Regulatory Reform on Both Sides of the Atlantic


Aug 15, 2006

This commentary originally appeared in on August 15, 2006.

Special to's Think Tank Town

Global trade is increasingly connecting the world, bringing consumers lower prices and a wider selection of goods, and creating jobs. But when government regulations vary enormously from one nation to the next, they become roadblocks to the smooth flow of international commerce, and hurt both consumers and workers.

Lessening the differences in regulations between the United States and the European Union can benefit both the American and European economies. Both sides should be receptive to the concepts and practices employed by the other, and the two continents should recognize that redundant testing and certification processes are squandering resources on both sides of the Atlantic.

Since 2001, the Bush administration has made significant progress with its "smart regulation" agenda. The rate of costly new federal regulations is down 70 percent compared with the 1990s. In addition, new rules that were adopted have resulted in greater benefits than those adopted in the 1990s. As a result, the benefit-cost performance of federal regulation has been improving, contributing to the overall improvement of U.S. economic performance in the past five years.

With the proper reforms, regulations in European Union nations could improve as well.

European Commission President Manuel Barroso has said he recognizes that "better regulation" is crucial to sustained economic growth and prosperity throughout Europe. Officials in Brussels are now engaged in a critical "self study" of their complex regulatory system.

As the EU-U.S. dialogue on regulation progresses, there are plenty of areas where the United States can reasonably ask Europeans to consider changes.

One area ripe for regulatory reform would be the unnecessary barriers that Europe has erected to keep bioengineered products invented by American companies out of European markets. The World Trade Organization recently called attention to these barriers, and the removal could provide Europeans with more, better and cheaper food.

The United States can also ask whether the EU's new regulatory legislation on chemicals is adequately grounded in the principles of sound science, precaution, risk assessment and benefit-cost analysis.

Rules governing the fuel economy of vehicles are also ripe for harmonization. The U.S. regulatory system for improving the fuel economy of SUVs was recently modernized and is more promising than the so-called "voluntary" EU system, which is already falling far short of the Kyoto Treaty targets designed to reduce carbon dioxide emissions.

Yet it is equally important for U.S. officials to acknowledge that there are lots of warts in the American regulatory system, including many specific areas where some U.S. movement toward the European position would be worthwhile.

For example, the Sarbanes-Oxley legislation was enacted by Congress in the midst of corporate scandals in the United States. But Europeans have rightly asked whether it would be wiser to begin harmonizing the corporate accounting systems on the two sides of the Atlantic.

Europeans also recognize that America will not embrace a Kyoto approach to carbon emissions. But surely Europeans are reasonable in asking Americans to get more serious about the threat of global climate change.

Even the crash dummies used in auto safety tests need to be harmonized. Due to technical disagreements between the United States and Europe, vehicle manufacturers have been compelled to crash test their new vehicles twice — once to satisfy EU regulators and again to satisfy U.S. regulators.

Which side of the Atlantic is the dummy in this process? A hint resides in the following oddity: the EU dummy wears a safety belt; the U.S. dummy — by regulation — is unbelted. The result is a little-known EU advantage: belted drivers are better protected by European airbags than American ones.

EU and U.S. officials should be encouraged to expand their dialogue on regulatory cooperation. And it is not just the Europeans who have something to learn from the dialogue.

John Graham is dean of the Frederick S. Pardee RAND Graduate School and holds a chair in policy analysis at the RAND Corporation, a nonprofit research organization. He previously served as administrator of the Office of Information and Regulatory Affairs in the White House Office of Management and Budget, which oversees the regulatory activities of the federal government.

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