[Senate Hearing 108-330]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-330
 
               U.S.-EU COOPERATION ON REGULATORY AFFAIRS

=======================================================================

                                HEARING

                               BEFORE THE

                    SUBCOMMITTEE ON EUROPEAN AFFAIRS

                                 OF THE

                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 16, 2003

                               __________

       Printed for the use of the Committee on Foreign Relations


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                     COMMITTEE ON FOREIGN RELATIONS

                  RICHARD G. LUGAR, Indiana, Chairman

CHUCK HAGEL, Nebraska                JOSEPH R. BIDEN, Jr., Delaware
LINCOLN CHAFEE, Rhode Island         PAUL S. SARBANES, Maryland
GEORGE ALLEN, Virginia               CHRISTOPHER J. DODD, Connecticut
SAM BROWNBACK, Kansas                JOHN F. KERRY, Massachusetts
MICHAEL B. ENZI, Wyoming             RUSSELL D. FEINGOLD, Wisconsin
GEORGE V. VOINOVICH, Ohio            BARBARA BOXER, California
LAMAR ALEXANDER, Tennessee           BILL NELSON, Florida
NORM COLEMAN, Minnesota              JOHN D. ROCKEFELLER IV, West 
JOHN E. SUNUNU, New Hampshire            Virginia
                                     JON S. CORZINE, New Jersey

                 Kenneth A. Myers, Jr., Staff Director
              Antony J. Blinken, Democratic Staff Director

                                 ------                                

                    SUBCOMMITTEE ON EUROPEAN AFFAIRS

                    GEORGE ALLEN, Virginia, Chairman

GEORGE V. VOINOVICH, Ohio            JOSEPH R. BIDEN, Jr., Delaware
CHUCK HAGEL, Nebraska                PAUL S. SARBANES, Maryland
JOHN E. SUNUNU, New Hampshire        CHRISTOPHER J. DODD, Connecticut
LINCOLN CHAFEE, Rhode Island         JOHN F. KERRY, Massachusetts

                                  (ii)




                            C O N T E N T S

                              ----------                              
                                                                   Page

Allen, Hon. George, U.S. Senator from Virginia...................     1

Depayre, Gerard, Deputy Head of Delegation, European Commission 
  to the United States, Washington, D.C..........................    20

Eizenstat, Hon. Stuart, Co-Chair, European-American Business 
  Council, Washington, D.C.......................................    23
    Prepared statement...........................................    28

Farmer, Thomas L., General Counsel, American Bankers Association, 
  Washington, D.C................................................    39
    Prepared statement...........................................    40

Litman, Gary, Vice President Europe and Eurasia, U.S. Chamber of 
  Commerce, Washington, D.C......................................    32
    Prepared statement...........................................    35

Ries, Charles, Principal Deputy Assistant Secretary, Bureau of 
  European and Eurasian Affairs, U.S. Department of State........     3
    Prepared statement...........................................     6

Stewart, Eric, Deputy Assistant Secretary for Europe, U.S. 
  Department of Commerce.........................................    11
    Prepared statement...........................................    14


              Additional Material Submitted for the Record

Statement Submitted for the Record by the American Chamber of 
  Commerce to the European Union (AMCHAM EU).....................    49

Statement Submitted for the Record by the Chamber of Commerce of 
  the United States of America...................................    51

Statement Submitted for the Record by the National Electrical 
  Manufacturers Association......................................    54
Statement Submitted for the Record by 3M Corporation.............    55

                                 (iii)




                          U.S.-EU COOPERATION
                         ON REGULATORY AFFAIRS

                              ----------                              


                       THURSDAY, OCTOBER 16, 2003

                               U.S. Senate,
                    Committee on Foreign Relations,
                          Subcommittee on European Affairs,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:28 p.m., in 
room SD-419, Dirksen Senate Office Building, Hon. George Allen, 
presiding.
    Present: Senator Allen.

            OPENING STATEMENT OF HON. GEORGE ALLEN,
                   U.S. SENATOR FROM VIRGINIA

    Senator Allen. I call this hearing of the Subcommittee on 
European Affairs to order. I want to thank all of our witnesses 
for appearing before the committee this afternoon.
    We are here today, ladies and gentlemen, to explore the 
importance of cooperation between the United States and the 
European Union on regulatory affairs, and the impact that this 
has and will continue to have on transatlantic trade and 
investment.
    The flow of transatlantic trade and investments between the 
United States and the European Union is the largest clearly in 
the world, amounting to approximately $1 billion every day. The 
European Union and the United States together account for about 
37 percent of the value of global trade in goods. When you look 
at global trade in services, 45 percent of the global trade in 
services are between the European Union and the United States. 
Now, this is unique not only because of its size and complexity 
but because it's a relationship that truly benefits both sides 
immensely. There are tens of thousands or American and European 
citizens that go to work every day to businesses which are a 
result of our bilateral trade and this investment relationship.
    Having served as Governor of Virginia going on trade 
missions, I am well aware of the tremendous numbers of jobs in 
just the Commonwealth of Virginia that are from companies from 
Great Britain, Germany, France, Italy, Denmark, Sweden, The 
Netherlands, Austria and other European countries, and I know 
the number of American businesses that go over to Europe and 
have a presence in those various countries as well.
    The key element in making sure that this relationship stays 
positive and hopefully growing is regulatory cooperation, 
making an effort to work with or consult with each other prior 
to new regulations becoming effective or going into law. Both 
the United States and the European economies are very dynamic, 
they are fast moving, and changes that are enacted in either 
regulatory regime or system without prior participation and 
consultation could result in lost commerce and jobs.
    Though the markets are more intertwined than ever before, 
we nonetheless have disputes. I need not hammer on each and 
every one of them, but they are from within the areas from 
everything in agriculture, genetically modified foods to how we 
raise our cattle to a variety of other issues. All of this 
makes it important that we do consult with one another.
    I do think a positive step was taken in June of this year 
at the U.S.-EU summit where the United States and Europe agreed 
to start to increase cooperation on new regulatory issues and 
look for ways to coordinate rulemaking between the U.S. and the 
EU agencies. Not all of our government agencies have bilateral 
mechanisms for consultation on these regulatory issues, but 
there are numerous bilateral private sector groups promoting 
cooperation, and while our agencies, the government agencies, 
are working to coordinate regulatory policymaking, it has been 
my view that in some cases the corporate sector on both sides 
has led the way.
    Take for example the automobile industry. Both United 
States and European auto makers have been successful in selling 
their vehicles around the world and in each others markets, 
because they consider regulatory consultation a necessity for 
their own survival, their market share and for their growth. 
For the auto industry, international regulatory consultation is 
not an afterthought, it is a priority, and now that we are 
seeing the European Union grow from 15 to 25 countries, this 
cooperation is going to be more important than ever.
    There is no question this is going to open up new 
opportunities for people in central Europe, what some would 
call eastern Europe. For the central European countries it's 
just going to be greater opportunity for us to have our goods 
and services there as well as theirs getting into our market, 
or will it constrict it. So the cooperation with the current 15 
is important, but in fact it's even going to be more important 
in the future, if history is any lesson.
    Now, there are certain regulatory policies that seem to 
evade consensus, and continue to cost both valuable man-hours 
and revenue to companies in both the United States and Europe.
    Probably one of the most recognized and discussed are the 
environmental standards the United States and the United 
Nations have signed for products going to market. While it's 
important to note that the directive has yet to be formally 
released, many U.S. and European chemical industries have 
expressed grave concern with the proposed EU chemical 
directive. And there are U.S. companies who do business there, 
and I will not mention the companies so they get dragged into 
it, but there is the strong presence of a German company in the 
Commonwealth of Virginia who is involved in the chemical 
business, and they see the concerns.
    So it's not just one side or the other of the Atlantic, it 
has an impact on both sides. And depending on the final 
version, this directive could have a massive adverse 
ramification both leading to the loss of jobs and revenue.
    I have other things I will put in the record, but the point 
is, we have had impressive cooperation in recent years, but, 
it's very obvious, I like to be positive and optimistic, but 
let's be also forthright and realize we have some challenges as 
we go forward to streamline trade and investment regulations 
and opportunities across the Atlantic.
    As the European Union countries and that Union grows, they 
are going to play an even more prominent role in these issues. 
I strongly advise our government officials to be involved. 
That's one of the reasons I wanted to have this hearing. And I 
certainly wanted to say to our friends, truly, our friends and 
allies, people who share our love of freedom and great 
enterprise to recognize that it is beneficial for the people of 
both the United States and the European Union to have the 
opportunities of prosperity, to goods and services, and to a 
better quality of life that comes from cooperation and working 
together.
    With that, I want to thank all our witnesses for being 
here, and I will introduce the first panel and each panel as 
the individuals come forth.
    The subcommittee has invited representatives from U.S. 
Government agencies and private sector representatives to 
discuss their perspectives on U.S.-EU regulatory cooperation 
and to offer their insights and suggestions for methods of 
increasing cooperation in the future so that we can have more 
investment, more trade, and the bottom line is more jobs for 
people in both the EU and the U.S.
    On the first panel, from the United States Department of 
Commerce, we're pleased to have Deputy Secretary for Europe, 
Eric Stewart with us. Thank you for being with us. The 
Department of Commerce is on the front line in helping to 
promote direct trade flows between Europe and America, and will 
provide unique insights on how regulatory cooperation might 
facilitate trade in a number of markets.
    Charles Ries is the Principal Deputy Assistant Secretary 
for European and Eurasian Affairs. He can give us a historical 
perspective on the past U.S.-EU efforts toward cooperation, 
providing examples of recent successful collaborations. The 
resolution of the dispute concerning the import of Spanish 
clementines into the U.S. market might provide insight into how 
similar disputes might be approached in the future.
    With that, I will also put a personal note. The rest of the 
family likes those Spanish clementines. I prefer navel oranges 
from California or Florida, and Ruby Red grapefruits from 
Texas, but in my family, children like those clementines, so 
they were happy by your good work, on a personal note.
    Mr. Ries, we will hear from you first.

     STATEMENT OF CHARLES RIES, PRINCIPAL DEPUTY ASSISTANT 
   SECRETARY, BUREAU OF EUROPEAN AND EURASIAN AFFAIRS, U.S. 
                      DEPARTMENT OF STATE

    Mr. Ries. Thank you, Mr. Chairman. I welcome this 
opportunity to appear before you today to describe the trends 
in regulatory cooperation between the U.S. and the European 
Union, and we appreciate very much your interest in this 
important topic.
    Mr. Chairman, I'm pleased to report that the U.S. 
Government and the EU are making real progress in making our 
regulatory approaches more compatible. This progress should 
especially encourage us when we consider the challenges.
    Discussions in the regulatory field often involve multiple 
agencies on both sides of the Atlantic, each with their own 
responsibilities and mandates. To complicate matters further, 
the U.S. and EU approach the drafting and implementation of 
regulations in different ways, reflecting our dissimilar 
government structures and administrative traditions.
    Aware of these philosophical and structural differences, 
the U.S. and EU leaders have established a number of mechanisms 
for addressing regulatory issues. The new Transatlantic Agenda 
of 1995 established a framework of regular contact and a 
commitment to common action. It recognized that regulatory 
issues in particular need to be dealt with early. The new 
Transatlantic Agenda also recognized the importance of industry 
and nongovernmental organization involvement.
    The 1998 Transatlantic Economic Partnership resulted in 
guidelines on regulatory cooperation and transparency that 
further encouraged both sides to exchange expertise, 
information and ideas. Most recently, as you mentioned, U.S. 
and EU leaders agreed upon a positive economic agenda at the 
last summit, comprising regulatory cooperation projects in five 
areas and an informal dialog on financial markets.
    In line with these policy declarations, U.S. and EU 
regulators have launched a number of informal and innovative 
initiatives. Just last month, for example, the FDA and its 
European counterpart, the European Agency for the Evaluation of 
Medicinal Products, agreed to share nonpublic information in 
the area of pharmaceuticals. Our National Highway Traffic 
Safety Administration and its European counterpart recently 
agreed to a similar information exchange arrangement.
    Regulators reached these arrangements without creating any 
kind of new international legal obligations. But while these 
arrangements are informal in nature, they help ensure that 
regulators operate from the same facts and are likely to foster 
common regulatory approaches.
    Mr. Chairman, let me focus this afternoon on just two 
current issues in the U.S. regulatory arena, given our 
shortness of time, the food safety provisions of the U.S. 
Bioterrorism Act and the EU so-called REACH chemical directive 
that you mentioned in your opening comment.
    The European Union, along with our other key trading 
partners, has had a key interest in the establishment of the 
new FDA food safety requirements designed to reduce the risk of 
bioterrorism. Twice during the public comment period, the 
European Commission submitted extensive comments on behalf of 
the EU regarding potential effects of the proposed new 
regulations. We welcomed this input. As published last week, 
the FDA's interim final regulations were modified to make them 
less burdensome on trade, in part in response to the comments 
received from the EU and our other trading partners. In this 
case, U.S.-EU cooperation resulted in a better outcome for both 
sides.
    For its part, the European Commission presently is 
considering new legislation that would impose extensive testing 
and approval requirements on tens of thousands of chemicals 
produced in or traded with the EU. The U.S. was one of many 
interested parties that viewed the so-called new REACH 
chemicals regulation package as overly costly, bureaucratic and 
burdensome, and ultimately unworkable, as you mentioned.
    In response to the concerns expressed by many, including 
us, over the lack of transparency during the policy development 
phase, the Commission recently posted the draft chemicals 
regulation on the Internet and accepted public comment for an 
8-week period. More than 6,400 organizations and individuals 
submitted comments.
    As a result, we understand the Commission is preparing a 
more limited proposal that we hope will reflect the concerns we 
and others expressed. We hope that this public comment process 
is the beginning of a trend. We would like to see this greater 
spirit of transparency and inclusiveness structurally built in 
to the EU regulatory framework so that each new regulation also 
benefits from meaningful stakeholder input.
    As we work more and more with the EU on regulatory issues 
such as these, we discover ways in which we could promote 
regulatory cooperation and minimize regulatory-based trade 
disturbances. Let me suggest a few elements of our strategy.
    First, we believe in patient engagement and sustained 
public diplomacy. We work best when we engage the EU on 
multiple levels. In this spirit, our embassies' economic, 
commercial and public diplomacy officers work hard to explain 
our point of view to all interested parties in the EU and in 
Europe as a whole. Frequent working-level discussions between 
U.S. and EU regulators play an important part.
    Second, we have discovered that multilateral approaches 
sometimes can be used to resolve regulatory issues. For 
example, OECD regulatory reform reviews and WTO committee 
meetings provide the U.S. with additional fora in which to work 
with the EU and other interested parties on regulatory issues. 
The International Civil Aviation Organization (ICAO) played a 
similar role a couple of years ago in finding a way to resolve 
our concerns about the EU's hush kit regulations.
    Third, public-private coordination enhances our chances of 
success. The support of business, consumer and environmental 
groups benefits us in government tremendously. Our 
transatlantic business and consumer dialogues play an important 
role in this as well.
    The final key to our success rests on the principle of 
timely intervention. When we act proactively rather than 
reactively we have a much better chance of ending up with a 
positive outcome.
    Our action plan, therefore, includes the following: We are 
continuing to press the EU for more meaningful transparency and 
stakeholder access. We are promoting informal information 
exchanges and dialogs. We are encouraging interested parties on 
both sides of the Atlantic to meet regularly just to discuss 
the hot issues. And finally, we are enhancing interagency 
cooperation among U.S. Government agencies that work on U.S. 
regulatory issues.
    A colleague of mine likes to say about the transatlantic 
partnership, ``what defines us makes headlines; what unites us 
makes progress.'' The U.S. and the EU don't receive enough 
credit for our collaborative effort at regulatory cooperation.
    We both recognize that if we reach agreement on these 
important issues, everyone wins. If we don't, everyone loses.
    A more prosperous world community, therefore, hinges on the 
continued success of our partnership.
    Thank you, Mr. Chairman.

    [The prepared statement of Mr. Ries follows:]

                 Prepared Statement of Charles P. Ries

    Thank you, Mr. Chairman. I welcome this opportunity to discuss with 
the subcommittee cooperation between the U.S. and the EU on regulatory 
affairs. I'm sure we all appreciate the relevance and impact of this 
issue on the competitiveness of our businesses that operate globally, 
and on the safety of the products that we use here at home. We at the 
State Department appreciate your attention to this ever-pressing issue.
    We in the U.S. government, along with our colleagues in the EU, 
have made great progress in reconciling our regulatory approaches. We 
too often overlook the progress that we've made when we focus our 
attention on the issues that still divide us. Certainly, we must be 
realistic in our appraisal of the transatlantic regulatory environment, 
and we must press the EU for more openness, flexibility, and progress 
on the issues of contention between us. However, we should also 
appreciate how much our common resolve has achieved.
    Our continuing progress on regulatory convergence promises 
significant benefits not only to the U.S. and EU economies, but to the 
world economy as well. We know that more closely aligned regulatory 
systems benefit both of our economies, by facilitating trade and 
ensuring robust protection of health, environment, and safety. In 
addition, however, since U.S.-EU regulatory cooperation sets the 
standard for the rest of the world, the more regulatory convergence we 
achieve, the more we facilitate trade among all nations. Clearly, this 
issue affects trade on a much larger scale than many would believe.

                      THE CHALLENGE OF COOPERATION

    All this having been said, the U.S. and the EU follow different 
regulatory approaches, and we must also acknowledge how plainly 
difficult and elusive regulatory convergence can be. Negotiations 
between the U.S. and the EU often involve multiple agencies on both 
sides, each with their own responsibilities and mandates. To complicate 
matters further, the U.S. and the EU approach the drafting and 
implementation of regulation in differing ways, reflecting our 
different governmental structures and administrative traditions.
    The EU generally relies on a more ``prescriptive'' approach to 
regulation, by which its regulators inform industry exactly how it can 
conform to rules. Additionally, EU regulators often base regulations on 
their controversial ``precautionary principle,'' an approach we believe 
can improperly overlook relevant scientific evidence and can take risk-
avoidance efforts to an extreme.
    We in the U.S. depend on a more ``outcome-driven'' approach, by 
which our regulators specify certain performance requirements while 
granting industry considerable latitude in how to achieve them. As much 
as possible, our decisions are ``science-based'' and are the products 
of sound risk analysis.
    In addition, U.S. and EU regulations must pass through different 
review processes. The EU more frequently requires endorsement at the 
political level by ministers for regulatory decisions, while we rely on 
independent regulators and regulatory agencies removed from the 
political process. Our system, based on public notice and comment, 
provides a transparent process open to stakeholder participation.
    We obviously believe that our regulatory approach works better in 
the long run because it tends to product more flexible outcomes based 
on more appropriate risk management analyses. These outcomes, in turn, 
are better able to adjust and adapt to changing technologies and levels 
of knowledge. Our different frameworks for drafting, approving, and 
implementing regulation, can create structural obstacles in our efforts 
to promote regulatory cooperation. On occasion, it can also lead to 
trade friction and differing approaches in multilateral negotiations.

                  THE HISTORICAL BASIS FOR COOPERATION

    In the context of these differences in approach and structure, U.S. 
and EU leaders have established a number of mechanisms for addressing 
regulatory issues. The New Transatlantic Agenda of 1995 established a 
procedure for governments and industry to deal with regulatory issues 
before they became hot-button issues. Among its many achievements, the 
NTA set up several dialogues between constituencies on both sides of 
the Atlantic. Two of these, the Transatlantic Consumer Dialogue (TACD) 
and the Transatlantic Business Dialogue (TABD), have actively proposed 
areas for regulatory cooperation. These Dialogues can help develop a 
common recommendation by their constituents and then press both the 
Commission and U.S. authorities to take those recommendations on board.
    The U.S. and the EU have launched a number of initiatives related 
to regulatory cooperation. For example, we have reached a number of 
Mutual Recognition Agreements, or MRAs, under which U.S. exporters of 
designated products can conduct testing in the U.S. according to EU 
requirements, and the reciprocal being true for EU exporters. The 1998 
Transatlantic Economic Partnership (TEP) produced ``Guidelines on 
Regulatory Cooperation and Transparency,'' which further encouraged 
both sides to exchange expertise, information, and ideas on alternative 
approaches to regulation. Most recently, at the 2002 U.S.-EU summit, 
U.S. and EU leaders introduced the Positive Economic Agenda (PEA), 
which launched regulatory cooperation projects in five areas 
(cosmetics, auto safety, nutritional labeling, food additives, and 
metrology) and endorsed an informal dialogue on financial markets, led 
by Treasury with the participation of U.S. financial regulators, which 
builds on long-standing channels of cooperation and communication. 
Pursuing these arrangements has contributed to a formal, regulatory 
structure for us to identify and address potential regulatory 
challenges at an early stage.

                    INNOVATIVE, INFORMAL APPROACHES

    Out of these formal approaches, U.S. and EU regulators have 
launched a number of informal initiatives to strengthen transatlantic 
cooperation. We see these informal arrangements as promising examples 
of innovation in the spirit of the transatlantic partnership.
    Just last month, for instance, the FDA and the EMEA, the European 
Agency for the Evaluation of Medicinal Products, agreed to share non-
public (business confidential) information in the area of 
pharmaceuticals. In this enhanced spirit of partnership, both sides 
will share documentation on proposed regulations, position papers, and 
safety and test results. The potential benefit to consumers, producers, 
and regulators is significant.
    In another example of transatlantic cooperation, our National 
Highway Traffic Safety Administration (NHTSA) and Europe's Directorate 
General for Enterprise have reached a cooperative arrangement in the 
field of motor vehicle safety. This June, the two agencies agreed to 
hold annual meetings, share and discuss R&D plans, conduct joint 
analyses, and exchange other forms of information. This arrangement, 
like the one on pharmaceutical information exchange, rests on the 
simple principle that more information leads to better regulation.
    While both of these arrangements were created in the spirit of the 
NTA and the TEP Guidelines on Regulatory Cooperation and Transparency, 
neither emerged directly from, nor resulted in, a new binding 
agreement. In fact, regulators on both sides reached these arrangements 
without ``creating any kind of international legal obligations on the 
part of the U.S., the European Commission, or the European Community.'' 
\1\ While these arrangements are therefore informal in nature, they 
enhance regulatory cooperation between the parties involved to an 
unprecedented degree. As U.S. and EU officials exchange information, 
ideas, and opinions, they build trust and confidence, and, as a result, 
make more informed and coordinated decisions. In promoting trust, 
transparency, and more informed regulation, these arrangements 
demonstrate the effectiveness and desirability of working-level 
discussions between the U.S. and the EU.
---------------------------------------------------------------------------
    \1\ ``Exchange of letters between the United States of American and 
the European Commission relating to regulatory co-operation in the 
field of motor vehicle safety,'' from Paul Weissenberg, Director of DG 
Enterprise F, to Mr. Jeffrey W. Runge , MD, Administrator of the 
National Highway Traffic Safety Administration, June 13 2003.
---------------------------------------------------------------------------
    We can also avert regulatory problems before they occur when we 
consult cooperatively in areas in which the EU is currently expanding 
and building its regulatory scope. An example of this can be seen in 
the creation of the new EU aviation safety agency, EASA (European 
Aviation Safety Agency). The FAA worked closely with its EU 
counterparts as the proposal for EASA made its way through the European 
legislative process. FAA officials continue to work closely with the 
Commission to provide a smooth transition from bilateral agreements 
with member states to a comprehensive U.S. agreement with the EU as a 
whole for those areas now under EASA oversight, which will ensure 
uninterrupted transatlantic safety oversight of air-related products 
and services.
    We encourage U.S. and EU regulators to seek cooperative 
arrangements along informal lines on other issues. All of these 
informal arrangements received a significant boost thanks to a recent 
opinion by the Advocate General of the European Court of Justice 
defending the constitutionality of TEP guidelines and effectively 
encouraging the United States and the European Commission to consult 
each other on proposed EU regulations before they receive the European 
Council's formal approval.

                    RECENT AND CURRENT MAJOR ISSUES

    I will now turn my discussion to recent and current ``major 
issues'' in the U.S.-EU regulatory arena. I will discuss the evolution 
of the U.S. ban on the import of Spanish clementines, the EU's e-
commerce VAT tax, our recent bio-terror food safety initiative, and the 
proposed EU Chemicals Directive known as ``REACH.'' I chose these four 
examples not only because of their recent prominence, but also because 
they show how consensus can be reached over even the most contentious 
of issues.

Spanish Clementines
    The dispute arose when the U.S. banned imports of Spanish 
clementines due to phytosanitary concerns. Domestic citrus growers 
applauded the decision, citing worries about the possible spread of the 
Mediterranean fruit fly to the U.S. through contaminated shipments of 
clementines. On the other hand, the Spanish government protested on 
behalf of the Spanish growers who lost all access to our market.
    Fortunately, we were able to reach a solution. By October of 2002, 
we were able to agree with Spain on a new inspection and quarantine 
regime to decrease the likelihood of contaminated shipments of 
clementines from reaching U.S. soil and accordingly we were able to 
lift most of the earlier import restrictions. We at State helped 
resolve the issue by working closely with all parties involved: the 
USDA, the lead regulatory agency on the issue; the OMB, the rule making 
body; the Spanish Government; the European Commission; and domestic 
U.S. citrus growers.

E-Commerce VAT/Internet Taxation
    On July 1st of this year, the EU began requiring non-EU companies 
to collect VAT taxes on digitally downloadable retail products sold 
over the Internet to European customers. The new EU directive raises 
potential national treatment concerns on our end, since it could 
require U.S. companies to collect VAT taxes at differing rates than 
their EU-based competitors in some cases. It could also impose 
comparatively higher administrative costs on U.S. businesses. We also 
felt that the EU passed the new rules prematurely and differing 
implementation at member state level created uncertainty and confusion 
for U.S. businesses. Unfortunately, to date the EU has not been able to 
re-open the difficult internal compromise that produced this VAT tax 
regime. However, some large firms, including AOL, have successfully 
adapted to the new tax by strategic relocations of their European 
headquarters. It is more uncertain how the tax will impact small U.S. 
enterprises.

Bioterrorism/Food Safety Regulations
    Food safety is a top priority of the U.S. government, and the 
events of September 11, 2001, highlighted the need to enhance the 
security of the U.S. food supply. Just last week, the Food and Drug 
Administration announced interim final regulations for two provisions 
of the Bioterrorism Act.
    The European Union, along with other key trading partners, has had 
a keen interest in the development of these bioterrorism regulations. 
Twice during the public comment period, the EC submitted extensive 
comments regarding the potential effects of our proposed regulations on 
US-EU trade. We welcomed this input.
    As published, the interim final regulations have been significantly 
modified to make them less burdensome on trade, in part in response to 
comments received from the EU and our other trading partners.
    We are pleased with this example of constructive cooperation in the 
development of our regulations, and are hopeful we will be able to 
contribute in a similar vein to the development of EC regulations that 
have an effect on our trade relationship.

Chemicals Directive (REACH)
    I'll now move on to discuss a current hot-button issue: the 
proposed REACH chemical directive that would overhaul EU chemical 
regulations. I'm going to dwell on this topic a little longer than the 
others because although we feel that much progress still remains to be 
made, we are encouraged by the Commission's recent openness on this 
issue.
    Earlier this year, the Commission unveiled its first draft proposal 
that, to put it plainly, was riddled with problems. First of all, it 
was grounded on their problematic ``precautionary principle'' instead 
of science-based risk assessment. As such, it effectively shifted the 
burden of proof for industry to unworkable levels. Just as importantly, 
it would have required testing all new and existing chemicals, even 
those that have been in everyday use for decades, and it would have 
imposed these testing requirements even on downstream users of 
chemicals. We were one of many interested parties that viewed the new 
regulations package as overly costly, burdensome, and bureaucratic--and 
ultimately unworkable. REACH has been controversial on both sides of 
the Atlantic, as the EU chemicals industry and the leaders of the UK, 
France, and Germany have cited similar concerns with the package.
    In response to criticism over the lack of transparency in 
development of the policy, the Commission broke new ground by posting 
the draft chemicals regulation on the Internet and accepting public 
comment for an eight-week period this summer. This move marked the 
Commission's first use of a public comment period for proposed 
regulation. When all was said and done, more than 6,400 organizations 
and individuals had submitted comments to the Commission. In response, 
the Commission is preparing a more limited proposal that we hope will 
reflect the concerns that we and others expressed.
    We hope that the Commission's public comment process on REACH 
signals the beginning of a trend. We believe that the Commission should 
ask for stakeholder input on all cases, not just in ones as highly 
visible as this one. We would like to see this greater spirit of 
transparency and inclusiveness structurally built-in to the EU 
regulatory framework, so that each new regulation also benefits from 
meaningful stakeholder input. Finally, while the continued use of the 
comment period would represent a significant step forward, the 
Commission should also consider other measures aimed at increased 
transparency so that the regulatory process can become more inclusive 
and less obscure.

           HOW ARE NEGOTIATORS INCORPORATING LESSONS LEARNED?

    The more we work with our European counterparts, the more we both 
learn how to improve our cooperation. Over the years, we've discovered 
a number of ways in which we in the U.S. can promote regulatory 
cooperation and minimize regulatory-based trade disturbances:
    The first key is a strategy of patient engagement.
    U.S. regulatory agencies have found that persistent, regular 
technical exchanges and dialogues at the working level with their 
counterparts in the Commission build rapport and resolve differences 
more effectively than high-profile diplomatic, political, or commercial 
efforts. In these working level talks, regulators compare their plans 
for future regulatory activities, allowing them to share criteria and 
methodologies at the inception stage.
    However, we should not restrict our engagement to the Commission 
alone. We should also continue to engage the EU on multiple levels, 
including the members of the Council, the European Parliament, and 
member state regulators.
    One key to success in this area turns on the important role played 
by our Embassies' economic officers. They are our representatives on 
the ground, providing a source of early warning on possible regulatory 
conflicts, while working hard to spread the U.S. point-of-view to all 
interested parties in Europe. All too often their hard work is 
overlooked.
    A second strategy for success relies on the effectiveness of our 
public diplomacy.
    Public diplomacy officers at our European embassies play a critical 
role in explaining the U.S. regulatory system and policy to EU opinion 
leaders and the public. At the U.S. Mission to the EU, for example, the 
public affairs office initiated a ``Dialog on Better Regulation'' 
between U.S. and EU policy makers and shapers. Four major conferences 
have already taken place in this ongoing series of two-day events that 
bring together high-level representatives from government and academia 
to engage in a candid dialog on regulatory issues.
    We need to do more to publicize instances when we cooperate on 
initiatives so that Europeans and Americans alike can appreciate the 
strength of the transatlantic partnership. The resulting goodwill will 
help mitigate the tension that surfaces on both sides over issues of 
regulatory dispute.
    Along a similar vein, more resources need to be devoted to shaping 
European public opinion on key issues. Not surprisingly, EU officials 
often cite public opinion as the basis for their policies, so the 
support of the Europeans themselves often proves crucial to the success 
of our diplomacy.
    I've already talked about how the U.S. can work within EU 
institutions by engaging all of its relevant institutions--the 
Commission, the Council, the Parliament, the Presidency, and the member 
states themselves.
    In the member states, we should continue to capitalize on the 
strength of our bilateral relationships by contacting the relevant 
institutions.
    In addition, we can often benefit from greater ties with the 
European private sector. For instance, the U.S. government and the 
European chemicals lobby found that they had much common ground with 
respect to the REACH chemicals directive.
    We've also discovered that multilateral approaches sometimes can be 
used to resolve regulatory issues. Outside the EU, international 
standard-setting organizations, OECD regulatory reform reviews, and WTO 
Committee meetings provide the U.S. with additional fora in which to 
work with the EU and other parties on regulatory issues, and to urge 
greater transparency and accountability in the EU regulatory process. 
We also capitalize on multilateral negotiations, including 
environmental negotiations, to build international coalitions to 
support our approach to regulation and risk management.
    Finally, we can benefit from the support of the scientific and NGO 
communities as well as watchdog groups to promote a more science-based 
regulatory approach.
    A fourth key to success is the effectiveness of public/private 
coordination. The more the U.S. government and U.S. businesses work 
together, the more they both achieve in their relations with overseas 
regulators. Put simply, disunity dilutes and undermines the message 
that we're trying to convey to regulators overseas.
    Our final key to success rests on the principle of timely 
intervention.
    Through experience we've discovered that once the EU settles on a 
position, it will usually try to hold to that position, in part due to 
the complicated structure of EU process and politics.
    Consequently, we should be prepared to act proactively rather than 
react, since the earlier we intervene in the drafting process, the 
better chance we have of ending up with a positive outcome. As seen in 
some earlier examples, the more time regulators on both sides of the 
Atlantic spend together, the increased likelihood that they will pre-
empt regulatory outcomes that require costly and time consuming efforts 
to correct. We should think creatively about how to foster greater and 
more frequent exchanges among our regulators.

                           CONCLUDING REMARKS

    To sum up, I've isolated a few goals essential for the future of 
U.S.-EU regulatory cooperation:

   We should continue to press for more meaningful transparency 
        in and access to the EU regulatory process.

   We should work to ensure that American interests are able to 
        make comments early enough in the EU process to be meaningful, 
        and we should continue to ensure that Europeans have comparable 
        access to our system.

   We should promote informal information exchanges and 
        dialogues between the U.S. and EU regulators as a way to 
        minimize unnecessary regulatory divergences.

   Along with our EU colleagues, we should continue to work in 
        the spirit of the New Transatlantic Agenda to develop 
        strategies that help forestall regulatory discrepancies before 
        they happen or resolve regulatory disputes once they emerge.

   We should encourage interested parties on both sides of the 
        Atlantic to regularly meet and discuss ``hot'' issues. (In 
        particular, we should take greater advantage of DVC 
        videoconference technology that allows for more frequent 
        bilateral meetings without the expense and hassle of travel. 
        The State Department would happily host such exchanges.)

   We also support a more active role for Congress in the 
        process. We recommend continued and enhanced support for the 
        Transatlantic Legislators' Dialogue (TLD) so that American and 
        European legislators participate in the dialogue on regulatory 
        policy issues. We note the recent positive video conference 
        between Congressmen Mica and Congressman DeFazio with their 
        colleagues in the European Parliament on conflicts between EU 
        Privacy regulations and our need for access to airline 
        passenger name record data to combat terrorism.

   Last, U.S. agencies should continue to work with each other 
        to share information and advise on U.S.-EU regulatory issues.

    As a colleague of mine likes to say about the transatlantic 
partnership, ``what divides us makes headlines, what unites us makes 
progress.'' The U.S. and the EU don't receive enough credit for their 
collaborative efforts at regulatory cooperation. We both realize that 
if we can't reach agreement on these important issues, everyone loses, 
whether in the U.S., the EU, or elsewhere in the world. A more 
prosperous world community hinges on the continued progress of our 
partnership.
    Thank you, Mr. Chairman. I welcome any questions that you and the 
members of the subcommittee may have for me.

    Senator Allen. Thank you, Mr. Ries. Mr. Stewart.

   STATEMENT OF ERIC STEWART, DEPUTY ASSISTANT SECRETARY FOR 
              EUROPE, U.S. DEPARTMENT OF COMMERCE

    Mr. Stewart. Thank you, Mr. Chairman. I do appreciate the 
opportunity to be here today and quite frankly, the timing of 
this is very good. We have been pending a lot of time at the 
Department of Commerce as well as the Department of State and 
our friends at the USGR working on these obviously very 
important regulatory issues. Because quite frankly, as you 
indicated in your opening statement, the requests are coming 
from industry. It's not the government sitting around saying 
gee, we ought to do this, it's industry who continues to tell 
us this is the right thing to do and this is what's most 
important to us. So your calling of this hearing is obviously 
very very timely.
    I was in actually Brussels last week having varied 
discussion with my counterparts in Brussels, and actually as 
early as this morning sat with our 25, the 25 econ officers 
from the various embassies met here in Washington. We all sat 
in one room, which actually was quite daunting when you think 
about all these varying countries sitting in one room and 
trying to, let alone come up with a regulation they can agree 
on, but obviously a lot of other larger issues as well.
    I will say, I also share your cautious optimism with 
dealing with Europe. When you really think about the amount of 
trade, as you indicated earlier, it's quite mind boggling, but 
what we try to keep in mind as well is where in the 
organization, or what is the organization working on with its 
views. What we try to keep in mind is that the numbers vary.
    Somewhere between 85 and 95 percent of all trade between 
Europe and the United States is dispute free, and that doesn't 
count chemicals, because we don't know where that one is going 
to shake out. But it is a staggering number of the amount of 
trade that actually is quite positive.
    And you alluded to the company here in Virginia, the German 
company. And when you think about the number of employees that 
are working for U.S. companies that are in Europe, somewhere in 
the neighborhood of 6 million, and the number of employees 
here, obviously many constituents of your, here in the United 
States working for European companies, somewhere in the 
neighborhood of 4 million. So really, obviously our economies 
are so integrated.
    And what we do continue to hear from businesses this year 
is not terrorists, which is an issue that we continue to run 
into in a lot of other countries. It's the average tariff is 
somewhere between 1.8 and 2 percent between Europe and the 
United States. So really what the issue does come down to, as 
we hear time and time again, is regulatory affairs and 
standards. So obviously, our joint goals in working together is 
to eliminate this anywhere from 5 to 15 percent friction 
between our two entities. And I use the word friction, but I 
don't use it lightly because 5 to 10 percent is obviously 
billions of dollars and is not a rounding error.
    As Mr. Ries pointed out in his testimony, there really is a 
difference in philosophy in dealing with regulatory affairs, 
and this is one of the major hurdles that we continue to try to 
fight through with the European Union. In a sense they almost 
have a top down way of going about regulatory affairs and I 
think, although we still have a lot of issues and concerns with 
the chemical REACH legislation itself, that was a very good 
example of the European Union taking more of a bottom up, if 
you will, approach. An 8-week period of hearing comment, 6,400, 
as Mr. Ries pointed out, 6,400 comments that came in during 
that period. And quite frankly, when I was in Brussels last 
week meeting with one of my counterparts discussing this issue, 
he indicated to me anywhere between 50 and 100 of those 6,500 
comments that were received actually were used and actually 
made a difference in the legislation and it was actually 
implemented, which is a good sign. I mean, it's a good start 
and that's what we're hoping to continue to encourage with the 
European Union's overall, you know, Lisbon strategy, if you 
will.
    So in a sense, although we have a lot of difficulties and 
concerns with the legislation, clearly with the amount of jobs 
and amount of regulations that it will create, the process 
itself was a step in the right direction.
    One of the other, I think, very large points that you 
pointed out in your opening testimony as well is the issue of 
accession and whether or not this is going to have a positive 
effect or negative effect, and obviously time will tell.
    One of the discussions we had this morning with the econ 
officers was the fact quite frankly that, you know, it has been 
difficult up until this point for 15 of the countries to agree 
on a lot of these regulations. Now you're going to have a very 
different mix of 10 who in a lot of countries, quite frankly, 
may not have a lot of resources, they may not have a lot of the 
infrastructure for handling this amount of new legislation, new 
directives, new laws that they will quite frankly have to adopt 
even to become a member of the European Union. This is 
something we're going to have to continue, obviously, to work 
closely with them on and provide assistance and guidance to 
them, as to even helping them point out all the things that 
they are adopting by becoming members of the European Union.
    Mr. Ries highlighted a few of the successes that we've had 
and I'd like to mention a few as well through the TABD process, 
the Transatlantic Business Dialogue, that obviously has been 
supported by both sides and is now, as you indicated also, 
being supported very much by industry. A few areas that we have 
been able to establish agreements, which are very positive in 
the sense of working together, telephone, electromagnetic 
capability, recreational craft, and my understanding is very 
soon to be medical devices as well.
    These are good steps forward.
    Obviously, there are still industries that are still in 
need. One of the industries that we're working on and hoping to 
have an agreement here in the near future is information and 
communication technology, ICT. It's one of the major focuses 
that we have now turned to because it is obviously such a large 
industry and it will help us to continue to bring our 
regulatory relationship even closer.
    There are a few things, and I will try to wrap up quickly 
as I know you're tight for time, a few things that we want to 
work on and that I have been discussing with my counterparts at 
the European Union and Department of Commerce, and USGR as a 
whole is really obviously to continue to eliminate barriers, 
that's the bottom line. But one of the other things that we 
have been discussing and were hoping to adopt slowly because 
there are some differences in how we go about it, is the idea 
of early notification, the idea of trying to talk before a 
regulation or directive is introduced and just automatically 
put into place. And quite frankly, a dialog is going to have to 
be on a very technical level and a very low level, but 
obviously our hopes are to increase that further to a higher 
level.
    The other interesting opportunity that we continue to 
discuss with our counterparts is the idea of third country 
cooperation, because there are some areas where quite frankly, 
and I realize this is focused on European Union, but there are 
some areas that we can work together with the European Union in 
other markets as well to continue to work on some of the 
regulatory affairs that we agree on and ensure those are being 
adopted in third countries. I recognize that this hearing is on 
European Union affairs, but I wanted to point out one of the 
positives that we continue to have discussions with them.
    All these things that we continue to talk about obviously 
in our minds dovetail very nicely into what Secretary Evans has 
proposed, which is an initiative on reducing standards and 
focusing on regulatory affairs, and this is not only going to 
be some of the things we discussed but continuing, as I 
mentioned earlier, to reach out to the business community, 
because quite frankly, the business community tells us what our 
priorities should be on these issues in dealing with the 
European Union in a lot of cases as it relates to economics and 
commerce, and we will continue to do that.
    We have also created a liaison within the U.S. department 
of Commerce to focus on standards and regulatory issues, which 
he will be solely focused with working not only with the 
Department of Commerce employees but also with our counterparts 
at State, overseas, and our three compliance liaisons that are 
now in overseas embassies as well.
    With that said, I will wrap up. But just to say, to 
continue to say that the EU regulatory cooperation is not just 
a good idea in our mind, we see it as imperative. We've heard 
from the business community, we've heard them loud. We've heard 
our friends from across the street here in Congress and 
recognize that this is a mutual goal not only of the U.S. 
Government executive branch but the industry and Congress as 
well.
    Thank you, Mr. Chairman.

    [The prepared statement of Mr. Stewart follows:]

                   Prepared Statement of Eric Stewart

                            I. INTRODUCTION

    Mr. Chairman, Ranking Member Biden and members of the Committee, 
thank you for inviting me here today. I am honored to appear before the 
Senate Foreign Relations Committee Subcommittee on European Affairs to 
discuss U.S.-EU Cooperation in Regulatory Affairs. This is a topic that 
has and will continue to occupy much of the time and energy of my 
staff. In fact, just last week I was in Brussels discussing this issue 
with my European Commission counterparts, and I am pleased to have the 
opportunity to share with you and your colleagues our perspective.

            II. THE U.S.-EU RELATIONSHIP AND ITS IMPORTANCE

    The significance of U.S.-EU regulatory cooperation should be viewed 
against the strength and potential of the overall Transatlantic 
relationship. I think that no one here disputes the importance of the 
U.S.-EU ties. From the economic perspective, the U.S.-EU relationship 
is vital. A few statistics make this obvious.
    The European Union and the United States enjoy the world's largest 
economic relationship. Two-way U.S.-EU trade is over $500 billion 
annually, and the U.S. and EU are the largest investors in each other's 
markets.\1\ Of the $5.2 trillion in foreign assets owned by U.S. 
companies, nearly 60 percent of these assets are in Europe. Similarly, 
nearly three-quarters of all foreign direct investment to the U.S. 
comes from EU investors. The importance of U.S.-EU foreign direct 
investment on the labor market is clear: U.S.-owned affiliates in 
Europe employ 6 million European workers, and over 4 million Americans 
get their paychecks from European companies. These economic figures are 
not just numbers on balance sheets. They account for the livelihoods of 
many Americans, including, I am sure, many of your constituents.\2\
---------------------------------------------------------------------------
    \1\ U.S. Department of State, Office of the Spokesman. ``Fact 
Sheet: United States--European Union Relations'' June 25, 2003, 
Washington, D.C.
    \2\ Quinlan, Joseph. ``Drifting Apart or Growing Together? The 
Primacy of the Transatlantic Economy'' Washington, D.C.: Center for 
Transatlantic Relations, 2003.
---------------------------------------------------------------------------
             III. OPPORTUNITIES THROUGH GREATER COOPERATION

    I believe it is vital that we embrace the U.S.-EU economic 
relationship as one that will continue to bring greater foreign direct 
investment, more transatlantic trade in goods and services, and 
consequently more and better jobs for Americans. We have made 
considerable progress in reducing the trade burdens on consumers in 
both the EU and the United States. Significant trade liberalization has 
already occurred: U.S. exports to the EU face an average trade-weighted 
tariff of scarcely more than 2 percent while EU exporters face an even 
lower tariff here--just 1.8 percent.
    In order to deepen and strengthen the U.S.-EU economic relationship 
we must work to eliminate the ``system friction'' that our different 
regulatory regimes can cause. Foreign regulations can be daunting to 
outsiders and their mere existence can be a deterrent to trade--
especially to small- and medium-sized businesses. On the other hand, 
greater regulatory cooperation and mutual recognition policies insure 
trade flows continue to grow as non-tariff barriers are minimized.
    Several ambitious initiatives for regulatory cooperation and 
deregulation in services are already underway. The Administration and 
the European Commission kicked off negotiations for an ``open skies'' 
agreement at the beginning of this month, a project that could increase 
transatlantic travel by up to 11 million passengers a year, accruing 
benefits of about $5.2 billion to passengers through lower fares and 
increased travel. \3\
---------------------------------------------------------------------------
    \3\ Reitzes, James and Dorothy Robyn. ``An Analysis of the Economic 
Effects of an EU-U.S. Open Aviation Area'' The Brattle Group, 2003.
---------------------------------------------------------------------------
           IV. WHY REGULATION IS A NECESSARY PART OF BUSINESS

    Before I share with you existing and future Department of Commerce 
activities in regulatory cooperation, I would like to comment on the 
role regulations play in international trade.
    The purpose of many regulations is to protect consumers and the 
environment, but the broader impact on society, such as innovation and 
progress must be taken into account. Eighty percent of global trade in 
manufacturing and merchandise is regulated, sometimes at multiple 
levels, and a growing body of EU regulation covers fifty percent of 
U.S. exports. EU regulations are often arcane, difficult for foreign 
and domestic firms to comply with, and the process by which they are 
developed opaque. The standards mandated by EU regulations can also 
create market access problems, as they are often drafted with little or 
no outside input. As a result, non-European firms seeking to export to 
Europe may have to do extensive testing or even redesign their 
products. This can be particularly burdensome for small business trying 
to access new export markets. Unfortunately, international regulatory 
cooperation is challenging because most regulators are focused on 
domestic priorities, which can impede competition.
    Regulators on both sides of the Atlantic believe not only that they 
are ``doing the right thing'' but also in the right way. This often 
means unique and complicated levels of regulation and accountability. 
As we all are aware, in the United States businesses must often deal 
with federal regulators as well as in some cases as many as fifty state 
regulators. In Europe, the European Community regulations are enforced 
and often duplicated by fifteen--soon to be twenty-five--Member State 
regulators. A maze of accountability, a web of constituencies, and 
complications with enforcement result. The EU itself recognizes this 
and has made moves under its ``Lisbon Strategy'' to identify better and 
reduced regulation with the aim of a more competitive Europe. And the 
U.S. Government has encouraged this process by submitting comments on 
the Commission's Better Regulations Package in July 2003.
    With particular institutions come particular cultures, and 
regulatory culture influences how regulations are made and implemented. 
The European Commission often invokes the so-called ``precautionary 
principle'' in drafting regulation. The ``precautionary principle'' 
permits the banning of products in the absence of any evidence of harm 
to human health or the environment. This is the guiding principle 
behind the recent EU chemicals proposals.
    The cost of this approach to regulation can be staggering: the EU 
chemicals proposal could be read to cover all chemical-containing 
products, such that most U.S. manufactured exports to the EU ($143 
billion in 2002) could potentially be affected.
    Finally, regulation in Europe is often used as a broader political 
tool. Harmonization of member state regulations and standards was 
identified as the key to the formation of a European single internal 
market in the 1980s. The effort required a broad coalition of business 
and political interests to make it successful. Development of this 
single internal market fueled more ambitious projects for economic and 
political unity. Evidence of these spill-over effects is apparent in 
today's headlines, not least of which is the nascent European 
constitution.

                           V. EXISTING TOOLS

    With this perspective on standards and regulations, I would like to 
outline some of the existing cooperation projects where my office and 
the Department of Commerce play a leading role.
    Since its inception in 1995, the Transatlantic Business Dialogue 
(TABD) has been one of our most effective tools for increasing 
transatlantic regulatory cooperation. The Commerce Department has 
played a critical role in facilitating TABD's efforts, but I emphasize 
that the business community, not the government, has taken the 
initiative. This approach has been enormously successful.
    TABD is focusing on lowering transaction costs and minimizing 
friction between U.S. and EU governments in order to maintain and 
increase competitiveness of businesses on both sides of the Atlantic. 
U.S. and EU CEOs participating in TABD have consistently cited what 
they regard as unnecessary divergence of U.S. and EU regulatory regimes 
as hampering transatlantic economic growth. For several years, TABD has 
remained committed to convergence of regulations in areas ranging from 
dietary supplements, to environmental emissions, to accounting 
standards. This successful forum is expected to continue to focus on 
convergence of regulations, as well as on removal of unnecessary 
barriers created by certain standards, testing and certification 
requirements.
    Commerce will continue to work closely with TABD to foster U.S.-EU 
cooperation on regulatory and standards issues. I recently met with my 
European Commission counterparts in Directorate General Enterprise and 
we all agreed that continuing TABD efforts is crucial.
    In the mid-to-late 1990's TABD also provided the momentum that kept 
the U.S.-EU Mutual Recognition Agreement (MRA) negotiations moving 
toward a successful conclusion. As a result, today we have three 
operational MRA annexes facilitating trade and reducing testing and 
certification costs in the areas of telecommunications equipment, 
electromagnetic compatibility (EMC) and recreational craft. It is 
expected that the medical device annex will be operational soon. If all 
goes as planned, the reach of the U.S.-EU MRA will be expanded this 
fall. The goal is to conclude an MRA with the European Free Trade Area 
(EFTA) States who are members of the European Economic Area (i.e., 
Norway, Iceland, and Liechtenstein). This will be a parallel MRA to the 
existing U.S.-EU MRA and will be restricted to those sectoral annexes 
that are operational (i.e., telecom, EMC, and recreational craft).
    TABD is also credited with breaking the impasse in negotiations on 
the U.S.-EC Guidelines on Regulatory Cooperation and Transparency over 
language on transparency. TABD recommended text on transparency that 
allowed us to conclude the Guidelines. Since that time, the U.S. and EC 
have launched a number of regulatory cooperation projects based on the 
Guidelines, specifically in the areas of auto safety, cosmetics, food 
additives, nutritional labeling, and metrology.
    For cooperative projects on metrology, the Commerce Department's 
National Institute for Standards and Technology (NIST) is spearheading 
U.S. government activities. In a joint declaration signed in 1999, the 
U.S. and EC agreed in principle to proceed with cooperation in the 
field of metrology. U.S. and EC technical experts met in the U.K. in 
August 2003 and at this time are working to identify projects that are 
technically feasible and of clear benefit to both sides. The 
overarching goal stated in the Joint Declaration is to support and 
further mutual recognition of test reports, calibration and measurement 
certificates provided for regulatory and market place compliance 
purposes, to improve regulatory efficiencies and facilitate trade. 
Projects will be geared to reduce unnecessary duplicative measurements, 
tests and calibration requirements and improve regulator confidence in 
measurements, tests and calibrations performed by qualified 
laboratories in the U.S. and the EU.

                         VI. FUTURE INITIATIVES

    These examples of existing efforts I have described are laudable 
and I appreciate the countless hours that have already been devoted to 
them. But if we are to embrace a U.S.-EU economic relationship that is 
ambitious and dynamic, our regulatory cooperation must similarly be 
ambitious and dynamic. Existing efforts must expand while new 
strategies are initiated. Let us not forget that entrepreneurs and 
scientists here and in Europe continue their work. Every year since 
1994 the U.S. has spent more on R&D as a percentage of GDP than ever 
before. European companies spend six-times more on research and 
development than Asian companies. This means productivity and 
innovation but also new products, new applications and of course new 
standards and regulations.
    I would like to assure the committee that we are building on 
existing initiatives and breaking new ground in other areas of 
cooperation. For example, Commerce officials are exploring a new 
cooperative project that would complement the U.S.-EU Guidelines on 
Regulatory Cooperation and Transparency I just described. Through 
transatlantic dialogue on proposed information and communications 
technology (ICT) regulations and related standards, the proposed 
project would act as an ``early warning'' system for U.S. companies in 
the ICT field. The dialogue will focus on ICT-related issues that fall 
within the Department's scope and authority.
    The proposed project has two primary objectives. The immediate 
objective would be the creation of a mechanism, specifically related to 
the ICT field, to address longstanding U.S. industry concerns regarding 
lack of transparency, access, and accountability in EU regulatory and 
standards development process. Initiating regular exchanges of 
information on government-developed regulations is a first step toward 
allaying industry concerns. The dialogue will provide the necessary 
information regarding EU regulatory and standards development processes 
at a sufficiently early stage to permit industry to respond 
effectively. The second, long-term objective is to facilitate direct 
U.S. industry access to such EU decision-making processes.
    Within my own unit, I have urged my staff in the Office of European 
Union and Regional Affairs to expand efforts to address EU regulatory 
and standards policies. We have developed and are implementing a far 
reaching Standards and Regulations Strategy geared to reduce or 
eliminate market access barriers to U.S. exports due to EU standards 
and regulatory policies: (1) in the EU, (2) in third countries, and (3) 
in international and multilateral fora. Under the Strategy, work plans 
have been launched to resolve the most pressing issues through outreach 
to U.S. and EU industry, to government officials in the EU, the Member 
States, third countries, and to standards organizations at all levels. 
The foundation of each work plan involves close collaboration intra- 
and interagency to ensure coordinated action within U.S. government and 
with outside stakeholders. This Strategy complements Secretary Evans' 
Standards Initiative and the Bush Administration's Manufacturing 
Agenda, both announced in March 2003, and dovetails with the TABD's new 
focus on standards and regulations.
    At the highest level of the Department, Secretary Evans announced a 
Standards Initiative earlier this year, based on eight-points. 
Standards are key, because they often can be included in regulation, 
creating divergent regimes and potential trade frictions. Let me 
discuss each point in turn.
    First, we are developing a Global Standards Activity Assessment to 
inventory current standards-related programs and activities. NIST is 
already surveying all Commerce agencies, and plans to request input 
from other Federal agencies, from industry, standards development 
organizations, and advisory committees. At the end of the process, the 
Secretary will be presented with internal report on the results of the 
activity assessment, with recommendations for going forward.
    The second and third points relate to development of enhanced 
training: an in-depth training program for our standards attaches based 
overseas to strengthen their expertise, and a standards training 
program for Commercial Service Officers in overseas posts so that they 
have a sufficient understanding of the impact of standards and 
regulations on international trade.
    Fourth, we will develop a Best Practices database so that Commerce 
officials can address the challenges industry faces more effectively.
    Fifth, NIST will continue and expand distribution of its free 
``Export Alert!'' web-based service that provides subscribers with 
automatic electronic notification of proposed technical regulations in 
global markets.
    Sixth, we have established a dialogue on standards within the 
President's Export Council. ITA and NIST representatives briefed the 
PEC's Subcommittee on Technology and Competitiveness on the 
Department's Initiative earlier this month and got a very positive 
response from subcommittee members.
    Seventh, we are in the process of hosting roundtables with specific 
industry sectors to gain a better understanding of industry's concerns 
and priorities regarding standards. Additional roundtables will be held 
for standards-setting organizations and on compliance and testing 
methods. Information from these roundtables will also be fed into the 
activity assessment noted above.
    Eighth, the International Trade Administration has established a 
new standards liaison position and recently brought on board an expert 
to fill this position.
    I am confident with the many tools available for addressing 
standards and regulatory issues with the EU, we will enhance the 
ability of U.S. companies to export to and compete in the European 
marketplace. As I indicated earlier in my testimony, the Bush 
Administration is committed to continued close cooperation with the 
business community and EU officials. We believe that open dialogue is 
one of the most effective ways to avoid disputes, promote cooperation 
and lower business costs for U.S. and European companies.

                            VII: CONCLUSION

    Today's U.S.-EU economic relationship has not been built on 
convenient choices and simple solutions, but on hard work, critical 
analysis and energetic cooperation. For this relationship to continue 
to prosper, similar energy, creativity and dedication must be given to 
regulatory cooperation. U.S.-EU regulatory cooperation is not just a 
good idea, it is imperative. The Bush Administration is positive that 
regulatory cooperation is the linchpin of a prosperous future economic 
relationship. My staff and I are working to make successful regulatory 
cooperation a reality.

    Senator Allen. Thank you, Mr. Assistant Secretary. Both 
secretaries have delivered good testimony. I know you have 
summarized your testimony, and with your permission I would 
like to enter it into the record as written.
    Mr. Ries, both of you can comment on this. Some of the 
questions I already had you addressed on the chemical issues 
and accession countries and so forth. Mr. Ries, you mentioned 
in yours a concern on the VAT taxes, and I only say this in 
passing. The VAT taxes and the imposition of the VAT taxes for 
large companies is probably not a big problem; they're getting 
into whichever country has the lowest VAT tax and sell that 
way; it's just good economics and makes sense. I would just 
note for both of you all, if it gets into assisting small and 
medium-sized companies, they will generally need more 
assistance whether from Commerce or from State. And again, I 
know this from my experience as Governor and working with trade 
commissions and so forth, the consulate and embassies, a lot of 
those folks can be helpful. The VAT tax will harm the smaller 
companies. And I have read your statements that it's uncertain 
how the tax will impact small U.S. enterprise.
    When others that are not going to be able to put a physical 
presence in Europe want to sell on line, they are going to have 
to figure out a lot of things and be subject to some kind of 
confusion in their approaches. So I would ask you, No. 1, to 
continue to monitor that. I know that I will, and I would hope 
that the Europeans would put some practicality to that.
    The question ultimately, though, is how do you all see, and 
I think I will give this to Assistant Secretary Stewart for 
comments, where do you see in your secretariat your assistance 
to medium-size or small companies who often do not have the 
resources to devote to studying and overcoming regulatory 
barriers? Just as both of you all alluded to, the difficulties 
of the 10 countries generally in southeastern and central 
Europe coming in, and the ability to comply with all these 
regulations which are costly, how do you see your offices 
assisting those smaller businesses with trying to keep up to 
speed and somehow overcome some of those barriers?
    Mr. Stewart. Mr. Chairman, it's obviously a very good 
question and it's something we continue to focus on. The 
Secretary himself continues to go out and have round tables 
throughout the country, the under secretary and on down the 
line, we continue to reach out to the business community and 
quite frankly the small business community, because we do 
recognize that they don't have lobbyists, they don't have a lot 
of resources to be flying into Brussels and discussing these 
issues. And quite frankly, that's one of the things that we 
continue to focus on is our outreach.
    But at the same time, you know, with technology today with 
the Internet, the chemicals legislation is a good example of 
where a small business does have opportunity to be able to make 
comment. Now granted, it's over the Internet and it's not a 
one-on-one discussion which is obviously what you would prefer, 
but at the same time it gives that company in Richmond the 
ability to comment and make suggestions on a piece of 
legislation that might be going to the European Union.
    And one of the things, and that all sounds well and good, 
but one of the things that's also important and that we put on 
our shoulders is to get the message out to the small businesses 
that this even exists, that there is even a potential issue or 
potential piece of legislation that might affect them. So we, 
again, have been using the Internet and the web to try to get 
those messages out.
    We have two different web sites. One is the TCC, which is 
an on-line sort of subscription, if you will, to technical 
barriers to trade and notification on issues that might be 
coming up. And Export Alert is another one that is being run 
out of the Department of Commerce as well, to allow small 
businesses to be notified so they don't have to try to continue 
to keep up with it themselves.
    Senator Allen. That's great. Thank you.
    One final question to you, Mr. Ries. We've seen in the past 
the problem with the GE, General Electric-Honeywell case and 
what happened there as far as that proposed merger. In the 
current situation with Microsoft where there has been a comity 
so to speak, using that legal term, do you see the State 
Department working with our Department of Justice and the 
European Commission to ensure that we avert a repeat of the 
General Electric-Honeywell case as a result of the European 
Commission's proposed remedies for Microsoft?
    Mr. Ries. Well, Mr. Chairman, thank you very much. We have 
been working on competition policy with the EU for a number of 
years, since my days in Brussels working for Ambassador 
Eizenstat, who will follow me today. He and I worked very hard 
to foster a dialog between our antitrust authorities and then 
DG-IV, now DG Competition, which of all of the many EU common 
competencies or common powers, competition policy is the 
strongest, really. The Commission has sole jurisdiction to 
determine whether or not activities or mergers affect 
competition within the European Union, and even outside of the 
European Union, if they have an impact on trade within the 
European Union.
    What we have done is we tried in a number of different ways 
to get the FTC and Justice Department antitrust people in close 
regular touch on the current issues, cases, findings of law, 
findings of policy, and economic analysis. For the most part we 
succeeded very very well. There really, you can remember the 
handful of cases very clearly where there has been 
divergencies. Honeywell is one; Boeing-McDonnell is another 
one, but there are hundreds of cases which operate where the 
antitrust review on both sides of the Atlantic comes up with 
largely compatible approaches. Again, that's been our goal.
    I think on the Microsoft case I really can't speak to the 
dialog in specifics of the case because it is privileged 
between the Justice Department case attorneys and the 
Commission case attorneys. But I think I can accurately say 
that the dialog has been deep and continuing throughout the 
course of the case in which our side has endeavored to reach 
common evaluations of these very complex questions of the 
impact of software sales practices on the markets. As you know, 
Mr. Chairman, very well, the key task in any competition policy 
case is the definition of the market and that is something that 
we have to engage very much with the European Union. We very 
much hope that the Microsoft case in its final disposition 
resembles the hundreds of very successful cases in which 
success is defined by a compatible approach on both sides of 
the Atlantic.
    Senator Allen. Fair enough, thank you, Mr. Ries. I want to 
thank both of you gentlemen. You may get questions from me or 
other members for the record. Thank you both for your 
leadership, for your efforts, and also your vigor on this 
important subject. Thank you, gentlemen.
    Mr. Ries. Thank you, Mr. Chairman.
    Mr. Stewart. Thank you, Mr. Chairman.
    Senator Allen. Next we will call our second panel, one 
witness.
    The European Commission, I will say to those listening and 
in the room, has been gracious enough to accept our invitation 
to participate in this hearing. We appreciate the cooperation 
of the European Commission in providing this presentation to 
the subcommittee, and we welcome Monsieur Gerard Depayre, 
Deputy Head of the Delegation, for his voluntary appearance 
here today.
    Bien venue, and we would be happy to hear a summary and/or 
any remarks you would want to make on the subject.
    Please understand that your testimony, full testimony if 
you wanted to summarize it, will be included in the record.

    STATEMENT OF GERARD DEPAYRE, DEPUTY HEAD OF DELEGATION, 
   EUROPEAN COMMISSION TO THE UNITED STATES, WASHINGTON, D.C.

    Mr. Depayre. Thank you, Mr. Chairman. I am Gerard Depayre, 
Deputy Head of the Delegation of the European Commission in 
Washington, and I'm presenting a statement on behalf of the 
European Commission.
    At the outset, let me say that the Commission values the 
opportunity offered by this hearing to present its view on 
U.S.-EU regulatory affairs and in particular on our cooperation 
in this area.
    Your interest in EU-U.S. regulatory cooperation is helpful 
in furthering our mutual efforts to deepen the Transatlantic 
Economic Partnership and in promoting regulatory convergence.
    A recent study published by Joseph Quinlan of the Johns 
Hopkins University, which you referred to in your introductory 
statement, illustrates the importance of making headway in the 
transatlantic economic agenda. It demonstrates the high degree 
of interdependence of our two economies. Such intertwining 
makes it even more necessary to engage in further 
liberalization, leading to reduction of costs for business on 
both sides of the Atlantic.
    Despite, or perhaps as a result of, this interdependence, 
it has become apparent in the last few years that the most 
significant barriers to trade between the EU and the U.S. are 
no longer the visible barriers such as tariffs. It is now the 
hidden technical barriers which add cost and frustration to the 
conduct of business.
    Promoting further liberalization thus implies that we 
resolve problems resulting from differences in existing 
regulations, and that we avoid new problems which would arise 
from diverging regulatory developments, i.e., future 
regulations.
    How can that be achieved? A solution to both these problems 
can only be reached through the dialog and close cooperation 
between regulators. The ideal result should be to arrive at 
harmonized regulations. Failing this, efforts should be made to 
ensure maximum convergence of regulations to both sides of the 
Atlantic, which makes possible the mutual recognition of 
equivalence of regulations.
    Resolving problems arising out of differences in existing 
regulations is often very difficult due to the natural 
resistance of regulators to accept amendments to the products, 
to their products. A solution which requires a clear 
realization by both sides of the unnecessary burden imposed to 
business by two sets of conflicting regulations could in 
certain cases be found in movement by two regulators to a 
greater convergence, and thus create the basis for mutual 
recognition. Another alternatives is the reduction of 
differences and conflicts in the implementation of legislation, 
whenever such legislation leaves adequate flexibility to the 
regulator.
    Preventing problems arising out of new regulations implies 
that a dialog between regulators takes place at the earliest 
stage possible in the process of establishing regulations. 
Early preventive dialog between regulators, but also involving 
scientists, consumer groups, politicians and businessmen, is 
fundamental. Timely dialog allows us to foresee problems, to 
reach agreement on their nature and scope, and either to 
develop common approaches to dealing with them or failing that, 
to settle on the approaches that are as compatible with one 
another as possible.
    This implies in turn, Mr. Chairman, transparency and the 
possibility for stakeholders, including governments, to make 
their views known before final decisions are made, and that 
such views are duly taken into consideration by regulators.
    While many countries subscribe to the principles of 
transparency, such as public access to official documents and 
public consultation, the way these principles are implemented 
differs widely.
    For our part, the European Commission has taken a number of 
important steps in recent years to ensure transparency.
    Its recent White Paper on European Governance of 2001 calls 
for more effective and transparent consultation of civil 
society and interested parties, as well as for am improved 
dialog with governmental and non-governmental actors, including 
third countries.
    This new approach combines two essential elements: A set of 
minimum standards for consultation aimed at increasing the 
transparency for stakeholders and for the public at large. A 
new regulatory impact assessment system requiring the 
Commission to take economic, social and environmental effects 
into account when making regulatory proposals.
    Let me now turn to regulatory cooperation in EU-U.S. 
relations, but before I turn into the details of our 
cooperation, I would like to recall the differences in our 
legislative and regulatory systems, to which Mr. Ries alluded 
earlier. These are the results of different administrative 
cultures and historical development on both sides of the 
Atlantic. Any comparison between our system should also take 
this into account.
    First, the term regulation relates to different concepts on 
both sides of the Atlantic. While in the U.S. it designates 
secondary-type legislation adopted by regulatory agencies based 
on primary legislation passed by Congress, in the EU it refers 
to community-wide legislation, legally binding in member 
states, the nature of which could be either primary or 
secondary.
    Regarding the decisionmaking process, technical regulations 
are adopted in the EU by the legislative branch, either the 
Council of Ministers but more frequently the Council and the 
European Parliament upon a proposal made by the Commission. 
Since legislation has to be preceded by a Commission proposal 
it is necessarily subject to prior consultation and 
transparency requirements, those I referred to earlier.
    This is different from the situation where Congress 
initiates and passes legislation mandating the subsequent 
adoption of regulations. This may at times create transatlantic 
conflicts, as you know. The Bioterrorism Act and the Sarbanes-
Oxley legislation are relevant examples in this respect, not to 
mention the Byrd amendment.
    When it comes to the involvement of stakeholders in the 
preparation of the regulations, in the EU we do not have the 
exact equivalent to your Administrative Procedures Act which 
imposes largely standardized formal consultation requirements 
on U.S. regulatory agencies. What we have instead are practices 
developed by the Commission's different directorates general on 
the basis of the White Paper on European Governance which I 
referred to earlier. While these practices are not as formal as 
those of the APA, they are always at least as effective in 
terms of dialog between authorities and third parties. Indeed, 
having very formalized procedures is not always a guarantee for 
the parties that their position will be taken into 
consideration. Here implementation of the Bioterrorism Act by 
the FDA is a good case in point.
    That being said, let me now turn to the EU-U.S. regulatory 
dialog. Based on our 1998 Transatlantic Economic Partnership 
Action Plan, the European Commission and the U.S. government 
developed in 2002 the so-called Guidelines for Regulatory 
Cooperation and Transparency, offering political commitment for 
a dialog between EU and the U.S. regulators.
    This framework is already up and running in a number of 
areas. In particular, ideas and recommendations stemming from 
civil society, such as the Transatlantic Business and Consumer 
Dialogues, have received attention. Four initial pilot project 
to implement the guidelines were agreed in November 2002. In 
addition, two new areas have been agreed recently, cooperation 
on standards in information and communication technology 
sector, and pharmaceuticals.
    It is clear, Mr. Chairman, that these first results, still 
modest in relation to the tasks ahead of us, need to be 
expanded. We are now discussing ways to make regulatory 
cooperation a more sustainable process. This could be done by 
various means, including the exchange of annual work programs, 
organizing dialogs horizontally and/or in specific areas, and 
enabling exchanges of regulators.
    It is important to note that our bilateral regulation 
cooperation goes far beyond the areas covered by the 
guidelines, which only apply to trade in the industrial goods.
    Our cooperation now extends to a number of sectors and in 
the first place to financial services, the liberation of which 
could bring enormous benefits to both our economies. In that 
context, we are tackling both regulatory obstacles such as the 
impossibility for EU stock exchanges to place trading screens 
in the U.S., and more recent problems resulting from the 
Sarbanes-Oxley Act. In dealing with these issues, we have 
instituted a dialog with U.S. regulators which has already 
yielded some positive results.
    We have an intensive dialog on transport security, notably 
on the Container Security Initiative and the Passenger Name 
Record. We hope this dialog will result in the resolution of 
problems arising out of the conflicting requirements of our 
respective laws and regulations in this field. While we share 
the underlying security concern of the U.S. in this area, a 
balance has to be found between these concerns and the effects 
of such initiatives on trade or the protection of personal data 
mandated by EU law.
    We have, finally, initiated a dialog with the FDA on the 
implementation of the Bioterrorism Act and have submitted our 
comments on the proposed regulations. However, we have so far 
not seen any active engagement by the FDA in our dialog.
    In the chemical sector to which you referred earlier, 
during the ongoing process of formulating its proposals for a 
new chemical policy, the European Commission has held early 
consultations on two consecutive texts, which were open to all 
stakeholders from Europe and the rest of the world. When 
finally adopting its proposals, the European Commission will 
take into full consideration and respond to the thousands of 
comments received.
    Finally, Mr. Chairman, I would not want to end this 
testimony without mentioning the transatlantic legislators' 
dialogue, which has an important role to play in regulatory 
cooperation. Thank you, Mr. Chairman.
    Senator Allen. Thank you, merci beau coup for your 
testimony. You addressed so many of the issues and many that 
our representative from State, our Assistant Secretary from 
State and Commerce addressed. And it is important, I think, 
that when regulations, your laws, you use the term laws and we 
use the term regulations, are being formulated, that we have 
the earliest consultation, understanding, forecasting, give us 
the opportunity with the transparency that you talk about to 
have this consideration of the economic impacts, the trade 
impacts and clearly the people of the countries, of the 
European Union and the people in the United States care about 
our people and care about their safety, their health, and also 
their opportunities for prosperity.
    So I thank you so much for coming and sharing your views 
and sentiments, and it appears to me that if everyone continues 
to work consistently in their actions as we have stated here in 
writing, as well as by words, the future can continue to be 
very prosperous and productive among people who really treasure 
values of human rights, dignity, as well as common concepts of 
free markets and free enterprise. Thank you so very much.
    Now I would like to call up our third panel.
    From the private sector, we're pleased to have the 
Honorable Stuart Eizenstat, co-chair of the European-American 
Business Council. Mr. Eizenstat is uniquely qualified to speak 
from both perspectives, as he has served as U.S. Ambassador to 
the European Union and Deputy U.S. Treasury Secretary We look 
forward to hearing Ambassador Eizenstat's testimony on what 
both sides need to do to facilitate greater cooperation.
    Representing the voice of the business community is Gary 
Litman, who has appeared at other times before us, the Vice 
President of the International Affairs Division of the U.S. 
Chamber of Commerce. Mr. Litman will talk about problem areas 
in our present day cooperative relationship and ways U.S. 
Government agencies might improve the situation.
    And we have Mr. Farmer. Mr. Farmer is the General Counsel 
for the Bankers' Association for Finance and Trade, and an 
affiliate of the American Banker's Association. We hope to hear 
insights on cooperation in the area of financial services.
    Ambassador Eizenstat, go ahead.

STATEMENT OF HON. STUART EIZENSTAT, CO-CHAIR, EUROPEAN-AMERICAN 
               BUSINESS COUNCIL, WASHINGTON, D.C.

    Ambassador Eizenstat. Mr. Chairman, thank you for these 
hearings, and I hope they serve as a stimulus to reduce U.S.-EU 
trade and investment barriers. Let me say at the outset that my 
firm represents a number of American and European companies 
with interests in these issues. And even as co-chair of the 
European-American Business Council, my testimony nevertheless 
represents my personal views.
    I would like to begin by noting that notwithstanding the 
headlines about difficulties on steel, GMOs, bananas and 
others, we have a balanced, productive and successful 
relationship on the great bulk of our trade, but still far to 
go. We need a longer term broader vision of our transatlantic 
relationship, which frankly, I have not heard from our previous 
witnesses, and to set our sights on a more ambitious goal. That 
ambitious goal should be, Mr. Chairman, a barrier-free economic 
relationship between the U.S. and the EU by the end of this 
decade. We should put all of our energies into achieving this 
goal.
    We need to do so not only through active engagement by the 
governments on both sides of the Atlantic, but a reinvigorated 
transatlantic business relationship. I helped create the 
Transatlantic Business Dialogue in 1994, but the TABD has not 
played the central role it should in recent years, but now with 
Doug Daft from Coca-Cola and Niall Fitzgerald from Unilever as 
new co-chairs, along with the commitment by Secretary Evans to 
reinvigorate, I hope that TABD will help stimulate the 
achievement of this barrier-free transatlantic economic space.
    I would like to highlight up front what I consider to be a 
crucial factor in achieving this goal. That is advancing the 
principle of mutual recognition. Because both the U.S. and EU 
share high health, safety and other technical standards, and 
because regulators on both sides of the Atlantic generally have 
confidence in each other, the U.S.-EU should, in my view, focus 
heavily on expanding recognition of each others' regulatory 
processes. Broadening this mutual recognition will lower costs 
for businesses on both sides of the Atlantic, streamline 
product development and enhance productivity. Enhanced mutual 
recognition could serve as a key step toward realizing the goal 
I'm suggesting of a barrier-free transatlantic economic space.
    Quite frankly, the progress that we've made going back to 
1998 in having MRAs covering multiple sectors, 
telecommunications, information technology, pharmaceuticals, 
and medical devices, has stalled in recent years. Indeed, while 
serving in the Clinton administration I saw some of the 
obstacles facing progress, namely that regulatory agencies 
cover domestic and not an international focus. I saw this 
particularly with FDA in the pharmaceutical sector.
    Encouraging greater confidence in regulatory systems across 
borders, together with a renewed momentum for MRAs by expanding 
their reach into as many sectors as possible, would 
significantly contribute to U.S.-EU cooperation in regulatory 
matters.
    But let me say very frankly, I have been around this, I 
have been in the White House with President Carter, President 
Johnson, with the Clinton administration for 8 years, and this 
will not happen if regulators are left to their own. It will 
not happen. There is not a sufficient dialog, their focus is 
domestic. It takes White House direction to get them to engage 
in regular sustained dialog with their transatlantic 
counterparts to achieve a level of confidence in each other's 
regulatory processes that in turn will promote mutual 
recognition.
    In the area of financial markets, there are some good 
recent examples. Understanding that a transatlantic capital 
market can't function efficiently without a genuinely 
cooperative regulatory approach, the U.S. and EU have 
undertaken productive discussions on at least two key issues 
for financial markets; resolving the application of Sarbanes-
Oxley to European companies and harmonizing U.S. and European 
accounting rules. These are only the first steps toward the 
ultimate goal, a barrier-free financial market.
    I applaud the initiative of the International Accounting 
Standards Board and the Financial Accounting Standards Board to 
facilitate a convergence between the U.S. GAAP and EU IAS 
accounting standards. Under the leadership of EU Commissioner 
Frits Bolkestein and Paul Volker, progress is being made in 
which each side would recognize the adequacy of the other's 
accounting standards, the concept of equivalence as Mr. 
Bolkestein has called it.
    Even where mutual recognition of regulatory standards may 
not be achievable, Mr. Chairman, cooperation is nevertheless 
advanced by pursuing workable solutions, such as the current 
talks seeking to clarify the application of Sarbanes-Oxley 
rules to European companies, requiring European auditors to 
register with U.S. authorities. Here again, Mr. Bolkestein is 
working effectively to find a solution, this time with William 
McDonough. A reasonable deference to European inspections of 
European auditors will clear the way for an agreement.
    Just as MRAs can serve as a positive model for improving 
cooperation, there are unhelpful examples. The worst of them at 
this point would be the chemicals directive you have been good 
enough to highlight. This is a timely example of regulation in 
the wrong direction.
    Senator Allen. Mr. Ambassador, I'm sorry, I just got a 
message. If I don't get there, I'm going to miss it.
    Ambassador Eizenstat: I understand.
    Senator Allen. Thank you very much, gentlemen. There will 
be two votes. I will be voting at the end of the first vote and 
right at the beginning of the second. I will be right back. 
This hearing is in recess for, I would say about 10 to 15 
minutes. Thank you, Mr. Ambassador.

    [Whereupon, the hearing recessed from 3:27 to 3:45 p.m.]

    Senator Allen. I thank our panelists and everyone here for 
your indulgence and patience. My thanks to you, Ambassador 
Eizenstat, for your understanding. We will resume the hearing 
now, and Ambassador Eizenstat, if you would like, please 
continue with your statement.
    Ambassador Eizenstat. Thank you, Mr. Chairman. Before I go 
to talk about some unfortunate deviations from what may be 
progress in this area, let me clarify one thing. When we talk 
about mutual recognition agreements, which again, we did to a 
considerable extent in 1998 and 1999, which I mentioned, they 
need to be reinvigorated. What that means is that the U.S. 
would recognize the competence of a European country to certify 
that a particular product had met U.S. standards.
    What we ultimately want to go--and that's good, but we want 
to go to a broader standard and that's what Bolkestein is 
trying to do now in getting a convergence between European IAS 
accounting standards and our GAAP accounting standards, so that 
while they may not be identical, they are sufficiently 
converged and close that each side recognizes that the other's 
regulation is sufficient to protect its interests even though 
it's not identical.
    Now one particularly timely example of a regulatory step in 
the wrong direction, Mr. Chairman, is the current EU proposal 
for regulation of chemicals which we know as REACH, which you 
were good enough to mention. It requires manufacturers and 
importers of chemicals or products containing chemicals to 
register their products with the newly established European 
Chemicals Agency, and to provide information on hazard, 
exposure and risk for 30,000 new and existing substances that 
are produced and imported in yearly quantities exceeding one 
metric ton.
    Candidly, it represents exactly the kind of top-down, non-
risk based regulatory approach that impedes progress on 
achieving a barrier-free marketplace. In particular, the EU 
should streamline the authorization process, which will be 
dominated by individual member states who could regulate 
similar chemicals in different ways, causing massive confusion 
and cost. One method for streamlining the process is through a 
more risk-based approach. Similarly, there should be more 
comprehensive exemptions for substances which pose low health 
and environmental risks.
    There was a welcome public comment period. It elicited 
6,400 comments around the world, from Japan to the United 
States, and that has led to some changes. But, permit me to say 
that the September draft continues to have many of the basic 
flaws of the earlier draft that impose heavy costs.
    Just as I was in Brussels this week, just their own 
estimate is $7.5 billion, that's their own estimate, or 7.5 
billion euros of new costs. And that is theirs, I'm sure that's 
the lowest estimate one will find. It represents a retreat from 
risk-based scientifically oriented regulation and is a 
significant step in the wrong direction.
    Trade barriers. Both the U.S. and the EU impose numerous 
barriers to the free flow of transatlantic trade, the most 
obvious being one that affects your state as well as many 
others and that is the moratorium which has now lasted 4.5 
years on genetically modified products. Farmers in the United 
States are losing several hundred million dollars a years in 
sales. I was able to get as Ambassador to the first product, a 
product called ROUNDUP READY soybeans. We have barely gotten 
another one since. The EU moratorium is devoid of any 
scientific basis. It's based on fear of the public. It violates 
WTO standards, and I applaud Bob Zoelick for initiating a WTO 
dispute resolution process.
    On the other hand, we are hardly blameless. We have adopted 
measures that are also questionable and restrict European 
trade, in particular the unilateral imposition of tariffs on 
steel, which were based more on good politics than good policy. 
These we rejected in the last year of the Clinton 
administration. Perhaps because we rejected them, I am sitting 
here as a private witness and not as a public witness.
    They should be terminated at the earliest possible moment.
    Senator Allen. You're a good witness. Go ahead.
    Ambassador Eizenstat. Likewise, the ``Fly America'' 
requirement imposed on U.S. Government travel limits travel 
options for hard-pressed senior U.S. officials and is 
increasingly dubious in an era of transatlantic airline 
alliances and international code-sharing.
    We also should work to eliminate investment barriers that 
limit investment by U.S. companies in Europe and European 
companies in the United States. For example, we limit foreign 
investment in areas like airlines and in the broadcast sector, 
restrictions which are antiquated in an increasingly integrated 
transatlantic marketplace. And likewise, the ``Buy America'' 
provisions in the House version of the fiscal 2004 DOD 
Authorization Bill undermines efforts to remove remaining 
barriers and prevents the Pentagon from getting the greatest 
flexibility to purchase the best products at the lowest cost.
    Closer U.S.-EU antitrust cooperation is also essential to 
achieve this goal of a barrier free market to reduce and 
eliminate, if possible, the uncertainty and inefficiency that 
occurs from different results are on merger, acquisition and 
competition cases. You were good enough to mention, Mr. 
Chairman in your opening remarks, the divergence in the GE-
Honeywell case. Likewise, in the Boeing-McDonnell Douglas case 
and when I was in government, the merger was ultimately 
approved by the EU after the U.S. had approved it but it was 
substantially different and in more onerous terms, causing 
transatlantic tensions. Sensitivity to U.S. competition 
authorities in these instances would have been warranted and 
would have avoided harm to our efforts to advance transatlantic 
competition relations.
    Similar sensitivity should be exercised by EU competition 
authorities, as you were suggesting in your question in their 
investigation of Microsoft, particularly when proposing the 
very remedy, the unbundling of Microsoft's Media Player 
software in its Windows operating system that U.S. authorities 
considered and rejected. The same approach proposed by the EU 
was rejected by the District Court judge approving the Justice 
Department settlement in rejecting the approach of the minority 
states, now only one. The EU seems to be following that 
approach and when rejecting that approach, Judge Kollar-Kotelly 
stated that unbundling would cause clear and certain harm to 
the entire personal computer ecosystems. The EU's proposed 
remedies create significant inefficiencies and could threaten 
growth in the information technology sector because it would 
require Microsoft to ship one product to the EU and another to 
the rest of the world. I am aware of only one instance where 
the U.S. has disapproved of a merger approved by the EU.
    The 1991 EU-U.S. antitrust agreement is based, as you 
suggested, on the principle of comity in antitrust 
investigations, and dictates that one party to avoid conflicts 
with the other will recognize the other's important interests.
    Similar positive cooperation can occur with the 
establishment of the U.S. antitrust working groups. Progress 
has been made already on mergers, but progress needs to be made 
on other areas of the competition laws so that we aim for 
convergence of views on key substantive issues.
    Just think, Mr. Chairman, of two U.S. companies wanting to 
merge, or Microsoft wanting to do business in a particular 
market. The prospect of having different outcomes in an 
integrated market is really a very difficult and uncertain 
situation which is not good.
    Let me conclude by saying there are many examples where we 
can create this barrier-free transatlantic marketplace. An 
excellent one is the EU-U.S. open skies initiative, given the 
recent legal competence of the European Commission to negotiate 
Europe-wide agreements. So by building on productive efforts 
like harmonizing competition and accounting standards, 
expanding the reach of MRAs and ultimately moving toward 
equivalency, while dealing with counterproductive efforts like 
the REACH proposal and Buy America provisions, we can make a 
major step toward creating a barrier-free transatlantic 
relationship.
    I can't begin to tell you how much, and I'm serious, I 
appreciate your hearings, because no one is going to pay any 
attention to this, and your hearings will help stimulate 
everybody to action. And may I suggest, as Bill Roth, when he 
was chairman of the Senate Finance Committee, that if you 
yourself, if I may be so bold as to suggest this, will remain 
engaged with the Commission and with your counterparts in the 
European parliament to push these kinds of issues, you can play 
a major role yourself in creating this goal of a barrier-free 
transatlantic marketplace. Thank you very much.

    [The prepared statement of Ambassador Eizenstat follows:]

               Prepared Statement of Stuart E. Eizenstat

    Thank you Mr. Chairman for the opportunity to appear before the 
Committee today on the important issue of U.S.-EU regulatory 
cooperation. I hope that your hearings will serve as a stimulus to help 
reduce U.S. and EU trade and investment barriers. During my service in 
the Clinton Administration, I devoted considerable effort to advancing 
U.S.-EU trade relations, and I continue to take a keen interest in 
expanding cooperation between these two trading partners, who together 
account for nearly 40% of world trade.
    In the Clinton Administration, I served as U.S. Ambassador to the 
European Union, Under Secretary of Commerce for International Trade, 
Under Secretary of State for Economic, Business, and Agricultural 
Affairs, and Deputy Treasury Secretary. In the spirit of full 
disclosure, I would first like to inform the Committee that my law 
firm, Covington & Burling, represents a number of American and European 
companies with significant interests in U.S.-EU regulatory issues. A 
number of the firm's clients are very satisfied with the regulatory 
environment; a number of other clients are less than satisfied or have 
company-specific problems on either side of the Atlantic. I also serve 
as Co-Chair of the European-American Business Council (EABC) along with 
former EU Ambassador Hugo Paemen. But this testimony represents my 
personal view.
    As this hearing concerns U.S.-EU cooperation, I would like to begin 
by noting that current U.S.-EU trade relations--perceptions 
notwithstanding--are, on balance, quite productive and successful, and 
have been fundamentally sound for decades. Indeed, some $3 trillion of 
trade and investment between the United States and European Union 
occurs annually, the great majority of which is unimpeded. Millions of 
workers on both sides of the Atlantic owe their jobs to affiliates of 
U.S. and EU companies. The U.S. enjoys freer trade relations with the 
European Union than with most of its other trading partners. A strong, 
vibrant and productive economic relationship with the European Union is 
in the United States' national interest. Similarly, the United States 
is the largest market for Europe; strong economic relations with the 
United States is in Europe's interest as well. Most of the public 
attention and press coverage of the EU-U.S. relationship focuses on the 
most contentious, high-profile issues including steel, bananas, and 
GMOs. Nevertheless, we must not lose sight of the overall healthy trade 
relationship across the Atlantic.
    We are still far from where we should be. We need a longer-term, 
broader vision for our transatlantic relationship and to set our sights 
on a more ambitious goal. That overarching goal should be a barrier-
free economic relationship between the U.S. and EU by the end of the 
decade. Already on the trade side, tariffs are generally low, averaging 
around 3-4%. We should put our energy into eliminating regulatory and 
investment barriers.
    In achieving this goal, we not only need more active engagement of 
the U.S. and EU, we need a reinvigorated transatlantic business 
relationship. I was pleased to play a major role in creating, along 
with the late Ron Brown, the Transatlantic Business Dialogue (TABD) in 
1994. Its purpose was to create business/government cooperation across 
the Atlantic. However, in recent years, the TABD has not played the 
essential role it should, because governments on both sides of the 
Atlantic have not given it the attention it deserves. We now have an 
opportunity to change that picture. Douglas Daft, Chairman and CEO of 
Coca-Cola, and Niall Fitzgerald, Chairman and CEO of Unilever, have 
agreed to serve as new Co-Chairs. In addition, Secretary Donald Evans 
has committed to a major effort to assure that TABD recommendations are 
given serious consideration. The European-American Business Council is 
being reinvigorated, and along with TABD, can play a major role in 
helping to achieve the goal of a barrier-free transatlantic economic 
space.

MRAs: Mutual Recognition as a Way to Achieve a Barrier-Free 
        Transatlantic Economic Relationship
    I would like to highlight up front what I consider to be a crucial 
factor for improving U.S.-EU regulatory cooperation: advancing the 
principle of mutual recognition. Because both the U.S. and EU share 
high health, safety and other technical standards, and because 
regulators on both sides of the Atlantic generally have confidence in 
their counterparts across the Atlantic, the U.S. and the EU should, in 
my view, focus heavily on expanding recognition of each others' 
regulatory processes. Broadening mutual recognition between the U.S. 
and EU will lower costs for U.S. and European companies, streamline 
product development and enhance productivity on both sides of the 
Atlantic. Enhanced mutual recognition could serve as a key step toward 
realizing what in my view should be the ultimate goal for U.S.-EU 
bilateral trade: a barrier-free transatlantic economic space.
    One of the key early benefits of the creation of the TABD was the 
development of mutual recognition agreements, or MRAs. The basic 
concept behind MRAs was the simple proposition that products could be 
tested once and considered to have been tested in both markets. MRAs 
generally allow procedures for product assessment--such as testing, 
inspection, and certification--to be performed in the United States and 
Europe that recognize each other's standards. MRAs operate through 
confidence in each side's regulatory capabilities and reliance on each 
side's inspections and the exchange of inspection reports.
    In 1998, the U.S. and EU completed MRAs covering multiple sectors, 
including telecommunications and information technology equipment, 
pharmaceuticals, and medical devices. These markedly reduce business 
costs of duplicative tests and inspections. Although the emergence of 
MRAs in the late 1990's raised hopes of an advancing trend, momentum 
has since stalled. Indeed, while serving in the Clinton Administration, 
I observed first hand some of the obstacles facing cooperative efforts 
such as MRAs operating within regulatory systems that are 
overwhelmingly domestic in focus. In the pharmaceutical sector, for 
example, the FDA was consistently suspicious of the capability of some 
EU Member States to oversee high pharmaceutical standards in 
laboratories. A related obstacle on the European side is the EU's 
inclination to regulate at the European level, only to leave 
enforcement to Member States, which often results in different levels 
of enforcement and different treatment of European and U.S. companies.
    Encouraging greater confidence in regulatory systems across 
borders, together with a renewed momentum for MRAs by expanding their 
reach into as many sectors as possible, would significantly contribute 
to U.S.-EU cooperation in regulatory matters.
    But this will never happen if matters are left solely to individual 
regulatory agencies, which have a domestic, rather than international, 
focus. Agencies need strong White House direction to engage in regular 
sustained dialogue with their transatlantic counterparts in order to 
achieve a level of confidence in each other's regulatory processes. 
This, in turn, will help promote mutual recognition.
    The business community, through TABD and EABC, needs to be 
proactive in suggesting to governments on both sides of the Atlantic 
ways to achieve greater mutual recognition. There is a recent example, 
in the area of financial markets, of ways in which mutual recognition 
can be used to make progress.
    Understanding that a transatlantic capital market cannot function 
efficiently without a genuinely cooperative regulatory approach, the 
U.S. and EU have undertaken productive discussions on at least two key 
issues for financial markets: resolving the application of Sarbanes-
Oxley to European companies and harmonizing U.S. and European 
accounting rules. But these are only first steps to what should be our 
ultimate goal--a barrier-free financial market, which would encourage 
robust competition between European and U.S. exhanges.
    I applaud the initiative of the International Accounting Standards 
Board (IASB) and the Financial Accounting Standards Board (FASB) to 
facilitate a convergence process between U.S. GAAP and EU IAS 
accounting standards--such efforts will help to eliminate barriers such 
as the EU requirement that all companies listing on a European exchange 
adopt IAS standards by 2005. Similar application of mutual recognition 
could also help to resolve the current unhelpful stance of the SEC in 
placing ``trading screens'' on the U.S. market for foreign companies; 
given that European standards are comparable to U.S. regulation of the 
financial markets, a targeted accommodation by the U.S. in this 
instance would help to support transatlantic market access without harm 
to investors. Under the leadership of EU Commissioner Frits Bolkestein 
and Paul Volker, former Chairman of the Federal Reserve, a great deal 
of progress is being made. In effect, each side would recognize the 
adequacy of the other's accounting standards, the concept of 
``equivalence'' as Commissioner Bolkestein calls it.
    Moreover, even where mutual recognition of regulatory standards may 
not be achievable, cooperation is nevertheless advanced by pursuing 
workable solutions, such as current talks seeking to clarify the 
application of Sarbanes-Oxley rules to European companies, requiring 
European auditors to register with U.S. authorities. The EU sees the 
application of Sarbanes-Oxley to European firms as extraterritorial, 
while the US sees the law as a legitimate post-Enron effort to assure 
the adequacy of audits of companies that choose to list themselves on a 
U.S exchange. Here again, EU Commissioner Bolkestein is working 
effectively to find a solution, this time with William McDonough, 
Chairman of the Public Company Accounting Oversight Board (PCAOB), and 
William Donaldson, Chairman of the SEC. Reasonable deference to 
European inspections of European auditors could clear the way for an 
agreement. Creatively, Mr. McDonough has suggested a joint 
registration, in which firms would register both with their national 
authorities, and with the PCAOB, and there would be joint U.S.-EU 
inspection of auditors outside the U.S.
    Just as MRAs can serve as a positive model for improving regulatory 
cooperation between the United States and European Union, we also have 
available, unfortunately, numerous unhelpful examples.

A Step in the Wrong Direction: The EU Chemicals Directive
    One particularly timely example of a regulatory step in the wrong 
direction is the current EU proposal for regulation of the chemical 
industry, known as REACH or Registration, Evaluation, and Authorization 
of Chemicals. The REACH proposal requires manufacturers and importers 
of chemicals, or products containing chemicals, to register their 
products with the newly-established European Chemicals Agency and to 
provide information on hazard, exposure and risk for 30,000 new and 
existing substances that are produced or imported in yearly quantities 
exceeding one metric ton. Evaluation requires regulators to assess 
risks for 5,000 substances that are produced or imported in yearly 
quantities exceeding 100 tons, and also for substances in lower 
quantities if they are ``of concern.'' Authorization applies to 
substances of ``very high concern,'' for which specific permission 
would be required for certain uses. In addition, ``downstream'' users 
would be required to carry out additional testing if the exposure or 
use of a covered product exceeds that foreseen by the manufacturer. The 
European Commission appears likely to adopt its proposed regulation at 
the end of October 2003.
    Candidly, the current REACH proposal represents exactly the kind of 
top-heavy, non-risk based regulatory approach that only impedes 
progress on EU-U.S. cooperation in regulatory matters. In particular, 
the EU should streamline the authorization process, which will be 
dominated by EU Member States who could regulate similar substances in 
different ways, to ensure that the system is practical and efficient, 
while still protecting public health and the environment. One method 
for streamlining the process is through a more risk-based approach that 
would expand the regulatory focus beyond intrinsic hazardous properties 
to include the potential for exposure to the environment. Similarly, 
more comprehensive exemptions should be made available for substances 
whose chemical structures or uses pose low health and environmental 
risks.
    The public comment period for the REACH proposal was welcome, 
something not often seen with EU regulation. It elicited over 6,000 
comments worldwide, most negative. These comments have led to some 
changes in the revised draft, like the temporary exception of polymers. 
However, the revised September draft continues to have some of the 
basic flaws of the earlier draft and imposes heavy costs on the 
chemical industry and downstream users. The REACH proposal represents a 
retreat from risk-based scientifically-oriented regulation and thus is 
a significant step in the wrong direction for US-EU cooperation in 
regulatory matters.

Trade Barriers
    Both the U.S. and EU impose numerous barriers to the free flow of 
transatlantic trade. The EU's longstanding moratorium on approval of 
Genetically Modified Organisms or GMOs in food products has cost U.S. 
farmers hundreds of millions of dollars in lost sales annually in the 
EU. When I was U.S. Ambassador to the European Union, I was involved in 
helping obtain EU approval for GMO products like ROUNDUP READY 
soybeans. But unrealistic fears of GMO products by the European public 
has blocked approvals for several years of other safe GMO products. The 
EU moratorium is devoid of any scientific basis and, in my opinion, 
violates WTO requirements. I applaud the initiative of Bob Zoellick, 
the United States Trade Representative, to initiate the WTO dispute 
resolution process against the EU.
    But the U.S. is hardly blameless. We have adopted measures that are 
also questionable and restrict European trade. The unilateral 
imposition of tariffs on steel products from Europe and other nations 
seems to have been based more on good politics than good policy. We 
rejected tariffs in the last year of the Clinton Administration. A WTO 
panel has found they violate WTO rules. A recent U.S. government study 
has found that while these tariffs have helped the steel industry, they 
have damaged a far broader group of steel users, including the U.S. 
auto industry. They should be terminated at the earliest possible 
moment.
    Likewise, the ``Fly America'' requirement imposed on U.S. 
government travel limits travel options for hard-pressed senior U.S. 
officials, and is increasingly dubious in an area of transatlantic 
airline alliances and international code-sharing. In addition, both 
sides maintain restrictions on the ability of professionals to practice 
in each others jurisdictions.Investment barriers
    We should also work to eliminate investment barriers that limit 
investment by U.S. companies in Europe and European companies in the 
U.S. We limit foreign investment in areas like airlines and in the 
broadcast sector. These restrictions are generally antiquated in an 
increasingly integrated transatlantic market. Likewise, the ``Buy 
America'' provisions included in the House version of the Fiscal Year 
2004 Department of Defense Authorization Bill undermine current efforts 
to remove remaining barriers and prevent the Pentagon from having the 
greatest flexibility to purchase the best product at the lowest prices.
    There are obviously legitimate international security concerns with 
foreign investment in general and European investment in particular in 
certain limited instances. The Exon-Florio Act and the CFIUS process 
reflect these concerns. But Exon-Florio has been used to block foreign 
investment only in a few instances. However, we must make certain that 
Exon-Florio is not used inappropriately. My recent experience is that a 
few U.S. agencies would like to bar all foreign investment in 
``critical infrastructure,'' even presumably from companies in allied 
European countries. This would be a serious mistake and must be 
avoided. September 11 should not be used as an excuse to impose new 
barriers on European investment.
    At the same time, we must work hard in a post-9/11 environment to 
balance national security interests with maintaining open U.S.-EU 
commerce. This presents a challenge to new areas. First, the U.S. is 
requiring extensive passenger reservation data, which conflicts with EU 
data protection laws. Hopefully, the EU can provide a derogation from 
these laws if it gets reassurance form the U.S. about the scope of the 
data required, limits on the time it would be stored, and use only for 
the war against terrorism.
    The second conflict is with the U.S. demand for inspection of 
containers at the ports of EU Member States. The U.S. has signed a 
number of bilateral container agreements with individual Member States 
without recognizing that the European Commission has legal competence 
in this area. The 1997 U.S.-EU Customs Cooperation Agreement could be 
expanded to address container security issues.

Closer Antitrust Cooperation
    The U.S. and EU should strive to achieve the same results in major 
merger/acquisition and competition cases in order to avoid the 
uncertainty and inefficiency to business occasioned by differing 
results. Our marketplaces are similar, and our antitrust outcomes 
should reflect these similarities. One setback for U.S.-EU cooperation 
in regulatory matters arose from the EU decision to block the merger of 
General Electric and Honeywell approved by a U.S. antitrust authority, 
using a ``bundling'' concept that could make it difficult for companies 
to offer a range of products. In the Boeing-McDonnell Douglas case, the 
merger was approved by both competition authorities, but with 
substantially different terms required by the EU, causing transatlantic 
tension. Sensitivity to U.S. competition authorities in this instance--
where the investigation focused on two U.S. companies--would have been 
warranted and would have avoided harm to U.S.-EU efforts to advance 
transatlantic competition relations. Similar sensitivity should be 
exercised by EU competition authorities in their investigation of 
Microsoft, particularly when proposing the very remedy--the unbundling 
of Microsoft's Media Player software and its Windows operating system--
that U.S. authorities had considered and rejected. The same approach 
proposed by the EU was rejected by Judge Kollar-Kotelly, the District 
Court Judge who approved the settlement. In rejecting the approach of 
the minority of states whom the EU seems to be following, Judge Kollar-
Kotelly stated that ``unbundling'' would cause ``clear and certain harm 
to the entire personal computer ecosystem.'' The EU's proposed remedies 
create significant inefficiencies and could threaten growth in the 
Information Technology sector because it would require Microsoft to 
ship one product to the EU and another to the rest of the world. I am 
aware of only one instance where the U.S. has disapproved of a merger 
approved by the EU, namely the Air Liquide/BOC/Air Products merger.
    Greater sensitivity in both instances would have found support in 
the 1991 U.S.-EU Agreement concerning application of competition laws. 
The 1991 Agreement affirmed longstanding principles of ``comity'' in 
antitrust investigations. At its core, this doctrine dictates that one 
party, in order to avoid conflict with the other, will recognize the 
important interests of the other party in exercising its jurisdiction, 
particularly when the substantive issues under review predominantly 
impact one party. Similarly positive for cooperation efforts was the 
establishment of a U.S.-EU antitrust working group comprising 
representatives from the U.S. Federal Trade Commission, the Department 
of Justice, and the European Commission. Progress has been made on 
mergers, as in the successful Solvay/Montedison-Ausimont transaction, 
in which divestitures were required on both sides of the Atlantic. 
Indeed, multiple mergers illustrate successful instances of U.S.-EU 
cooperation, including Imetal/English China Clays, Exxon/Mobil, and 
Halliburten/Dressor. But progress should be made in other areas of 
competition law that could further advance U.S.-EU cooperation in 
competition matters. US and EU competition authorities should aim to 
reach a convergence of views on key substantive issues (such as the 
bundling of complementary products and services) as well as procedures 
(such as the timing of the merger review process).

Conclusion
    There are other areas where we can help create a barrier-free 
transatlantic marketplace. One example would be a U.S.-EU open skies 
initiative, given the recent legal competence of the European 
Commission to negotiate Europe-wide agreements. A liberalized 
transatlantic aviation marketplace is a worthy goal. By continuing to 
build on productive efforts--such as harmonizing competition and 
accounting standards, and expanding the reach of MRAs, while dealing 
with counterproductive efforts, such as the REACH proposal and Buy 
America provisions, we can further stimulate the already productive 
U.S.-EU relationship and take a major step toward creating a barrier-
free transatlantic space.
    Congress has a strong role to play in these areas. For example, 
former Senate Finance Committee Chairman Bill Roth was deeply involved 
in these issues. I applaud your initiative, Chairman Allen, and hope 
you will remain engaged with the European Commission and your 
counterparts in the European Parliament in working toward a barrier-
free transatlantic market.

    Senator Allen. Thank you, Ambassador Eizenstat, for your 
studied and cogent remarks. And we'll hear from the other 
panelists, and I will have some questions. But again, thank 
you, Ambassador Eizenstat, for your testimony.
    Now we'd like to hear, and let me make sure we have the 
order here. Mr. Litman is next on our list. Mr. Litman, will 
you please proceed.

 STATEMENT OF GARY LITMAN, VICE PRESIDENT EUROPE AND EURASIA, 
           U.S. CHAMBER OF COMMERCE, WASHINGTON, D.C.

    Mr. Litman. Thank you, Mr. Chairman. Thank you for having 
me back. I would like to request that my written statement is 
made part of the record.
    Senator Allen. So ordered.
    Mr. Litman. Thank you. I would like to echo in my remarks 
most of what Ambassador Eizenstat said and just make a few 
additional points.
    Obviously, the U.S.-EU cooperation is critically important 
for members of the U.S. Chamber of Commerce and the business 
community both in the U.S. and the European Union.
    Without regulatory cooperation, this market will suffer.
    Regulatory cooperation between the U.S. and EU is also 
essential for continuous functioning of all multilateral and 
international bodies and for the global economy as a whole.
    It does take place, regulatory cooperation exists in many 
forms, as outlined by government witnesses. It also takes place 
through associations like ours, within companies.
    Sometimes regulators are unaware of the way we are 
interacting and actually supplying them with ideas and input 
that has been negotiated between companies and industries in 
the transatlantic marketplace. There is no shortage of 
interaction. The challenge for all of us is to have the 
political will to get the rulemakers and legislators on both 
sides to recognize that their actions immediately affect one 
integrated transatlantic market--enormous, integrated and very 
dynamic.
    In economic terms, meaningful domestic regulations are 
increasingly hard to find. The fact that this market exists is 
testimony to regulatory cooperation. Our concern and the reason 
this hearing is so important is that past performance is no 
guarantee of future returns. We want this integration to 
continue. Our integration between companies, between businesses 
and industries, seems to have outstripped the duality of two 
regulatory systems to function with minimum friction.
    I think it is instructive to look at the recent agenda of 
the European Council of Ministers in charge of business. Here 
are the points discussed: political agreement on regulating 
measuring instruments; regulation of drugs; regulation of 
detergents and political agreement; consultation on tourism; 
consumer protection and consumer credit. Each item affects 
numerous Americans interests. Each is potentially a huge boost 
to the economic growth in the U.S. and Europe or the source of 
friction. The question is whether there is a will in Washington 
and Brussels to take this into account in arriving at political 
agreement.
    None of these discussions were developed through a process 
even remotely similar to the Administrative Procedure Act in 
the United States and that's all right. What matters to us is 
that we have a joint transmission mechanism between the two 
systems and it better be a low friction one, because as the 
automobile dispute and bananas and others have shown, technical 
debates become political traps.
    I want to make one point from the point of view of our 
membership. We have no fear of European regulations. We 
frequently feel for Europe when it lurches into regulations.
    The much-discussed chemicals policy is a good example of 
regulatory adventures that take our breath away. We have had 
similar impulses post-9/11 and we have discussed them a lot 
with our European partners. The main point for us is that 
cooperation does not require imposing regulatory models on each 
other.
    Each model reflects the democratic choice of the policies 
on the respective side of the Atlantic, and we need to look 
beyond the political assessment procedures.
    A better strategy may be creating specific funded mandates 
to enable our agencies to consider the impact on transatlantic 
actors and companies in each other's jurisdiction. It is 
important to be at each other's hearings or stakeholder 
consultations. It's even more important to be heard at these 
hearings, and that is the method of political will and done by 
legislators such as yourself.
    We would also recommend that in seeking areas for 
regulatory cooperation, both sides would focus on policy areas 
where the rules are not being written or that the technologies 
involved have a two-way cutting edge. The hydrogen fuel 
initiative may be an example. The business community would also 
welcome an initiative to develop common guidelines for risk 
assessment of new technologies and materials.
    We suggest that the key missing element in bilateral 
regulatory relations is willingness by Members of Congress and 
members of the European Parliament to ask hard questions of 
regulatory authorities about why they fail to accommodate 
shared transatlantic economic interests in dealing with 
regulations. That is the test from the business point of view. 
There will be many instances of failing to agree.
    It is also important to make sure that U.S.-EU discussions 
of each other's rulemaking and legislative activities are 
conducted outside the World Trade Organization dispute 
settlement mechanism. Our relations with Europe are different 
than other nations and than anybody else in the world. We can 
take our coordination much further. Such hearings on regulatory 
cooperation are hard to imagine with any other region in the 
world, and we should recognize that.
    Otherwise, we risk politicizing every discussion of 
standards and practices. Rather, we may want to consider 
setting up a number of panels that do not report to the World 
Trade Organization, which is ultimately about terrorism.
    In effect, what we're advocating is beginning serious work 
on a bilateral agreement on the principles of rule making, 
common information exchange, and impact assessment.
    One last point. The European Union is constantly changing, 
which is a challenge for all of us and it is very difficult to 
expect leadership in this matter from Brussels.
    They are revising their own constitutional treaty, they are 
revising their checks and balances. They are setting up 
numerous new agencies, from cyber security to health to 
military procurement, and many others. Therefore, it is up to 
us, the United States, to offer leadership and to invite the 
Europeans to discuss the need for this agreement.
    Let me make one more point, maybe by way of example. Even 
when regulators do a great job coordinating what they are 
doing, it doesn't mean that success is assured. A recent 
example is the discussions between the EPA and their 
counterpart in Europe on emission standards for diesel engines. 
Regulators used every consultation mechanism available, they 
discussed like standards for engine manufacturers both in the 
U.S. and Europe, produced very much alike agreements on 
standards for emissions, and the Commission introduced it to 
the Parliament. And the problem is, they decided to amend it, 
giving no thought to the preceding process of regulatory 
cooperation. And now everybody is stuck with a political 
decision in the European Parliament. As far as we can tell, as 
far as our members tell us, it was not an issue of competing 
with an American company, it was done out of ignorance or out 
of inability to take into account the good work product of 
regulators.
    The bottom line in all these discussions is that without 
supervision the agencies will not find it possible to 
cooperate. They need to have a mandate, they need to have funds 
and they need to have supervision and leadership, both from the 
White House and from the legislative bodies. Thank you, Mr. 
Chairman.

    [The prepared statement of Mr. Litman follows:]

                   Prepared Statement of Gary Litman

                              INTRODUCTION

    I am Gary Litman, Vice President for Europe and Eurasia of the 
United States Chamber of Commerce. The U.S. Chamber is the world's 
largest business federation, representing more than three million 
businesses and professional organizations of every size, sector and 
region in the country. Tens of thousands of our member companies derive 
much of their business from trade with European partners, obtain their 
capital from European creditors and investors, and build their 
competitive edge on the basis of European supplies and human capital. 
Throughout the last decade, Europe accounted for half of total global 
earnings of U.S. companies, as measured by U.S. affiliate income.\1\ 
The Chamber welcomes this opportunity to present its views on U.S. 
regulatory relations with the European Union [EU].
---------------------------------------------------------------------------
    \1\ Joseph P. Quinlan, Drifting Apart or Growing Together? The 
Primacy of the Transatlantic Economy, Center for Transatlantic 
Relations, Washington, 2003.
---------------------------------------------------------------------------
    The fact that we discuss regulatory cooperation rather than tariffs 
and quotas reflects the depth of the Transatlantic market and its 
integral nature. With the possible exception of Canada, no other 
economic partnership affords companies opportunities to operate so 
efficiently, almost seamlessly in two distinct jurisdictions. An ever-
improving U.S.-EU regulatory cooperation is important for business in 
order to preserve the enormous gains of the transatlantic market and 
prevent any frictions between the two systems from spiraling out of 
control.
    In analyzing regulatory cooperation between U.S. and Europe, we 
proceed from the fact that the European Single market is of vital 
importance to American business. The EU is here to stay and grow and we 
welcome it. Next year will mark yet another transformation of the EU 
with the accession of ten new member states, a new Constitution, 
elections of a new and more powerful Parliament and a new college of 
Commissioners. Through this evolution, the EU will remain based on a 
social model and legal regime that are different from the United States 
and reflect the European democratic choice. We have no intention to 
advocate the importation of the European regulatory practice in the 
U.S. Nor do we wish our problems on our European partners. The business 
community is not advocating the creation of supranational regulators 
for the Transatlantic market. Our goal is to rid this market of 
duplicative or incompatible rules. Our ambition is to preserve the 
flexibility afforded by two highly sophisticated regulators without 
always having to fight off the next crisis in relationships over a 
specific product, standard, or procedure. In our view, this goal can 
only be achieved through political will and engagement by legislatures 
on both sides. It is up to the U.S. Congress and its counterparts in 
Europe to both compel and enable regulators to cooperate.
    The next twelve months will see the reform of most European 
institutions. Please note in this regard a submission from the American 
Chamber to the European Union, AmCham EU, which represents many of 
European firms of American parentage, attached. This is the best time 
to show our commitment to regulatory cooperation so that in shaping 
their institutions, European have confidence that we mean business in 
regulatory cooperation.

      U.S.-EU ECONOMIC PARTNERSHIP IS ESSENTIAL FOR GLOBAL GROWTH

    As we mentioned in our previous testimony before this subcommittee, 
June 24, 2003, the U.S. commercial relationship with the European Union 
is unlike any other we have in size, complexity and degree of 
integration. Our extraordinary level of trade is only the tip of the 
iceberg of our commercial relations. Over 20% of U.S. exports in goods 
go to the European Union and European customers consume over 40% of 
American services. Although we export more to Europe, and Europe 
exports more to the U.S. than we each do anywhere else in the world, 
trade accounts for less than 20% of transatlantic commerce. U.S.-EUrope 
commercial relations are much more about investments and direct job 
creation in each other's markets than it is about trade. Consequently 
much of this trade is between parent companies and their affiliates.
    Our immense level of investments in each other's markets validates 
that our commercial relationship is balanced, mature and very similar 
in structure.\2\ Therefore, we do not lose jobs to Europe; instead we 
create jobs in each other's markets. Last year about one in twelve 
factory workers in the U.S. was employed by one of 4,000 European-owned 
businesses.\3\ We have become responsible for each other's growth and 
prosperity.
---------------------------------------------------------------------------
    \2\ Gary Clyde Hufbauer, Institute for International Economics and 
Frederic Neuman, Johns Hopkins School for Advanced International 
Studies, Paper presented at a conference titled ``Transatlantic 
Perspectives on the U.S. and European Economies: Convergence, Conflict 
and Cooperation'', Kennedy School of Government, Harvard University, 
April 11-12, 2002.
    \3\ Hylke Vandenbussche et al., ``Enhancing Economic Cooperation 
between the EU and the Americas,'' Centre for Economic Policy Research, 
London 2002.
---------------------------------------------------------------------------
    It is therefore important to nurture the transatlantic economy and 
find all possible means to further develop it. European economists 
estimate that dismantling the remaining tariff and non-tariff barriers 
between U.S. and Europe would add about one percent to European GDP, 
accruing in perpetuity, or somewhere between 40 and 50 billion USD. 
Other studies suggested that the gains for the U.S. economy would be 
about 0.5% of U.S. GDP.\4\ Expansion of the transatlantic marketplace 
would directly and immediately benefit millions of Americans and 
Europeans.
---------------------------------------------------------------------------
    \4\ USITC, ``The Economic Effects of Significant U.S. Import 
Restraints,'' Publication 3201, May 1999.
---------------------------------------------------------------------------
    Beyond the Atlantic, U.S. and Europe economic partnership generates 
worldwide growth as the principal engine of economic development in the 
world. Conversely, a dysfunctional or underdeveloped U.S.-EU 
relationship would have far-reaching negative consequences beyond the 
Atlantic shores. The economies of the Middle East, Africa, Central and 
South America depend on a well functioning and growing U.S.-EUrope 
commercial relationship to develop their own economies. The 
multilateral consequences of this essential bilateral relationship are 
important to keep in mind.
    Future Regulatory Cooperation Rests on an Honest Assessment of Past 
Efforts
    Prior attempts by the U.S. and the EU to patch their differences 
and sign mutual recognition agreements have to some limited extent 
helped the transatlantic economy grow, but are far from being 
satisfactory. They focused on recognition of conformity assessment 
bodies in each other's jurisdiction and on guidelines for exchange of 
information between technocrats and enforcement agencies, for example, 
in antitrust and competition matters. The record of implementation of 
various regulatory cooperation agreements shows that cooperation only 
works when there is political will on both sides of the Atlantic. In 
other words, the role of Congress and European legislatures is critical 
to the success of any agreement on regulatory cooperation.
    Political backing is essential in preventing regulatory divergence 
because domestic lawmakers and regulators generally do not take into 
consideration the impact of the rules they propose on foreign 
companies.\5\ Domestic regulations often clash with the demands of 
international trade and investment, and foreign companies typically do 
not have a voice in domestic and regulatory processes. Non-cooperation 
on regulatory and legislative matters results in direct costs to 
companies and consumers, with the creation of duplicate and non-
compatible rules on both sides of the Atlantic.
---------------------------------------------------------------------------
    \5\ Gregory Shaffer, Reconciling Trade and Regulatory Goals: The 
Prospect and Limits of New Approaches to Transatlantic Governance 
Through Mutual Recognition and Safe Harbor Agreements, The Parker 
School of Foreign and Comparative Law, Columbia University, Columbia 
Journal of European Law, Fall, 2002.
---------------------------------------------------------------------------
    Frameworks for U.S.-EU cooperation exist, notably with the 1997 
U.S.-EC Mutual Recognition Agreement [MRA] and its six ``sectoral'' 
annexes. However, these cooperation attempts appear to have yielded 
limited gains. Our members indicate two factors for the limited success 
of the MRAs: (1) the independence of the regulatory agencies involved 
and (2) the lack of committed resources for transatlantic regulatory 
collaboration. We should also add the fluid nature of European 
institutions that are in the midst of a major reform due to enlargement 
and constitutional changes. We urge Congress to review the short 
history that led to the signing of the 1997 MRA and assess the limited 
successes and failures of this agreement. There is no need to reinvent 
the wheel, especially if the wheels we recreate will lead us in the 
same unsatisfactory direction.
    We suggest Congress should review the roles played by: (1) the 
Federal Communication Commission [FCC] in the implementation of the 
1997 MRA Telecommunications and Electromagnetic Compatibility annexes; 
(2) the Occupational Safety and Health Administration [OSHA], a 
division of the Department of Labor, in the implementation of the 1997 
MRA Electrical Safety annex; and (3) the Food and Drug Administration 
[FDA] Medical Device and Pharmaceutical Good Manufacturing Practices 
annexes. Clearly where the U.S. Trade Representative [USTR] office was 
ahead of its time with compelling reasons to negotiate swift and 
ambitious agreements with the European Commission, U.S. regulatory 
agencies found the practicalities of cooperation much more 
questionable, and the resources unavailable.

   BASED ON PAST EXPERIENCE, WHAT CAN WE REASONABLY EXPECT AND WANT?

    The major problems for U.S. business are not found at the borders. 
They are not related to tariffs and quotas, which play a relatively 
minor role in U.S.-EU relations. Since American companies see 
themselves very much as part of the European economy and vice versa, it 
is the EU and Member State domestic regulations and public policies 
which concern us most of all. Internal regulations and practices 
directly affect U.S. economic interests at least as much as they crimp 
the business of European companies in the same jurisdictions.
    As the EU is devising new and much strengthened regulatory agencies 
and centers of regulatory power, it is remarkable how little strategic 
coordination exists between most of the relevant U.S. and EU agencies. 
Among the many new agencies in Europe currently at different stages of 
development are the European Food Safety Agency, Cyber Security Agency, 
European Environment Agency, and Office of Harmonization in the 
Internal Market, the Joint Research Centre, the European Chemicals 
Agency and probably an intergovernmental defense procurement agency.
    Having certainty that regulators on the transatlantic marketplace 
coordinate their regulatory activities in a transparent, strategic and 
efficient way would advance American business interests. Nothing could 
be more damaging to business than ad hoc regulatory forays in the new 
Europe driven by political expediency, the absence of regulatory 
benchmarks and a lack of understanding of how transatlantic business 
will be impacted.
    It would be particularly valuable to build strong linkages during 
the process of establishing new regulatory bodies in Europe. The 
Transatlantic Economic Partnership [TEP] initiative, launched at the 
U.S.-EU Summit of May 1998 was to promote a more positive trade agenda. 
Among other lofty goals, TEP Action Plan should have improved the 
``dialogue'' between U.S. and EU regulators. In the process, TEP 
proposed in April 2002 non-binding U.S.-EU guidelines on Regulatory 
Cooperation, which so far seem to have produced limited results and are 
in need of being energized. Priority agencies that need to develop 
better lateral coordination with emerging European counterparts 
include:

   1. National Institute of Standards and Technology (NIST);

   2. Food and Drug Administration (FDA);

   3. Federal Communications Commission (FCC);

   4. Environment Protection Agency (EPA);

   5. Securities and Exchange Commission (SEC);

   6. Department of Homeland Security (DHS);

   7. International Trade Commission (ITC);

   8. Federal Trade Commission (FTC);

   9. Department of Energy (DOE);

  10. Department of Transportation (DOT & FAA).

    A vigorous and systematic dialogue between U.S. and European 
regulators similar to that in effect on anti-trust matters, thanks to 
the fairly successful Application of Competition Laws Agreement of 
1990, would allow us to better understand the impact of European 
regulations and avoid the surprise in Brussels when a new draft 
proposal suddenly becomes another bone of contention with the United 
States. We need to look beyond conformity assessment. A better strategy 
may be a process of sharing regulatory initiatives between agencies 
with a specific funded mandate to consider the impact on transatlantic 
actors and companies in each other's jurisdiction. It is important to 
be able to appear at each other's hearings or stakeholder 
consultations. There are some good examples of openness to this notion, 
including the recent Internet consultation on the European Chemicals 
Policy Directive. Attached is the U.S. Chamber's submission to the EU 
Commission and a set of comments from one of our members with broad 
interest in the matter. We were pleased to have the opportunity to 
comment. We would be even more encouraged if any of our comments were 
taken into consideration in the amended text to be released later this 
month. The proof will be in the pudding.
    At the same time, we need to develop mechanisms that would 
guarantee consideration to each other's views that is commensurate to 
the important stake we have in the continuing growth of the 
Transatlantic market. We would also support recommendations by the 
Atlantic Council to encourage the U.S. Congress and the European 
Parliament to compare ``best practices'' in regulatory policy and rule-
making, and to focus on policy areas where the rules have not yet been 
written or the technologies involved are truly transformative (e.g. the 
hydrogen fuel initiative).\6\ The business community would also welcome 
an initiative to develop common guidelines for risk assessment of new 
technologies and materials.
---------------------------------------------------------------------------
    \6\ The Atlantic Council Bulletin Vol. XIV, No. 2, ``Managing Risk 
Together: U.S.-EU Regulatory Cooperation,'' June 2003.
---------------------------------------------------------------------------
    No amount of regulatory cooperation will be sufficient without 
supervision by the legislative bodies. A recent example is provided by 
the Diesel engine emissions regulations in Europe. In this case the 
U.S. Environmental Protection Agency and European Commission have each 
proposed comprehensive new emissions standards for off-road diesel 
engines ranging from 50HP to 750HP. The respective regulations would 
impose a range of emissions limits for specific pollutants and 
implementation dates. The two regulators consulted at an early stage in 
European rule-making process. As a result, the Commission's Directive 
(COM (2002) 765) is aligned with EPA's proposed rules. Where 
discrepancies exist, such as between emissions levels, power 
categories, and implementation dates, the Commission has intended that 
a 2007 Technical Review, called for in its proposals, would further 
align the standards. Thus, the regulators have succeeded in 
coordinating sophisticated technical matters. Nevertheless, the 
European Parliament is now considering amendments that would put the 
Commission Directive further out of alignment with the EPA proposed 
rule. If passed, the amendments would require the use of different 
engine technologies between the U.S. and EU, resulting in two different 
engine and machinery product lines. Each machinery line would be more 
expensive because of the lower volume of production over which to 
recover fixed costs. European machines will be more expensive to 
produce and purchase and would be more expensive to operate. 
Environmental gains will be minimized as well, as the increased cost of 
new equipment will inhibit farmers and other equipment owners from 
converting from older, non-compliant equipment. A better understanding 
of the integrated nature of the marketplace by European legislators in 
this case would save millions to companies and consumers.
    We hope that a strategic regulatory dialogue will soon lead to 
negotiations and strong mutual commitments between the U.S. and the 
enlarged European Union. In fact, the Chamber believes that it is time 
to start discussing with the European Union a way to negotiate a 
bilateral trade, regulatory cooperation and investment enhancement 
agreement, similar to the agreement currently under consideration 
between Canada and the EU, that would recognize the unique and highly 
integrated nature of our common business with Europe and establish 
clear ways of resolving regulatory differences. The transatlantic 
business community does not want the two regulating juggernauts to 
impede the exciting business opportunities that constantly emerge in 
our extraordinary shared marketplace.
    This concludes my testimony.

    Senator Allen. Thank you, Mr. Litman. You raised some good 
points, and I want to followup with you in questioning.
    Now we would like to hear from Mr. Farmer.

   STATEMENT OF THOMAS L. FARMER, GENERAL COUNSEL, AMERICAN 
             BANKERS ASSOCIATION, WASHINGTON, D.C.

    Mr. Farmer. Mr. Chairman, as the last witness I will try to 
keep my remarks very very brief and ask that my short written 
remarks be entered into the record.
    Senator Allen. So ordered.
    Mr. Farmer. And I will not repeat any of the things I said 
there.
    Let me commend you briefly for the inclusion of financial 
services in this discussion. Financial services have a very 
large and very unique role in national trade and it's not a 
good idea to treat them separately from the rest of the trade 
venture.
    My written testimony was limited to process and to the 
exclusion of substance, mainly because the issues of substance 
are extremely technical and complex and not well discussed in a 
single hearing of this kind. But that doesn't imply that there 
are not major financial services regulatory issues that still 
need resolution.
    I would especially point to the EU Data Protection 
Directive which has been discussed between the U.S. and the EU 
over a long period of time and no progress has been made as far 
as we can tell.
    I did not intend to talk about convergence. However, Stu 
Eizenstat has made a very very good case for the idea of 
regulatory convergence and in the area of financial services 
that seems to us to be the way to go. He mentioned accounting 
standards, which is certainly an area where convergence appears 
to be yielding results. There are indications that Commissioner 
Bolkestein and Will McDonough are getting closer and closer to 
a joint way of dealing with accounting issues of various kinds, 
with Paul Volker as well, and in the financial services sector 
that could do a great deal. Our feeling is that the EU Data 
Protection Directive as far as financial services is a primary 
candidate for an approach of convergence.
    Let me briefly summarize a few points I did make in the 
written statement, which is that in the financial services 
sector the cooperative mechanisms on regulation between the EU 
and U.S. are very far advanced. They have been in the last few 
years formalized to the point that both governments refer to 
these regular discussions as the U.S.-EU financial markets 
dialog and under that framework there are regular meetings at 
the cabinet levels between Commissioner Bolkestein and the 
Secretary of Treasury. There are meetings at the level of under 
secretaries and assistant secretaries, and an agenda which 
includes, of course, active participation by the SEC and the 
Federal Reserve Board, who have the actual power to make the 
regulatory adjustments. And that process has been going well 
and the industry is very much supportive of it.
    However, we do see a few areas for improvement of that 
mechanism and that is that it really lacks transparency. Now, 
the negotiators or the discussants on both sides feel that the 
informality and fluidity of the process requires 
microtransparency. However, it seems to us that the timely 
input from industry is difficult when industry doesn't have a 
good idea as to what the agenda is or is going to be. This is 
especially true in looking ahead at developments, market 
developments that are not yet on the agenda, in an area like 
capital improvements where new instruments appear very quickly, 
and having the industry expertise of making forecasts as to 
what may happen might well be useful, and we would think that 
consultancy, even an informal one, might help.
    The other area that I join both of my colleagues here in 
urging more participation is in the area of the Congress and 
the European Parliament talking to each other and learning each 
other's regulatory philosophy. The European Parliament is 
expanding its powers very rapidly and will have a very major 
impact, and I think prevention of the sort of situation Mr. 
Litman talked about is very important, and it may be that a 
timely and regular contact at the congressional level rather 
than just ad hoc visits, which are useful, but might be 
improved upon.
    So that, those are the main areas in which we think this 
process could be improved, but I want to say that the EU-U.S. 
financial markets dialog is a very good model and very 
promising. Thank you, Mr. Chairman.

    [The prepared statement of Mr. Farmer follows:]

                 Prepared Statement of Thomas L. Farmer

    Chairman Allen and Members of the Committee:
    Good Afternoon, I am Thomas L. Farmer, General Counsel of the 
Bankers' Association for Finance and Trade (BAFT) an affiliate of the 
American Bankers Association (ABA). My testimony is on behalf of both 
BAFT and ABA.
    First, I want to commend the Committee for holding hearings at this 
time on this subject. At a time when transatlantic political 
collaboration is strained, good economic relations become even more 
crucial. U.S.-EU regulatory cooperation is a central element in the 
transatlantic economic relationship, which merits special attention. 
Second, I would like to thank the Committee for inviting BAFT to 
testify about the financial services aspect of that relationship. I 
want focus my comments on a few aspects, which are unique to the 
financial markets.
    In many respects, the transatlantic capital market is already an 
integrated market. There are numerous examples of U.S. and European 
firms competing actively and successfully in one another's markets. 
There is considerable data, which indicates that progressive steps to 
integrate these markets have served to lower the cost of capital both 
in Europe and the U.S.--thus benefiting economic growth on both 
continents. Furthermore, the financial service industry is a highly 
regulated industry on both sides of the Atlantic and thus highly 
sensitive to regulatory conflicts which may prevent effective cross-
border activities by either U.S. or European firms. Finally, the 
regulatory framework for financial services has, in recent years, 
undergone far-reaching changes both in the U.S. and Europe. In the 
U.S., the regulatory landscape was dramatically altered by enactment of 
the Gramm Leach Bliley Act in 1999 and the Sarbanes-Oxley Act in 2002. 
Meanwhile, the European capital market is being restructured even more 
extensively and more rapidly than the U.S. market. U.S. firms and 
regulators are especially alert to detect and to hopefully prevent 
potential conflicts in regulatory architecture, which could hinder the 
competitiveness of U.S. firms in the European market.
    In the development of a single European financial market, it is 
important to recognize that the integration of the capital markets has 
lagged behind the integration of other European markets. When the EU 
finally adopted its Financial Services Action Plan (FSAP) in 1999, 
efforts to create an integrated European capital market began to make 
significant headway. The self-imposed objective of the FSAP to develop 
a single integrated EU capital market by 2005 indicates the 
determination of the Commission and the member states to move forward 
expeditiously with this complex project. The plan envisages 43 separate 
legislative and non-legislative measures in banking, securities and 
insurance. Within the 2005 overall deadline, there are benchmarks for 
the completion of individual measures. Somewhat surprisingly, the EU 
has managed to keep pace with this ambitious timetable and has 
promulgated various parts of the FSAP much more rapidly than is normal 
for EU legislation and rule making.
    The U.S. banking industry considers the FSAP highly beneficial for 
the European, U.S. and global economies and supports its objectives. At 
the same time there is the realization that ``all politics is local'' 
and that the primarily the FSAP is designed to address domestic 
European requirements. We were, nevertheless, pleased to see that in a 
formal report released in June 2003, the European Commission emphasized 
the transatlantic and global impact of its policymaking on financial 
markets and urged that this aspect of its work receive special 
attention in the development of the next phase of policy. The cross-
border impacts of the FSAP were well defined by the Commission report:

          Financial services are increasingly delivered on a global 
        scale. The regulation and supervision of financial markets can 
        no longer ignore the reality that measures taken by any country 
        or group of countries may have consequences on business 
        undertaken outside that jurisdiction. Measures intended for a 
        purely domestic context may unintentionally require compliance 
        by market operators in other jurisdictions with only a marginal 
        or indirect presence in that jurisdiction.
          Bilateral regulatory dialogues on financial services may 
        provide a means for managing regulatory spill-over that may 
        occur in highly inter-dependent financial markets; especially 
        with the EU's major commercial partner, the U.S.. We need to 
        cooperate through a continuous and informal dialogue on how to 
        enhance transatlantic integration of financial markets and how 
        to deal with global financial issues.

As a potential victim of the ``spill over'' effect that concerns the 
Commission, the banking industry welcomes the Commission's call for 
regulatory dialogue with the U.S. on integration of financial markets 
and global financial issues.
    Fortunately, there already exists a broad and sophisticated 
transatlantic dialogue on financial markets, which deserves the 
attention of your Committee. This transatlantic dialogue functions on 
several levels--i.e. among governments and regulators, among private 
sector financial firms and trade associations and among European 
Parliamentarians and Members of Congress. Furthermore, the governmental 
regulatory dialogue on financial services has been active and important 
for many years. Until recently, however, it was conducted largely as 
bilateral exchanges between Central Bank Governors and regulators in 
the U.S. and counterparts in EU member states. More recently, the EU 
Commission has become the principal partner of the U.S. in this 
dialogue on regulatory issues.
    Even more importantly the U.S.-EU regulatory dialogue has become, 
in recent years, significantly deepened and institutionalized to the 
point that both governments now refer to this process of consultation 
officially as the ``U.S.-EU Financial Market Dialogue.'' The U.S. 
Secretary of the Treasury and the EU Commissioner responsible for the 
Internal Market and Taxation lead the Dialogue on the Cabinet level. At 
the working level, senior officials of the Treasury, the Federal 
Reserve and the SEC coordinate U.S. participation. On the European 
side, the participants consist of the Director of the Internal Market 
and his staff. At present, the Dialogue appears informal and open ended 
and additional issues are put on the agenda as required. Consultations 
in this framework have become more frequent so that currently formal 
dialogue meetings, at one level or another, occur four or five times a 
year.
    Consultations on regulatory issues have also intensified among U.S. 
and European banks. For some years, the President of the ABA has met 
twice yearly with the heads of the national banking associations of the 
OECD member countries and the European Banking Federation. 
Progressively these consultations have focused on U.S.-EU regulatory 
issues to the point where recently the group has issued joint 
statements on important regulatory concerns. Additionally, BAFT's 
European Advisory Council was, in part, established to start a 
facilitate a discussion of transatlantic regulatory concerns encounter 
by both our European member bankers and the BAFT Board of Directors, 
who are practicing bankers, in their day work experience. Then jointly 
advocate agreed solutions to the respective governmental bodies in both 
the U.S. and the EU. To a limited extent the transatlantic dialogue on 
financial services has also included discussions between the U.S. 
Congress and the European Parliament. However, these contacts have been 
essentially limited to a few members of the House of Representatives 
and members of the European Parliament's Economic Monetary Affairs 
Committee. The European Commission continues to encourage expansion of 
these parliamentary contacts but so far discussions in this forum are 
not very substantive or regular.
    In conclusion I want to say that while the transatlantic dialogue 
on regulation of financial services is going well, it could be 
strengthened. Although the U.S.-EU Financial Market Dialogue is still 
in its early stages, it has already influenced awareness regarding the 
regulatory philosophy prevailing on the other side. Additionally, the 
governmental dialogue appears to have brought about a certain level of 
regulatory convergence, which the financial services industry certainly 
welcomes. It must, however, be noted that the agenda and the thrust of 
the consultation has little transparency. The governmental participants 
appear to feel that this is necessary to preserve informality and 
fluidity in these talks. Nevertheless, this lack of transparency makes 
it difficult for the private sector to make a contribution to these 
talks. Both parties to the Dialogue have indicated a desire to consider 
issues or possible areas of conflict, which have not yet become the 
subject of legislation--whether in draft or enacted. Such anticipatory 
discussions are particularly useful in avoiding regulatory conflicts, 
which impact the private sector. But it is precisely in this area where 
the private sector, with its sophisticated knowledge of business 
trends, can make a uniquely useful contribution. A process of informal 
but structured consultations with the private sector might be a way for 
governments to access private sector knowledge without encumbering the 
governmental consultations. As for strengthening the dialogue between 
Congress and the European Parliament it is our view that familiarity 
with each others regulatory architecture and philosophy might well 
contribute to avoidance of conflicting legislation not only with 
respect to financial services.

    Senator Allen. Thank you, Mr. Farmer.
    I'm going to make some observations here and ask some 
questions and maybe followup on some of your comments. All 
three of you all and others have mentioned the importance of 
having dialog with the parliamentarians, the European 
legislative branch with our Federal legislative branch, and you 
make a good point. Mr. Farmer stated a prime example of them, 
and rather than ad hoc efforts. I have found in my discussions, 
and there haven't been many, but the few I have had with 
leaders from Europe is that you can talk things out, you can 
discuss them and say why do you do this this way. I mean, you 
can be forthright, you have to be diplomatic, but you really 
can just discuss things, haggle them out and get their 
perspective instead of reading about it, and everybody gets a 
more particular understanding of the other's point of view.
    So I think, Mr. Farmer, Ambassador Eizenstat and Mr. 
Litman, and others have made that comment and that's probably 
something that we can do out of the Foreign Relations Committee 
and would be a natural for be to start that, as the chairman of 
the European Affairs Subcommittee. It would seem to me that we 
would all benefit from that, and we will discuss things of 
common interest as well as some of the areas that have been 
discussed today. I thank you all for that idea, which I think 
is an important one.
    Ambassador Eizenstat. May I just comment on that one 
second?
    Senator Allen. Sure.
    Ambassador Eizenstat. First of all, particularly under the 
new constitution which is going to be passed by the end of this 
year, the European Parliament has become a real power, it has 
real powers, it has increasing budget powers, it has real 
legislative powers over the Commission's recommendations, so 
it's a real body, it's a real legislative body, which one would 
not say was the case 10 years ago.
    Second, with the exception of some members like Former 
Chairman Ben Gilman when he was chairman of the Foreign 
Relations Committee on the House side and now Jim Kolbe and a 
few others, the only sustained dialog that occurs is on the 
House side with a few members. It doesn't include Ways and 
Means, it doesn't include a broad swath of Foreign Relations, 
and it has never included the Senate. The Senate has a dialog 
with NATO over in the Atlantic Council but not with the EU.
    So if you could initiate this, it would really have a 
dramatic effect, because when something like the chemical 
directive goes to the Parliament as it probably will by the end 
of October, the Parliament is going to have to decide whether 
to try to improve it by amending it. Without having any contact 
between our Congress and their Parliament, they don't hear what 
they need to hear, so I think it's a tremendous idea and if you 
did that, I think it would be extremely well received by the 
European Parliament. And you could combine your visits by also 
meeting with the commissioners, the executive arm of the EU.
    Senator Allen. Thank you, and we will try to do that. I 
think that's where we have to refer to, Mr. Litman, their 
efforts to amend it and improve it, and it would strike me as 
they pass their laws, they call them laws, we call them 
regulations, but you would think that they would take into 
account what the economic impact of these regulations are. You 
take for example, not just with the chemical matter but the 
other, which Mr. Litman brought up on the diesel standards.
    On the diesel standards it strikes me as common sense that 
you're going to have the same standards for the diesel engines, 
just for the quantity, the mass production, instead of having a 
diesel engine, low polluting diesel engine for Europe and a 
different one for the United States, as many diesel engine are 
manufactured by Mercedes, Volkswagen or whomever, they make 
good diesel engines, as well as Volvo, General Motors, Ford and 
so forth, it would just seem to me so logical for them so say 
well, how is this going to help you, how will this make our 
diesel engine, European manufactured diesel engines exportable 
and usable in the United States when it is such a big big 
market.
    Europe is a big market for us, the U.S. is a big market for 
them, and it's hard for me to believe that they wouldn't take 
that into consideration or that in the body of the Commission's 
findings they did not bring up that harmonization or the 
symmetry of similar standards so that it would fit into the 
U.S. market. Are those considerations not taken into 
consideration by the European Union's Parliament when acting on 
these? Do they not hear from those who actually manufacture 
diesel engines that this is going to increase the cost if they 
have to manufacture two diesel engines as opposed to one that 
meets improved air quality standards for people in both 
countries?
    Mr. Litman. Mr. Chairman, in this particular case actually, 
the European Commission did its homework and proposed setting 
up a standard that is fully aligned with the EPA proposal. The 
problem is that the argument that we have negotiated this with 
Americans does not sound like a compelling argument to many 
members of the European Parliament.
    Senator Allen. Well, that's understandable. They respect 
their sovereignty. Of course, they've given up some of their 
sovereignty by creating the European Union.
    Nonetheless, they have the right, clearly, to control their 
own destiny. And I could imagine the same in this country, that 
because the Europeans want to do it this way, that probably 
wouldn't be all that compelling an argument for us.
    What would be a compelling argument, I'll speak only for 
myself, would be the fact that if we do have this symmetry in 
this regulation or this rule or this law, or this standard, 
this means that some company in Ohio, or Kentucky or Virginia, 
or Georgia, they will be able to manufacture that engine and 
that engine could also be sold in all 25 countries of the 
European Union, to me that makes sense, it's just logical.
    Was that not made as an argument that if we have this, 
these engines made in Bavaria or Bonn, or wherever it may be, 
could be sold into the United States?
    Mr. Litman. My answer is yes, the argument has been made 
and what happens in Europe is the European Parliament is not as 
material an institution and well adapted to accepting input as 
the U.S. Congress or national legislations within Europe.
    What frequently happens is, because they frequently act in 
a rush result without a lot of staff work, the members of the 
European Parliament tend to play to particular constituents 
that are far removed from the economic realities of the country 
that elected them. And we have to work both with the members of 
the European Parliament and with member states so that 
ultimately at some point we can make that point and when I say 
we, it's American and European businesses together.
    So we go to the governments of Germany and France and 
Holland and Britain, and make the same point. When the issue 
comes up from the Parliament back to the heads of state on the 
council, we will be able to have another chance to make the 
case for economic growth of one transatlantic market.
    But instances of operating in a vacuum within the European 
Parliament still exist and it's one of the reasons we want them 
to come here as frequently as they can, and we want to go visit 
with them as frequently as we can. It's a new institution, they 
are still feeling about for themselves, frankly, and it will 
get enormous new powers a year from now.
    This is a critical moment to engage them. They hear from 
industry, they hear from various radical environmental groups.
    It's difficult for them to discriminate to do the analysis 
since they don't have the mechanisms for that. And they don't 
have the processes of hearings like you do.
    So you are absolutely right. The case has been made but at 
the same time, nothing can take the place of direct legislative 
comment like you offered to me, what do you mean by this. That 
would take it a long way.
    Senator Allen. Well, you know, some of the conflicting and 
the arguments of different groups and individuals who have 
strongly held beliefs, that's the vibrancy of representative 
democracies, and there are times when I wonder why the heck we 
pass some regulations that don't take into account the impact 
on a small business or on jobs, or the competitiveness of a 
state or for that matter our country. It's best that we try to 
understand in each country, and in Europe that they do have 
different points of view and people think differently, even 
within countries obviously.
    These are free countries where people think freely. Some of 
the demonstrations they have are really something, on the 
Champs d'Elysee and elsewhere when it comes to the agricultural 
interest.
    Let me go through some other points here. Ambassador 
Eizenstat, you were right insofar as, in my observations on the 
White House being involved. And obviously right now we have so 
many key issues with the war on terrorism; trade and jobs 
obviously are very important. I know Secretary Snow personally 
well, and he is certainly making a great effort, as well as 
Secretary Evans. But in other cases that I won't get into, but 
in private conversations, it's interesting what President Bush 
has shared with me in some of the issues that he has been 
advancing, with Russia and poultry, for example. The President 
is concerned about poultry from Russia and that matters a great 
deal. Sometimes those countries really don't understand our 
standards of cleanliness and health. And it is important as 
best we can just listen to President Bush as he was 
advocating--and I don't want to breach any confidences, but I 
know that he has worked hard, I will say that, as far as U.S. 
poultry into Europe.
    And suffice it to say, your point is well taken that 
sometimes even if you do have staff, not in my case, but 
sometimes staff doesn't give you the accurate information to 
make decisions, and so sometimes the leaders do need to talk 
face to face with one another on some of these trade issues.
    You might say, oh wait a second, he said this, you get some 
questioning that you might not otherwise have.
    The other issue that came up from Ambassador Eizenstat and 
Mr. Farmer had to do with accounting standards. And from some 
of the hearings we did have with a European member on the 
accounting standards, I thought they were clearer in 
understanding the issue of stock options than people in this 
country. I think generally accepted accounting principles ought 
to be generally accepted and there is no generally accepted way 
of accounting for the value of stock options, or the value of 
stock options, which may be a great deal or may be nothing. It 
just depends. And listening to the European leader at a 
bipartisan hearing, the European gentleman seemed to understand 
it better than ours.
    And you listen to the comments here of 6,400 different e-
mails, it wasn't on stock options, but on another issue, it 
strikes me in some cases that the European Commissioners listen 
more closely to reality and the real will of the people than 
some of our folks supporting the Federal accounting standards 
in this country. So we may be actually helped by the Europeans' 
more logical realistic approach on stock options than some of 
the hysteria and harmful ideas that seem to be being pushed 
forward in this country.
    The other issue that I wanted to do bring up with you is, 
how do you see this stock option issue, if you feel 
comfortable, Mr. Ambassador or Mr. Farmer? I know this is a 
financial matter and is not exactly a banking issue, but where 
do you see this issue of stock options whether you attempt to 
expense them, how do you value them and so forth going forward 
in the European Union?
    Mr. Farmer. I will pass on that.
    Senator Allen. Mr. Ambassador, if you have any insight, we 
would welcome it.
    Ambassador Eizenstat. Let me just address a couple of the 
questions you mentioned. First on the White House involvement, 
most of the agencies in our government are either formally or 
informally independent regulatory agencies, FCC, the FDA, and 
so one has to be careful about the degree to which you mandate 
that they do certain things because they are independent. But 
without the kind of White House direction that we try to 
provide to encourage them to talk to their counterparts and to 
recognize the fact that they can accept the standards and 
certifications at least to our standards, they simply won't do 
it. So they need to be pressed, they need to be pushed. It's 
not a President's job to do it but it is his staff's job to do 
it, and they need to be encouraged to think transatlantically.
    Second, with respect to accounting standards, I think that 
what Commissioner Bolkestein is working toward is not that they 
would be identical but that they would converge sufficiently so 
that we could each say that they are substantially equivalent 
and we would be willing to accept theirs and they would be 
willing to accept ours as a condition, for example, of going 
onto the exchange or being listed, or the adequacy of auditors.
    Senator Allen. Would it not be the case though, Mr. 
Ambassador, that if they had standards, that should certainly 
be the case, but if we had standards that were more 
restrictive, for example on the issue of stock options, it 
could make those companies more attractive or less attractive?
    Ambassador Eizenstat. That is true.
    Senator Allen. And whether it's in Europe or for that 
matter Asia, it's not as if the whole focus is on Europe, but 
there is a great deal of growth in entrepreneurship in east 
Asia and we could lose investments.
    Ambassador Eizenstat. This is clearly one of the areas 
where they will have to try to see if they can reach some 
understanding. I'm not able to say where they are going in 
Europe. I think in the United States there is a slow trend 
toward expensing but there is a broader recognition that it is 
very difficult to value options, and this is certainly an area 
where there ought to be convergence. I don't think we should 
have one area of the Atlantic where we are expensing them and 
one area that they are not, so I think there is a need for 
convergence there. But I think that with Paul Volker and 
Bolkestein, I think there is significant progress in trying to 
get their accounting standards and our GAAP standards to a line 
that we will be close to being able to say they are equivalent 
enough to recognize each other's standards.
    Senator Allen. Mr. Farmer, let me ask you a question on the 
Fair Credit Reporting Act, which we must act upon and renew 
before we leave here in the House and Senate this year.
    How do you see--you were mentioning some of the data 
protection and privacy type issues. How do you see the Fair 
Credit Reporting Act in this country, and I assume you want to 
make sure we get it passed, but how do you see that converging, 
or the symmetry there?
    Mr. Farmer. It's a vital building block if it's renewed 
without major changes and with the Federal preemption, which 
appears to be in the works, that's very important. However, the 
discussions with the Europeans, the issue with the Europeans is 
whether or not--their law provides that data from European 
consumers may not be exported to countries that don't have a 
``adequate standard of privacy'' and the Commission has the 
authority to say it's adequate.
    Senator Allen. Do they consider our law----
    Mr. Farmer. Not adequate, and this debate has been going on 
for some time. And even before the FCRA became close to 
expiring, they were still saying it's not adequate. The 
rationale as far as we can see, especially in financial 
services, is very difficult to understand. We do think this is 
a question of convergence, it's not identical to their privacy 
standards, but in the last 6 months or so these discussions 
have really been put on ice, because part of the European 
argument has been well, we don't even know whether FCRA is 
going to survive into 2004. So passing this Act should renew 
the ability to go back to the table to discuss the convergence.
    And again, as Stu said, we're looking at standards which 
are very very similar, trying to accomplish the same thing but 
aren't identical, and our contention has been that the FCRA is 
essentially a counterpart to what the Europeans use.
    Ambassador Eizenstat. I would say, Mr. Chairman, that what 
we did in the Clinton administration when David Aaron was Under 
Secretary of Commerce and took the lead in this negotiation, 
was to create a so-called safe harbor for data privacy so that 
the EU in the end said that our regulation was sufficient, it 
was not the same, but it was sufficient for them to create a 
safe harbor and not to apply their restrictions to us. That did 
not get extended into the financial services area but the 
concept was very similar to it.
    Mr. Farmer. And that concept with some modification needs 
to be worked out and is a very important area. In general, 
though, this is not a financial services issue. The European 
thinking on privacy in many ways is different than ours and 
certainly also, some of the other areas such as security are 
contentious. So again, I think this is an area where informal 
discussions between Members of Congress and the European 
Parliament may help bridge a conceptual or cultural gap about 
what are we all trying to do with respect to privacy, what are 
appropriate limitations.
    Ambassador Eizenstat. We also have this coming up on the 
war on terrorism because the U.S. is requiring detailed 
passenger list information and this puts the European airlines 
between that request and their own privacy laws. But here 
again, what Bolkestein is trying to work out, and is making 
some progress, is that if the U.S. will agree, A, that 
passenger lists will only be used on the war on terrorism, and 
B, that they will only be stored for a certain period of time 
and then they would be destroyed, and C, that scope would be 
more limited, than perhaps that can be provided as an 
exception.
    Senator Allen. I'm certainly aware of security concerns 
affecting travel and tourism to this country, I'm not saying 
that everything is an economic bottom line, but security and 
safety are vital, and we've tried to do things in a way that do 
not have an exceeding, or can have an exceedingly adverse 
impact on our travel.
    We'll finish off with one final question to Ambassador 
Eizenstat. We brought up the Microsoft case. During your time 
in the Clinton administration, you were discussing some of the 
matters you went through, and also the history on our side as 
far as starting and stopping the mergers. The point is, you 
have been involved in a number of competition disputes between 
the United States and the European Union, including most 
recently the McDonnell Douglas-Boeing merger. Do you see the 
Microsoft case as being different than those cases?
    Ambassador Eizenstat. Those cases were merger cases, 
whereas this is a competition case, but the principle should be 
the same and that is, we should be trying to reach a 
convergence. The U.S. process with Microsoft took 5 years with 
two administrations. There was finally an agreement with the 
majority of states, nine states, later two, then one, ended up 
appealing. The basic concept that the judge accepted in the 
Justice Department decision with Internet browsers was that 
there did not have to be an unbundled separation of the browser 
from the basic software package, it did not have to be sold 
separately, and indeed it would be inefficient to do so.
    Now in the third statement of objections with the Media 
Player, a very similar concept, is suggesting it has to be 
taken out. And this, I think leads to the kind of divergence 
which is very unhealthy and it would Microsoft to having to 
develop and distribute different versions of its Windows in the 
U.S. and in Europe. I don't know any other case where the 
remedies specifically rejected in the U.S. was able to be 
imposed as a requirement in the EU.
    So in some respects this almost goes beyond some of the 
other merger cases, so it's a competition case and it sets up a 
very serious precedent.
    Senator Allen. Thank you. I want to thank each of you,
    Mr. Litman, Mr. Ambassador, Mr. Farmer, thank you for your 
patience, thank you for your testimony and your insight and 
your good suggestions, and we will follow through with them in 
this European Affairs Subcommittee. Thank you.
    The subcommittee is adjourned.

    [Whereupon, the hearing adjourned at 4:38 p.m.]


                            A P P E N D I X

                              ----------                              



Statement Submitted by the American Chamber of Commerce to the European 
                           Union (AMCHAM EU)

EU-U.S. REGULATORY COOPERATION AND THE ``BETTER REGULATION'' INITIATIVE

    Effective cooperation between America and Europe on regulatory 
affairs is crucial for American businesses operating in the EU. The 
mechanisms laid down in the 1998 EU-U.S. Guidelines on Regulatory 
Cooperation and Transparency, while positive, have not yet achieved 
their goal. Tensions on chemicals and on airline data, for example, are 
testament to this. We would like to see greater commitment from players 
on both sides of the Atlantic and in varied parts of government to 
build cooperation. In this context, it is important to be aware of the 
EU's evolving debate on regulatory processes. The EU institutions, led 
by the Commission, have undertaken a comprehensive look at current 
governance procedures and made concrete proposals for future reform. 
These will continue to be worked over the coming years. In this paper 
we give background to this debate and to the American ChaAmCham EU's 
involvement and positioning.

The EU Governance Debate and the ``Better Regulation'' Initiative
    In 2001 the Commission issued a White Paper on Governance in 
Europe, leading to a wide debate between all stakeholders in the 
European regulatory environment. AmCham EU played an active part in 
this process, realizing that a more balanced, transparent and coherent 
regulatory process was critical for U.S. businesses seeking to engage 
in discussions on legislation that affected them. The outcome of this 
debate was the ``Better Regulation'' initiative.
    The initiative consists of two packages of communications published 
in June and December of 2002 and addresses a number of objectives 
identified by the business community. In its recent position paper on 
the initiative AmCham EU expressed broad satisfaction with the work 
undertaken by the Commission. Both the objectives and the proposed 
action largely coincided with AmCham EU's consistent call for wiser 
regulation, basing the choice of policy instruments upon clear and 
transparent rules, systematic impact assessments, better coordination 
of community initiatives, objective justification for policy choices, 
adequate and timely consultation and better implementation and 
enforcement of existing legislation.
    The challenge for business and other stakeholders now is to hold 
the European Commission to its promises. AmCham EU welcomes the 
Senate's commitment to regulatory cooperation and transparency in its 
cooperation with the EU. We hope that the Senate will work with us to 
achieve a full implementation of the ``Better Regulation'' Initiative.
    AmCham EU saw six areas of the initiative as critically important.

            1. Communication on a reinforced culture of consultation 
                    and dialogue\1\
---------------------------------------------------------------------------
    \1\ COM (2002) 704.
---------------------------------------------------------------------------
    In this document the Commission seeks to establish general 
principles and minimum standards for consultation with all 
stakeholders--including governments and business--in all major new EU 
initiatives. The key elements in the document are:

   the assertion that that the guidelines, while not legally 
        binding per se, will be de facto binding on all departments of 
        the European Commission (Directorates-General);

   the obligation for all Directorates-General to report on 
        progress implementing the consultation principles and minimum 
        standards as part of an annual report on ``Better law-making'';

   a call on interest groups to monitor the Commission's 
        progress;

   the timeframe for comments. For the majority of proposals, 
        this will be eight weeks. Feedback to comments received will be 
        provided through the explanatory memoranda accompanying 
        legislative proposals. In addition, the results of 
        consultations undertaken in conjunction with the impact 
        assessment process will be summarized in related reports.

    While respecting the non-legally binding nature of principles and 
standards, AmCham EU recommended that their implementation be 
monitored, assessed and, where necessary, corrected on a continuous 
basis.

            2. Communication on impact assessment \2\
---------------------------------------------------------------------------
    \2\ COM (2002) 276.
---------------------------------------------------------------------------
    This Communication proposes adopting a single approach for impact 
assessments, integrating current (but diverse) practices in the areas 
of environment policy, trade, business, etc. Detailed guidelines for 
implementation are under development. Impact assessments will be 
applied to all major initiatives and will help determine the 
appropriate policy instrument.
    In response to this measure, AmCham EU called on the Commission to 
develop, in consultation with interested stakeholders, a clear 
methodology and process for impact assessment that will be applied 
uniformly. We also encouraged the development, by the Commission and 
interested stakeholders, of a set of common definitions of the policy 
options and alternative instruments available to legislators and the 
establishment of criteria for their application.

            3. Communication on simplifying and improving the 
                    regulatory environment \3\
---------------------------------------------------------------------------
    \3\ COM (2002) 278.
---------------------------------------------------------------------------
    The Communication focuses on the three main parts of the 
legislation cycle: preparation and presentation of legislative 
proposals by the Commission; discussion of proposals by the European 
Parliament and the Council; and application of legislative acts by 
Member States. It identifies a number of areas for Commission action.
    AmCham EU strongly supported the Commission's commitment to avail 
itself of opportunities to withdraw legislative proposals and create 
its own internal network for better regulation.

            4. Communication on updating and simplifying the community 
                    acquis \4\
---------------------------------------------------------------------------
    \4\ COM (2003) 71.
---------------------------------------------------------------------------
    The acquis communautaire refers to the existing body of EU 
legislation. This Communication looks at:

   simplification, consolidation and codification of the 
        acquis;

   reviewing the acquis' organization and presentation;

   ensuring transparency and effective monitoring at political 
        and technical level;

   establishing an effective implementation strategy.

    It also highlights the need for new legislative proposals to be 
developed in line with better regulation guidelines.
    In response, AmCham EU called on the Commission, in the context of 
its efforts to consolidate and codify existing laws, to rethink 
legislative approaches where practicable and necessary, so that the 
simplification process supports the larger goal of better regulation.

            5. Proposal to amend comitology procedures \5\
---------------------------------------------------------------------------
    \5\ COM (2002) 719.
---------------------------------------------------------------------------
    The comitology procedure is one of the more opaque aspects of EU 
policy-making, but basically refers to the method by which the Member 
States oversee the work of the Commission as it implements some 
technical aspects of EU legislation. The proposal would give a greater 
role to the European Parliament in this process, to better account for 
the European Parliament's extended role as legislator.
    AmCham EU believes that the Commission's proposal to balance the 
powers of the Council and the European Parliament in the comitology 
process is indeed a necessary step.

            6. Communication on the better monitoring of the 
                    application of Community law \6\
---------------------------------------------------------------------------
    \6\ COM (2002) 725.
---------------------------------------------------------------------------
    Law passed at the European level is directly binding, but its 
implementation requires the Member State governments to transpose it 
into national legislation. The differences between theory and practice 
present a consistent challenge for businesses operating in the EU 
environment. This communication seeks to improve this situation by 
encouraging those drafting legislation in the Commission to anticipate 
difficulties in transposition for Member States.
    AmCham EU has consistently called for a coherent approach to 
implementing and enforcing EU law and therefore fully endorsed the 
objectives of this Communication. We recognized and supported the shift 
in focus that underlies this Communication.
Conclusion
    AmCham EU would encourage the Senate to build a constructive 
transatlantic dialog on regulatory cooperation and to continue to 
underline the importance of the European Commission's work on better 
regulation. Successful dialog on regulatory cooperation can only 
bolster the initiatives undertaken by the Commission, leading to a more 
balanced, transparent and coherent regulatory process in the Europe. 
This will allow U.S. firms to grow and develop, bringing greater 
prosperity on both sides of the Atlantic.

                               __________

             Statement Submitted by the Chamber of Commerce
                    of the United States of America

  COMMENTS ON THE EU COMMISSION CONSULTATION DOCUMENT CONCERNING THE 
 REGISTRATION, EVALUATION, AUTHORIZATION AND RESTRICTIONS OF CHEMICALS 
                                (REACH)

    The Chamber of Commerce of the United States is the world's largest 
voluntary business federation, representing more than three million 
American businesses from every sector and region of the United States. 
Thousands of our member companies derive much of their business from 
commerce with the European Union and therefore have a major stake in a 
well-functioning and growing U.S.-EU marketplace.\1\
---------------------------------------------------------------------------
    \1\ U.S. Chamber of Commerce Testimony before the U.S. Senate 
Foreign Relations Committee, Hearings on U.S. Relations with a Changing 
Europe: Differing Views on Technology Issues, June 24, 2003.
---------------------------------------------------------------------------
    Therefore, the U.S. Chamber of Commerce greatly appreciates the 
opportunity to comment on the EU Commission's Consultation Document 
Concerning the Registration, Evaluation, Authorization and Restrictions 
of Chemicals (REACH) [``Chemicals directive proposal''] before it 
becomes law and seriously affects our member companies as well as the 
transatlantic commerce as a whole.
    The U.S. Chamber of Commerce has three major concerns with the 
proposed Chemicals directive.

   1. The regulation risks dampening the transatlantic economy;

   2. The regulation advances questionable policies and goals without a 
            realistic cost-benefit analysis;

   3. The regulation has structural flaws that may result in unintended 
            effects and inequitable treatment of American companies and 
            products.

I. Economic Impact
    Chemicals are a critical component of transatlantic trade in 
industrial and consumer products. Each year, the U.S. exports more than 
US$20 billion worth of chemicals to Europe and invests in the EU more 
than US$4 billion in the chemical and related sectors. \2\ U.S.-owned 
affiliates and subsidiaries based in Europe research, develop, 
manufacture, and market within Europe and export outside the EU. U.S. 
exports of ``downstream products'' made with chemicals to the EU are 
well over US$400 billion annually. U.S. companies and consumers also 
purchase considerable amounts of chemicals and products made with 
chemicals from the EU. The U.S. imports from the EU more than US$40 
billion worth of chemicals per year.
---------------------------------------------------------------------------
    \2\ U.S. Department of Commerce and American Chemistry Council 
(ACC).
---------------------------------------------------------------------------
    Given this scale of U.S.-EU commerce in chemicals and products 
derived from them, any major regulation affecting this trade will also 
have an effect on the overall transatlantic economy. In the proposed 
Chemicals directive, the EU Commission sets out to overhaul the rules 
of operation of a successful and well-functioning industry that has 
been at the forefront of innovation,\3\ investments, employment, social 
and environmental welfare and economic growth. Therefore, the 
objectives of the Chemicals directive must be compelling to justify the 
considerable costs and risks the regulation will generate.
---------------------------------------------------------------------------
    \3\ ``About 90% of all industrial innovations can be traced to 
innovations from the chemical industry.'' European Chemical Industry 
Council (CEFIC).
---------------------------------------------------------------------------
    Several credible studies have recently been conducted to assess the 
probable economic impact of the Chemicals directive proposal on key 
member states, including France and Germany.\4\ According to these 
studies, national GDPs will be negatively affected, hundreds of 
thousands of jobs will be lost, and companies, especially small and 
medium size enterprises (SMEs) will suffer. Considering the level of 
integration and interdependence of U.S. and EU economies, the U.S. 
Chamber of Commerce is concerned that the U.S. economy will also be 
negatively impacted.
---------------------------------------------------------------------------
    \4\ ``The Likely Impact of Future European Legislation in the Area 
of Chemical Substances,'' April 2003, Mercer Management Consulting 
study under the supervision of the UIC (Union des Industries 
Chimiques), the French Ministry of Ecology and Sustainable Development, 
and the French Ministry of the Economy, Finance and Industry. 
``Economic Impact of the EU Substances Policy,'' October 2002, Arthur 
D. Little GmbH study under the supervision of Bundesverband der 
Deutschen Industrie (BDI).
---------------------------------------------------------------------------
    The U.S. Chamber of Commerce is also concerned that the Chemicals 
directive proposal will undermine European competitiveness at a time 
when member states are tackling difficult but vital socio-economical 
reforms and taking significant steps to reduce regulatory burdens. \5\ 
A loss of economic momentum in Europe would go against the economic 
interests of American business.
---------------------------------------------------------------------------
    \5\ See CEFIC News Release, June 27, 2003, reporting statements 
made by President Chirac, Chancellor Schroeder and Prime Minister Blair 
at the EU Council in Thessaloniki, Greece, June 19-20, 2003. See also 
comments made by CEFIC President Eggert Voscherau at CEFIC General 
Assembly, Hamburg, June 27, 2003.
---------------------------------------------------------------------------
II. Premises, Principles and Lofty Goals
    The U.S. Chamber of Commerce is concerned that the Chemicals 
directive proposal overly emphasizes the dangers of chemicals per se 
over the risk of exposure to known hazardous chemicals. The directive 
does not adequately take into consideration sound scientific risk 
assessment methods and cost-benefit analysis to justify its regulatory 
reform proposal.
    Companies are already well aware that certain chemicals that they 
produce or use are hazardous. U.S. and European companies already take 
precautionary measures, including extensive testing, to assess toxicity 
and exposure risks. It is not in any company's interest to 
underestimate the human and environmental risks posed by chemicals to 
its workers, customers, consumers or unrelated parties. U.S. and 
European governments have a proven record of regulating the industry 
and have in the process successfully assisted companies in the 
challenging task of protecting humans and the environment.
    Chemical testing is an ongoing process that requires active 
collaboration between companies and governments. No amount of 
registration and authorization in itself generates scientific 
certainty. Results of one day could be contradicted by the observations 
of another day, and scientific research is always reassessing its 
findings. Thus, testing for all imaginable risks can be carried on 
practically ad infinitum. In this respect, companies and governments 
share the responsibility to constantly minimize risks to humans and the 
environment by reducing the exposure potential of the most hazardous 
chemicals. Other products should be allowed on the market if they 
comply with performance standards rather than be presumed harmful until 
proven otherwise. Therefore, testing should not be a condition for 
market access for most chemicals and for most products containing 
chemicals.
    Extra-precautionary treatment of chemicals, as proposed in the 
Chemicals directive, can be justified in known cases of hazardous 
chemicals. On the other hand, it does not make sense to apply the same 
regulatory treatment to well-known and harmless chemicals. Applying a 
``one-size-fits-all'' approach to all existing chemicals and all 
existing downstream products on a permanent basis would be costly and 
unnecessary.
    In addition, regardless of the costs and of the implementation 
difficulties that the directive would entail, it is not certain that 
the directive could actually achieve its ambitious goals. What is known 
is that imposing blanket testing and certification requirements on most 
chemicals for all imaginable risks will impede innovation, stifle 
development and insert all sorts of bureaucratic intermediaries in the 
process of bringing goods to the market. It is questionable how this 
heavy burden on companies would in fact deliver the health and 
environmental benefits sought by the regulators. Another license filed 
with yet another regulatory body does not necessarily reduce any risks 
unless it guarantees that a science-based risk management process has 
been implemented.
    The U.S. Chamber of Commerce is therefore urging the EU Commission 
to streamline the directive proposal to prevent the costly and 
unnecessary overhaul of a well-functioning industry and avoid the 
testing of thousands of well-known chemicals.\6\ The Chemicals 
directive proposal should instead target the most hazardous chemicals 
that pose known risks to humans and the environment. By setting 
priorities, the directive proposal would be more cost-effective.\7\
---------------------------------------------------------------------------
    \6\ According to a study conducted for the EU Commission ``Business 
Impact Assessment of EU Chemicals Strategy'' by the consulting firm 
Risk & Policy Analysts (RPA), May 2002, ``testing alone comprises 88% 
of the total testing and registration costs.'' Thus, considerable 
savings could be achieved by avoiding the testing of already tested 
chemicals.
    \7\ The U.S. Chamber of Commerce respectfully suggests the EU 
Commission review cost-effective U.S. risk assessment policies. See for 
instance ``Science and Judgment in Risk Assessment,'' Committee on Risk 
Assessment of Hazardous Air Pollutants, Board of on Environmental 
Studies and Toxicology, Commission on Life Sciences, National Research 
Council, the National Academies Press, 1994.
---------------------------------------------------------------------------
    Crucially, the European Union should continue to encourage research 
into all aspects of chemical science and technology in order to develop 
insights into the hazards and risks associated with any products. As 
risks become known and understood, the business community will continue 
to embrace science-based risk management consistent with health and 
environmental goals. A sound scientific risk assessment basis for the 
Chemicals directive proposal would prevent unnecessary work, innovation 
delays and bureaucratic hassle.

III. Flaws and Unintended Consequences
    The Chemicals directive proposal contains various structural flaws, 
which could result in unintended consequences that may unfairly harm 
non-EU companies. Below are some of the issues that most concern our 
members.

    (a) WTO Compliance: The U.S. Chamber of Commerce is particularly 
concerned that some requirements of the directive at registration, 
testing and authorization levels could impede access to the EU market 
for non-EU companies and products, if not by design then in practice. 
Therefore, we urge the Commission to address the WTO compliance of the 
proposed directive and notify the WTO Secretariat of its proposed 
directive. Under no circumstances should the proposed directive 
establish technical barriers to trade and impediments to 
investments.\8\
---------------------------------------------------------------------------
    \8\ The U.S. Chamber of Commerce urges the EU Commission to assess 
WTO compliance of its Chemicals directive proposal before disputes 
emerge. Several independent legal assessments have already suggested 
non-compliance after review of the EU ``White Paper, Strategy for a 
Future Chemicals Policy.'' See for instance Crowell & Moring trade law 
analysis, November 7, 2002. See also American Chemistry Council letter 
to DG Trade Commissioner Pascal Lamy, April 16, 2002.

    (b) Decentralized Authorities: The U.S. Chamber of Commerce is also 
concerned by the two-tired administrative system that splits 
responsibilities between the central (EU level) authority and the 
Member States' national authorities, which will both administer the 
registration, evaluation and authorization of chemicals. With twenty-
five national authorities and one central administration involved, all 
of them dealing with thousands of applications at once, the system will 
be prone to inefficiencies and distortions. Administrative bottlenecks 
and discrepancies will create frustrations and complaints that will be 
---------------------------------------------------------------------------
at best difficult to manage.

    (c) Transparent and Fair Review Process: Any rejection of an 
application and any prohibition of a chemical must be subject to a fair 
and unbiased review and appeal process. Applicants, including non-EU 
companies, must be able to appeal any decisions at the national and EU 
levels based on sound scientific grounds. The U.S. Chamber of Commerce 
urges the Commission to ensure that a fair and science-based review 
system be implemented to avoid any appearance of discrimination against 
non-EU companies and products.

    (d) Substitution: Substitution should not be an objective in 
itself.\9\ Comparative scientific risk assessment studies, as well as 
comparative availability, affordability, functionality and socio-
economic cost/benefits studies of existing and alternative chemicals 
must be undertaken before the EU imposes a substitution.
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    \9\ See EU Committee of the American Chamber of Commerce in Belgium 
(AmCham EU) Position Paper on the Future EU Chemicals Policy, May 17, 
2002.
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    Market forces and international competition have encouraged 
innovation and substitution much more than regulation would achieve. 
Substitution with better products is a major factor of competitiveness. 
As long as companies are allowed to freely compete, innovations and 
substitutions will continue to occur for the benefit of consumers.

    (e) Responsibility Burden: The proposed reversal of liability 
burden from public authorities to industry is creating legal 
uncertainties, which will notably alarm investors. Among these 
uncertainties, the imposed sharing of burden between chemical producers 
and downstream users could result in unnecessary disputes. Downstream 
users of chemicals may have differences with upstream users and/or 
producers based on their different knowledge and the scientific data 
(both evolving over time) they may have on the production and 
particular usage of certain chemicals. \10\ Putting the regulatory 
burden on both the producers and users, while exonerating government's 
responsibilities to protect the public, could create grounds for costly 
and disruptive disputes, and eventually dampen innovation and private 
sector investments.
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    \10\ Downstream users have expressed serious concerns about their 
responsibility burden under the Chemicals directive proposal. See for 
instance AEA (formerly the American Electronics Association), EIA 
(Electronics Industries Alliance), ITI (Information Technology Industry 
Council), NEMA (National Electronic Manufacturers Association) and SIA 
(Semiconductor Industry Association) Position Paper on EU Chemicals, 
April 2002.

    (f) Uncertainties: The Chemicals directive proposal will generate 
uncertainties as to whether certain chemicals will ultimately be 
authorized (i.e., reproduction of the pharmaceutical industry system). 
However, chemical companies and downstream users will not be able to 
recoup the cost of these uncertainties, because the market will not 
allow companies to price chemicals and related products at premium 
prices. This will result in reductions of investments, innovations and 
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jobs.

    (g) Intellectual Property: The Chemicals directive proposess a 
data-sharing requirement, which will put confidential commercial 
information at risk. The enormous amount of data that will have to be 
provided to regulatory authorities and the sharing arrangements between 
companies promoted by the directive for the sake of savings on testing 
costs and animal lives, are bound to compromise confidentiality. The 
U.S. Chamber of Commerce urges the EU Commission to ensure, in far 
stronger terms than currently suggested, that the data-sharing scheme 
will not compromise sensitive commercial information and give away 
trade secrets, and that no intellectual property rights will be 
violated. The rights of the data owners should receive a high level of 
protection.

    (h) Competition: The data-sharing system could create situations of 
collusion or perceived collusion between competitors. It could notably 
favor non-competitive behaviors between EU companies against non-EU 
companies. The U.S. Chamber of Commerce urges the EU Commission to 
review all possible anti-competitive effects of the data-sharing scheme 
in order to prevent illegal anti-competitive behavior, notably against 
importers.
    Any such anticompetitive practice would particularly hurt small and 
medium sized enterprises (SMEs), which lack the resources to fight 
against coalitions of large companies. SMEs would also have more 
difficulties and less means to acquire needed data sets, owned by 
larger and more powerful groups of companies, or otherwise meaningfully 
to participate in legitimate data sharing schemes.

    (i) Consumer Scare: The Chemicals directive proposal risks creating 
consumer fears based on quasi-scientific information, which could cause 
unjustified consumer reactions against the purchase of certain 
products. This could lead to discrimination against some imported 
products.

    (j) Mutual Recognition: The Chemicals directive proposal does not 
give sufficient consideration to the international ramifications of the 
regulatory overhaul it envisages. Specifically, there is clearly room 
for mutual recognition of testing facilities, data sets and results 
from non-EU countries, including the U.S. Some of these countries, 
including the U.S., have at least equal testing facilities and 
scientific assessment capabilities. U.S. companies have collected years 
of useful and valid data. Mutual recognition would save on cost, time 
and effort. In the case of the U.S. and the EU, mutual recognition 
would promote regulatory cooperation in the most important market of 
the world.
    The U.S. Chamber of Commerce urges the EU Commission to consult and 
cooperate with relevant U.S. government and regulatory agencies and 
work together on mutual recognition guidelines and protocols. The U.S. 
Chamber of Commerce stands ready to assist this process in any way 
possible.

                               __________

     Statement Submitted for the Record by the National Electrical 
                       Manufacturers Association

    Mr. Chairman, thank you for holding this hearing. NEMA would like 
to comment principally on the Electrical Safety Annex to the 1997 U.S.-
EU Mutual Recognition Agreement, which was mentioned in the U.S. 
Chamber's remarks.
    Based in Rosslyn, Virginia, the National Electrical Manufacturers 
Association is the largest trade association representing the interests 
of U.S. electrical industry manufacturers, whose worldwide annual sales 
of electrical products exceed $120 billion. Our more than 400 member 
companies manufacture products used in the generation, transmission, 
distribution, control, and use of electricity. These products, by and 
large unregulated, are used in utility, industrial, commercial, 
institutional and residential installations. The Association's Medical 
Products Division represents manufacturers of medical diagnostic 
imaging equipment including MRI, CT, x-ray, ultrasound, and nuclear 
products.
    In NEMA's view, the use of government-to-government MRAs should be 
limited and considered only as an alternative for conformity assessment 
needs when applicable to federally regulated products such as medical 
devices. MRAs are not the answer to conformity assessment needs in non-
regulated areas such as for most electrical equipment; if anything, 
they serve to encourage the creation of unnecessary product-related 
regulation. We strongly objected to the inclusion of the Electrical 
Safety Annex in the U.S.-EU MRA, and are pleased that Brussels has now 
moved to suspend it. We are also pleased that the U.S. has either 
excluded electrical products from its subsequently negotiated MRAs, or 
refused to sign on to any such accords that effect our unregulated 
products--most recently in the case of the U.S.-Singapore Free Trade 
Agreement.
    Further, during the impasse over the Annex, we have supported OSHA 
in its insistence on retaining its authority over Nationally-Recognized 
Testing Laboratory (NRTL) accreditation. Particularly with the granting 
of status to a German Conformity Assessment Body (CAB) in 2001, OSHA 
has shown that the process has integrity, and European applicants will 
be given the same consideration as their U.S. counterparts.
    NEMA applauds the Bush Administration and the European Union for 
their 2002 Guidelines Agreement on Regulatory Cooperation and 
Transparency. We ask that pilot projects adopted for implementation of 
the Guidelines include the current EU regulatory initiatives relating 
to Chemicals, Energy-using-Products (EuP) and the Restriction of 
Hazardous Substances (ROHS)--but, for the reasons elaborated above, we 
do not think that electrical safety would be appropriate. In any event, 
we strongly agree with the U.S. Chamber's call for meaningful U.S.-EU 
regulatory dialogue.
    Thank you for your consideration of these remarks.

                               __________

          Statement Submitted for the Record by 3M Corporation

    [The statement submitted by 3M exceeded the committee's policies on 
the length of prepared statements submitted for the record. A copy of 
the statement will be maintained in the committee's permanent records.]

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