. Alemanno, Trade in Food, Regulatory and Judicial Approaches, Oxford : Cameron May, 2007.
3 While good regulatory practices appear also in other trade agreements, especially FTAs such as the recently‐​negotiated, but yet to be ratified, Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada, TTIP is set to become the first one that ensure their respect through an enforcement mechanism.
4 While it appears undisputed that this will require these newly negotiated sectoral annexes to the original TTIP to be integrated into domestic law in both jurisdictions, it has not yet been defined how this will occur.
5 This automatic update of an international treaty may circumvent the procedure for the adoption of international agreements that typically foresees the signature and ratification of new texts. In the EU, this issue may be addressed by Article 218(7) TFEU that states: “When concluding an agreement, the Council may, by way of derogation from paragraphs 5, 6 and 9, authorise the negotiator to approve on the Union’s behalf modifications to the agreement where it provides for them to be adopted by a simplified procedure or by a body set up by the agreement. The Council may attach specific conditions to such authorization”.

The opinions expressed here are solely those of the author and do not necessarily reflect the views of the Cato Institute. This essay was prepared as part of a special Cato online forum on The Economics, Geopolitics, and Architecture of the Transatlantic Trade and Investment Partnership.

About the Author
Alberto Alemanno