[Senate Hearing 108-330]
[From the U.S. Government Publishing Office]
S. Hrg. 108-330
U.S.-EU COOPERATION ON REGULATORY AFFAIRS
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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
Available via the World Wide Web: http://www.access.gpo.gov/congress/
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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
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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
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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
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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.
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\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.
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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\
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\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.
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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\
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\3\ Reitzes, James and Dorothy Robyn. ``An Analysis of the Economic
Effects of an EU-U.S. Open Aviation Area'' The Brattle Group, 2003.
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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].
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\1\ Joseph P. Quinlan, Drifting Apart or Growing Together? The
Primacy of the Transatlantic Economy, Center for Transatlantic
Relations, Washington, 2003.
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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.
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\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.
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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.
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\4\ USITC, ``The Economic Effects of Significant U.S. Import
Restraints,'' Publication 3201, May 1999.
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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.
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\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.
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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.
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\6\ The Atlantic Council Bulletin Vol. XIV, No. 2, ``Managing Risk
Together: U.S.-EU Regulatory Cooperation,'' June 2003.
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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\
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\1\ COM (2002) 704.
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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\
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\2\ COM (2002) 276.
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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\
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\3\ COM (2002) 278.
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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\
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\4\ COM (2003) 71.
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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\
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\5\ COM (2002) 719.
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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\
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\6\ COM (2002) 725.
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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\
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\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.
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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.
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\2\ U.S. Department of Commerce and American Chemistry Council
(ACC).
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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.
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\3\ ``About 90% of all industrial innovations can be traced to
innovations from the chemical industry.'' European Chemical Industry
Council (CEFIC).
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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).
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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.
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\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.
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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\
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\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.
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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\
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\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
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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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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.]