A voluntary framework
What is the role of good regulatory practice provisions in trade agreements? Can they actually help reduce harm and protect communities?
As the full implications of Brexit begin to roll out in the UK, I was intrigued to see a press release promoting the EU agreement that included a section titled. ‘Good Regulatory Practice and Regulatory Cooperation’.
Good regulatory practice is often talked about as the job of the regulator. It’s the practice of applying the black-and-white law in context to get a desired regulatory outcome. That might be about changing behaviors, or reducing harms, or protecting markets, or keeping public order.
Title X of the agreement makes clear that the UK and the EU reserve the right to set their own levels of protection to get the outcomes that they desire.
But it also requires that they must use regulatory impact assessment processes and they must be put in place to ‘foster good regulatory practices’. These are pretty standard stuff that comes with regulation or legislative impact assessment processes, things like being clear on what the problem is that the regulations are trying to fix, looking at regulatory and non-regulatory options, avoiding duplication, considering impact on small business, all the usual sort of stuff. But the agreement also put forward a voluntary framework for EU and UK regulators to identify opportunities to work together without impacting their powers of authority.
I wondered if it was novel for trade agreements to include ‘good regulatory practice principles’, and if they actually work.
Trade-based international regulatory cooperation
Stuart Trew is the director of Trade and Investment at the Canadian Center for Policy Alternatives, an independent research institute focused on social and economic issues and environmental justice. He’s edited a number of books and papers discussing trade and has authored a paper on the role of good regulatory practices in trade agreements.
He describes good regulatory practices in terms of the OECD (Organisation for Economic Cooperation and Development) definitions, involving things like regulatory impact assessments, transparency requirements, minimum levels of notice that you give to stakeholders to comment on regulations, as well as making sure regulation is meeting its targeted priorities.
Regulatory cooperation, on the other hand, could be the Paris Agreement and these kind of global climate talks, countries working together to reduce emissions. It could be looking at food safety standards or the development of common labeling schemes.
‘But in my research regulatory cooperation has been pretty much focused on what I would call a trade-based international regulatory cooperation’, Stuart says. ‘I think that is something new. In the past twelve years we’ve seen this becoming more and more important to countries. And it is cooperation to address issues that have been raised by specific industry groups to facilitate trade and lower the burden on business.
‘It is a new way that governments are thinking about global trade. It’s not another legally binding trade agreement at the World Trade Organisation. It’s more or less a voluntary, experimental, bilateral thing that countries are trying to do to reduce trade frictions.
‘Going back to the 60s and 70s, the United States and other rich countries, like Canada, were concerned that non-tariff areas of foreign government policy were interfering with their exports. Things like subsidies for agricultural products or restrictions on inward investment. So they started building these agreements into the GATT (General Agreement on Tariffs and Trade).
‘But the problem was these rules seem quite strict. The WTO has been not very satisfying for certain countries, and certain industries would like to see what they would consider trade barriers in other countries come down, even if those barriers are different environmental standards or different food standards.
‘And so what they wanted was a way to preempt those differences to begin with. So one way is to build the regulatory disciplines directly into the trade agreement. So let’s be more specific about what is good regulation and what is bad regulation and what is trade distorting. I think that’s what’s going on with these good regulatory practice chapters in the Brexit deal.
‘And then on the other side, you’ve got the OECD and countries like Canada saying we should be doing it through voluntary arrangements, like the Regulatory Cooperation Council, between the United States and Canada, which is not attached to a specific trade deal. This was something that was coordinated by regulatory agencies. So in Canada this was coordinated by the Treasury Board and in the United States by the Office of Management and Budget.
‘This is outside of the trade regime. Let’s see if we can get the same mentality around when to regulate, then maybe we can cooperate. And through the cooperation we’re socializing our own regulators to think about the global picture more often.
‘So there’s the hard legal trade-based version, which we see in the new Brexit chapters, and then we’ve got this other kind of intergovernmental, voluntary way of trying to achieve the same thing, which is regulation that is designed to be trade facilitive, that is designed more or less to keep the global economy running efficiently, and less focused on things like safety and environment.’
But do they actually translate to better outcomes on the ground?
‘These are brand new provisions in trade agreements, so we don’t know how they’re going to affect domestic regulation. In the EU Brexit deal with the UK, that chapter, for example, isn’t applicable to dispute settlement. One side cannot take the other to a tribunal. I think right now you have a lot of environmental groups in the European Union in particular, but also here in North America—environmental groups, health advocates, food safety advocates—who are concerned about how it’s going to operate in practice because it is about preempting trade disputes.
‘So the idea being that the cooperation is kind of running under the radar at this point. And to me, I find that strange or kind of ironic, considering all these transparency requirements that are put into the chapters themselves and into domestic good regulatory practices themselves. And governments are expected to pretty much lay out exactly what they’re doing at every step of the regulatory process.
‘And then you’ve got these cooperation activities which are not transparent at all. It’s hard to find out when they’re happening, who’s involved, which private stakeholders have been invited, that kind of thing. These groups are concerned that the regulatory process itself can be through these cooperation mechanisms and trade agreements.’
The Regulatory Cooperation Council
Stuart has been doing research on the RRC (Regulatory Cooperation Council). ‘It was set up in the Obama period’, he explains. ‘Canada and the United States decided they needed to rejuvenate their bilateral talks and negotiations. Their main target was actually the European Union. They had been thinking, how do we create a kind of a European-American space for economic market rights to make sure that our regulations are more compatible? You know, lots of disputes between the US and the EU are around food, pesticide, maximum residue levels, GMOs, the way chickens are washed. And they decided, before we do that with the European Union, let’s test drive it with Canada so we’ll see if bilateral, voluntary, under the radar, regulatory cooperation works and can kind of get rid of some irritants that are brought to our attention by industry.
‘So the Regulatory Cooperation Council was a service for industry. It’s one of the suite of regulatory services the Treasury Board feels it needs to provide to industry in order to create a regulatory space that is conducive to economic growth.
‘First, it was just basically a list of irritants that have existed between Canada and the United States going back to the early Canada–US free trade agreement days, a lot of them around food inspection in the United States, some around the way toxic chemicals are managed, the way risk is assessed, the way risk is managed. And so you had this kind of work group set up, led by regulators. That was the novelty. This was regulator-led, but with pressure to deliver on industry priorities.
Businesses often talk about unreasonable regulatory experiences, where the standards don’t make sense or they’re not practical or they get tested or checked three times by three different parties for the same thing. It would make sense that the regulators would listen to industry experience and seek to improve it without undermining the core tenet of what they’re seeking to achieve.
‘I heard a funny story from a US NGO representative who was outraged at this Regulatory Cooperation Council stakeholder session that brought together industry players. From the Canadian side they had meat industry people who have for ages been upset that the US dares to inspect meat products when they cross the border. The FDA already inspects Canadian processing plants. So why inspect our products at the border? Well, the reason is the US inspectors find problems that the Canadian inspectors don’t. For a while we were exporting horse as pork!
‘And more worrying for someone like me is that the coatings industry has been working with the RCC for some time to try and come up with harmonized methodologies for assessing risk of things like biocides and other additives, preservatives and paint and other coatings. And in 2017 Canada reassessed a certain biocide that was fine in a lot of products. But as a preservative in coatings it can get airborne and poses significant risks to workers applying the coatings. And so it was banned. But three years later, just last November, Canada dropped the ban. It reversed itself and said, well, we’re just going to go with what the US is doing right now, which is to allow the product in coatings. But now we have Canadian workers who are less safe than they would have been based on the government’s own scientific assessment and decision, simply because we’re going to be cooperating with the US as a higher priority than protecting Canadian workers.
Voluntary vs. hard-wired mechanisms
There are mandates that the government can give to regulators to cooperate with each other. It’s voluntary in the sense that at the government level, at the state level, they can choose which areas they want to cooperate in. But once your government decides an area is a priority for harmonization or cooperation, it won’t feel as voluntary. It’s really a methodology difference. Let’s regulate the regulators kind of approach. Let’s set a framework at the domestic level for what is required of them. So we have a cabinet directive on regulation which is constantly being modernized to add things like a Red Tape Reduction Act, where for every new rule you have to think about one old rule to get rid of. You have to think what is the cumulative burden of all of our regulations and how do we constantly notch it down?
‘So there are these kinds of top-down measures that are there to discipline our environmental regulators, our public health regulators. And I think that’s the strategy that is reflected in the OECD guidelines, that will require regulators to consider economic growth when they make decisions.
So they call it a so-called economic mandate for regulators. This is designed to make them think that their goal is also to consider the economic future of this country, think about the competitiveness of industry.’
Key takeaway for regulators
‘There needs to be a little bit of pushback on some of these direct regulatory directives coming down, which are going in one direction, that take the regulatory profession away from any kind of democratic accountability, really limit what their jobs are, really kind of make it more for a robotic exercise than something that is based on the needs of our country or the needs of workers in this country. I think we need to pay more attention to these new trade deals that are coming out of these new chapters in the trade deals. We’ve seen the US negotiating similar chapters with Brazil, Ecuador, and the UK. It’s going to keep snowballing.’
You can follow Stuart on Twitter under StuJT.
If you want to further explore some of the concepts raised in this podcast you might like the podcast and article I did with Chris Webb on ‘Red Tape and Beige Tape: Is regulation a dead wegith on the economy‘ or on the ‘Challenge of Leading a Regulator‘.
|Role:||Director of Trade and Investment|
|Organisation:||Canadian Center for Policy Alternatives|
|Best Quote:||“There needs to be a little bit of pushback on some of these direct regulatory directives coming down, which are going in one direction, that take the regulatory profession away from any kind of democratic accountability”|
|More Info:||Stuart on Twitter|