Regulatory Cooperation in the USMCA

Photo of Kornilia Pipidi Kalogirou

Kornilia Pipidi Kalogirou, PhD Candidate, University of Speyer

Abstract: This blogpost has the aim to analyse the status of the Regulatory Cooperation activities in the new NAFTA – officially “USMCA”. Regulatory Cooperation did not actually work much under the previous trilateral regime, and was revised in the USMCA after Canadian initiative. Constituting a new but important part of trade liberalization, advanced Regulatory Cooperation Chapters were introduced for the first time in EU FTAs. The USMCA chapter is our first sign from across the Atlantic. The idea is to provide a global picture by referring first to the way Regulatory Cooperation was materialized in the old NAFTA in order to reach a conclusion on how the new treaty changes the previous regime.

 

 

The eyes of the world of trade turned some weeks ago towards the American continent. A new North American Free Trade Agreement (NAFTA), a much-anticipated development by many, made its appearance recently, currently being subject to review. It was highly  anticipated not only by the negotiating parties, but also by other trade actors, and that for a plethora of reasons.

Incentives for Regulatory Cooperation Provisions in the USMCA

First of all, external trade partners are mainly interested in seeing how the new agreement will influence their trade relations with the parties. In other words, they care about the impact of the externalities, which was considerable in NAFTA, at least as far as the European Union (EU) is concerned. Secondly, it aimed at correcting the shortcomings of NAFTA especially on Chapters that touch upon sensitive matters, as is the issue of Regulatory Cooperation. It was, thus, important for other trading actors to learn about their stance in such issues, one of which was Regulatory Cooperation, the focus of this blogpost.

The issue of Regulatory Cooperation was raised by Canada in the recent negotiations (Manak, 2018). Canada has also signed a very advanced Chapter on Regulatory Cooperation with the EU in the Comprehensive Economic and Trade Agreement (CETA). It is advanced in comparison to previous Regulatory Cooperation initiatives since it is now bilateral, included in a legally binding agreement, and with a greater focus on regulatory cooperation than regulatory coherence and good regulatory practices. The difference between the two lies in the nature of the commitments. Regulatory coherence is rather about introducing commitments in order to approximate the regulatory procedures; it aims to improve the quality of the internal systems. Regulatory cooperation on the other hand, sets out procedures that bring regulators together. In other words, it is more result than process orientated, it focuses on bringing actual results. It, thus, avoids many shortcomings of previous attempts such as the rigidity and polyphony of the World Trade Organization (WTO) and the purely political nature of previous efforts.

At this point it should be mentioned that Regulatory Cooperation activities are orientated to battle against the so-called non-tariff measures to trade: regulatory measures, not necessarily of discriminatory nature, with which products/services/investments are confronted as they cross borders, and which impede their entrance to foreign markets. Regulatory barriers owe to this quality their characterization as second generation tariffs, since they are susceptible to have a trade disturbing effect, as tariffs do. Their considerable effect on trade mandates their efficient control, and highlights the need for a coordinated approach in a Free Trade Agreement (FTA) of such magnitude as NAFTA is. The need to battle against regulations that serve as barriers has been pressing for decades.

Regulatory Cooperation before the USMCA

Contrary to what one may think, Regulatory Cooperation has been present in the NAFTA, and Regulatory Cooperation activities have been taking place between the 3 signatories. One would assume of course, it happens within the Agreement, however, it is regulated by 2 separate Agreements between the 3 partners, concluded outside the NAFTA environment, the US-Canada Regulatory Cooperation Council and the US-Mexico High Level Regulatory Cooperation Council.

Their conclusion came as a result of the inability of the in-NAFTA structure to coordinate the activities. This structure, comprised by the trilateral Committee on Standard Related Measures and lower-level working groups did not advance the works on regulatory cooperation, due to lack of political oversight. Some progress was made under the Security and Prosperity Partnership, an executive-type cooperation, that did manage to incorporate to a certain extent the kind of cooperation envisaged in the old NAFTA. That alone being not enough, and aiming to intensify the efforts, the parties proceeded with the setup of the bilateral bodies outside NAFTA. The US-Canadian Council, said to have brought some actual results, implicates the direct participation of the respective regulatory agencies.

Regulatory Cooperation Provisions in the USMCA

In the official text published online, Chapter 28 is the one dedicated to Good Regulatory Practices. The name signals its focus on coherence activities and not as much on cooperation, as Chapter 21 of the CETA does.

Indeed, in the first part of the Chapter, the parties undertake various commitments that turn around the quality of the regulations and the system behind. The parties commit to coordinate their central regulatory bodies and internal procedures with the standards of the Chapter (Articles 28.3, 28.4). The set standards include among other: an improvement of the information used as a basis for regulations and an early publication of the regulations to be adopted (Articles 28.5, 28.6). All information has to be written in a way accessible to interested parties and must be accompanied with extensive publication requirements (Articles 28.7, 28.8, 28.9, 28.12). Since quality of regulations matters, the parties must base their activities on reliable sources, conduct impact assessments and seek advice from experts that cover a wide scope of interests before proceeding with a choice or another (Articles 28.9, 28.10, 28.11).

As shortly described, most content refers to coherence activities and improvement of the regulatory procedures of each party along common guidelines. However, to a lesser extent parties agree to emerge upon cooperation activities as well. As a necessary requirement for cooperation activities, the parties agree to keep an open and welcoming eye on suggestions coming from interested parties, other regulators or stakeholders, and proceed to retrospective reviews especially when such suggestions are fruitful and meaningful (Articles 28.13, 28.14).

As far as regulatory cooperation activities as such are concerned, these can be found under Article 28.17. The parties recognize the importance of engaging their regulatory authorities into cooperation activities either under the premises of the Agreement or in other available fora. They agree to start by conducting common research on areas of interest, exchange technical information, develop common approaches to risk assessment especially on emerging technologies and to enhance their common action in international fora. The biggest example is their willingness to consider international standards as a form of convergence. These forms that regulatory cooperation takes, certainly do not catch up with CETA’s strong focus on cooperation activities but certainly are a progress, especially in comparison to the previous in-NAFTA regime.

A surprising aspect is the final provisions of the Chapter to subject some of its aspects to dispute settlement provisions. This is quite innovative, especially if one considers that the EU FTAs have kept the Regulatory Cooperation Chapters outside the Dispute Settlement framework, based on the voluntary character of the provisions. This is a countersign that voluntary procedures and dispute settlement can go hand in hand.

Conclusion

As it has been rightly mentioned, it is still not clear whether this regime will replace the previous bilateral ones taking place outside the FTA. Whatever the answer may be, the present Chapter of USMCA groups the activities of all 3 states, which is certainly more welcome than separate bilateral actions. That is why, it would be interesting to give the Chapter a chance to operate smoothly without parallel bilateral activities, since the existence of the latter may put the smooth functional of the trilateral mechanism in danger. The new Chapter offers many guarantees and seems promising, daring to even place the procedures under the scrutiny of the dispute settlement mechanism, something that more advanced in content Regulatory Cooperation Chapters, as is the one in CETA, have been reluctant to do.

In general, this Chapter constitutes a fresh start for Regulatory Cooperation in the American continent. Its biggest task, though, is to prove that such a trilateral cooperation is indeed possible, breaking the borders of bilateralism set up till now with the existing bilateral initiatives.

References:

Bélanger, L. “Governing the North American Free Trade Area: international rule making and delegation in nAftA, the spp, and beyond.” Latin American Policy 1.1 (2010): 22-51.Manak, I, Regulatory Cooperation Makes Its Debut in NAFTA Round 2 (2017) (https://www.cato.org/blog/regulatory-cooperation-makes-its-debut-nafta-round-2)

Manak, I, Regulatory Issues in the New NAFTA (2018), https://worldtradelaw.typepad.com/ielpblog/2018/10/regulatory-cooperation-in-the-new-nafta.html

Takács, T. “Transatlantic Regulatory Cooperation in Trade.” A Transatlantic Community of Law: Legal Perspectives on the Relationship between the EU and US Legal Orders, edited by Elaine Fahey and Deirdre Curtin, Cambridge University Press, Cambridge, (2014), pp. 158–185.

United States-Mexico-Canada Agreement (USMCA) Text (2018), (https://ustr.gov/sites/default/files/files/agreements/FTA/USMCA/28%20Good%20Regulatory%20Practices.pdf)