TTIP and the post-Bali WTO: Toward a New World Trade Order?

David A. Gantz* and Laura Nielsen****

Discussion draft: not to be quoted without the authors' written permission

2014 Asia WTO Research Network Annual Conference

AWRN at 10

I. Introduction

The Transatlantic Trade and Investment Partnership (TTIP)

carries the considerable allure of expanding an economic partnership that

accounts for almost 50% of global output, a trillion dollars in annual

trade (about the same as NAFTA), $4 trillion in investment and 13 million

jobs, all according to the EU Commission.1 A new FTA between the two

leading economic players in the world, with a combined population of over

800 million persons, cannot help but influence the course of future WTO

negotiations even if it is many years before the WTO Members are willing

to deal with issues the TTIP may end up dealing with (such issues as

regulatory coherence, anti-competition issues, agricultural market access

and investment, among others). Naturally, any FTA of a certain size

will, by virtue of particularly the preferential rules of origin, move

one or more type of production from a more efficient third country to one

of the parties – a classical example of trade diversion. This happened for

example in the NAFTA with color television tubes from Korea that ended up

being produced in Mexico. But it may also create trade, as NAFTA did in

terms of Mexican consumer goods from China.

* Samuel M. Fegtly Professor of Law and Director, International Trade and Business Law Program, the University of Arizona, James E Rogers College of Law.**** Associate Professor of Law, Faculty of Law, University of Copenhagen.1 $3.7 million in two way investment according to Shayerah Ilias Akhtar & VivianC. Jones, Transatlantic Trade and Investment Partnership Negotiations, CONG. RESEARCH SERVICE Feb.4, 2014, ii.

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Still, the influence may also go beyond these factors – because

if cases between the two superpowers are still litigated in the WTO, case

law may then be influenced by the “WTO plus” agreements between them and

thus potentially pull WTO case law in a direction towards stronger

obligations. This seems likely to occur where WTO and RTA substantive

principles overlap, as is seen for example in NAFTA.2 Perhaps most

significantly, as a study commissioned by the EU Parliament has

suggested, the TTIP “has the potential to remake political and legal

relationships between the EU and US and pave the way to a new form of

global economic governance based on international regulatory

cooperation.”3

This article concerns the TTIP and the effect it may have on

the post-Bali WTO agenda, and on the parties’ other trading partners, but

it also takes on a more forward looking approach and posits that certain

global issues may not be solved multilaterally within the near future and

that bilateralism (in the form of the two economic superpowers acting

“unilaterally” together) may be a more viable but also realistic solution

to, e.g. some aspects of alternative energy and mitigation of the

effects of climate change.

The TTIP negotiations are not the first instance of attempts by

the U.S. and EU to bring about enhanced transatlantic regulatory

cooperation. Mutual recognition agreements (MRAs) have been discussed at

least sine 1998 through a “Transatlantic Economic Partnership action

plan. Since 2005 the two have engaged in high level regulatory fora,

2 For example, in NAFTA, art. 301 (national treatment) incorporates GATT art. III and related jurisprudence by reference and NAFTA art. 301 (import and exportrestrictions) incorporates GATT, art. XI by reference.3 Alberto Alemanno, The Transatlantic Trade and Investment Partnership and Parliamentary Regulatory Cooperation, European Parliament, Apr. 2014, 5, available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2423562 (last visited May 5, 2014).

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with the Transatlantic Council established for regulatory cooperation in

2007.4 The MRAs have the advantage of a “tested once” approach so that

actors complying in one jurisdiction will be deemed to be complying in

the other as well.5 MRAs have been used in the past in such areas as

telecommunications equipment, recreational craft, medical devices and

civil aircraft. The approach, which clearly requires leadership at the

political level, would be well adapted to standards for new and future

technologies such as electric vehicles and nanotechnology.6 In obvious

recognition of the fact that MRAs have not gone far enough or covered

sufficient sectors, the TTIP negotiators have tentatively agreed to work

toward a longer term regulatory mechanism after the negotiations are

completed, depending on what is agreed upon with regard to existing

regulatory barriers.7 This would presumably go beyond attention to

general regulatory coherence and improved TBT and phytosanitary and

sanitary processes addressed within the TTIP itself.

Generally, when designing MRAs, these do not extend to trading

partners with other MRAs unless both parties have a MRA with the third

country. This is also the point raised below in which Professor Lorand

Bartels cautions against and posits may not be entirely WTO consistent.

The discussion is divided into four parts: Part II briefly

summarizes the TTIP negotiations including their content and current

status. Part III addresses the issue of regulatory coherence between the

EU and the United States in greater depth. Part IV sets out the effect

the TTIP can have more broadly on a post-Bali WTO, with examples as to4 Akhtar & Jones, op. cit., 26.5 Id., 27.6 Ibid.7 Office of the U.S. Trade Representative, Final Report of the U.S. High Level Working Group on Jobs and Growth, Feb. 11, 2013,25 (quoting USTR Dan Mullaney), available at http://www.ustr.gov (last visited May 7, 2014) [hereinafter “HLWG Report”].

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how the WTO could in time be affected. Part V examines what we choose to

call new regulatory frontiers where the EU and the United States could

(but may not) set new standards for, e.g., labor standards, environmental

protection (including climate change and animal welfare protection),

investment and competition through their joint actions in the TTIP.

II. Content and Current Status of the TTIP Negotiations

The TTIP negotiations have begun slowly, and are underway only

since late 2013; virtually no one expects them to be concluded before the

end of 2015 and most believe it will be at least mid-2016 before the

process is completed.8 Although as of May 2014 they have not progressed

far beyond the “throat-clearing” stage,9 the fifth, May negotiating

session was said by EU Chief Negotiator Ignacio Garcia Bercero to have

addressed language in technical barriers to trade, competition, state-to-

state dispute settlement and dealing with issues relating to small and

medium-sized enterprises. The U.S. chief negotiator, Dan Mullaney

emphasized dealing with services, investment and government procurement

as well as tariffs and market access for goods.10 This is progress

8 It is notable that a period of 6-7 months after the negotiations are concludedis required before the agreement could be signed by the President. Typically, the legal texts must be “scrubbed” by representatives of the two Parties, which commonly requires about four months. Under earlier versions of Trade Promotion Authority (“fast track”) a trade agreement cannot be signed until 90 days after the text has been sent to Congress, and it can be assumed that a new version of TPA will contain the same requirement. Although the Democratic leadership in the Senate and Congress have blocked until after the November 2014 congressionalelections consideration of a bill that would give TPA to the President it is generally anticipated that such legislation can be enacted during the first quarter of 2015. EU officials have made it clear since 1974 that they will not conclude a trade agreements with the United States until the President has TPA, assuring that the Congress will not seek to amend the agreement after the fact or delay its consideration.9 See Len Bracken, U.S. Seeks to Move Past the ”Throat-Clearing” Period in TTIP Talks with EU, Punke Says, 31 INT’L TRADE REP. (BNA) 683 (Apr. 10, 2014) (Quoting Deputy U.S. Trade Representative Michael Punke).10 Len Bracken, U.S., EU Negotiators Hone Texts, Discuss Market Access in TTIP Talks, 31 INT’L TRADE REP. BNA 979 (May 29, 2014).

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although the confidentiality of the negotiations makes it difficult to

assess actual forward movement.

Despite the many technical complexities as well as legal and

political challenges discussed herein, the TTIP may ultimately succeed in

significant part because such an agreement is one of few available

alternatives to the EU and United States for major trade expansion

between two giant but largely stagnant economies. Notwithstanding the

“success” of the Bali WTO Ministerial Meeting in December 2013 in

reaching agreement on trade facilitation and some food security and

related agricultural trade issues, few observers believe that other

pending Doha Round agreements (such as those relating to services,

agricultural market access and agricultural subsidies among others) can

be salvaged. Officials in both the United States and the EU are

concerned about China’s rising economic (as well as military) power and

realize that their future security depends on strengthening their

currently stagnant economies. Some officials in both the EU and the

United States fear that their economies may be condemned to chronic slow

growth, better than the 20-year Japanese period of no growth Japan has

experienced but sharing some of the same characteristics. Thus, for

example, even though the United States is predicted to achieve growth

between 2-2.5% in 2014, preliminary growth figures show that the economy

shrank at a 1% annual rate in the first quarter,11 and inflation in the

EU from March 2013 to March 2014 fell to 0.5 percent, considered

dangerously low by some observers.12

Despite its potential, the TTIP negotiations face mind-boggling

complexities. As this paper suggests, they will focus more on building

regulatory and standards compatibility, ”regulatory coherence,” with11 Ylan Q. Mui, Economy Shrank in First Quarter, WASH. POST, May 30, 2014, at A11.12 See Neil Irwin, Deflation Threatens Europe. Policy Makers Wait, N.Y. TIMES, May 8, 2014 (commenting on the threat of a deflationary cycle akin to Japan’s).

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mutual recognition of regulatory procedures and on other, related non-

tariff barriers, what Professor Alemanno characterizes as ”the behind the

borders fight against nontariff barriers (NTBs)-emerging from regulatory

differences across countries-making NTBs today’s most prominent obstacle

to trade exchanges.”13 In addition to differences on sanitary and

phytosanitary standards, disagreements are likely to arise with regard

geographical indications and privacy, as well as the services and

investment areas noted elsewhere in the paper. For example, the names

Feta, Gouda and Edam for cheeses, native to Greece and the Netherlands,

respectively, have been used routinely by U.S. cheese producers for over

a century. Privacy is a highly sensitive matter that relates directly to

trade in internet services such as those provided by U.S. high-tech

companies such as Google, Facebook, Twitter, Microsoft and Yahoo, where

EU and U.S. approaches vary significantly. For example, a recent, very

broad decision of the Court of Justice of the European Union held that

Google (but not the newspapers or other sources that originally published

the information) must upon citizen request remove links to embarrassing

personal information, even if previously published and even if true.14

The decision is considered by many in the United States to be overly

broad and to potentially erode freedom of speech and freedom of the

press. It also may jeopardize the support of American high-tech

enterprises for the TTIP. Finally, even if tariff reduction is not the

most controversial issue it affects powerful stakeholders on both sides

of the Atlantic and thus cannot be assumed to be entirely straight-

forward.

. Perhaps the most significant unanswered question is not whether

there will eventually be a TTIP but how “broad and deep” it will13 Alemanno, 7.14 See Craig Timberg & Michael Birnbaum, In Google case, E.U. Court says People are Entitled to Control their Own Online Histories, WASHINGTON POST, May 13, 2014 (discussing the potential impact of the decision on the Internet industry).

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ultimately be, with extensive coverage of agriculture; coverage of

financial and other services; protection of investment; and elimination

or drastic reduction of most remaining tariffs,15 as with most other

preferential trade agreements recently concluded by the United States and

the EU.16 The real challenges are in such areas as encouraging

regulatory coherence, equivalence and consistency through consultation

and uniform laws where appropriate, along with mutual recognition of

regulatory determinations. For example, can duplicate testing in the two

jurisdictions of electrical equipment, pharmaceutical products and

chemicals be reduced or eliminated, and done so without compromising the

principles of regulatory sovereignty and questions of government

accountability? Regulatory coherence and mutual recognition also implies

the incorporation of improved disciplines for sanitary and phytosanitary

measures and technical barriers to trade, long a source of contention

between the two Parties, e.g., with hormones used to fatten cattle17 and

GMOs? A ”wide and deep” TTIP will also address supply chain management

issues and related trade facilitation requirements in a more

comprehensive and obligatory manner than in the recent Bali accord on

trade facilitation.

The alternative is a much more modest undertaking with the

Parties settling for reduction of the already low tariffs, plus some

reduction of agricultural trade barriers and non-tariff barriers, leaving15 While tariffs are already very low on both sides of the Atlantic, averaging less than 4% on a trade-weighted basis, high tariffs remain on some agriculturalproducts, footwear, textiles and apparel.16 See, e.g., United States—Korea Free Trade Agreement, Jun. 30, 2007, available at http://www.ustr.gov/trade-agreements/free-trade-agreements/korus-fta/final-text (last visited Apr. 29, 2014); Economic Partnership Agreement between the CARIFORUM States, of the one part, and the European Community and its Member States, of the other part, Oct. 15, 2008, http://ec.europa.eu/world/agreements/prepareCreateTreatiesWorkspace/treatiesGeneralData.do?redirect=true&treatyId=7407 (last visited Apr. 2014).17 See Appellate Body Report, EC --Measures Concerning Meat and Meat Products (Hormones), WT/DS26,48/AB/R (adopted Feb. 13, 1988).

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more ambitious changes, including most of those related to regulatory

coherence, for the future. A shallower, narrower FTA seems on the

surface to be far easier to conclude given the important political and

economic groups in both jurisdictions that fear increasing competition

from imports. However, such an agreement would create many fewer

economic benefits for the Parties and be viewed as a failure by other WTO

Members who are closely following the TTIP negotiations, including the

BRICS who would likely rejoice at the inability of the EU and United

States to set bold new paths to trade liberalization.

At the outset, it must be recognized that there is a great deal

of protectionism in both the U.S. and EU – often linked to sensitive

issues which will be some of the most challenging ones on which to reach

compromises. Many of these same issues, such as agricultural market

access, are not confined to the TTIP but affect global trade negotiations

as well. The most difficult and sensitive for the EU and United States

include both the traditional and the new: agriculture generally (dairy,

sugar, wine, some grains, beef and pork) is traditionally heavily

subsidized or otherwise protected; administrative agencies (the various

Commission directorate generals, SEC, FTC, others) are resistant to

change and are extremely reluctant to compromise their currently broad

powers; any manufacturing groups that are not largely automated,

particularly in nations with low productivity such as France, Greece and

Italy, is vulnerable (and opposed) to lower tariffs; despite the WTO’s

Government Procurement Agreement, “Buy American” and “Buy European”

legislation and regulations, and restrictions on private investment,

continue to exist, particularly at the state levels in the United

States.18 Among recent examples is French protectionism, whereby the

18 Where State participation in the Government Procurement Agreementdisciplines is voluntary and currently limited to 37 states. See GPA,U.S. annexes.

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French Government seeks to block foreign acquisition of French

enterprises that are ”national champions,” such as the online video

service Dailymotion by Yahoo and the industrial company Alstom, the

latter by General Electric. 19 Still, EU Commission President Jose Manuel

Barroso may well be accurate when he asserted in April that an ambitious

TTIP, covering not only market access for goods, services and government

procurement but the regulatory issues so important for both sides, would

actually be easier to achieve ”than a less comprehensive, lower-aiming

deal.”20

Discussions to date have addressed government procurement,

labor, environment, state-owned enterprises, small and medium-sized

enterprises, competition, raw materials, energy, digital trade, e-

commerce, dispute settlement, rules of origin, services, and

geographical indications, all apparently on a very preliminary basis.21

The discussions of key industrial sectors such as automotive,

pharmaceutical and chemicals are only a few of the many where the

negotiations are addressing questions of regulatory compatibility, as

noted in Part IV, below, which are in many instances are more important

barriers to increased trade than tariffs per se. Briefly explained, some

tariffs are already so low or already eliminated, so it therefore is not

the tariffs but the NTBs that are the really important issues. But these

early negotiations on regulatory coherence have not been productive. For

example, the United States and the EU differ on the scope of financial

services rules that are to be included in the TTIP under the scope of

19 Protection will Only Hurt France, N.Y. TIMES (editorial), May 5, 2014.20 See Len Bracken, Ambitious TTIP Pact Easier to Achieve Than Lower-Aiming Deal, Barroso Says, INT’LTRADE DAILY (BNA), May 1, 2014.21 All are consistent with the EU’s High Level Working Group Report on Jobs and Growth (Feb. 11,r. 2013), available at http://trade.ec.europa.eu/doclib/docs/2013/february/tradoc_150519.pdfb (last visited Apr. 29, 2014). See also Akhtar & Jones, op. Cit., passim (discussing the outstanding negotiating issues).

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regulatory coherence. The EU apparently favors both increased market

access and “prudential” regulations (those designed to protect depositors

and other stakeholders). The United States has to date taken the

position that the latter are best left for other fora where they are

being addressed, as in the Trade in Services Agreement (TISA) which would

if concluded modify and expand the General Agreement on Trade and

Services for the parties to the TISA. In the United States bureaucracy

it is the Department of the Treasury that to date at least is refusing to

address “prudential” regulations, for reasons that are not entirely

clear.22 The EU argues, correctly in our view, that such “operational

level” regulations relate as well to market access.23 On the other hand,

the U.S. negotiators seem more interested in insuring the inclusion of

investor-state dispute settlement in the TTIP than some members of the EU

(Germany, France) although publicly at least the USTR has indicated

flexibility in the design of the investment mechanisms themselves.24

Another point that should be emphasized when discussing NTBs is

that tariffs are not altogether irrelevant, although they gradually have

lost their importance over the past decades. If they were completely

irrelevant, they would of course have been eliminated on all goods, or on

nearly all goods as to avoid the administrative hassle associated with

collecting the duties. One wonders why there is so little focus on

tariff barriers in the TTIP – because if small and medium size businesses

are to meet the preferential rules of origin in the TTIP and receive

duty-free treatment for their goods, there should both be an economic

advantage of a certain size and the preferential rules of origin should

22 Off the record discussion with a major U.S. financial industry representative, May 2014; notes on file with author.23 See Len Bracken, Scope of previous TTIP Text Remains Under DiscussionAs Round Draws to Close, Negotiators Say, INT’L TRADE DAILY, Dec. 20, 2013.24 Froman Says ISDS Needed in TTIP to Set Standard for Other Agreements, WORLD TRADE ONLINE, May 5, 2014.

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be achievable for enterprises whether large or small. At present, it

nearly seems as if the EU is not negotiating that part of the agreement

in good faith as the North American market is so integrated that in many

instances it does not make sense to talk about “US origin”; “North

American origin” would make more sense. Because in the EU, any EU

content is counted toward EU origin, so if the negotiations were

reasonably structured, the same treatment should be accorded also to any

NAFTA content in determining origin for imports into any of the EU

nations. In support of this argument is the fact that the EU seems to

have made considerable progress in its bilateral agreement with Canada

(the CETA) (although that proposed FTA is currently stalled),25 and has

for a decade has had a free trade agreement with Mexico.

Whilst it may be impossible for the NAFTA parties to negotiate

the agreements together given they do not have the same institutional

structure nor supra-national entities as the EU, and from a strictly

legal formalistic point of view it is not necessary given NAFTA is merely

a FTA and not a CU, it nevertheless makes sense politically to align at

least the preferential rules of origin in those agreements. However,

when adding on the regulatory coherence issues where for example one

product that is. approved in the EU would then also qualify in the US,

the next issue to tackle is whether this approval is extended also to

Mexico and Canada, and if so by what legal process? Similarly, the

reverse situation may exist where a Mexican or Canadian product may be

approved also in the US but that the extent to which this applies the EU

is uncertain. This is not normally the case, and is an issue negotiators

will have to tackle in the future – not only because it may run afoul of

the TBT Agreement of the WTO26 but also because it raises so many25 Joe Kirwin, EU-Canada FTA Stalled Indefinitely Over Numerous Disputes, Says De Gucht, INT’L TRADE DAILY (BNA), May 123, 2014.26 This point has been raised by Professor Lorand Bartels at the mini-WTO conference “The Post-Bali WTO in light of the Regional and Sectoral Agreements”,

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additional practical problems that the entire effectiveness of TTIP

integration between the EU and the US could be undermined. It could even

become an issue in the TPP given that the United States, Canada and

Mexico are all TPP negotiating parties.

We also question whether investor-state dispute settlement is

the optimal solution for the EU and the U.S. where with a few exceptions

all nations involved reliable and independent judiciary systems which

cannot be expected to favor the government in a dispute with a foreign

investor. It is not entirely clear why such a mechanism would be needed,

and at a seminar at the Ministry of Foreign Affairs in Denmark in the

spring of 2014, the fear of American litigious behavior were rebutted

clearly with figures stating Europeans were in fact more litigious than

Americans. This was equally not a reason used to explain the need for an

alternative to the well-functioning courts. Curiously, the American

negotiators have persistently argued that the EU regulatory system should

be changed as to be more transparent, which American commentators such as

Simon Lester at several occasions27 have criticized vocally as perhaps

not being the most optimal approach to reaching consensus – comparing it

to how the Americans would react if the Europeans wanted the Americans to

change their legislative procedures.28 However, from a European point of

view, critique of the opaque functioning of the undemocratic EU

Commission is not necessarily ill thought of except perhaps by the

increasingly large minority of anti-EU representatives in the EU

Parliament. One thing that is actually missing quite a lot in the debate

about the TTIP is the mobilization of citizens and consumers across the

see supra note xxx.27 At the mini-WTO conference ”The post-Bali WTO Agenda in light of the Regional and Sectoral Agreements”, Ministry of Foreign Affairs, Denmark, May 13, 2014 (hosted by the Faculty of Law, University of Copenhagen); the Annual WTO BIICL Conference, BMA House, London, May 14-15, 2014.28

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Atlantic as these probably are more in alignment than they are with their

own governments. All that being said, however, it has been proven in

numerous actions filed under NAFTA, Chapter 11 that even governments with

a high level of rule of law and independence in their judiciaries

occasionally take discriminatory and even arbitrary actions which may be

difficult to resolve in the national court systems.29 Moreover, some EU

investors would likely welcome the option of avoiding the litigation of

disputes in U.S. federal courts with their time-consuming and expensive

discovery rules, and many MNEs on both side of the Atlantic are generally

more comfortable with the process of international arbitration than

litigation in each other’s national courts.. Thus, the existence of an

investor-state dispute settlement system may appeal to some potential

foreign investors even if the need for the system is not fully clear to

some observers.

By May 2014 the parties had agreed with considerable

encouragement from stakeholders on both sides of the Atlantic to focus

first (and try to demonstrate progress) on market opening measures, but

not on an approach. The Commission favored treating market-opening for

goods, services and government procurement in a single group, while the

U.S. Trade Representative favored addressing each area separately.30

Still, as noted above, during the late May meeting the negotiators still

managed to hold fruitful discussions both on market access and some

regulatory issues.

III. Regulatory Coherence

29 See, e.g., S.D. Myers Inc. v. Government of Canada, Nov. 13, 2000 (interim award on merits) (where the record showed that Canadian government barred exports of hazardous materials to the United States so that the producer would be forced to use a disposal facility in Alberta instead).30 Under Pressure to Show TTIP Progress, U.S., EU Focus on Market Access, WORLD TRADE ONLINE, Apr. 18, 2014; Structure of Market Access Talks is Latest Sore Spot in TTIP Negotiations, WORLD TRADE ONLINE, Apr. 24, 2014.

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Regulatory coherence is understood to mean the process of

coordinating the regulatory aspects of already existing rules which differ on each

side of the Atlantic. Eliminating those differences or for example

giving some weight to each other’s approval procedures of drugs will have

massive economic impact. A 2009 EU Commission study estimated that if

50% of the U.S.-EU regulatory differences and other NTBs could be

aligned, EU GDP would gain $158 billion per year and U.S. gains would be

about $53 billion annually.31 The focus therefore is on the process of

coordination rather than the substance of the regulations themselves.

Among many examples, European and U.S. generic drug producers

have called on the Commission and USTR to include measures that would

expedite release of inexpensive medicines and enhance the sustainability

of health care systems in the two jurisdictions.32 Auto trade (vehicles

and engines) would be facilitated if the EU and United States could agree

on mutual recognition of technical regulations, an approach that is

probably more promising that attempting uniform regulations. However, at

a Trade Conference hosted by the Ministry of Foreign Affairs of Denmark

in the spring of 2014, examples were mentioned of rear view mirrors where

there were 2 cm in difference between the different regulations, i.e.,

such similar regulations can indeed be aligned 100 %. Similarly, with

medical devices, pharmaceuticals and cosmetics, the approach is to seek

acceptance of each other’s inspection of manufacturing facilities. 33

Coordination of risk assessments in the chemical sector has been

considered, but would apparently be complicated because of varying legal

regimes and regulatory approaches. These differing approaches for

31 Akar & Jones, 23, citing ECORYS, Non-Tariff Measures in EU-U.S. Trade and Investment – An Economic Analysis, Final Report for the European Commission, OJ 2007/S 180-219943 (Dec. 2009).32 Joe Kirwin, EU, U.S. Generic Drug Makers Call for Regulatory Convergence in TTIP, 31 INT’L TRADEREP. (BNA) 734 (Apr. 17, 2014).33 See WORLD TRADE ONLINE, Dec. 20, 2013.

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distinct sectors illustrates the complexity of negotiating the reduction

of what are effectively non-tariff barriers in the world’s two most

advanced regulatory economies.

An apparently authentic EU Commission paper on regulatory

coherence leaked by an anti-trade NGO, the Corporate Europe Observatory,

in December 2013, envisions a number transparency measures to assist in

achieving “transatlantic regulatory co-operation” including but not

limited to formal requirements for exchange of information on pending

legislation in the United States and proposals by the EU Commission and

efforts to encourage regulatory compatibility, while preserving each

Party’s right to adopt new regulatory initiatives. Such regulatory

compatibility could be enhanced through, inter alia, “recognition of

equivalence, mutual recognition on reliance and exchange of data and

information, or other means.”34 The EU Commission seeks a framework for

regulatory cooperation in financial services which contemplates ” an

institutional framework of EU and US regulators to make sure that EU and

US rules work together” and assist in preventing future crises.35

The Parties would be required to update each other at least

twice a year on principal elements of regulatory initiatives relating to

transatlantic trade, and take into account comments on such from the

other party. Consultation—“regulatory dialogues”—would be available on

request. This would be done in part through a new “Regulatory

Cooperation Council.” Coordination of EU and U.S. positions in

international regulatory bodies would be encouraged, reflecting what in

34 TPP-Cross-Cutting Disciplines and Institutional Procedures: Position Paper—Chapter on Regulator Coherence, Dec. 2013, available at http://corporateeurope.org/sites/default/files/ttip-regulatory-coherence-2-12-2013.pdf (last visited Apr. 29, 2014). 35 European Commission, EU – US Transatlantic Trade and Investment Partnership (TTIP): Cooperation on Financial Services Regulation, Jan. 27, 2014, 1, available at http://trade.ec.europa.eu/doclib/docs/2014/january/tradoc_152101.pdf (last visited May 6, 2014).

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many respects takes place informally today. The measures would not be

limited to governments; each Party would facilitate consultations with

stakeholders using existing frameworks (in the U.S. presumably including

the various USTR advisory committees). Parts of this transparency process

has precedents elsewhere for example in the NAFTA)

One of the U.S. negotiators suggested in May that ”success”

with regard to establishing regulatory coherence in the TTIP would

consist of four elements: 1) the establishment of horizontal mechanisms

that would require regulators in each jurisdiction to communicate

regularly with each other so as to make it more likely that the

regulatory process would not impose unnecessary burdens on stakeholders;

2) regulators would address areas where the approach is different on a

sector by sector basis, focusing on those sectors where the different

approach causes difficulties; 3) a governing council, an

intergovernmental entity that would supervise the coordination process at

a very high level, perhaps by the vice-president of the United States and

the secretary-general (senior civil servant) of the EU Commission; and 4)

a mechanism for exploring new ways to open up the existing regulatory

processes in both jurisdiction, whereby in the EU more stakeholder input

into the regulatory process would be solicited and in the United States

a balance would be sought between the need to regulate and the need for

flexibility in a context where independent, often competing, standards-

developing organizations exist and the result through legislation and

agency regulatory action becomes mandatory.36

Among the many challenges is bridging the gap between the EU’s

increasingly centralized regulatory system, and the US approach which is

more decentralized despite the Commerce Clause, particularly in such

36 Off the record communications with a U.S. TIPP negotiator in May 2014; notes on file with author.

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areas as insurance services and legal services and environmental

protection (which is shared between the federal government and the

states). In the EU, the common commercial policy and continuing with the

importance of strengthening the integration of the market (in part so

that European enterprises can become more competitive in world markets)

has led to this more centralized way of regulating. Most standards are

developed by businesses in cooperation with other stakeholders; some 30%

are “adopted following a request by the Commission to support EU

Legislation.” Once such standards are published the national standards

body is required to withdrawn conflicting national standards.37

Conversely, in the United States, a decentralized system predominates.

As Professor Alemanno observes,

US standardization is a decentralized system that is naturallypartitioned into industrial sectors and supported byindependent, private sector standards developing organizations(SDOs) that typically compete – unlike the European ones –among themselves. It is a demand-driven system in whichstandards are developed in response to specific concerns andneeds expressed by industry, government, and consumers. And,it is a voluntary system in which both standards development andimplementation are driven by stakeholder needs rather thanmandated by government.38

Moreover, in the United States Congress often

participates directly in the adoption of standards through

legislation, which standards become mandatory for the regulatory

agency, as with the Consumer Product Safety Commission and the

Consumer Products Safety Improvement Act of 2008, mandating safety

standards for toys made by companies regulated by the CPSC.39 Some

observers suggest that the EU process for making standards (as

37 Alemanno, 16 (quoting a CENELEC position paper on technical barriers to trade).38 Alemanno, 16.39 Id., 16.

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distinct from some other types of legislating) is arguably more

transparent generally than the process in the United States,

because the EU process is more centralized with the pre-legislative

process providing more opportunities for consultation with

stakeholders.40 In contrast, the U.S. process may be generally (but

not always) ore flexible and predictable. Also, the EU process is

typically mandatory while the latter US standards process may be

voluntary.41 To further complicate matters, in the US more than one

domestic standard issued by different entities can exist for the

same product or service, as with multiple stock exchanges (New

York, NASDAQ) or differences between regulatory practices developed

by the Justice Department and the Federal Trade Commission. Perhaps

the most important conclusion for the TTIP is that the two

processes are radically different. While collaboration between the

European Standards Organizations (CEN, CENELEC and ETSI) and the

American National Standards Institute (ANSI) continues, it is

evident that much work remains to be done.

The difference in approach is reflected again in such

areas as foodstuffs, electromagnetic compatibility of products,

recycling requirements if and (with many recycling standards in the

US determined by state law), and various other environmental and

certification requirements, as with auto emissions. It is not so

much whether one system is better or worse, but the fact that they

are different, and that in some instances the differences can be

used by domestic interests to make imports slower and more

expensive. The EU Commission estimates that if such NTBs were

eliminated EU economic output would increase by 0.5%42 and there is40 Id., 10.41 See Alemanno, 17.42 Quoted in Alemanno, 20.

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no reason to believe that the gains would be any less in the United

States. In addition to obvious protectionism, Professor Alemanno

suggests that part of the problem is “tunnel vision,” in which

national regulators simply fail to pay attention to the impact of

their actions outside their own jurisdiction.43 Whatever the actual

numbers may be there seems little doubt

That differing EU and U.S. approaches to regulation are asignificant cause of reduced overall consumer welfare. Forexample, many multinational corporations cite different, andoften duplicative, regulations on each side of the Atlantic assignificant barriers to trade, due to the increased costsinvolved in modifying products to meet the differentrequirements of each regulatory regime.44

Another problem for the negotiations is perhaps best

described as cultural or societal preferences. There is a very

broad anti-regulatory spirit in the United States, including among

many members of congress, along with a distrust of the federal

government that sometimes borders on the paranoiac. This has been

illustrated most recently by the initial broad support in Congress

and among the public for Clive Bundy, a Nevada rancher who refused

to pay $1.1 million to the federal government relating to 20 years

of grazing fees for keeping his cattle on federal land. (The wide

support fizzled after it became evident that in addition to owning

the government large sums of money Bundy was a vicious racist.)45

One can speculate about whether this type of anti-

regulatory spirit is manifested in some areas by a greater

43 Alemanno, op. cit., 20.44 John F. Morali III, Determining Compatible Regulatory Regimes Between the U.S. and the EU, U.S. Chamber of Commerce, 2012.45 See Nevada Rancher Defends Remarks, Lose Supports, ASSOCIATED PRESS, Apr. 25, 2014, available at http://abcnews.go.com/US/wireStory/nevada-rancher-defends-remarks-loses-supporters-23465911 (last visited May 5, 2014).

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tolerance of potential risk as with growth hormones or GMO, which

may however not be the entire truth as others argue that precisely

growth hormones and GMO tolerance in the U.S. is the result of the

industry being more powerful than consumers in the U.S. and if

asked, consumers would prefer labeling, which the industry is

against, presumably because they know American consumers are as

skeptical as the European if the products were in fact labelled and

the consumers in the U.S. were given a fair choice. Europe

therefore has embraced the precautionary principle far more broadly

than the United States but this may not be entirely true if the

consumers and not the law makers were given the opportunity of

stating their opinion in the U.S. At the same time, when the EU

acts to allow the banning of GMO seed in crop cultivation for non-

scientific (economic, social and ethical) reasons (however

defined), skeptics in the United States, including grain farmers

and powerful seed companies, have pressured U.S. negotiators to

deal with this sensitive political issue effectively in the TTIP

negotiations.46

TBT and SPS Plus Commitments

In this same area, one of the objectives of the EU and

U.S. negotiators is to improve the disciplines in the WTO Agreement

on Technical Barriers to Trade and Sanitary and Phytosanitary

Measures.47 The Parties are reported to intend to achieve “TBT-

Plus” commitments which would include an “improved dialogue and

cooperation for addressing bilateral TBT issues.” This would be

46 Joe Kirwin, EU Members Reach Deal to Allow GM Ban in Crop Cultivation for Non-Scientific Reasons,INT’L TRADE DAILY (BNA), May 30, 2014.47 Annex 1A of the Marrakesh Agreement Establishing the World Trade Organization,Apr. 15, 1995.

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achieved through “greater openness, transparency and convergence in

regulatory approaches and requirements and related standards-

development development processes.” The effort would also be

directed toward the reduction of “redundant and burdensome testing

and certification requirements.”48 Among the reported concerns of

the standards process in the EU are the promotion by the EU

Commission of those that meet the “essential requirements” of EU

directives within international standards bodies, a procedure which

according to some U.S. stakeholders prevents them from effective

participation in the deliberative process.49 This contrasts with

the broader public input that characterizes the standards-creating

process for U.S. agencies that are subject to the requirements of

the Administrative Procedure Act, the Freedom of Information Act or

the Sunshine Act (but not for some other regulatory processes where

standards are developed by non-government stakeholders). The

Underwriters’ Laboratory and the American National Standards

Institute also provide for participation by interested parties.50

The “SPS-Plus” would go beyond the SPS Agreement with

regard to the protection of human, animal or plant life and health

in a manner that does not arbitrarily or unjustifiably discriminate

between WTO Members, and require standards to be based on science.

A U.S. Working Group Report recommended in 2013 that the SPS

provisions of the TTIP establish” an ongoing mechanism for improved

dialogue and cooperation” and assure that “each side’s SPS measures

be based on science and on international standards or scientific

48 Office of the U.S. Trade Representative, Final Report of the U.S. High Level Working Group on Jobs and Growth, Feb. 11, 2013, available at http://www.ustr.gov (last visited May 7, 2014) [hereinafter “HLWG Report”].49 Akhtar & Jones, op. cit., 25.50 Id., 26.

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risk assessments.”51 This language, again, is in reference to the

long-standing hormones and GMO disputes between the negotiating

parties, where the wise solution is to leave those areas alone –

which may prove in the end also to be the position of the American

consumers that do not wish to push the agenda further on this topic

as it makes it even more difficult to call for labelling as a

federal requirement, where several States already requires such

labelling.52

IV. The Post-Bali WTO and the TTIP

Status and Secrecy of the TTIP

Detailed analysis relating to the TTIP texts actually being

discussed is quite sparse, for the very logical reason that the

negotiations as of April 2014 have not progressed significantly and much

of what has been discussed has not been are made public (or leaked).

Whether the increasing pressure from the European Parliament and some

Member officials, such as Germany’s Economics Minister and Vice-

Chancellor Sigmar Gabriel, calling for more transparent negotiations and

“democracy legitimacy” will cause the EU Commission and USTR to react

positively remains to be seen.53 In the context of the TISA and TPP

negotiations, the Chairman of the Senate Finance Committee, Ron Wyden,

has also emphasized the need for “trade transparency” in place of “trade

secrecy.”54 With Congressional pressure and that of the European

Parliament, it is thus possible that the content of the negotiations will

become clearer to the public as the discussions continue over the next 6-

51 HLWG Report.52 53 See Andrea Barbara Schuessler, Germany’s Economics Minister Calls for More Transparent TTIP Negotiations, 31 INT’L TRADE REP. (BNA) 861 (May 8, 2014).54 See Daniel Pruzin, Concerns over Secrecy Begin to Shadow Global Services Talks, 31 Int’l TradeRep. (BNA) 850 (May 8, 2014) (quoting Senator Wyden).

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12 months. One should however keep in mind that secrecy may be essential

to moving negotiations forward, particularly at the outset, and secrecy

may have been partly responsible for the negotiations moving forward as

well as they did in May. However, being lawyers, we of course understand

that the devil may be in the details and it may thus prolong the

publication period when lawyers start asking the negotiators about the

unclear text (or scrubbing the text) and this needs to be “re-negotiated”

as apparently has recently happened with the EU –Canada FTA which is

subject to “numerous disputes” between the parties.55

A New Trade World Order

In analyzing such an effect on the rest of the world and on the

WTO, it is important to note that the post-Bali WTO is different to such an

extent that it seems timely to speak of a new world trade order in the

sense that most significant developments in world trade law are currently

taking place outside the WTO.56 Some 580 regional trade agreements (RTAs or

PTAs) have now been notified to the WTO57 and more are being negotiated

on a regular basis, including among others the TTIP, the Transpacific

Partnership58 and the Regional Comprehensive Economic Partnership

(RCEP).59 Many of these RTAs or agreements among groups of like-minded

nations such as the members of the Asia-Pacific Economic Forum, will

address not only aspects of regulatory coherence, but investment; state-

owned enterprises; supply chain management; e-commerce; trade in

environmental goods; and environmental protection/climate change – issues

55 Kirwin, EU-Canada FTA Stalled Indefinitely, op. cit.56 See also DAVID A. GANTZ, LIBERALIZING TRADE AFTER DOHA (2013).57 WTO, Regional Trade Agreements, available at http://www.wto.org/english/tratop_e/region_e/regfac_e.htm (last visited Apr. 30,2014).58 Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States and Vietnam.59 The ten ASEAN nations plus Australia, China, India, Japan, Korea and New Zealand.

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which all go far beyond the current design of the WTO and even far beyond

the otherwise ambitious, but perhaps now outdated, Doha Development

Agenda.

A new world order (or disorder) outside the WTO that is broader

than trade rules per se may even be emerging where there is a general

break down of faith in the multilateral systems – or where

multilateralism simply has failed. If one looks at the most pressing

issue of our time, climate change, it is remarkable that this goes

largely unregulated except for a few instances at the national, county or

city level. Climate change was envisaged to be regulated internationally

by the UNFCCC under which the more tangible Kyoto Protocol belongs. The

Kyoto Protocol was the agreement that mandated a cap over greenhouse gas

emissions, which at COP15 in 20xx in Copenhagen was envisaged to be

replaced by a so-called Post-Kyoto Protocol. (This is not the place to

discuss the shortcomings of the Kyoto Protocol and the related process,

including the unwillingness of the United States to participate and the

pass given to major polluting developing nations such as India and

China.) However, in spite high level participation, the COP15 is

generally (and in particular in Denmark) thought of being a great

disaster that ended up without an agreement to replace the expired Kyoto

Protocol. Since COP15, the process has not really gained momentum and

there seems to be no signs indicating an international agreement curbing

greenhouse gas emission is underway. However, on the more optimistic

front, some will argue that the discourse relating to climate change may

have changed post COP15 after heads of governments attended the meeting.

By having such high level attendance, the topic became elevated from

being a typical environmental issue to being a more pressing global issue

relating to more than the environment – counting perhaps even human

rights and national security. By elevating the discourse relating to

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climate change to something that concerns such a value that for example

President Obama attends the meeting may give rise to some optimism in

that heads of government are paying attention to the agenda. Our

conclusion is however that the failure of COP15 in delivering a hard law

binding post-Kyoto protocol or treaty has delivered a further blow to

faith in multilateralism at a time when we have also seen the demise of

the WTO Doha Round, at least as a broad single undertaking, and among

other examples the failure of the U.N. Security Council to address

effectively the disaster in Syria. The climate change, trade and

political/security areas each have their own explanations for the failure

to conclude new multilateral deals or binding resolutions, in all

instances where the costs of failure nevertheless have enormous economic

and human costs to the planet.

In terms of the Doha Round, it is important to understand that

the Round was started immediately post 9/11 at a Ministerial Meeting

hosted in an Arab state, with emphasis on the expressed resolve of

Member governments to alleviate poverty (hence a “development” round).

The authors to this piece differs in opinion as to how significant it was

that the Ministerial was hosted in an Arab State – where one point of

view could be simply that Doha was chosen as to avoid the civil unrest

experience in Seattle and because few other Members were interested in

serving as hosts. Another point of view, which is not necessarily

mutually exclusive, is that it had more than a symbolic value. In those

months immediately after 9/11 the world was trembling and a process of

self-reflection was also happening because why could anyone become so

hateful? These questions were in part answered by that they were poor and

thus could easier become extremists. Moreover, the West understood it

had to understand the Muslim culture better – so a good faith effort in

an Arab capital promising development through trade seemed to many as a

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politically correct step to take – beyond merely a symbolic gesture of

friendship.

However, when analyzing why the Round never delivered

significant results, we conclude that among the reasons was the lack of a

real “push” from industry, perhaps as a partial result of a highly

politicized Doha Declaration which included something for almost all WTO

members and stakeholders but little in the way of firm commitments to

negotiate. Industry support in some cases was also lukewarm given that

the Uruguay Round was still fairly new and had successfully addressed

many of industry’s most pressing issues (e.g., intellectual property and

services). Support was lacking for completely different reasons from the

vast majority of the developing Members. Most were still trying to

figure out how to implement the obligations they assumed in the Uruguay

Round, particularly those under TRIPS, TPT, the Customs Valuation

Agreement and SPS and such Members had become skeptical as to whether the

promised benefits, such as those under the Agreement on Textiles and

Clothing, were genuine and were being implemented in good faith by the

developed Members. Others now and then argue the rounds and deals have

become too comprehensive. Because the major developing countries—

particularly the BRICS --now have an active if not controlling role in

the process it takes longer to reach consensus if consensus is even

possible. The pessimists will claim that negotiations have become more

like those of the UN General Assembly and are incapable of delivering

hard law results in a timely fashion, if at all.

Unilateralism as a Mechanism to Solve Global Issues?

As a consequence, the new world trading order represents an era

of sectoral and regional agreements where there is a growing preference

for handling issues bilaterally, plurilaterally or even unilaterally. In

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this article, we argue that in the short term unilateralism or

bilateralism ought to, de lege ferenda, attempt to solve the most pressing

global problems, or at least parts thereof. We find our role as scholars

is also to outline new frontiers – knowingly we are ahead of our time and

some of our ideas admittedly are unrealistic. In section V below, we

argue that some of the problems relating to climate change, the

environment and perhaps even animal welfare are issues that will not be

resolved multilaterally in the foreseeable future and thus ones that the

two economic superpowers could in theory resolve together (whether or not

they are actually able to do so). That being said, it seems likely that

some elements related to climate change, such as lower tariffs on

alternative energy goods, fuel economy standards, cooperative measures

relating to adaption, and perhaps even some discussion of carbon

taxation, may be feasible. In terms of animal welfare there may be an

opportunity to deal to some degree with trade in endangered species, and

possibly with testing of products such as cosmetics on animals, although

as far as we are aware these issues is not currently on the negotiating

table and might well engender resistance by some stakeholders, at least

in the United States.

The Effect of the TTIP on the Rest of the World

In the event that half the world’s economy—the EU and the

United States—are bound by an agreement that requires them to implement

various steps relating to regulatory coherence including mutual

recognition of standards; address supply management issues and agree to

strict trade facilitation obligations (likely going well beyond the Bali

accord); incorporate disciplines on foreign investment; improve the

operation of the TPT and SPS processes; and perhaps even discuss

competition law, there is likely to be an impact on other EU and U.S.

trading partners. Other members of the WTO may eventually accept the

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need to address some of those same issues in the course of future

multilateral trade negotiations in Geneva or in other non-global trade

agreements with the EU, United States or both, or through such more

progressive mechanisms as APEC.

The key here for any action in Geneva is “eventually.” It

seems highly unlikely to us that the BRICS will be motivated to abandon

current positions for the foreseeable future, at least five years or

more, and unless they moderate their views the chances of support for

addressing such issues in the WTO are nil. In the shorter term a

completed TTIP may even have the opposite effect, and reinforce BRICS’

views that they will not permit the U.S. and EU to dictate the content of

future WTO agreements (if any are negotiated) even if they decline to

suggest alternatives of their own and remain mired in their own

protectionism. While TBT-Plus and SPS-Plus could in theory be adopted

eventually by the WTO Membership, these are not among the issues that

many Members consider beneficial to their interests, if only because

effective administration of such regulatory processes is devilishly

difficult for developed Members let alone many in the developing world.

In our view whether a WTO agreement on some form of regulatory coherence,

perhaps beginning with an expanded consultation mechanism, could succeed

may depend by analogy on whether the recent Trade Facilitation Agreement

(TFA)60 is effectively implemented. For developing countries the

challenges of taking the necessary steps to bring about more efficient

importing and exporting are likely as difficult as improving regulatory

coherence and cooperation in other fields, and likely just as dependent

on massive technical assistance. If this works well over the next

several years, and if indeed the TFA is approved by two-thirds of the

60 Agreement on Trade Facilitation, Ministerial Decision of Dec. 7, 2013, available at http://wto.org/english/thewto_e/minist_e/mc9_e/desci36_e.htm (last visited Apr. 10, 2014).

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Members, that would signal to us and to many others that further steps at

the multilateral level toward addressing regulatory issues should be

considered. If, instead, the developed Members fail to provide the

promised technical assistance, the developing show a lack of willingness

to take the politically difficult steps of facilitating trade (which are

opposed by protectionist stakeholders in many countries), the prospects

for further regulatory improvement are dim. Our skepticism is based in

part only the only other effort to date to expand the WTO Agreements, the

adoption by the Hong Kong Ministerial Meeting of Article 31bis of the

Agreement on Trade-Related Intellectual Property, relating to public

health. After more than eight years, only 76 members, well short of the

106 (two-thirds) required for formal adoption of the amendment, had

deposited their instruments of ratification.61 Arguably, the TRIPs

amendment is far less controversial for the membership than the TFA.

Implications for Case Law

The implications for case law is the type of influence that is

the most rarely discussed, but it may nevertheless be necessary to

include it when we speak of the US and the EU. Those two parties are

already responsible for the majority of “case” law in the WTO, and when

not directly parties, they nearly always participate as third parties.62

One may speculate whether they would do so if the WTO did not operate

with a doctrine of de facto stare decisis, which of course is a doctrine that is

not supposed to be followed in jus gentium63 – which is probably also why

61 See Intellectual Property: TRIPS and Public Health—Members accepting amendmentof the TRIPS Agreement, available at http://www.wto.org/english/tratop_e/trips_e/amendment_e.htm (last visited Apr. 17, 2014) (showing that as of February 10, 2014 approximately 76 members had accepted Art. 31bis well short of the 107 (two-thirds) required for the amendmentto enter into force).

62 Laura find it63 Laura – citation to our new book.

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scholars over the years in fact have labelled something as curious as de

facto stare decisis.64

By virtue of a system operating with precedent, the disputes

between the EU and US could therefore affect case law in the direction of

the new and stronger obligations the parties have taken upon themselves

in the TTIP. This could for example be an SPS-Plus obligation which the

WTO panels and Appellate Body cannot ignore when analyzing a WTO SPS

obligations between the two parties. It may very well end up with a

situation in which the panels and the Appellate Body will not apply any

of the TTIP rules but its interpreted in the broader context of the

stronger TTIP obligations – perhaps because the parties argue the entire

case about both sets of rules, or because the measure reflects much

stronger obligations. Consequently, it is rather interesting and

important for third parties to follow the discussion of which type of

state-to-state dispute settlement the TTIP will incorporate. If it

includes a TTIP tribunal akin the NAFTA model, it is thus less likely

that third parties will be affected by case law affecting the understanding

of the WTO obligations, if for no other reason that even in the TTIP the

parties may continue to prefer WTO dispute settlement as all three

Parties have in NAFTA. 65 Finally, some may wonder if such cases are to

arise, and here the softwood-lumber dispute is probably setting the prime

example of that the best of friends can so passionately disagree over 30

64 See Raj Bhala’s Trilogy, see also Forthcoming our iCourts publication.65 It is telling that the most recent NAFTA Chapter 20 (state-to-state) dispute was decided February 6, 2011, more than 13 years and various WTO decisions in which two or more of the NAFTA Parties were claimants or respondents before the WTO. See, e.g., Panel Report, United States – Final Anti-Dumping Measures on Stainless Steel from Mexico (21.5), WT/DS344/RW (Circulated May 6, 2013); Appellate Body Report, United States – Certain Country of Origin Labeling Requirements (Canada, Mexico), WT/DS384, 386/AB/R (Adopted Jul. 23, 2012).

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years that it results in a wide range of different types of international

cases.66

V. New Regulatory Frontiers

Discourses relating to regulatory coherence and the setting

unilateral standards are quite different than the discourses relating to

the issue of regulatory coherence. Unilateral standards are different in

that they relate to areas neither side has regulated – often with the

excuse or explanation that it cannot be regulated domestically without

being coupled with a ban on imports because otherwise cheap imports will

out-compete the more expensive EU or US products (now more expensive

production due to certain processes or production methods being

outlawed). The consequence for the discourse is thus often that where

regulatory coherence concerns standards and procedures already in place

where the difference mostly serves as an extra cost for companies doing

business in both the EU and the US, setting new standards in previously

unregulated areas or heightening such standards are met with applauses

from the NGOs advocating higher standards, but with much skepticism from

industry that will face the extra economic burden in meeting new

standards.

It is however very timely to investigate exactly those new

frontiers and new standards, scrutinize the resistance behind them and

urge governments to seize the historic opportunities at hand. As the

former Danish Minister for Trade, Nick Hækkerup said at the opening of

the Copenhagen Centre for Commercial Law (CCCL) in September, 2013, the

EU and the US are facing a historic opportunity to make a real mark on

regulating international trade. Most likely the two economic superpowers

66 Although none of the post 1995 softwood lumber cases were referred to NAFTA’s Chapter 20, but either to the DSB or to NAFTA’s unique Chapter 19 (which does not exist in any subsequent U.S., Canada or Mexican free trade agreement).

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will not have that same opportunity in 20 years – not because we cannot

reopen negotiations then, but because we may well have been surpassed

economically by countries like China if not India, Indonesia and Brazil.

This article thus has focused on the opportunities the EU and the US have

at present – and aims at inspiring both governments in thinking out of

the box and being ambitious. Whilst much effort is spend on the

differences in culture and approach between the EU and the US – for

example in the approach to risk and new technologies in food production,

quite a lot less is spent on the common ground shared. Common ground

could for example be the high ambitions in the environmental area where

the EU and US efforts for example are more comparable than those of the

BRIC countries, Africa, Asia or South America. Another area could be

animal welfare where the recent EU – Seal Products case67 illustrate that

animal welfare is a policy that justifies trade barriers which may give

rise to more animal welfare trade barriers – often driven by consumer and

NGO demands. Yet another is perhaps the most pressing international

issue – climate change. In these areas, the EU and the US could

probably raise the standards world-wide by acting together but only if

they do so soon. Without such action, it will likely be up to the BRIC

countries to set such standards, or to block them, in 10-20 years.

The first question is therefore; why wait? The second is

whether we dare to wait? Because although the text book example will tell

us that by raising the standard of living, the middle class will

eventually raise the awareness of environmental degradation and of animal

welfare issues, how do we actually know it will happen (in the rest of

world where such action thus could come from – for example from China who

is now adopting quite strong environmental regulations68 and is perhaps

67 Appelate Body Reports, European Communities—Measures Prohibiting the Importation and Marketing of Seal Products, WT/DS400, 401/AB/R (circulated May 22, 2014).68 Laura find

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less hesitant in adopting unilateral rules compared to the EU and the US)

- and in time to prevent global environmental catastrophe? What obviously

speaks for such developments happening outside classical ‘Western

societies’ are the numerous examples surfacing: from the new legislation

on cage free hens in egg production in Taiwan69 to the increasingly

rapidly rising environmental ambitions in China – perhaps catalyzed by

the suffocating and deadly pollution problems in the China’s big

cities.70 So the real question may be whether, in a world lacking

multilateral solutions for a multitude of environmental, climate and

animal welfare problems, the EU and the US the most capable ones to

charge ahead and essentially set the standards for the rest of the world,

or will the two jurisdictions pass because reaching agreement is too

difficult politically?

The problems with unilateral standards are always that as long

as ‘we’ set them, then we are more likely to be happy about them – but

whenever we realize that it is surely a two way street and ‘they’ may set

some also, we become skeptical. It is perhaps exactly this reality that

the former Danish trade minister had acknowledged: that this is the era

when the EU and the US can set standards. In 10-20 years, it will be for

others to do. But if we do it now, they may be universally accepted, or

at least highly influential and thus have a guaranteed, significant

impact.

Types of Measures

Trade measures can be designed in many ways, but if one sticks

to the traditional categories of bans, product-related process and

production methods (PR-PPM), and non-product-related process and

69 Laura find70 Laura find sources

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production methods (NPR-PPM), then a multitude of issues can be

illustrated.

If the EU and the US for example agreed to ban certain types of

pesticides within their combined territories, this would be a relatively

uncontroversial trade ban, not running a major risk of being inconsistent

with any of the tests in Article XX of the GATT.71 The next problem that

arises is however that if other countries still produce fruits,

vegetables and grains with the usage of pesticides, they may have a

competitive advantage in that they may yield more produce and thus have

an unfair competitive advantage vis-à-vis the EU and the US if that type of

production method is banned. The question is thus: should the internal

ban of pesticides be coupled with a PPM banning imports of fruits,

vegetables, and grains that are produced with the usage of pesticides?

And should this ban be extended to processed foods, such as cookies,

pizzas, tomato sauce etc. that has ingredients that is produced with the

usage of pesticides? The point is here that if the EU and the US did

take such steps acting jointly, the effect would be massive as they are

the largest importers in the world of consumer goods.

In comparison to the US-Shrimp case banning a small number of

shrimp, a broader ban such as all types of products produced with an

overly large carbon footprint will however affect such broad sectors that

US-Shrimp obviously cannot be used as precedent in illustrating how such a

measure could be designed. Such a measure could also be designed as a

consumption fee inside the EU and the US, so that the fee is levied in

accordance with the carbon footprint labelled on all products going into

the EU and the US.72 This type of proposal would move the locus of

71 For an analysis of a ban in relation to Article XX of the GATT, see LAURA NIELSEN, THE WTO, ANIMALS AND PPMS (2007), XXX.72 This idea is presented in full at the IARU Sustainability Science Congress, October 22-24, 2014, in Copenhagen by Laura Nielsen and Henrik Palmer Olsen.

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regulation from that of the place of production to that of the

consumption. A bold move, even if unlikely in the immediate future, like

this would affect the rest of the world and make industries around the

globe compete in getting the smallest carbon footprint – thus taking the

climate change governing control and initiative out of the hands of the

governments and into the creative streams of private entrepreneurship.

Another advantage of this suggestion is that it would be fairer to

countries like China where a large part of its production is being

exported so that one third of its greenhouse gasses emission ideally

should be deducted and attributed to the importing countries. However,

whether such a scheme would pass muster in the Appellate Body in the

absence of a broad multilateral mandate is problematic.

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