When we met the other week I offered to write to you and set out some of my concerns about the regulatory coherence provisions of the Transatlantic Trade and Investment Partnership.
There are clear benefits from creating a better alignment between US and EU regulation. However, this goal may be more difficult to achieve than is widely recognised. As has become clear from large corporate mergers, it is one thing to align systems and another, more difficult and protracted matter, to align cultures. There are many examples of benefits from aligning systems lost by failing to align cultures.
The European and American environmental regulatory systems are products of very different cultures. Public policy on the environment is developed very differently reflecting fundamental differences in the way public policy is translated into law. The role regulators play in implementation of the law also differs significantly not the least because of the different role of, and access to, the courts.
As a consequence simply aligning regulatory texts will not necessarily achieve the goal of regulatory coherence. This means that in practise coherence will be achieved through the operation of the proposed Regulatory Cooperation Council. This is to be composed of ‘senior level representatives from regulators and trade representatives’.
This raises an immediate question for the EU members of the Council as to whether they will be operating under an environment ( mixed competence) or trade ( sole competence ) legal base. There is a further complication in that the US members of the Council would be drawn from the Commerce or State Departments with no direct experience of environmental regulation. Retaining public confidence in regulatory coherence procedures within the EU will be much more difficult if decisions affecting environmental outcomes are seen to be entirely in the hands of trade officials.
The Commission has emphasised the provisions on the face of the agreement for maintaining existing levels of environmental protection and the right to regulate to achieve high levels of protection. However, these assurances miss the point. These rights have not been questioned. The intent of the coherence provisions is to shape the way in which those rights are exercised and this may have an impact on the environmental outcomes it is possible to achieve in practise by their exercise.
The Commission proposals for achieving regulatory coherence include ‘early consultations on significant regulations, use of impact assessments, evaluations, periodic review of existing regulatory measures, and application of good regulatory practises’. The first and second of these provisions raise significant potential problems for achieving coherence which need more careful, and public, examination before they are agreed.
European environmental regulations are developed over a long period, typically a decade or more, with widespread consultation with member state governments, the European Parliament and a large array of business and civil society stakeholders throughout the process. The resulting political agreement is thus founded a carefully constructed consensus that is resistant to late alteration. There is little scope, or call for, a role for the courts and actions before them are rare. Access of individuals or non-state actors to the courts is very restricted.
American practise is very different. Federal legislation may originate in either House of the Congress and can be initiated by any individual member, at any time. There is no equivalent of the EU consultation processes and legislation passes whenever enough votes have been accumulated for it to succeed. Significant late interventions are frequently successful as part of the bargaining to accumulate sufficient votes.
In the EU regulatory culture grants the regulators considerable discretion over how the regulatory intent in to be applied in particular circumstances subject to the requirement to observe due process. The American regulatory culture severely constrains the discretion of regulators.
The appropriate agency is required to develop specific rules for the application of the legislation in each of the contexts to which it applies. These rules must be developed through widespread public consultation with interested parties. There are even rules as to how the agency must reason in its response to submissions. Any of the interested parties who feel that their interests have not been appropriately considered may, and often do, seek redress in the courts. Access to the courts for individuals, businesses and civil society is commonplace.
These considerations generate two problems for the achievement of regulatory coherence that need further examination prior to agreement. First, how is ‘early consultation’ to be achieved between two regimes in which public consultation in one is pre-legislative and in the other is post-legislative? Second, in the EU the key decisions on the implementation of a regulation is made by the regulators in the US it is made in the courts. How will coherence on the role of the courts in environmental regulation be achieved? If it difficult to see either the EU extending access to the courts or the US restricting such access. This raises the difficult prospect of disaffected parties in either jurisdiction seeking extra-territorial redress in the US courts.
A further complication arises over the differing approach to impact assessment. US law mandates the use of cost-benefit analysis in assessing the impact of regulations. For a regulation to be lawful the economic benefits must exceed the economic costs. The EU uses a precautionary approach in which the economic costs or benefits are among the factors that are used in an assessment of the value of a regulation and the premise is that they take a subordinate place to achieving the objectives of the legislation. In other words, US regulatory practise demands that the economic costs of a measure are outweighed by the benefits. EU practise requires the achievement of the desired outcome to take precedence. The means of achieving coherence across these difference are not immediately obvious.
It is clear that much of the Commission’s thinking has been shaped by consumer protection considerations such as maintaining food and health standards. This can be achieved by technical means such as specifying the amount of unwanted materials permitted in a product and agreeing on the means used to measure the presence of such materials.
It is less obvious that sufficient thought has been given to the particular requirements of achieving environmental outcomes. For example, European climate legislation places an economy wide cap on greenhouse gas emissions. The Federal Government has no power to impose an economy wide cap on emissions but seeks to reduce emissions by point source controls. It is not very obvious how ‘regulatory harmonisation, equivalence, or mutual recognition,’ is to be accomplished in this case.
The Commission’s proposal recognises that TTIP will have to deal with these, and other, complexities on a case by case basis over a long period. Hence the proposal for a Regulatory Coherence Council which may create a set of subordinate bodies dealing with sectoral or cross-cutting issues.
Lowering the burden of achieving better environmental outcomes through regulatory coherence is a shared objective. Fears that the processes to reach this goal could lead to a weakening of environmental standards or a chilling of environmental regulation are legitimate. Reaching beyond the traditional boundaries of trade liberalisation, as regulatory coherence does, requires also reaching beyond the traditional practises of trade negotiations.
The benefits of regulatory coherence can only be achieved if there is a high level of public trust in the institutions created to bring it about. This in turn will only be accomplished is there is a level of transparency and participation not common in trade negotiations. This has two important implications for the current negotiations:
The negotiating process itself should be transparent. Since the balance of commercial advantage is not at stake there is no reason why all interested and affected parties should not be able to monitor the progress of the discussions in real time;
The Regulatory Coherence Council and any subordinate bodies must consult with experts from all interested and affected parties. At any table where businesses are present, so, too, must be representatives of civil society. The agendas and papers for all meetings of the Council and its subordinate bodies should be published in real time.
3 February 2015