While trade agreements are powerful tools for opening overseas markets, there are some barriers they have not traditionally addressed. A wide variety of non-tariff obstacles make competing in multiple markets around the world a significant challenge for both small and large firms. Increasingly, market access and the ability to compete are dependent on a wide variety of regulatory measures employed by governments worldwide.
Regulation and compliance frequently top the list of risks facing businesses globally. In surveys, executives consistently cite regulatory and compliance risks as among their top concerns in sectors such as banking, life sciences, oil and gas, real estate, technology, telecommunications, automotive, and utilities.
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. The challenges are significant: Some regulatory actions may be 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.
Even 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 or avoid even exporting altogether.
U.S. officials must acknowledge the growing challenge that regulatory divergence presents to the competitiveness of American workers and companies around the world. It is essential that U.S. regulators work with their foreign counterparts to eliminate and avoid unnecessary regulatory differences to enable businesses of all sizes to tap into the 95% of the world’s customers living outside the United States. 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 continue recent work to better define the international role and responsibility of U.S. regulatory agencies, which took a significant step forward in May 2012 when the White House issued Executive Order 13609 on “Promoting International Regulatory Cooperation” with the goal of promoting U.S. exports, growth, and job creation.
This executive order for the first time embraces as a formal U.S. policy many of the international regulatory cooperation principles that the Chamber promotes. It does so by requiring regulators to take the international implications of their work into account in a consistent and comprehensive way and by enhancing regulatory cooperation in trade agreement negotiations, APEC, and bilateral dialogues with such countries as Canada and Mexico.
This executive order was necessary because many U.S. 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 leads to greater reliance on regulatory dialogues. In emerging trade agreements, chapters dedicated to good regulatory practices enjoin signatories to follow the principles that underlie U.S. administrative law and the APEC-OECD joint regulatory checklist. These principles include increased transparency and public participation, clear central coordination, evidence-based regulation (with analysis of costs and benefits), accountability under the law, and impartiality. Building on these principles, the United States-Mexico-Canada Agreement (USMCA) sets a new standard for good regulatory practices in a trade agreement.
However, this is just a start. In the future, trade agreements need to go beyond commitments to good regulatory practices. Today’s global economy relies on interconnected supply chains for the production of goods and services, and this reality requires closer alignment between regulatory frameworks in each country—not just to make it easier to do business but to drive economic growth, create jobs, and ensure the products and services consumers rely on meet appropriate health and safety standards. In pursuit of these goals, regulatory cooperation represents a win-win.