Last week, the George Washington University Center for Regulatory Studies convened a Conference (GW Conference) on the Status of Transatlantic Trade and Investment Partnership (TTIP) Negotiations between the European Union (EU) and the United States (U.S.), which were launched in 2013 and will continue for an indefinite period of time. In launching TTIP, the Obama Administration claimed that this pact would raise economic welfare in the U.S. and the EU through stimulating investment and lowering non-tariff barriers between the two jurisdictions, by, among other measures, “significantly cut[ting] the cost of differences in [European Union and United States] regulation and standards by promoting greater compatibility, transparency, and cooperation.”
Whether TTIP, if enacted, would actually raise economic welfare in the United States is an open question, however. As a recent Heritage Foundation analysis of TTIP explained, a TTIP focus on “harmonizing” regulations could actually lower economic freedom (and welfare) by “regulating upward” through acceptance of the more intrusive approach, and by precluding future competition among alternative regulatory models that could lead to welfare-enhancing regulatory improvements. Thus, the Heritage study recommended that “[a]ny [TTIP] agreement should be based on mutual recognition, not harmonization, of regulations.”
Unfortunately, discussion at the GW Conference indicated that the welfare-superior mutual recognition approach has been rejected by negotiators – at least as of now. In response to a question I posed on the benefits of mutual recognition, an EU official responded that such an “academic” approach is not “realistic,” while a senior U.S. TTIP negotiator indicated that mutual recognition could prove difficult where regulatory approaches differ. I read those diplomatically couched responses as signaling that both sides opposed the mutual recognition approach. This is a real problem. As part of TTIP, U.S. and EU sector-specific regulators are actively engaged in discussing regulatory particulars. There is the distinct possibility that the regulators may agree on measures that raise regulatory burdens for the sectors covered – particularly given the oft-repeated motto at the GW Conference that TTIP must not reduce existing levels of “protection” for health, safety, and the environment. (Those blandishments eschew any cost-benefit calculus to justify existing protection levels.) This conclusion is further supported by public choice theory, which suggests that regulators may be expected to focus on expanding the size and scope of their regulatory domains, not on contracting them. To make things worse, TTIP raises the possibility that the highly successful U.S. tradition of reliance on private sector-led voluntary consensus standards, as opposed to the EU’s preference for heavy government involvement in standard-setting policies, may be undermined. Any move toward greater direct government influence on U.S. standard setting as part of a TTIP bargain would further undermine the vibrancy, competition, and innovation that have led to the great international success of U.S.-developed technical standards.
As a practical matter, however, is there time for a change in direction in TTIP negotiations regarding regulation and standards? Yes, there is. The TTIP negotiators face no true deadline. Moreover, as a matter of political reality, the eventual U.S. statutory adoption of TTIP measures may require the passage by Congress of “fast-track” trade promotion authority (TPA), which provides for congressional up-or-down votes (without possibility of amendment) on legislation embodying trade deals that have been negotiated by the Executive Branch. Given the political sensitivity of trade deals, they cannot easily be renegotiated if they are altered by congressional amendments. (Indeed, in recent decades all major trade agreements requiring implementing legislation have proceeded under TPA.)
If the Obama Administration decides that it wants to advance TTIP, it must rely on a Republican-controlled Congress to obtain TPA. Before it grants such authority, Congress should conduct hearings and demand that Administration officials testify about key aspects of the Administration’s TTIP negotiating philosophy, and, in particular, on how U.S. TTIP negotiators are approaching regulatory differences between the U.S. and the EU. Congress should make it a prerequisite to the grant of TPA that the final TTIP agreement embody welfare-enhancing mutual recognition of regulations and standards, rather than welfare-reducing harmonization. It should vote down any TTIP negotiated deal that fails to satisfy this requirement.
