One of the goals of the Transatlantic Trade and Investment Partnership (TIPP) talks between the U.S. and the EU is to reduce trade barriers through regulatory cooperation to increase trade. The concept of regulatory harmonization for agricultural products where there is one set of regulation for both economies has led some EU politicians to assume that U.S. safety standards would prevail and standards in the EU would be lower than before the agreement. This led the Wall Street Journal to ask, and answer, in a recent editorial, “How do you derail a free-trade agreement between Europe and the U.S. that could boost growth on both sides of the Atlantic by an estimated $100 billion annually? Well, fear-mongering might work.”
Another approach to address the regulatory cooperation issue is through regulatory equivalence. Each side keeps its regulations in place, but the U.S. accepts the EU food safety standards for exports into the U.S. and the EU accepts the US standards for U.S. shipments into the EU. Consumers on both sides of the Atlantic would have the final say and could choose to not buy the imported products.
That is already being done with some agricultural trade regulations. The U.S. and Korea just signed an equivalence agreement for trade in certain processed organic products. Processed organic products certified in the U.S. or Korea can now be labeled as organic in either country. U.S. and Korean technical experts conducted on-site audits to ensure that quality control measures, certification requirements, and labeling practices were compatible. Products can carry the USDA organic seal and the organic seal of Korea’s Ministry of Agriculture, Food and Rural Affairs. Process products covered include condiments, cereal, baby food, frozen meals, and milk, plus other products. The U.S. has similar equivalency arrangements with Canada, the EU and Japan.
According to an analysis by Inside U.S. Trade, the EU Commission draft TTIP chapter on sanitary and phytosanitary (SPS) measures includes “how regulators on either side may determine the ‘equivalency’ of their food safety regimes and guarantee that the EU will be treated as a single entity in any such determinations.” The guidelines are general, although it is possible that the EU would seek specific language for products like dairy and beef. The EU has previously expressed frustration about a cumbersome and opaque U.S. process of determining equivalency. The EU also objects to U.S. regulators doing equivalency on member states rather than EU-wide.
According to Inside U.S. Trade, EU dairy exporters want the U.S. Food and Drug Administration (FDA) to recognize their food safety rules and inspection systems (which are written into EU law) as equivalent to have a “Grade A” designation for fresh milk products like yogurt without making major investments to conform to U.S. rules.
The EU beef industry says the problem of a non-transparent process is even more of a problem for them. USDA announced last year it would modify beef import guidelines regarding risks for BSE that effectively removed a decade-old ban on beef imports from the EU. The BSE rule was only the first step in the USDA process, and the Netherlands and Ireland who have tried to follow through by applying to renew equivalency determinations have not been cleared to export beef.
The opportunity to make a deal with the EU on equivalency on agricultural products is clearly present. Without seeing the SPS chapter, the exact nature of a deal is not known. The U.S. Trade Representative’s (USTR) Office needs to have a counter-offer in hand when the EU chapter is released.
The key difference between regulatory harmonization and regulatory equivalence is that equivalence does not require either party to change its food health and safety standards which have been approved by the appropriate legislative and administrative agencies. Some EU anti-trade groups have not recognized that difference. The EU has a process for evaluating food safety concerns and has followed it.
This puts the burden on importing regulatory agencies to determine what regulations are equivalent to those followed by domestic producers. In general those requirements would have to be consistent with current law while ensuring that those systems are at least as effective at protecting human health as current approaches. For example, in the U.S. the Food Safety Inspection Service of USDA insures that meat, poultry, and egg products imported to the U.S. are produced under standards equivalent to U.S. inspection standards, and facilitates the certification of exported goods.
Issues like biotech crops, beef produced with added hormones and chicken treated with chlorine antimicrobial washes are not going away. Unless there is a breakthrough, there will be increasing pressures to drop regulatory cooperation on agricultural issues from the talks. EU Trade Commissioner Karel De Gucht said he personally did not support the idea, but did not rule out the possibility that the incoming EU Commission might be open to that approach.
USTR Michael Froman cast the regulatory cooperation effort in the right light when he said at the close of the sixth round of TTIP talks last week, “Opportunities for a major upgrade of one’s biggest economic relationship do not come along often, and we cannot afford to squander this one. I applaud the efforts of the teams for exploring creative ways to open markets to support job creation, growth and competitiveness, including by bridging divergences in our regulatory regimes, without compromising the level of health, safety and other regulations our people have come to expect.”
Regulatory issues have limited U.S.-EU agricultural trade for 30 years. An opportunity to make changes across all of agriculture may not again be available for many years. Regulatory equivalence should be used to the fullest extent possible to bridge the regulatory divergences referred to by USTR Froman without getting distracted by voices on both sides of the Atlantic more interested in sinking the talks rather than seeking a way out of the regulatory wilderness.