Putting the final touches to EU-US business agenda

Date: 09/05/1996

THE EU and US together have a combined output of 13 trillion ecu, or 55&percent; of the world economy. Now the most important relationship in the world economic order is set to develop a higher degree of interdependence.

The parameters are well known: more than 425 billion ecu in direct investment (FDI); 248 billion ecu in trade and services, and millions of jobs on both sides of

the Atlantic. US investment in Europe represents nearly 50&percent; of America's total world FDI.

The doomsters have been confounded. The prediction that the glue which held the transatlantic relationship together during the Cold War would come unstuck after the fall of the Berlin Wall in 1989, has not led to a spate of pasta, chicken and other transatlantic trade disputes. Major steps have been taken to cement the EU/US relationship through the New TransAtlantic Agenda (NTA).

The NTA is of great economic and political importance. It ranges from promotion of peace and stability and the fight against crime to health, the environment, world trade and bilateral issues - and has been described by US President Bill Clinton as the “report card” of the EU/US relationship. Every six months, stock will be taken of progress (or the lack of it) at the biannual EU/US summit.

When the Uruguay Round tariff agreements have been implemented, EU tariffs on US goods will be 6.36&percent; and America tariffs on EU products 3.19&percent;.

But non-tariff barriers are much more important - two or three times more, according to the Economic Strategic Institute and the US Department of Commerce. Product standards, discriminatory government procurement, state aid and subsidies, and countless sector specific barriers are much more important impediments to the freedom of movement of goods than tariffs.

So what does NTA mean for the business community?

A lot. The TransAtlantic Business Dialogue (TABD) in September 1995 preceded the NTA signature in Madrid and many of the recommendations made by senior businessmen are incorporated in the action plan attached to the NTA.

The dialogue is organised under 15 issue groups ranging from regulatory convergences to competition policy. An interim report will be presented to next month's EU/US summit and concrete results are expected by November, when the TABD will meet in plenary in the USA to review the progress made in the first year.

Many non-tariff barriers are sector specific regulations which prevent access to markets. Products have to be tested twice to meet often minor different tests (the value of life in the USA and Europe does not vary that much).

Under the chairmanship of Ricardo Perissich, former director-general of DGIII (industry), the Transatlantic Advisory Committee on Standards has sector coordinators for electronics, automotive, chemicals and other sectors on the US and the EU side. The coordinators' job is to help identify regulatory non-tariff barriers and encourage existing industry organisations to help dismantle these trade barriers.

In my own sector, chemicals, the main areas identified as in need of review are the notification of new chemicals, risk assessment of existing chemicals, packaging and labelling, the application and use of chemicals, and EU/US cooperation in third country regulatory issues.

So what are the options for reducing regulatory barriers to the free movement of goods in the transatlantic market place?

Harmonisation is in many cases too difficult. The regulations in both the USA and the EU are many and complex. They were the result of long debates between the interested parties, the US Congress or the European Parliament. Re-writing this vast corpus of rules is seen as too difficult and therefore not a realistic objective.

Standard setting in the International Standards Organisation or the Organisation for Economic Cooperation and Development is, in some cases, an option, but these standards are often set by industry and do not necessarily provide market access.

Mutual Recognition Agreements (MRAs) are the foundation of the freedom of movement of goods in the single market. The famous Cassis de Dijon judgement ruled that if a product was fit for use and sale in one member state, it should be fit for use and sale in another without having to be tested and certified in that member state. There are exceptions (cars and drugs, etc.), but the NTA foresees this principle being extended to the USA and thereby creating the transatlantic market-place.

One of the key MRAs deals with test data and certification. This means that once this MRA is in place, products will be tested on a one-stop basis. But accepting test results is not enough. It must also provide market access. For drugs and medical devices, special checks and safeguards will have to be established for a transitional period. Ultimately it is hoped that the degree of trust between the Food and Drugs Administration and the European Medicines Agency will be such that a single notification will suffice. However, the most difficult cases must not hold up the mass of products to which this umbrella MRA would apply.

An MRA on test and data certification would be a major enabling step forward and new US proposals are being discussed. It is to be hoped that an agreement, at a minimum on the basic principles, will be reached at the next US/EU summit in June.

The Uruguay Round negotiations provided the model for the chemical industry. Leading firms from the EU and US came together in their trade associations and developed a common position which held throughout the negotiations. The great merit of this approach was that the chemicals dossier was not used as a bargaining counter in other parts of the negotiations.

This approach involves reaching agreement on the main issues, developing joint CEFIC/CMA positions and game plans, starting discussions with respective regulatory agencies on both sides of the Atlantic and, finally, participating in quadrilateral negotiations to achieve an MRA or other agreement to remove non-tariff barriers to the free movement of chemicals.

Regulation is a well-proven technique for preventing market access. Both the US and EU have a considerable interest in containing the regulatory proliferation which is taking place in Asia. Unless the EU and US cooperate to establish the parameters of world standards, both will suffer commercially.

Cooperation in third countries on regulatory issues is not possible unless there is a basic agreement between the EU and US; at least through an MRA on testing and certification.

The EU/US convergence process will have to be underpinned by a confidence-building programme between their respective regulatory agencies. Unless there is a basic confidence in the equivalence of each other's methods to protect the consumer and the environment, cooperation in third countries will not be possible.

Through the removal of non-tariff barriers, a number of growth-enhancing effects are predicted - lower import prices, increased efficiency, economies of scale and the growth of high-value markets. For a highly regulated market such as research intensive chemicals, a one-stop approval process should speed up the time from laboratory to market.

Greater speed will prevent “infant mortality” of new products which cost too much to develop in relation to estimated market potential. Costs can be reduced by quicker market access and potential profits increased by access to a larger market. This would have a significant effect on restoring the innovative capacity of the chemical industry, which has suffered from intensive regulation.

Small and medium-sized enterprises (SMEs) are seen by many as the great hope for jobs and growth. They should benefit from the transatlantic market-place in several ways, through access to innovation and larger market niches.

Research-intensive innovations by large firms are usually exploited by a great number of smaller firms. The chemical industry, for instance, produced the new fibres, dyes and finishes for the textile industry. Quicker access to new products and processes by SMEs will stimulate their growth and ability to create jobs.

The third major benefit are the economies of scale in high-tech niche markets. The Cichinni study of the benefits of the single market predicted that much of the growth would come from such economies of scale. That prediction has not yet been fulfilled, partly because of the high cost of mobility in Europe to peripheral markets such as Greece and Scandinavia. It is cheaper to fly to the USA, which gives European based SMEs access to a large market at a lower cost.

European SMEs should benefit by gaining access to a US market which is usually quicker to try a new product or process. Once validated in the US, the entrepreneur can use this experience to commercialise in Europe.

Dirk F. Hudig is the ICI Plc Manager, EU Government Relations, and Europeanoordinator for the chemical industry in the Transatlantic Business Dialogue.