Regulatory cooperation

Regulatory cooperation

Overview: how trade deals affect our ability to regulate

Regulatory cooperation can refer broadly to any instance of states working together to design and align their regulations. However, in modern trade agreements such as the Trans-Pacific Partnership (CPTPP) agreement and CETA (EU-Canada), regulatory cooperation refers to a more narrow system of establishing a shared set of rules which apply to each country’s domestic regulations when they have trade impacts.

Regulatory cooperation in trade deals raises concerns about how such deals might be used to undermine high standards. It also raises questions about what the correct forum should be for designing regulations, and how democratic oversight can be maintained when regulations are agreed bilaterally.

In depth: Deregulation, democracy, corporate influence and differences in values

Civil society organisations have expressed a number of concerns about regulatory cooperation in trade agreements. These can be broadly summarised as concerns about deregulation, democracy, corporate interest and cultural/moral values.

1. Deregulation

Regulatory cooperation in trade agreements poses an intrinsic deregulatory threat, since its aim is to align regulations in order to promote trade, rather than achieve social or environmental objectives. This means it should be understood differently from cooperation between states which is specifically aimed at collectively raising standards or address social problems, such as EU environmental legislation. In addition to the ‘aim’ of regulatory cooperation, another deregulatory threat comes from the fact that those who sit on the regulatory cooperation councils tend to be trade experts rather than social or environmental policy experts. This means that the resulting regulations might reflect their trade-oriented biases, and are unlikely to have been designed with social and environmental issues in mind. This raises a broader question about who ought to be designing regulations. Many regulatory barriers will, for instance, pertain to public health, such as the regulatory differences between the UK and the US on food standards. These regulations ought to be designed in consultation with public health experts rather than by trade experts.

2. Democracy

The councils, established through regulatory cooperation chapters in trade deals, are made up of representatives who are not directly accountable to democratic institutions and who are not directed to engage with institutions or individuals representing a cross-section of society. This means that there is a democratic deficit between elected representatives, such as Members of Parliament, and those on the councils who make recommendations regarding regulation.
For a healthy democracy it is important that (a) different groups are represented when important policy decisions are made - particularly those groups most affected by regulations, and those who have expertise in the relevant areas; (b) there is transparency in how regulations are made, and which interest groups are offered input; and (c) elected representatives are able to hold decision-making bodies to account and have the final say on important regulatory decisions. The model of regulatory cooperation in CPTPP and CETA does not meet these criteria for a democratic approach to regulation.

3. Corporate influence

A related concern is that regulatory cooperation particularly advantages the voice of corporate actors, such as multinational firms. This is because of the structure of regulatory cooperation in trade deals such as CPTPP and CETA, where business voices might be prioritised over those of civil society by trade negotiators. This could arise because the representatives on the council actively seek out business voices or because civil society lacks the resources to engage. Lack of transparency in the lobbying process means that it is difficult to assess where decisions are being unduly influenced by corporate interests. Equally, a lack of a formal structure for listening to the views of civil society raises the concern that the interests of ordinary individuals are under-represented.

4. Cultural and moral values

Regulatory cooperation in trade agreements assumes that differences in regulations between different countries is a sign that something has gone wrong: it assumes that differences exist either by accident or as a deliberate act of protectionism. However, regulatory divergence may be a reflection of cultural differences, as well as different values and principles, between states. For instance, the UK tends to have higher animal welfare standards than other countries. This should not be interpreted as a form of trade protectionism, but rather a reflection of certain political and social viewpoints within British society. Equally, the EU tends to have stringent environmental and health regulation, such as the enshrinement of the precautionary principle in EU law, which means products can be banned if there is a risk of harm. The US and Canada do not adopt these principles, but instead allow risky products to be sold until the harm has been proven, often via negative impacts on consumers. This reflects a different approach to product safety which stems from divergent social and political norms. However, from the perspective of trade negotiators, these differences are mere idiosyncrasies which ought to be subject to the greater good of free trade.

Regulatory cooperation in CPTPP and CETA

Although TTIP was never agreed, it set out an ambitious vision for ‘new generation’ trade agreements, which would reach wider areas of domestic policy than previous trade deals. At the heart of this was regulatory cooperation. This model is copied to some extent in CETA, which is currently applied in Europe and Canada.

Including regulatory cooperation in trade deals is one way in which trade negotiators seek to address the broader issue of ‘non-tariff barriers’ to trade.

‘Non-tariff barriers’ refers to any non-tariff measure that is considered to make it difficult for one country to export its goods or services to another country, including regulations, rules of origin and quotas (limits on the amount of a good that can be imported from any given country)..

In trade terms, regulations are categorised as a non-tariff barrier because, in the absence of an agreement, they can make it difficult or impossible for goods and services to be traded between two countries. For instance, if American made cars do not meet the EU’s safety requirements, then US car manufacturers must produce different cars for the European market. Furthermore, divergence in regulations means that there need to be checks at borders to ensure that imports meet the requirements. This can increase costs for companies and slow down trade.

Regulatory cooperation aims to deal with regulatory barriers to trade, and therefore reduce one type of non-tariff barrier. Cooperation can take different forms: its most extreme version is ‘harmonisation’, where countries agree to adopt and enforce the exact same regulations, such as the EU’s common regulations on goods and services across the Single Market. For this to work well, it is necessary to have shared legal interpretation of regulations and some kind of dispute resolution procedure, such as the European courts. A weaker form of regulatory cooperation is Mutual Recognition, where countries have different regulations but agree to recognise each other’s conformity assessment tests. This aims to eliminate the need for border checks on goods whose certifications are recognised as equivalent.

The regulatory cooperation chapters in CPTPP and CETA set out a structure for agreeing regulations between the eleven member countries of CPTPP and the EU and Canada (CETA). This is based on dialogue between representatives from each party, in which they identify regulatory barriers and aim to find solutions. Although these ‘councils’ do not have the power to directly change regulations, their proposals may well be adopted, particularly where there is a significant political or sectoral interest in doing so . The processes by which these councils decide on new regulations is vague, and concerns have been raised by civil society organisations about the amount of influence corporate interests will have over their decisions.

Brexit and regulatory cooperation

The issues around regulatory cooperation must be viewed in the context of the UK’s current, woefully weak framework for negotiating and agreeing trade deals. Current procedures for Parliamentary scrutiny of trade agreements do not include any guarantee that either the public or MPs will have any say over the scope or content of trade deals, including whether or not regulatory cooperation is included. In the absence of a proper process for engagement and consultation, there is a significant risk that businesses with greater resources are able to influence trade deals, and therefore regulation, in their interests through informal, ad-hoc channels, whilst democratic institutions have very little say.

Brexit means that the UK is likely to take back control of trade policy for the first time in over forty years. Liam Fox, the Trade Secretary, has expressed a clear intention for ‘Global Britain’ to pursue rapid trade deals with new countries after Brexit. Meanwhile, US pharma firms and agri business have made clear its hopes that the UK will lower its standards as part of a future trade deal.

Regulatory cooperation is therefore a real risk in post-Brexit trade policy. The UK Government was a vocal supporter of TTIP, which although now dead, may well be resurrected in the form of a post-Brexit trade agreement with the US. Serious democratic debate about the role and scope of trade deals is now urgent; civil society and politicians must be part of deciding whether or not our standards and regulations should be subject to the logic and processes of trade agreements.

Further information