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Promote Global Regulatory Cooperation

While trade agreements are powerful tools for opening overseas markets, there are some barriers they can’t easily overcome. A wide variety of non-tariff obstacles make competing in multiple markets around the world a significant challenge for both large firms and small. Increasingly, market access and the ability to compete are dependent on a wide variety of regulatory measures employed by governments worldwide.

In The 2010 Ernst & Young Business Risk Report: The Top 10 Risks for Global Business, regulation and compliance again topped the list of risks facing businesses globally (as they did in 2008, placing second in 2009). The report contended that regulation and compliance are the top concerns “not only for financial services, but also across a spectrum of sectors, from oil and gas to real estate, and from life sciences and technology to telecoms. Compliance risks are also notable in the automotive sector and the power and utilities sector.”

In the face of these challenges, international regulatory cooperation is vital to align trade, regulatory, and competition policy in support of open and competitive markets. Some regulatory actions are designed to put foreign companies at a disadvantage or to sidestep commitments made in international agreements, but other problems are inadvertent. Regulators in some countries act without conducting a proper cost/benefit analysis. At times, alternatives are overlooked that could have achieved the desired outcome without imposing heavy costs on workers and companies.

With the best of intentions, regulators may create difficulties if they focus exclusively on domestic considerations and disregard how one country’s regulations interact with another’s. The resulting burden may prove especially heavy for small and medium-sized enterprises; faced with regulatory demands for significant changes to products and services, they may opt to abandon foreign markets altogether.

U.S. officials must acknowledge the growing challenge regulatory frameworks around the world present to the competitiveness of American workers and companies. Greater international regulatory engagement will help U.S. companies compete in foreign markets and meet the high standard of protection Americans have come to expect. International cooperation can help fulfill regulatory mandates to protect consumers, investors, and the environment.

There is work to be done to make global regulatory cooperation a success. U.S. officials should begin by better defining the international role and responsibility of U.S. regulatory agencies. Many of these agencies were created decades ago when international trade and investment were much more limited. As a result, a patchwork of international offices of regulatory agencies carries out its work without a central strategy. Remedying this oversight should strengthen regulators’ enforcement capabilities through greater international cooperation, but it should also help overcome the burdens described above.

In addition, the tools in the U.S. trade policy toolkit are in many cases outdated. The complexity of regulatory issues combined with inadequate trade disciplines requires greater reliance on regulatory dialogues, the results of which are non-binding and often less concrete than industry may like.

Further, the rise of state capitalism, economic nationalism, and the role state-owned and state-influenced enterprises play in competing with their private sector counterparts is increasingly worrisome. Government policies in the form of regulations, government procurement policies, and the extension of preferential financing arrangements (during good economic times) represent forms of public-sector restraints of trade that distort the market in anti-competitive ways.

A worldwide commitment must be secured to tackle these increasingly pernicious hindrances to open and competitive markets.

Chamber Recommendations

  • The United States needs a comprehensive strategy to fight “behind the border” barriers that arise from divergent regulatory frameworks, standards, and related policies.
  • Governments worldwide must ease the burden regulation imposes on job creation and economic growth by upgrading their regulatory practices, boosting transparency, engaging with stakeholders, assessing fully the international implications of domestic regulation, and employing cost/benefit analysis.
  • U.S. officials must develop a policy response to the challenges posed by state-owned enterprises and overcome the related gaps in international trade disciplines.
  • The United States needs to invest greater political capital in dialogues with key trading partners to address regulatory differences and ensure they generate real world results.