International Regulatory Cooperation and its discontents: What is really at stake in TTIP?
Alberto Alemanno is Jean Monnet Professor of EU Law at HEC Paris and Global Clinical Professor at New York University School of Law
In the current stage of European political integration, very few subjects are capable of crossing the national borders and prompt a genuine pan-European public debate. Since the last EU parliamentary elections, the ongoing negotiation of a Transatlantic Trade and Investment Partnership (TTIP) has become one of those issues. Given its ambition, novelty and potential disruptive nature on future global economic governance, this result is not a cause of surprise. This “new generation” trade agreement has the potential to remake political and legal relationships between the EU and the US and pave the way to a new form of global economic governance based on international regulatory cooperation (sometimes referred to as «IRC») (Alemanno and Wiener, “The Future of International Regulatory Cooperation: TTIP as a Step Toward a Global Regulatory Laboratory”, in Law and Contemporary Problems, 2015, forthcoming). This post – which builds upon one policy report written for the European Commission and another for the European Parliament – aims at providing some context and possibly remedying the misinformed, media-driven and largely unacademic debate surrounding the ongoing TTIP negotiations.
Despite the mounting attention elicited by this international agreement, the public debate surrounding its negotiations remains indeed polarized. Supporters of TTIP – such as industry groups and some EU Member States – praise the economic benefits it could bring about to companies, employers and consumers. Critics instead – essentially civil society organisations but also some Member States – highlight its high social costs, by lowering regulatory standards. Unfortunately both sides seem to fail to understand what is really at stake in TTIP. In turn, the media and the political class unwisely contribute to misinforming and amplifying concerns by focusing on some selected aspects – such as the transparency of the negotiations or the inclusion of an Investor-State Dispute Mechanism (ISDM) – that paradoxically might not be the most problematic of the agreement. To debunk some myths and possibly refocus the debate, a few fundamentals must therefore be asserted.
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 (WTO), regional (EU, NAFTA), and bilateral levels (FTAs) (see Lester and Barbee). These efforts have been driven by the trade liberalization agenda, which views domestic regulatory action as a factor impeding international trade. While the WTO 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) – emerging from regulatory differences across countries –, making NTBs today’s most prominent obstacle to trade exchanges (see Kono). NTBs consist of national regulatory measures that had previously not been subject to international scrutiny and that often aim at pursuing legitimate objectives, such as the protection of the environment and the health and safety of citizens (see Alemanno).
Given the current inability of the WTO and other trade arrangements to effectively address such concerns, the EU and the US seem willing to go beyond traditional international treaty-making to explore new avenues of international regulatory cooperation. In addition to the commitment to eliminate tariffs – typical of any Free Trade Agreement (FTA) –, the central tenet of TTIP is represented by the Horizontal Chapter on Regulatory Coherence, an innovative approach to international regulatory cooperation (IRC).
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 EU and the US. 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), a mechanism that could ensure TTIP’s operation – 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.
In order to promote compatibility of regulations across the Atlantic, TTIP provides an original 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 (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 ensures their respect through an enforcement mechanism). 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 US authorities would explore possible avenues to attain compatible outcomes or coordinated approach, either on pre-existing regulation or new proposals, through the conclusion of, inter alia, mutual recognition (of substantive standards or the results of conformity assessment) agreements or best manufacturing 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 annex and subject to an ad hoc enforcement mechanism (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).
This is set to lead the distinct, often competing, worlds of trade and that of 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 ways of making legislation or rules. Indeed, the EU and US respective legislative and regulatory systems will not be modified by TTIP. The Parties will merely commit to sync their respective regulatory systems, but will never regulate jointly.
Despite being neutral to the operation of each Party’s constitutional systems, this Agreement will however inevitably entail some limitations of the respective regulatory autonomy. As previously demonstrated, the EU and the US are not limiting themselves to concluding a traditional FTA plus, by agreeing on some additional requirements, but they are striving to come up with 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, amid the creation of a permanent mechanism, TTIP will therefore emerge as a “living agreement” where new areas of cooperation can be identified without the need to re-open the initial international agreement nor to modify each other’s institutional frameworks. This “automatic” update may be seen as circumventing the procedure for the adoption of international agreements that typically foresees the signature and ratification of new texts but it is arguably covered by Article 218(7) TFEU, which 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».
That’s where public opinion’s attention should be focusing on. Indeed, although TTIP is not supposed to alter existing regulations or adopt joint standards, its cooperation mechanism – due to the commitment to regulatory coherence – pushes the regulators away from the previously agreed regulatory standards. In so doing TTIP is inevitably set to reopen the legislative and rulemaking processes: determining the equivalence of two separate sets of standards requires going back to a previous internal political decision. In other words, while an agreement reached within a regulatory dialogue – be it equivalence or mutual recognition – does not formally modify the domestic regulatory requirement – which remains 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 gradually appear detached from the previously agreed policy choice and therefore the policy preferences of the regulated.
In these newly created circumstances, it is crucial to foresee some forms of democratic oversight on the operation of TTIP that could be capable of satisfactorily address the legitimacy challenges raised by its operation. While there seems to be a case for building a role for the European Parliament and US Congress as well as the public, it is not clear whether the ongoing negotiations currently envision a mechanism requiring their involvement.
In sum, contrary to current institutional and popular narratives accompanying its negotiations, the fate of TTIP’s success will be played less on issues of transparency or fears of “race-to-the-bottom” and more on its ability to ensure political control and societal input to guarantee its legitimacy and accountability once in operation. That’s where we should all focus on when debating TTIP. It is about time that civil society organisations and political parties stopped demonizing the agreement and valuably contributed to its shaping up.