Regulatory Co-operation: What’s In, What’s Out, What’s Next

Until the President and Prime Minister announced plans for closer regulatory co-operation last February, only a few policy wonks from the arcane world of trade technical barriers knew much about it. Now, that reg co-op has become a fast-growing bilateral economic initiative, businesses are wondering how they can benefit.  The Canada-United States Regulatory Co-operation Council (RCC) is on a mission to narrow the gaps between the commercial regulations of the two countries. Before considering potential benefits to business, let’s look at what regulatory subjects are up for consideration in this new arrangement.

The regulations and standards of interest to the RCC are easier to define by what they are not.  Most of what happens when a product crosses the border – tariffs, certificates of origin – are not the sort of regulatory issues that the RCC is likely to consider.   They are more likely to focus on the standards, tests, and certifications that a good or service must undergo before it can be sold in a particular territory.

An oft-cited example is that products bound for Canada must be labeled in both official languages and use metric expressions of weight and volume. Other areas of regulatory difference include vehicle emissions, food fortification and the safety equipment worn by cross-border service providers.

Traditionally, trade agreements have tried to limit the market distorting effects of so-called technical barriers to trade.  While the WTO and NAFTA agree that countries can set whatever rules they wish to protect public health, they try to discourage the application of rules that are not backed up by strong science or those which are used as a disguised tool of protectionism.

In our integrated North American market, small differences can be costly. Businesses don’t tend to complain when there is a legitimate public policy reason for differences but they are upset by differences for the sake of difference or differences arising due to lack of coordination between regulators.

There are three operational areas where technical barriers take root:

(1)   differences in standards;
(2)   differences in testing and certification methods; and
(3)  differences over when or how to reach the same objective when a common standard is agreed upon.

Of the three, differences in standards are the most difficult to change.  Those who benefit from the status quo will have a vested interest in keeping things as they are.  Some serve a legitimate public policy objective – metric labeling, for example.  Mutual recognition of testing and certification can be easier to change if there is sufficient will to do so, but easiest of all may be cross-border coordination of implementation plans for harmonized standards.

North American manufacturers operating in cross-border supply chains have long demanded harmonized standards wherever possible: consequently; the RCC has a challenge to identify new areas that are amenable to change.  The Canadian team, led by Bob Hamilton and Bob Carberry from the Treasury Board, and the U.S. team, led by Cass Sunstein and Michael Fitzpatrick from the Office of Management and Budget, are busily reviewing industry suggestions in order to identify four or five areas for immediate action. Those with the best prospects for inclusion in the Phase 1 action plan (promised for the fall) are those where there are stakeholders on both sides of the border who are willing to commit time and resources for change and where there is not strong resistance to change among domestic constituencies. Since a substantial amount of cross-border goods trade takes place in the automotive and food sector, there is a good chance that one or both of these will be identified as priorities.

What is more important, however, is that the RCC is creating durable structures for cooperation.  A mechanism that has both high-level political attention, working-level expertise and a mandate to reduce unnecessary regulatory.

Now is the time for businesses in cross-border supply chains to identify problem areas in their regulatory processes and try to position them on the future agenda of the RCC. Cross-border cooperation that starts with business and is supported by government will improve not only local competitiveness but also North America’s competitiveness in the world.

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