The Obama Administration received little media attention when it released an Executive Order on Promoting International Regulatory Cooperation in trade. It is an extension of the January 2011 Executive Order on Improving Regulation and Regulatory Review that focused on domestic issues. President Obama’s Council on Jobs and Competiveness, chaired by GE Chairman Jeffery Immelt, is credited with coming up with the idea to promote exports, growth, and job creation by eliminating unnecessary regulatory differences among key trading nations.
Cass Sunstein, administrator of the White House Office of Information and Regulatory Affairs (OIRA), writing in the Wall Street Journal said the order “will not undermine American laws or compromise our national prerogatives.” His office will lead an interagency working group that will establish a process for engaging businesses and the public on how best to reduce unnecessary trade costs.
Cooperation on international regulations is nothing new for the U.S. or the Obama Administration. In 1998 the U.S. and EU established the Transatlantic Economic Partnership. Under that umbrella, trade regulatory issues are addressed through the High-Level Regulatory Cooperation Forum formed in 2005 and the Transatlantic Economic Council formed in 2007. At the North American summit in early April, President Obama, Canadian Prime Minister Harper and Mexican President Calderon agreed to simplify regulations and eliminate ones that are no longer needed as a way to improve efficiencies, reduce costs and expand trade. They have formed High Level Regulatory Cooperation Councils to pursue those efforts
This initiative takes the regulatory reform agenda to a far higher level. According to OIRA Administrator Sunstein, the U.S. Department of Labor has harmonized hazardous warning labels for chemicals with those in other countries providing projected savings of over $475 million per year for U.S. companies. Two-way trade in chemicals was $400 billion for the U.S. in 2011. U.S. agriculture has a stake in this with $5.2 billion of agricultural pesticides and $18.6 billion of fertilizer moving across U.S. international borders each year with some companies operating in all three NAFTA countries.
There is a long line of public groups and private companies promoting plans to reduce regulations in trade. For example, there is the United Nations Sub-committee of Experts on the Globally Harmonized System of Classification and Labeling of Chemicals (UNSCEGHS for short). They are having their 23rd biennial session July 4-6 in Geneva, Switzerland. U.S. representation is coordinated by the Occupational Safety and Health Administration of the Department of Labor with input from the Department of Transportation, the Environmental Protection Agency and the Consumer Product Safety Commission. They are gathering public input in preparation for the meeting.
If there is to be systemic harmonization throughout the many areas of trade there needs to be someone to speak directly on behalf of the President, the Administration and affected industries. OIRA has developed somewhat of a reputation for doing just that. Disparate groups have to be energized to push ahead on harmonization efforts.
OIRA is not known for having a wealth of expertise on trade policy issues, but Jeff Weiss, the Associate Administrator and leader of initiatives on trade policy issues, previously served as a senior negotiator on regulatory, standards and conformance matters for the Office of the U.S. Trade Representative (USTR). He has worked on Technical Barriers to Trade, the Doha Round Non-Agricultural Market Access and the Trans-Pacific Partnership talks. He appears to be uniquely qualified to understand the task at hand.
The biggest challenge is that not everyone in an industry in the U.S. and abroad is interested in simplifying regulations and reducing costs. It’s called protectionism. By keeping warning labels just slightly different, potential competitors can be excluded from the market unless they are willing to adsorb higher costs for alterative labels.
Negotiators also have to accept that several methods of labeling may give equal outcome, but only one can be chosen if there is to be harmonization across countries. Having a U.S. approach used for one product may require that another be allowed to lead on a product where the U.S. also has a strong position. The Congress and special interest groups will need to refrain from micro-managing as trade-offs are made across several industries.
Some industrial products are only produced by a few countries because of economies of scale and have been produced for many years, like portions of the chemical industry referred to by Administrator Sunstein. Almost defacto private standards have developed and a common system will be relatively easy to achieve.
In contrast, agriculture is an industry still expanding with diverse production over a wide range of countries. Local regulators can keep imports out with any number of narrowly defined requirements that are hard to overcome, especially for small markets. Conditions are getting better in many developed and advanced developing countries as noted recently with the muted response to the finding of a dairy cow in the U.S. with atypical BSE. But other disagreements on biotechnology and pathogen reduction treatments for poultry continue to drag on for years.
Import regulations often serve the same import barrier function that high tariffs did 20-30 years ago. Two activities are required for change. Staffs in some agency in the government and in affected companies have to be familiar enough to argue the details about harmonization. That agency could be OIRA with support from USDA, USTR and other who have expertise in those areas as called for by the executive order. Then someone high in the Obama Administration has to help the President apply pressure within the U.S. government and in other countries to actually cause change. That kind of work doesn’t win many votes at election time, but will result in efficiency gains and put extra money in the hands of U.S. producers and consumers without sacrificing public health and safety.
Ross Korves is an Economic Policy Analyst with Truth About Trade and Technology