Will US-EU trade talks devolve into game of chicken over regulatory ruffles?

This week, in the shadow of the Pacific trade talks and the introduction of fast-track trade promotion authority, negotiators from the European Union and the United States are convening in New York City for what may be some animated chicken dinners.

A main topic of the 9th round of talks on the Transatlantic Trade and Investment Partnership (TTIP) will be “regulatory coherence.”

Though the subject of how the US and EU align their disparate regulations might make most people’s eyes glaze over, it will likely generate heated discussion both in the private talks between negotiators and the public meetings that follow.

How could something as seemingly dry as regulation have the potential to ruffle so many feathers?

There are several reasons. Regulations have the force of law and can have significant influence on investment, hiring, purchasing, trade and other decisions.

What’s at stake

On the one hand, excessive or poorly targeted regulatory policies slow economic growth, hinder innovation and reduce living standards. Smarter regulatory approaches, and fewer heavy-handed regulations, especially those that hinder trade, could improve the quality of life in both Europe and the US.

On the other hand, regulations often end up protecting vested interests from competition, especially international competition, so once they’re in place, there’s strong resistance to removing them. Thus negotiators have a tough task in streamlining and aligning existing regulations.

Among the contentious topics on the table will likely be whether the US will allow electrical products that meet European testing standards into US workplaces, and whether the EU will allow US-raised poultry to be sold in Europe. (I would not be surprised if the menus during the negotiations featured a lot of chicken, to chide European negotiators for refusing to allow imports of US poultry.)

You might expect it would be easier to agree on procedures for developing new regulations. That’s partly true, but a new paper I co-authored with German professor Kai Wegrich with support from the European Union suggests that negotiators may face challenges on that front, as well.

Sticking points

A particular sticking point may be the appropriate role for public consultation as regulations are developed.

While regulators in the US and EU both seek input from stakeholders before issuing new regulations, the mode, timing and role of consultation differ.

The US has a long tradition of “notice-and-comment” rulemaking, in which any interested party is invited to comment on proposed regulatory text and supporting analysis. Because final regulatory decisions must be based on a public record, regulators have to take public comment into account or risk the rule being overturned by a judge.

In the EU, stakeholder input is solicited earlier in the rulemaking process to help policymakers identify options, but is generally not invited on the regulatory text itself.

Each jurisdiction feels strongly that its practice is superior, and a case can be made for both approaches.

Early consultation gathers different perspectives and information before regulators get too attached to a particular approach. George Washington University Regulatory Studies Center scholars Chris Carrigan and Stuart Shapiro, for example, have argued that earlier, simpler, back-of-the-envelope analysis of more varied options could greatly improve regulatory outcomes in the US.

But, as the saying goes, the devil is in the details, and it is often difficult for public commenters to react intelligently without seeing actual regulatory text. The point being that regulatory decisions also benefit from public scrutiny of draft regulatory language, when concrete alternatives and supporting analysis are available.

Furthermore, broad public consultation that welcomes anyone’s input is better than selective canvassing of particular stakeholders. Regulators may not know who might have valuable insights on a particular topic, and only asking “affected” stakeholders runs the risk that regulations will cater to special interests.

Bad regulation hinders growth

If the negotiators can remain open to the advantages of each other’s approaches and work to adapt best practices from each jurisdiction, “regulatory coherence,” could be this week’s success story – rather than the negotiations devolving into a game of chicken.

Studies repeatedly find that excessive, poorly designed regulation hinders economic growth and well-being.

As the World Bank notes, “intentionally or not, regulation can impose rigidities and distort the incentives” for growth, competition and innovation.

Regulations that respect property rights and address public needs (rather than cater to particular interests) while encouraging competition, entrepreneurship and innovation not only lead to economic growth within countries, but can open doors to international trade and investment.

That result would have citizens on both sides of the Atlantic raising a glass of French champagne with their Georgia chicken dinners.

Susan E Dudley directs the George Washington University Regulatory Studies Center, which received a grant from the European Union to compare regulatory practices in the US and EU. While her draft paper with Professor Kai Wegrich was produced with the assistance of the EU, neither the paper nor this article should be taken to reflect its views.