Aula 07 Lester Ttip 03.04.14

The Challenge of Cooperation:Regulatory Trade Barriers in the

Transatlantic Trade andInvestment PartnershipSimon Lester* and Inu Barbee

Simon Lester is a Trade Policy Analyst at the Cato InstituteInu Barbee is a Graduate Associate at the Center for North American Studies, American University. Email: [email protected]

*Corresponding author. E-mail: [email protected].

ABSTRACT

In the recently launched Transatlantic Trade and Investment Partnership (TTIP) ne-gotiations between the USA and the European Union, it has been emphasized that thetalks will make reducing regulatory barriers a signature issue. The emphasis on tacklingthese barriers has generated some excitement, with large figures being offered as esti-mates of the resulting economic gains. However, a good deal of uncertainty exists as tohow the USEU trade talks can address these issues, which remain largely undefined.In this regard, some key questions to ask are: What are the types of regulatory barriersat issue? How can they be addressed? And what are realistic goals for the TTIP negoti-ations in relation to regulations? This article examines the problem of regulatory bar-riers and offers an assessment of what can be achieved. The article concludes that whilesome claims of potential benefits are overstated, this does not mean that facilitatingregulatory cooperation is not worthwhile. Negotiators should go after the low-hangingfruit, putting aside some of the more contentious USAEU regulatory disputes, and beresponsive to the needs of industry and consumers by focusing their attention on issueareas where they can have the greatest impact.

I . INTRODUCTIONIn his 2013 State of the Union speech, President Obama made a big announcementrelated to trade liberalization: the USA would launch negotiations on a TransatlanticTrade and Investment Partnership (TTIP) with the European Union.1 Beyond theimportant news that the worlds two largest economies would be negotiating to liber-alize trade, there was also a significant development in terms of the substance of the

1 President Obamas State of the Union Address (12 February 2013) http://www.c-span.org/uploadedFiles/Content/Documents/State-of-the-Union-2013.pdf (visited 15 November 2013).

VC The Author 2013. Published by Oxford University Press. All rights reserved.

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proposed talks. While past trade negotiations have dealt with domestic regulation asa trade barrier in only narrow and limited ways, these talks would make reducing regu-latory barriers a signature issue. In remarks to his Export Council, President Obamanoted that the talks will emphasize smoothing out differences in regulatoryapproaches.2

The emphasis on tackling regulatory barriers has generated some excitement.A recent survey of trade experts indicated that regulatory issues are the most import-ant overall to the agreement.3 Traditional trade barriers, such as tariffs, are relativelylow between the two economies, and regulatory barriers are an area that offers greatpotential economic gain. One widely cited 2009 study suggests some substantialbenefits from addressing non-tariff measures, including regulatory divergence issues,within the context of USEU trade. After noting that the total elimination of suchbarriers would amount to a 2.53.0% increase in GDP, the study then tried to iden-tify those barriers that are actionable, that is, ones that could realistically be elimi-nated. Doing so, the report said, would boost EU GDP by 0.7% per year, leading toan annual potential gain of $158 billion in 2008 dollars; and it would boost US GDPby 0.3%, or $53 billion per year.4

However, a good deal of uncertainty exists as to how the USEU trade talks canaddress these issues and even what exactly the issues are. The study noted aboverefers to many regulatory issues that cannot easily be solved, such as tort reform inthe USA5 or postal monopolies in both economies. Thus, some caution and realismneeds to be maintained in the face of claims of such large economic gains. In this re-gard, some key questions to ask are: What are the types of regulatory barriers atissue? How can they be addressed? And what are realistic goals of the TTIP negoti-ations in relation to regulations?

2 Remarks by the President at Meeting with the Presidents Export Council (12 March 2013) http://www.whitehouse.gov/the-press-office/2013/03/12/remarks-president-meeting-presidents-export-council(visited 15 November 2013): As I announced at the State of the Union address, were also going to belaunching an effort to lock in a EU-U.S. trade deal as well. And already, Europe is our largest trading part-ner the EU as a whole and we think that we can expand that even further. And some of this has to dowith us being able to break down some existing barriers across the Atlantic to U.S. products and services,but some of it also has to do with smoothing out differences in regulatory approaches, just trade frictionsthat arise that are unnecessary that carries over from earlier periods.

3 Tyson Barker and Garrett Workman, The Transatlantic Trade and Investment Partnership: Ambitious butAchievable, Atlantic Council & Bertelsmann Foundation (April 2013), 4. An EU press release also statesthat: The regulatory area is where the highest potential economic benefit lies with these trade and invest-ment negotiations, http://europa.eu/rapid/press-release_MEMO-13-564_en.htm (visited 15 November2013).

4 Koen G. Berden et al., Non-Tariff Measures in EU-US Trade and InvestmentAn Economic Analysis,European Commission, Directorate-General for Trade OJ 2007/S 180-219493 (11 December 2009),p. xviii http://trade.ec.europa.eu/doclib/docs/2009/december/tradoc_145613.pdf (visited 15 November2013). These figures have also been cited in the popular press; see also, David Ignatius, A Free-TradeAgreement with Europe?, Washington Post (5 December 2012) http://articles.washingtonpost.com/2012-12-05/opinions/35638623_1_free-trade-free-trade-agreement-trans-atlantic-trade (visited 15 November2013).

5 The study notes the following concern expressed by European companies: Legal liability in the USA is anissue of particular concern not only to European companies but also domestic U.S firms. Currently, busi-nesses spend millions of dollars in the U.S. defending themselves against frivolous class action lawsuits.Investors urge the finalization of tort reform and a moratorium on laws with extraterritorial effects.

848 Regulatory Trade Barriers in the Transatlantic Trade and Investment Partnership

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This article examines the problem of regulatory barriers and offers an assessmentof what can be achieved. Different regulations across countries in the same policyarea raise costs for businesses and consumers, often without justification. Addressingthese differences provides clear gains for efficiency, and benefits for all. The articleconcludes that some of the simpler regulatory divergences between countries can behandled. However, some of the more challenging regulatory issues, where there arestrong policy disagreements between the USA and EU, may need to be taken off thetable. Furthermore, it is unlikely there will be success with broader regulatoryreform efforts. Domestic efforts to achieve such reforms have had some success, buta global regime for regulating domestic regulation would be difficult to achieve andmight not be desirable.

As a result, while there are potential gains here, they may be smaller than somehope. This does not mean that facilitating regulatory cooperation is not worthwhile,however. In fact, removing unnecessary regulatory differences can be well worth theeffort, if the focus is on aligning regulations that are arbitrarily different rather thanchanging the substantive nature of the regulation. Negotiators should go after thelow-hanging fruit, and be responsive to the needs of industry and consumers byfocusing their attention on issue areas where they can have the greatest impact.6

Currently, issues related to regulatory trade barriers are addressed in a number offora, including the World Trade Organization (WTO) and the ongoing Trans-PacificPartnership (TPP) negotiations. Nonetheless, because of the emphasis being placedon this issue in the TTIP, this may be the best forum to push the issue forward. Ifdone right, the TTIP could serve as a starting point for broader engagement on reduc-ing the costly burden of regulatory divergence on international trade. Ultimately, theideal route for the reduction of regulatory divergence would be through a multilateraleffort involving various actors from both government agencies and the private sector.

The article proceeds as follows. First, it sets out in general terms the importanceof regulatory trade barriers, focusing on USEU trade. Next, it attempts to make theissues more concrete, by discussing a number of real world examples of such barriers.It then talks about how international regulatory cooperation can address these issuesin the abstract, before considering previous efforts undertaken in trade agreements.The article then offers examples of successful regulatory cooperation efforts in thehope that it will shed light on possible approaches to addressing regulatory diver-gences. In this regard, the USCanada Regulatory Cooperation Council is put for-ward. Finally, the article suggests that such an approach may be best for the TTIP,and could eventually be multilateralized.

I I . THE IMPORTANCE OF REGULATORY TRADEBARRIERS IN USEU TRADE

Regulatory trade barriers will be a key issue in the TTIP talks. An April 2013 reportbased on a stakeholder survey conducted by the Bertelsmann Foundation and the

6 Though services are a major portion of USEU trade, regulatory cooperation in this area is often compli-cated and must be broken down into sector-specific or issue-specific categories. As a result, this articleseeks to focus on product market regulation, not only because it presents problems to which solutions canbe pragmatically achieved, but also because it allows for a broader understanding of the issue of regulatorycooperation without getting bogged down in the technical details of any particular sector.

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Atlantic Council noted that the prevailing opinion in the EU is that 80 percent ofwelfare gains [from the TTIP] will come from areas outside of the tariff cuttingmeasures on goods that form the core of conventional FTAs.7 Furthermore, the sur-vey showed that while regulatory convergence would be one of the most challengingcomponents of the negotiations, it is also the most important overall to theagreement.8

The idea of transatlantic regulatory cooperation has been around for many years.Previous attempts, on the whole, have been relatively ad hoc and piecemeal, focusedmore on fostering dialogue than actually solving regulatory discrepancies. TheTrans-Atlantic Business Dialogue, established in 1995, brought together businessinterests on both sides of the Atlantic, in the hopes of developing strong publicprivate partnerships to allow products certified in one place to be accepted by theother. It was founded to deal with a major problem identified by its members, that is,competitiveness is hampered on both sides by excessive regulation and by differ-ences between the EU and US regulatory systems.9 The organization, now theTrans-Atlantic Business Council, had some early success with mutual recognitionagreements in areas such as telecommunications equipment, some medical devices,and other limited product areas.10 However, the efforts seem to have lost momen-tum in recent years. Other efforts, such as the USEU High Level Regulatory Coop-eration Forum, have also produced limited results of a substantive nature, though ithas encouraged an ongoing dialogue of the issues.11

Examining the nature of the USEU trading relationship, it is not hard to see whyregulatory issues are of such high importance. A large portion of US trade with theEU is intra-industry and intra-firm, which means the TTIP is likely to bring aboutchanges within existing value chains rather than re-location of whole industries.12

The major barriers to trade and investment, then, go beyond tariffs, and also includebureaucratic red-tape caused by incompatible rules and regulations that impede andslow down the free movement of goods and services.

At this stage, though, little information is available on what specific issues will beaddressed or how liberalization in this area will be accomplished in the context of theTTIP. A brief explanation is included in the report of the USEU High Level Work-ing Group (HLWG), which was established in November 2011 by the US and EUpolitical leaders to identify options for strengthening the USEU trade and invest-ment relationshipthat provides a framework for the talks.13

7 See Barker and Workman, above n 3, at 3.8 Ibid, at 4.9 Michelle Egan, Constructing a European Market (New York: Oxford University Press, 2003), at 256.10 See Council Decision of 22 June 1998 on the conclusion of an Agreement on Mutual Recognition be-

tween the European Community and the USA, OJEC L 31 of 4/02/99.11 The Office of Management and Budget, United States-European Union High-Level Regulatory Coopera-

tion Forum, http://www.whitehouse.gov/omb/oira_irc_europe (visited 15 November 2013).12 OECD, The Transatlantic Trade and Investment Partnership: Why Does it Matter?, (13 February

2013) http://www.oecd.org/trade/TTIP.pdf (visited 15 November 2013).13 Final Report, High Level Working Group on Jobs and Growth (11 February 2013) http://www.ustr.gov/

about-us/press-office/reports-and-publications/2013/final-report-us-eu-hlwg (visited 15 November2013). Under the category of regulatory issues and non-tariff barriers, this document recommends thatthe two sides should seek to negotiate, inter alia: (1) SPS-plus rules, (2) TBT-plus rules, (3) cross-


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First, the report suggests expanding on the existing technical barriers to trade(TBT)14 and sanitary and phyto-sanitary measures (SPS)15 rules of the WTO, bycreating TBT-plus and SPS-plus chapters.16 Part of this would involve substantiveobligations, and part would involve new procedures. Through the substantive obliga-tions, the parties would be bringing issues of regulatory protectionism into the TTIP.Regulatory protectionism is an important concern,17 and putting constraints on pro-tectionist domestic regulations is one of the core goals of international trade rules. Itis not clear how existing WTO ruleseither the TBT or SPS agreements, or evenmore general rules such as the GATT or the GATSare insufficient in this area.These rules draw a delicate balance between imposing international disciplines ontrade measures and respecting national autonomy. The goal of trade agreementsshould be to put limits on protectionist policies, without impeding governmentsfrom fulfilling their responsibilities. There is an extensive jurisprudence at the WTOthat applies and elaborates the rules with this balance in mind.18 Upsetting the cur-rent balance could be problematic. Sensitive issues such as the EUs treatment ofgenetically modified foods and hormone treated meat are difficult and have not beenfully resolved at the WTO,19 and suggestions that new TTIP rules will help shouldbe looked at with some skepticism.

In addition, the report addresses the domestic regulatory process and its effective-ness.20 It refers to efficient and cost-effective regulations, impact assessments, andapplication of good regulatory practices. This has been the subject of other tradenegotiations, but nothing concrete has yet been achieved. In the negotiations fora TPP, there has been an effort to expand the US regulatory model to other

cutting disciplines on regulatory coherence and transparency for the development and implementation ofefficient, cost-effective, and (4) more compatible regulations for goods and services, and provisions or an-nexes containing additional commitments or steps aimed at promoting regulatory compatibility in spe-cific, mutually agreed goods and services sectors.

14 Agreement on Technical Barriers to Trade, 15 April 1994, WTO Agreement, Annex 1A, Results of theUruguay Round of Multilateral Trade Negotiations: The Legal Texts, at 138.

15 Agreement on the Application of Sanitary and Phytosanitary Measures, 15 April 1994, WTO Agreement,Annex 1A, Results of the Uruguay Round of Multilateral Trade Negotiations: The Legal Texts, at 69.

16 Final Report, High Level Working Group on Jobs and Growth (11 February 2013), 4.17 See generally, K. William Watson and Sallie James, Regulatory Protectionism: A Hidden Threat to Free

Trade, Policy Analysis 723 (9 April 2013), http://www.cato.org/publications/policy-analysis/regulatory-protectionism-hidden-threat-free-trade (visited 15 November 2013).

18 In 2012, several important decisions were issued by the WTOs Appellate Body that interpreted andapplied core provisions of the TBT Agreement. See Appellate Body Report, United States MeasuresAffecting the Production and Sale of Clove Cigarettes, WT/DS406/AB/R, adopted 24 April 2012; AppellateBody Reports, United States Certain Country of Origin Labeling (COOL) Requirements, WT/DS384/AB/R / WT/DS386/AB/R, adopted 23 July 2012; Appellate Body Report, United States Measures Concern-ing the Importation, Marketing and Sale of Tuna and Tuna Products, WT/DS381/AB/R, adopted 13 June2012.

19 The GM food case remained on the DSB agenda as of September 2013. See Proposed Agenda, WT/DSB/W/513, 23 September, 2013. In the Hormones case, the USA and EU reached a temporary solu-tion, but the underlying issues have not been resolved. See USTR Announces Agreement With EuropeanUnion In Beef Hormones Dispute, http://www.ustr.gov/about-us/press-office/press-releases/2009/may/ustr-announces-agreement-european-union-beef-hormones- (visited 15 November 2013).

20 Final Report, High Level Working Group on Jobs and Growth, above n 13, at 4.


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trading partners.21 Whether regulatory effectiveness can be achieved anywhere is un-clear; even domestic reforms along these lines are quite difficult. But trying to recon-cile differences between two mature regulatory models like the USA and EU will bea particular challenge. Both sides have spent decades developing their regulatoryprocesses, and convergence will not be easy.

Finally, the report talks about regulatory differences.22 Regulatory differences(or divergence) exist when government agencies in different countries havevarying regulatory requirements or processes in the same policy area. Such differ-ences result in higher costs for businesses in a number of ways. First, companieshave to comply with multiple certification and testing requirements or approval proc-esses in order to get a product approved for sale, which takes time and money. Andsecond, the different regulations may result in the costly need for additional produc-tion processes in order for the product to meet the different standards of eachmarket.

Of these three issues related to trade and regulation, regulatory divergence is themost promising area for reform, if the results of a 2007 German Marshall Fund sur-vey are any indication.23 Responses to some of the survey questions, which are ger-mane to the TTIP negotiations, are highlighted in the chart below.

48%

76%

46%

61%

80%

58%

Remove Tariffs on Goods

Increase Regulatory Alignment

Remove Investment Barriers

% of Respondents from U.S. and EU that agree that U.S. and EU should...

EU

U.S.

Source: German Marshall Fund, 2007.

The above chart shows that support for regulatory alignment, in both the USAand EU, is more widespread than the support for more traditional forms of tradeliberalization.

21 A leaked, draft TPP chapter on Regulatory Coherence is available here: http://www.citizenstrade.org/ctc/wp-content/uploads/2011/10/TransPacificRegulatoryCoherence.pdf (visited 15 November 2013).Among other things, it calls on countries to establish a central coordination and review process and im-plement good regulatory practices. This chapter has been heavily criticized by civil society groups; see,e.g. Friends of the Earth, The TPP Trade Agreement Regulatory Coherence Chapter is anEnvironmental Hazard, (1 June 2012) http://www.foe.org/news/archives/2012-06-the-tpp-trade-agree-ment-investment-chapter-is-an-env (visited 15 November 2013).

22 Final Report, High Level Working Group on Jobs and Growth, above n 13, at 4.23 German Marshall Fund, Perspectives on Trade and Poverty Reduction, Key Findings (2007) http://

www.gmfus.org/economics/tpsurvey/2007TPSurvey-FINAL.pdf (visited 15 November 2013); Tradeand Poverty Reduction Survey, Topline Data (October 2007) http://www.gmfus.org/economics/tpsur-vey/Trade_survey_2007_Topline_Data.pdf (visited 15 November 2013). This survey looked at howEuropeans and Americans feel about deeper transatlantic cooperation, and the possibility that each willwork more closely with the other in shaping regulatory policy, at 5.


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I I I . PROBLEMS ARISING FROM REGULATORY DIVERGENCERegulatory divergence across countries can arise for a number of reasons. For onething, policy objectives may vary. If countries are trying to achieve different goals,their regulations are unlikely to correspond. But even where policy objectives aresimilar, regulating through an isolated process, in which national agencies make deci-sions without thinking about what their foreign counterparts are doing, can lead todifferences in regulation.

The impact will vary depending on the nature of the divergence. It may be that,due to different regulatory requirements, two markets end up somewhat isolated,with products made in each essentially restricted to the domestic market.Alternatively, one market might have regulations that are more flexible, and thusproducts are excluded only from the market with stricter regulations. It may also bethat there is a separate approval process in each market, which means that whileproducts can be sold in both markets, there is an added cost from going throughmultiple regulatory reviews.

The following real world examples, some from the USEU context and othersnot, help illustrate the kinds of divergences that exist and how they raise costs.

Fruit and vegetable product can sizesCanadian regulations require that only particular can sizes of certain processed fruitsand vegetable products may be sold in Canadian stores;24 US regulations, by con-trast, do not specify particular sizes, and thus any can size may be sold.25 As a result,companies such as Campbells Soup need to have separate production processes inCanada and the USA because of the different can sizes it uses in the two markets,which increases the companys costs of production, often leading to higher prices.Eliminating the restrictive Canadian can-size requirement would allow Campbells toswitch its Canadian products to its dominant US can size, reducing unit productioncosts and bringing great savings to entities throughout the supply chain.

While the original intent of Canadian regulations was probably not protectionist,the regulatory status quo has garnered support over the years from the special inter-ests who are its beneficiaries. Resistance to adopting more flexible US can sizingregulations has mainly come from food processors that fear that their factories will

24 Processed Products Regulations, C.R.C., c. 291, Section 20 Standard Containers, Schedule III (current to 4September 2013).

25 The origin of these regulationswhich apply to a variety of products, from baby food, honey and maplesyrup, to frozen and canned fruits and vegetablesis somewhat murky, but it may have come from theshift to metric measurement for all prepackaged food products by nationalistic Prime Minister Pierre Tru-deau in the 1970s. See, Terence Corcoran, A food fight worth having, Financial Post (22 November2012) http://opinion.financialpost.com/2012/11/22/terence-corcoran-a-food-fight-worth-having/ (vis-ited 15 November 2013). Another explanation is that standard packaging sizing was implemented to helpconsumers to comparison shop. However, as a Canadian Food Inspection Agency spokeswoman noted,unit pricing is now common and it effectively helps with this comparison. Teresa F. Lindeman, Canad-ian Push to Deregulate Food Package Sizes Worries Ontario Town Where Heinz makes Ketchup, Pitts-burgh Post-Gazette (17 January 2013) http://www.post-gazette.com/stories/business/news/heinzs-ontario-plant-worried-about-losing-jobs-because-of-canada-governments-proposal-670759/ (visited 15November 2013).


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be replaced with operations in the USA.26 To assuage local industry, the Canadiangovernment even stated that it will provide grants to upgrade processing plants so asto limit the impact on Canadian processors.27 In the 2012 federal budget, the Canad-ian government announced its desire to repeal regulations related to containerstandards to enable industry to take advantage of new packaging formats and tech-nologies, while removing an unnecessary barrier for the importation of new productsfrom international markets.28 However, this decision has been delayed, and the regu-lations currently remain in place.29

Car headlightsIn 1968, the USA implemented a regulation related to automobile headlights, requir-ing two settings: One for high-beams, and one for low-beams. Recently, some auto-makers have developed new technologies that allow for more sophisticated lightingvariations, involving a gradual dimming of the lights rather than a separate high andlow setting. To date, these new headlights have not been approved for sale in theUSA, on the basis that gradual dimming conflicts with the requirement that there betwo settings. As a result, while these new headlights have been approved for use inthe EU, they are not allowed in the USA.

At the time when the US regulations were written, the regulators may have hadsafety considerations in mind. But applying these old regulations to prohibit the useof new technologies that will likely make driving safer seems odd. It is also costly.European carmakers need to adjust production for different markets; and the USconsumers are denied access to new products. Carmakers have petitioned theNational Highway Traffic Safety Administration for changes that will allow them tosell their new products in the USA, but have not had success yet.30

Vehicle crash testsSome regulatory barriers could be overcome if we simply applied the mantra testedonce, accepted twice. With regard to crash tests for new vehicles, each test can costanywhere from $120,000$150,000 per test (in Canada and the USA), but it is rarethese tests are done just once, and it is even rarer that the same test will not be

26 Terence Corcoran, Gerry Ritzs Soup Can Backdown, Financial Post (23 November 2012) http://opinion.financialpost.com/2012/11/23/terence-corcoran-gerry-ritzs-soup-can-backdown/ (visited 15November 2013).

27 Essex County Council against food packaging deregulation, CBC News (12 June 2012) http://www.cbc.ca/news/canada/windsor/story/2012/12/06/wdr-food-processing-essex-county-council.html(visited 15 November 2013).

28 Government of Canada, Jobs, Growth and Long-Term Prosperity Economic Action Plan 2012 (29 March2012), at 219.

29 Corcoran, above n 26.30 See, Angela Greiling Keane, Audi Headlights Seeing Around Corners Banned by U.S. Rule, Bloomberg

(20 March 2013) http://www.bloomberg.com/news/2013-03-20/audi-headlights-seeing-around-corners-banned-by-u-s-rule.html (visited 15 November 2013); Gabe Nelson, Toyota Puts High Beams onHeadlight Regulation, Automotive News (20 May 2013) http://www.autonews.com/article/20130513/OEM11/305139967#axzz2aAoST9yD (visited 15 November 2013).


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replicated in another country before it is cleared for import.31 What does this mean?The company trying to get its car to market will have to go through the same safetytests, even though they produce the same end result. This duplicative testing notonly delays the release of the product to market but also adds significant costs.

To put it in other terms, if youre vacationing in Europe, would you be nervous torent a car due to safety concerns? It is doubtful. So why do we not accept Europeansafety tests here, which would allow Americans to have access to a wider range ofEuropean cars, and vice-versa, with a lower price tag?

Genetically modified foodsGenetically modified (GM) foods face different regulatory regimes in the EuropeanUnion and the USA. The EU relies on what it refers to as the precautionary prin-ciple,32 which in practice means that it will require significant evidence beforeapproving new products. Thus, in the EU, producers have to demonstrate the safetyof GM crops and food products before they can be approved for sale, and clearlylabel food containing more than 0.9% GM ingredients.33 By contrast, US regulatorsgenerally see GM foods as substantially equivalent to unmodified products, and givethem no additional oversight in the absence of scientific proof that any harm iscaused by their sale and consumption.34 Currently, GM foods in the US are onlylabeled on a voluntary basis35 (although there are a number of state-level initiativesto move towards mandatory labeling).36

Having to produce and label products differently for different markets is an addedcost for producers, and can lead to limits on consumer choice. The US producershave long complained that the EU approach hinders their exports, and it clearly doesso. Recently, Monsanto withdrew requests for GM crop approvals in the EU due tonational bans in France, Germany, and Italy, as well as strong public opposition tothe technology.37 In this regard, a 2010 survey on public attitudes towards GMfoods showed that 57% of Europeans are opposed to GM foods entering theirmarket due to concerns over safety, benefits, and a feeling that GM foods are

31 Mark Nantais, Canadian Vehicle Manufacturers Association & Governor Matt Blunt, American Automo-tive Policy Council, Canada-US Regulatory Cooperation Council Stakeholder Dialogue Session at theEmbassy of Canada, Washington DC (20 June 2013).

32 Europa, Summaries of EU legislation, Precautionary Principle, http://europa.eu/legislation_summaries/consumers/consumer_safety/l32042_en.htm (visited 15 November 2013).

33 Regulation (EC) No 1830/2003 and Regulation (EC) No 1829/2003. Also see, European Commission,DG Health and Consumers, Rules on GMOs in the EULabeling, http://ec.europa.eu/food/food/biotechnology/gmo_labelling_en.htm (visited 15 November 2013).

34 Douglas A. Kysar, Preferences for Processes: The Process/Product Distinction and the Regulation ofConsumer Choice, 188 (2) Harvard Law Review (2004), 557.

35 Coordinated Framework for Regulation of Biotechnology, 51 Fed. Reg. 23,302,23,303 (26 June 1986);see also Proposal for a Coordinated Framework for Regulation of Biotechnology, 49 Fed. Reg. 50,856,50,859-77 (31 December 1984).

36 The states of Maine and Connecticut recently passed legislation in this area. See Maggie Caldwell, MaineIs Second State to Pass GMO Labeling Law, Mother Jones (14 June 2013) http://www.motherjones.com/blue-marble/2013/06/maine-gmo-labeling (visited 15 November 2013).

37 EurActiv, Monsanto to Drop Requests for GM Approvals in EU, (18 July 2013) http://www.euractiv.com/cap/monsanto-drop-requests-gm-approv-news-529365 (visited 15 November 2013).


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unnatural.38 Therefore, even if US producers could sell GM foods in Europe withstringent labeling requirements, the GM label in itself would remain a deterrent tomany consumers.

In this example of regulatory divergence, then, the different regulations are basedon a policy choice that reflects strong feelings among citizens.39 With policy prefer-ences that come into conflict in this way, it may not be possible for regulations toconverge, even though the divergence is costly.

In the examples above, varying degrees of rationality for the differences in regula-tions are apparent. But the goal of trade talks in this area cannot be to make all do-mestic regulations rational. That is asking too much. Rather, it should simply be toremove regulatory divergences that are accidental or serve no purpose. It is inevitablethat some inefficiency and higher costs must be accepted. To take an extreme ex-ample, if a US auto company wants to sell vehicles in the UK, it must account forthe UKs use of left-hand drive traffic. Even the GM food example noted above is un-likely to be resolved, despite a long-standing effort by the US agriculture interests tochange the EU policies. Not all divergences can be solved, but many can, andshould be.

Sometimes one side is to blame for the divergence. Other times it is simply twocountries regulating the same issue in different ways. Where the policy preferencesare strong, or the differences too entrenched, it will be hard to find solutions. How-ever, in other cases, regulatory convergence is possible, and greater efficiency can beachieved. The challenge is to convince the relevant agencies to cooperate, which re-quires input from a coalition of business, industry and consumers to bring theseissues to the fore.

IV . INTERNATIONAL REGULATORY COOPERATIONIn theory, problems of regulatory divergence can be solved without international co-operation. Just like with free trade in general, governments could liberalize unilat-erally. In the context of regulations, governments could simply declare that productscomplying with foreign regulations in the same area will be deemed acceptable forimport. Canadian regulators could accept US can sizes; US regulators could acceptEU headlights; and EU regulators could accept US GM foods. However, in practice,domestic political resistance, sometimes for protectionist purposes, often means thatsolutions to these problems will require international cooperation. Government regu-lators from different countries need to sit down and hash out the issues.

Even before the TTIP negotiations were announced, the Obama administrationhad been pushing for international regulatory cooperation. In April 2012, President

38 George Gaskell et al., Europeans and Biotechnology in 2010: Winds of Change? A report to the Euro-pean Commissions Directorate-General for Research (October 2010), 3738.

39 For a detailed explanation of EUUS policy differences on this issue see, Mark A. Pollack, A Truce in theTransatlantic Food Fight: The United States, the European Union, and Genetically Modified Foods inthe Obama Years, (12 July 2013) http://ssrn.com/abstract2295197 (visited 15 November 2013).


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Obama articulated this issue in an executive order entitled Promoting InternationalRegulatory Cooperation, which states, in part:

The regulatory approaches taken by foreign governments may differ fromthose taken by U.S. regulatory agencies to address similar issues. In some cases,the differences between the regulatory approaches of U.S. agencies and thoseof their foreign counterparts might not be necessary and might impair theability of American businesses to export and compete internationally. In meet-ing shared challenges involving health, safety, labor, security, environmental,and other issues, international regulatory cooperation can identify approachesthat are at least as protective as those that are or would be adopted inthe absence of such cooperation. International regulatory cooperation canalso reduce, eliminate, or prevent unnecessary differences in regulatoryrequirements.40

Cass Sunstein, the administrator of the Office of Information and RegulatoryAffairs (OIRA) at the time, elaborated on this by noting that in an interdependentglobal economy, diverse regulations can cause trouble for companies doing businessacross national boundaries, and that these unnecessary differences impose a costwhich [compromises] economic growth and job creation.41

How should international cooperation work in practice? There are two commonmethodsboth of which are referred to in the HLWG report42which have beenused to deal with regulatory divergence: harmonization and mutual recognition.

Harmonization implies the alignment of regulations to a single best practice. Usu-ally a voluntary agreement, harmonization can be based on a reference to interna-tional standards from a standard-setting body, or simply involve coordination amongnations.43 Countries basically agree to converge on a single standard or regulation.This is usually the most difficult way to achieve regulatory cooperation, in part be-cause countries are reluctant to adjust their standards, and also because the harmon-ization of standards requires complete consensus.

Mutual Recognition can be achieved through mutual recognition agreements or theacknowledgement of regulatory equivalence. Mutual recognition agreements approvetesting and certification processes of other countries as acceptable for allowing sale

40 The White House, Executive Order Promoting International Regulatory Cooperation (1 May 2012)http://www.whitehouse.gov/the-press-office/2012/05/01/executive-order-promoting-international-regulatory-cooperation (visited 15 November 2013).

41 Cass Sunstein, The White House vs. Red Tape, Wall Street Journal (30 April 2012) http://online.wsj.com/article/SB10001424052702304811304577369934135888006.html?modWSJ_Opinion_LEFTTopOpinion (visited 15 November 2013).

42 Final Report, High Level Working Group on Jobs and Growth, above n 13, at 34.43 There are a number of international standards development bodies, such as the International Organiza-

tion for Standardization (ISO), the International Electrotechnical Commission (IEC), the InternationalTelecommunications Union (ITU), and the Codex Alimentarius. There are regional standardizationbodies as well, such as the EUs the European Committee for Standardization (CEN) (which coordinateswith the ISO), the European Committee for Electrotechnical Standardization (CENELEC) and the Euro-pean Telecommunications Standards Institute (ETSI).


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in their own country.44 This method is especially useful in eliminating duplicativetesting and certification processes. Recently, this approach was employed in a mutualrecognition agreement between the USA and Israel in relation to telecommunica-tions equipment: Israeli regulatory authorities will accept tests that recognized USlaboratories perform to determine the conformity of telecommunications equipmentwith Israeli technical requirements, rather than requiring additional testing by Israelilaboratories in order for American products to be sold in Israel.45

Equivalence simply acknowledges that different technical regulations can stillachieve the same objectives or outcomes. Sometimes there are just different methodsof doing the same thing, and they should be treated as equivalent. For example, U.S.Department of Agriculture (USDA) certified organic produce can be marketed andsold as organic in the EU market. Even though the requirements for each label maybe different, the EU and USA have agreed that their respective legislation on organicproduce are functionally equivalentmeaning that they are trying to achieve thesame ends, but simply have variations in how they each get there.46

In connecting the various divergences with the possible solutions, the reason forthe regulatory difference matters. Addressing minor, unintentional differences inregulations between countries is the easiest way to improve efficiency. There is nopolicy reason to maintain these differences, and consumers and producers benefitfrom their removal. Harmonization may be possible here.

Divergent preferences are more difficult to resolve, but can often be bridgedthrough equivalence or mutual recognition, thus allowing consumers to decide whichproducts they prefer by increasing their access to items which otherwise would notbe available. However, differences resulting from strongly conflicting policy viewssuch as on GM foodsmay not be solvable this way. They would nevertheless bene-fit from more international dialogue on the causes of these divergences.

There is no easy solution to dealing with regulatory divergence. Every sector pre-sents unique problems. However, there are ways that countries can cooperate onregulatory matters to facilitate trade and increase choice for their citizens.47 Theproblem is figuring out how to achieve these goals without adding more costly

44 MRAs can be bilateral or multilateral. It is important to note that this is different than the EUs mutualrecognition principle in the single market, which allows for the free movement of goods and services des-pite technical or preferential differences, so long as there is no health or environmental concerns. The EUmodel for mutual recognition relies more on good-faith than an actual written agreement; it also worksspecifically in the EU because disputes can be taken to the European Court of Justice.

45 USTR Press Release, New United States-Israel Telecommunications Agreement Eases Way for U.S.Exports, (15 October 2012) http://www.ustr.gov/about-us/press-office/press-releases/2012/october/us-israel-telecomm-mou-eases-way-for-exports (visited 15 November 2013).

46 Regulation (EU) 126/2012 of 14 February 2012 amending Regulation (EC) No 889/2008 as regardsdocumentary evidence and amending Regulation (EC) No 1235/2008 as regards the arrangements forimports of organic products from the United States of America. (O.J. L 41,15.02.2012, p. 5) which in-cludes the USA in the list set out in Annex III of Regulation (EC) 1235/2008 starts to apply as of 1 June2012. Also see USDA and USTR agreement (Signed 15 February 2012) http://www.fas.usda.gov/organictrade/Agreement.pdf (visited 15 November 2013).

47 In practical terms, there are different possible approaches to negotiating on the issue of regulations.A negative list approach would consider cooperation to be the default, requiring objections for specificsectors where liberalization is inappropriate. In contrast, addressing the barriers could be dealt with in apositive way, in which regulatory differences are only addressed as proposed in particular sectors.


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schemes and layers of complexity to an already inefficient process, while at the sametime respecting each countrys national autonomy. There is no need for a new layerof international regulation to oversee the already extensive system of domestic regu-lation. Instead, what we need is a mechanism to allow regulatory agencies to coordin-ate their efforts in a transparent way that includes and encourages the input ofbusinesses and consumers.

It is also important to note that regulatory cooperation need not entail more regu-lation, with regulations spreading from country to country; or less effective regula-tion in terms of a race to the bottom, as some critics have suggested. Rather, it issimply about aligning regulations where possible. Countries would be free to adoptstandards based on their unique differences in policy preferences. Of course, interestgroups on both sides of particular regulatory issues will always be arguing for weakeror stronger regulations. However, the goal of establishing more compatible regulationsacross countries is independent of that.

V. REGULATORY ISSUES IN TRADE AGREEMENTSRegulatory cooperation may be a desirable objective, but there is a question aboutwhether trade agreements are the best place to address it. Clearly these issues can af-fect trade, and thus could fit conceptually within the scope of trade agreements. Butare trade negotiations an effective way to deal with the problem? There is a long his-tory of trying to do so, but without much success.

Regulation was part of trade negotiations going as far back as the 1930s,48 but theproblem of regulatory divergence was specifically raised only later. In 1969, theGeneral Agreement on Tariffs and Trade (GATT) Secretariat discussed this issue asfollows:

The simple existence of different national standards, rather than the excessivenature of particular measures, was very often the source of difficulty. To someextent diversity resulted from different languages, different measurement sys-tems, different climatic and environmental conditions, but to some extentthere appeared to be much scope for coordination where different methodswere used to accomplish the same result. Frequent change in measures, involv-ing needless expense to foreign manufacturers already faced with diversity,aggravated the present situation.49

Efforts to deal with regulatory barriers at the GATT/WTO eventually resulted inthe TBT Agreement, which reinforces traditional GATT rules on nondiscrimination,and also goes a bit further to deal with the trade effects of burdensome regulation.Current efforts in the TBT Committee involve work on good regulatory practices,

48 Regulation was addressed as part of the discussion of indirect protectionism during the League ofNations economic discussions. See Jim Durling and Simon Lester, Original Meanings and the Film Dis-pute: The Drafting History, Textual Evolution, and Application of the Non-Violation Nullification orImpairment Remedy, 32 George Washington Journal of International Law and Economics 211 (1999),220224.

49 GATT Secretariat, Examination of Part 3 of the Inventory of Non-Tariff Barriers, COM.IND/W/13(19 October, 1969), 9.


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including developing a list of voluntary principles and mechanisms that representbest practices in developing and applying regulations.50

Recently, more far-reaching efforts have been taken up as part of the TPP negoti-ations. The talks on regulatory coherence in that context have given rise to a set ofbrief provisions that try to address convergence, as well as to improve regulatoryeffectiveness more generally.51 But without a more detailed mechanism to addressthese issues on an ongoing basis, it is not clear how much success these rules wouldhave.

Trade negotiators have struggled in their efforts to resolve these issues over theyears. As a result, it may be worth looking outside the traditional trade negotiatingmodel for answers.

V. THE USCANADA REGULATORY COOPERATION COUNCILAttempts at regulatory cooperation between Canada and the USA have been numer-ous over the years. Through trial and error, however, both countries have been ableto identify ways to successfully foster cooperation. The 2004 report by CanadasExternal Advisory Committee on Smart Regulation (EACSR) noted that a morecoordinated approach to regulatory cooperation was necessary, and that, to tacklethese issues, it would be useful to assess regulatory challenges in issue-specific seg-ments, involving relevant public and private sector groups into the process.52 Thisand other attempts at cooperation, such as the pesticide joint review process,53 andthe Health Canada pilot on manufacturing changes approved by the Food and DrugAdministration (FDA), have culminated in the current regulatory cooperation frame-work, the USCanada Regulatory Cooperation Council (RCC).54

The RCC is a more permanent regulatory cooperation structure that has been es-tablished between Canada and the USA outside the context of a trade agreement.Though a complete replication of previous models may not be sufficient, or desired,in the context of USEU trade negotiations, there are certain aspects of the RCC theUSA has created with Canada (and also with Mexico)55 that may be useful to informthe USEU talks. We now look briefly at details of the USCanada RCC.

50 WTO News Item, Members continue to discuss good practices for technical regulations, (1720 June2013) http://www.wto.org/english/news_e/news13_e/tbt_17jun13_e.htm (visited 15 November2013).

51 A leaked, draft TPP chapter on Regulatory Coherence is available here: http://www.citizenstrade.org/ctc/wp-content/uploads/2011/10/TransPacificRegulatoryCoherence.pdf (visited 15 November 2013).

52 External Advisory Committee on Smart Regulation, Smart Regulation: A Regulatory Strategy for Can-ada, Library and Archives Canada Cataloguing in Publication (2004), 21.

53 See Health Canada, North American Free Trade Agreement Technical Working Group on Pesticides -Accomplishments Report For the period of 2003-2008, http://www.hc-sc.gc.ca/cps-spc/pubs/pest/_corp-plan/nafta-alena-2003-2008/index-eng.php#high (visited 15 November 2013) (2009); NorthAmerican Free Trade Agreement Technical Working Group on Pesticides Five-Year Strategy 2008-2013:Maintaining Progress, http://www.hc-sc.gc.ca/cps-spc/pubs/pest/_corp-plan/nafta-alena-strat-plan/index-eng.php#toc (visited 15 November 2013) (2013).

54 Summary Report on Consultations with Canadians on Regulatory Cooperation Between Canada and theUnited States (2011) http://actionplan.gc.ca/en/page/rcc-ccr/summary-report-consultations-canadians-regulatory-cooperation-between-canada-and-united#a5 (visited 15 November 2013).

55 See Department of Commerce, U.S.-Mexico High Level Regulatory Cooperation Council, http://trade.gov/hlrcc/ (visited 15 November 2013).


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The RCC was created in 2011 with a mandate to promote economic growth andjob creation and provide benefits to our consumers and businesses through increasedregulatory transparency and coordination, while emphasizing each countrys sover-eign right to its regulatory process, as outlined in the RCC Terms of Reference.56

Co-chaired by high-level representatives from both countries regulatory oversightagencies (OIRA in the USA and the Regulatory Affairs Sector of the Treasury BoardSecretariat in Canada), the RCC, through cooperation with co-chairs from other gov-ernment agencies, and engagement with key stakeholders, drafted a Joint ActionPlan that identified 29 key targets for regulatory cooperation.57

The Action Plan was supported by numerous private interests, business and in-dustry, which are often better situated to recognize the barriers that impede marketaccess than the government. Furthermore, the RCC routinely provides a venue forthe input of private citizens, business, and other industry groups through semi-annualsessions adjoining RCC meetings, and also on an ad hoc basis.

The RCC addresses regulatory issues in a non-legalistic, but more technical andpragmatic way that seeks to find modest solutions to specific regulatory divergenceproblems. Its role is to be one of broad engagementthat means it is not settingrules, but rather providing a mechanism through which bilateral and horizontal coord-ination and the generation of ideas can take place among the lead agencies in eachcountry.58 Its main focus is on limiting inefficiencies in existing regulations, not increating new ones. Furthermore, it states:

The Joint Action Plan is neither about creating a single regulatory system forboth countries, nor for one country to make regulatory decisions on behalf ofthe other. Rather, it targets existing or emerging misalignments, and focuses oncreating systemic mechanisms to secure regulatory alignment into the future.59

The focus of these alignments is regulation that specifically impedes trade, leadsto inefficiencies, and limits product access for consumers, to name a few. The follow-ing examples illustrate its role.

Recently, Canada and the USA recognized each others zoning measures with re-gard to highly contagious foreign animal disease outbreaks.60 Such a measure willhelp prevent substantial disruption to live animal and animal products trade, as hap-pened during the bovine spongiform encephalopathy (BSE), or mad-cow, outbreakin 2003. This zoning initiative began in 2007, before the RCC was created, from anindustry-supported plan developed by the Canadian Food Inspection Agency(CFIA), which was then shared with the Animal and Plant Health Inspection Service

56 CanadaUnited States Regulatory Cooperation Council, Progress Report to Leaders (December2012), 3.

57 United StatesCanada Regulatory Cooperation Council Joint Action Plan (December 2011) http://www.whitehouse.gov/sites/default/files/omb/oira/irc/us-canada_rcc_joint_action_plan.pdf (visited 15November 2013).

58 CanadaUnited States Regulatory Cooperation Council, Progress Report to Leaders, above n 56.59 Ibid, at 4.60 Canadian Food Inspection Agency, Canada and the United States sign agreement on animal disease

zoning, (16 January 2013) http://www.cfia-acia.agr.ca/about-the-cfia/newsroom/news-releases/2013-01-16/eng/1358284644570/1358284687351 (visited 15 November 2013).


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(APHIS) in the USA. Both agencies asked for this issue to be addressed by theRCC, with support from the Canadian Animal Health Coalition, numerous statesand provinces, industry, and other stakeholders at various venues such as the PacificNorthwest Economic Region Summit, and the Northeast District United States Ani-mal Health Association.61

The fact that this plan was developed with broad engagement from both the pub-lic and private sector should not be overlookedin fact, it is probably the key reasonfor its success. This approach is what sets the RCC apart from other regulatory co-operation initiatives, in that it has allowed outside input from the earliest point in theprocess. Not only is this vital to provide legitimacy to the project, but it also preventsindustry and special interest capture by opening up these issues to comment by aslarge a pool of actors as possible. Furthermore, it serves to limit the development of atop-down process, which most often results in overregulation or bureaucratic inertia.

Another area in which regulatory alignment is advancing is in the safe transporta-tion of dangerous goods, with regard to means of containment standards, special per-mits and approvals. Transport Canada has been working on aligning approvals withthe US Department of Transportations Hazardous Materials Guidance Document,which will assist with the movement of dangerous goods by rail between the twocountries. In the 2012 Progress Report to Leaders, it was also noted that the frame-work to allow mutual recognition of each countrys regulation of gas cylinders andtank trucks has been developed [and] included regulatory mechanisms that recog-nize equivalent levels of safety that have been achieved by the other regulatory sys-tem.62 This paves the way for mutual recognition agreements in this area,recognizing that each country has reviewed and built a high level of trust in theothers regulatory approach to dangerous goods as basically equivalent. Thus, neitherwill have to change their domestic regulations.

Motor vehicles standards have also been addressed, because vehicle production isa major supply chain in North America. Work on harmonizing these standards hascome a long way. In November 2012, certain Canadian-certified vehicles were madeeligible for importation in the USA because safety standards were either harmonizedor had an equivalent effect.63 There is still more work to be done, as this only appliesto certain recently produced vehicles, but it paves the way for a more integrated andefficient supply chain in the future, eases the burdens on businesses from having tocomply with different manufacturing and safety requirements, and provides greaterchoice to consumers by allowing new vehicles to enter the market.

The clear fact is, that as consumers, we do not hesitate to make our own choicesabout product safety, and regulators seem to have missed the opportunity here torecognize the reality of a globalized marketplace. A recent RCC meeting held inWashington DC, touched on this point.64 The citizens of Canada and the USA dont

61 U.S. Department of Agriculture, Animal and Plant Health Inspection Service (APHIS), email correspond-ence with author, 26 June 2013.

62 CanadaUnited States Regulatory Cooperation Council, Progress Report to Leaders, above n 56, 10.63 Final Decision That Certain Canadian-Certified Vehicles Are Eligible for Importation, Federal Register,

Vol. 77, No. 227, 26 November, 2012, at 70538.64 CanadaUS Regulatory Cooperation Council Stakeholder Dialogue Session at the Embassy of Canada,

Washington, DC (20 June 2013).


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seem to have a problem with each others products, so why should their govern-ments? In fact, the problem seems to be less of a difference over regulatory outcomes,but rather in differences over the regulatory process. The two countries have thesame goals with regard to health and safety, for instance, but just have different waysof getting to that same endpoint.

At this early stage, it is difficult to fully assess the work of the RCC. However,compared to previous attempts at regulatory cooperation under the Security andProsperity Partnership (SPP),65 as well as past ad hoc proposals,66 the RCC seemsquite different.67 For instance, the SPP excluded the public and civil society in thenegotiating process, while allowing business and special interests to offer their in-put.68 At the latest RCC meeting in Washington, the most frequent comment wasthat broad engagement from the public and private sector would be the key to itssuccess.

To remain successful, it is essential that the RCC avoids the bureaucratic trap. Tothis end, it would benefit from even greater transparency, perhaps by offering a data-base for proposals and comments suggested by private industry and citizens to fostereven more open discussion of the issues. Also, more frequent updates on the statusof initiatives, as well as more opportunities for public forums that allow for consumergroups, small businesses, and industry to bring forward ideas to the agencies involvedwould provide a mechanism for regular input and discussion as well.

The most important feature of the RCC process is the pragmatic approach todealing with regulatory divergence, coupled with regular input from private interests.In order for regulatory cooperation to work, broader engagement is necessary forincreased legitimacy and the coordination of policies that actually reflect legitimateconcerns of those affected by regulation.

The idea is not to bridge all regulatory divergences, but rather to find practical so-lutions to resolvable problems in those sectors that are most vital to the trading rela-tionship. A transparent, inclusive, and open process that involves all stakeholders,from businesses to consumers, is a good model for achieving regulatory cooperationgoing forward.

VI . INTERNATIONAL REGULATORYCOOPERATION IN THE TTIP AND BEYOND

Although resolution of regulatory differences between the USA and the EuropeanUnion is likely to be more difficult than efforts between Canada and the USA, theRCC nonetheless provides useful insights into how regulatory cooperation can be

65 For background information on the SPP see, M. Angeles Villarreal and Jennifer E. Lake, Security andProsperity Partnership of North America: An Overview and Selected Issues, Congressional ResearchService (27 May 2009) http://www.fas.org/sgp/crs/row/RS22701.pdf (visited 15 November 2013).

66 See generally, Michael Hart, Trading Up: The Prospect of Greater Regulatory Convergence in NorthAmerica, United Nations, Sede Subregional de la CEPAL en Mexico 79 (April 2007).

67 Ilene Grossman, U.S., Canadian Officials Seek to Harmonize Rules that Raise the Cost of doing Cross-Border Business, Stateline Midwest vol. 21 no. 2 (February 2012) http://www.csgmidwest.org/policyresearch/documents/0212slmw.pdf (visited 15 November 2013).

68 John W. Foster, Beyond NAFTA: The Security and Prosperity Partnership, http://www.docstoc.com/docs/22659354/Beyond-NAFTA-The-Security-and-Prosperity-Partnership (visited 15 November 2013).


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addressed in the TTIP. The RCC is a recent success story in the efforts to deal withthis problem,69 and offers a good model for the TTIP negotiators to follow. As notedat the beginning of this article, the various assertions regarding the enormous eco-nomic benefits of addressing regulatory trade barriers in the TTIP are often quitevague; the RCC gives negotiators guidance and a path forward.

The early successes of the RCC makes clear that promoting regulatory cooper-ation does not need an extensive legal framework or dispute process. At the mostbasic level, it simply provides a mechanism for the two countries to address regula-tory divergence through input from business and consumer groups, and cooperationbetween government agencies to address the technical details.

Cooperation could occur organically, of course, outside the context of an interna-tional agreement. Regulators from different countries could simply sit down witheach other and coordinate their diverging regulations. But this does not happen oftenin practice and has not occurred between the USA and the European Union, andthere is little reason to think it will any time soon. As a result, a formal mechanism topush this process along would be of great value.70 The private sector needs a betterway to point out the problems it is experiencing, and regulators must be given an op-portunity to cooperate with their counterparts in other countries.

The question then becomes: what should this mechanism look like? One ap-proach that has been put forward would focus on requiring domestic regulators tolook at what their colleagues abroad are doing. Peter Chase of the US Chamber ofCommerce makes the following suggestions:

Essentially you say to the regulators: If you are doing a significant regulation,which is going to have an impact on society, you have to ask the questionwhether this is going to have an impact on transatlantic trade. If the answer isyes, then you have to start to spell out a number of questions. Is this productor service regulated by the other partner, who regulates it and what sort ofregulation do you have in place? How long has it been regulated? Did they trydifferent approaches? Would these approaches be appropriate in our ownjurisdiction?71

69 The Trans-Tasman Mutual Recognition Agreement between Australia and New Zealand is also an ex-ample of bilateral regulatory cooperation, but between two relatively small countries. See generally, Com-monwealth of Australia, A Users Guide To the Mutual Recognition Agreement and the Trans-TasmanMutual Recognition Arrangement, (2006) http://www.innovation.gov.au/industry/TradePolicies/MRA/Documents/TT_MRA_UsersGuide.pdf (visited 15 November 2013). We reference the RCCmodel, in part, because it is an example in which the USA is actively participating and shows the structureand limitations of USA involvement in these issues.

70 In fact, in a position paper on the TTIP negotiations, entitled Trade Cross-cutting disciplines and Institu-tional provisions, (July 2013) the European Commission makes reference to just such a formal body.Available from: http://trade.ec.europa.eu/doclib/docs/2013/july/tradoc_151622.pdf (visited 15 Novem-ber 2013).

71 EurActiv, Chase: Dynamics have to Change to Deliver EU-US Trade Deal, (13 June 2013) http://www.euractiv.com/trade/chase-dynamics-change-deliver-eu-interview-528533 (visited 15 November2013).


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This approach emphasizes the role of regulators themselves and their decision-making process. While there might be some value to this, it also has the potential tobe more burdensome than helpful. If every regulation that has an impact on tradei.e. just about all regulationsrequires consideration of how the other side regulatesthe same issue, the role of the bureaucracy in dealing with these issues could actuallyincrease, and as a result this approach may actually raise more problems than itsolves.

Instead of turning first to the regulators, a better approach to regulatory cooper-ation would be to focus attention on the views of the private sector, which faces theresponsibility of meeting multiple government requirements, and which is in the bestposition to identify the costs and inefficiencies of regulatory divergences in trade. Ifbusiness and consumer groups are not even concerned about a particular area ofregulation, burdening the regulators with extra work is unnecessary. Thus, one of themain goals of the regulatory cooperation process should be to facilitate the involve-ment of producers, distributors and consumers in a process which provides for directcontact with the relevant government agencies. This further assists in identifying thepriority sectors that need the most immediate attention and would yield the greatesteconomic benefit if divergences are narrowed.

Private sector involvement could come at two stages. First, during the initial rule-making process for new regulations, there could be requests for input on potentialconflicts with other countries regulations. This would be helpful in preventing newregulations from diverging right to begin with. Second, with regard to existing regula-tions, it is essential to have private sector input on how divergent rules hamper tradeso that a discussion can even begin. Since regulatory convergence will be a long-termprocess, there needs to be a permanent forum where the private sectorbusinesses,consumers and other groupscan raise concerns with both existing and potentialdivergence.72

Some of the claims for how the TTIP talks can address regulatory trade barriersare vague and the economic benefits overstated, but there are real issues here thatthe negotiators can and should deal with. Trade agreements have not made muchprogress in this area over the years, but the RCC has done some important work. Ifthe TTIP trade negotiators want to have success, they should look to the RCC as amodel for what can be achieved in the TTIP, by bringing together the private sectorand regulators to address problems arising from regulatory divergence.

While the TTIP offers a good starting point, regulatory cooperation should even-tually be done on a multilateral basis. The need for this is amplified by the growingtrend of 21st Century trade agreements that include issues outside the traditional

72 One potential challenge to this, which deals with the regulatory process, is the EUs system of issuing gen-eral papers for comment before proposing new rules. In a recent speech, USTR Mike Froman noted thatthe commission typically does not have a separate comment period once the actual regulation is promul-gated, as the USA does. Froman Calls on EU Regulators to be More Like their U.S. Counterparts, InsideU.S. Trade (30 September 2013). It is not clear, however, that this would seriously impede collaborationor participation from various entities in the public and private sector. The EU does not seem to think thediscrepancy in the rulemaking process is a problem, and has argued that contrary to Fromans remarks,the EU system is transparent and open to stakeholder input. EU Official Pushes Back Against USTRCriticism Of Brussels Rulemaking, Inside U.S. Trade (3 October 2013).


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scope of trade negotiations. Outgoing WTO Director-General Pascal Lamy hasarticulated this problem clearly, suggesting that [w]hile bilateral tariff reductions canultimately be multilateralized, a plethora of bilateral trade agreements will produce amultitude of regulatory standards with which businesses will struggle to comply.73

This simply means that if regulatory cooperation is included in multiple trade agree-ments with different participants, the risk of creating more layers of contradictionand confusion greatly increases. For instance, how different will a regulatory cooper-ation chapter of the TPP be from the TTIP? Would it not be better to open up thediscussion of regulatory burdens on trade to a wider grouping of countries, to maxi-mize the area in which inefficiencies can be eliminated?

Without getting into too much detail here, multilateral regulatory cooperationcould be undertaken through an international forum of some sort. It need not bebased on an enforceable treaty. A more flexible structure, based on the idea of agreedcooperation, may be preferable. The goal is not to push countries to take on difficultand sensitive legal obligations; rather, it is to seek out regulatory issues where coun-tries can voluntarily work together.

Multilateralizing regulatory cooperation may not be possible at this moment, butthere is still a great deal of value to be had from USEU cooperation. Since the USAand EU make up almost half of world GDP and 30% of total goods and servicestrade,74 any agreement both sides can come to on regulatory issues could help setthe tone and trajectory of future regulatory cooperation efforts involving other par-ties. The greater the number of countries involved in eliminating costly and duplica-tive regulatory processes, the greater the potential gains for consumers andproducers alike. The TTIP negotiations can play an important role in leading theway on regulatory cooperation efforts, and their success or failure will determinehow this issue is addressed in the future.

VII . CONCLUSIONRegulatory divergence imposes a large cost on trade, and it is clear that this is amajor issue in the transatlantic trading relationship. But the problem is not an easyone to solve.75 Enthusiasm and vague proposals are not enough. As the RCC projectand numerous other attempts at regulatory cooperation over the years have shown,it takes a long-term commitment to pragmatic problem solving that involves inputfrom all segments of society. But the effort is worth it, because, if done effectively,the gains to consumers, businesses and free trade in general would be significant.

Limited attempts at regulatory cooperation have been pursued in trade agree-ments such as the TPP. But the results so far have not been very promising. If

73 Pascal Lamy, Putting Geopolitics Back at the Trade Table, speech at the IISS-Oberoi Discussion Forumin Delhi (29 January 2013) http://www.wto.org/english/news_e/sppl_e/sppl264_e.htm (visited 15November 2013).

74 Final Report, High Level Working Group on Jobs and Growth, above n 13, at 1.75 As trade expert Bruce Stokes has noted, European backing [for these efforts] may reflect half a century

of experience aligning regulations while building the European Union [and] American enthusiasm mayreflect a lack of appreciation of just how arduous that can be (19 February 2013) http://www.pewglobal.org/2013/02/19/the-public-supports-a-transatlantic-trade-pact-for-now-2/ (visited 15 November2013).


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negotiators want to make real gains on these issues in the TTIP, they may need tolower expectations a bit, so as not to promise things that cannot be achieved. Andthey may also need to look outside of trade agreements for a possible model of suc-cess, where the USCanada RCC could provide some inspiration.

In addition, we should be skeptical of a new layer of international regulation to beimposed on top of existing domestic regulations. A simpler approach that allows theprivate sector to bring costly regulatory divergences to the attention of regulators,and brings different countries regulators together, is the most effective way forward.

Ideally, the best way to address problems arising from regulatory divergencewould be on a multilateral basis. In advance of that eventual goal, however, a USEUregulatory cooperation process could lay the foundation for a broader effort in the fu-ture.76 If the USA and the EU can resolve some of the easier issueslike mundaneproblems such as different regulations for automobile headlightsperhaps that canserve as a building block for a broader multilateral effort. Success in this area will bedifficult, but the gains are potentially large, and thus an attempt to solve this long-standing problem is worth the effort.

76 The OECD notes that: Given that regulatory matters are expected to be at the heart of any eventualagreement, transparency in the way regulations are made and implemented will allow other countries, notparty to the agreement, to consider whether and how toopt-in.Extending mutual recognition ofstandards to third countries, with which either the United States or European Union has already reacheda comparable agreement, is another possible way of ensuring that the benefits of TTIP are extendedmore globally. OECD, The Transatlantic Trade and Investment Partnership: Why Does it Matter? (13February 2013).


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