Trade Needs Regulatory Harmony

June 17, 2005
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GRAND RAPIDS — Business is horizontal, but governments are vertical so they stand in the way of Trans-Atlantic trade.

“Governments are stand-alone silos. They’re vertical and they don’t pay attention to other government’s regulations. But companies want to make global products that serve global customers,” said Michael Maibach, president and CEO of the European-American Business Council. “The future trade barriers of the world are disconnected regulations.”

f GM, Ford or DaimlerChrysler, for example, make a diesel engine for a truck, they can’t sell the U.S.-made engine in Europe, and if they make such an engine in Europe they can’t sell it in the United States, because the European and the American governments have different regulations for the emissions of diesel engines for trucks.

The Trans-Atlantic relationship between Europe and the United States is the biggest economic market in the world, and it’s mostly an investment market. The EABC is in the business of promoting Trans-Atlantic growth. Its members include 40 European and American-based global companies.

“The focus of our work is actually to talk to governments about how they can create a better or more competitive business environment for our companies. So we look at the business and commercial policies of the United States and European Union governments.”

Maibach is a former Intel executive who became a leading spokesman for America’s electronics industry on trade and technology issues. He visited Grand Rapids last week as a guest of the World Affairs Council of Western Michigan.

“Our message to governments is that they have to collaborate the way companies collaborate to have global systems and global networks and global markets.”

The EABC backs a government model in which regulations and standards are open to the horizontal world of companies, technologies, products and customers.

“They should be bridges across international borders the way technologies are,” Maibach said. “But what we have is global companies and national government.”

There are, for instance, different regulations for the use of chemicals in the United States and Europe.

Say a computer chip company develops a manufacturing process that uses Chemical X in a certain way. And say the company develops all their processes and policies inside their factories according to environmental safety standards.

“Suppose in the future the European Union says you can’t use Chemical X anymore, but all the company’s plants in the world are using that chemical. So they have a choice: Either they can close the European plant, or they can find a substitute chemical, or they can try to get an exemption from the European Union,” Maibach explained.

He noted that the European Union’s 25 nation members are about to implement the Registration, Evaluation and Authorization of Chemical Hazards (REACH) directive regulating the use of chemicals within those nations. The EU commission that shapes regulatory policy is comprised of people appointed by national leaders.

When bureaucrats propose a regulation they don’t call businesses to discuss the pros and cons of changing a regulation. They have internal meetings, come up with a plan and then announce a new regulation, Maibach explained. So the whole system of regulation is not transparent.

“Then, of course, business complains, but it’s very hard to get the regulators in Europe to back down once they’ve announced a regulation, because it will look like they’re giving in to the polluters, capitalists and bad business people who just want to make money and don’t care about the environment or public health.”

The REACH directive is going to affect every company doing business in Europe that uses chemicals in their factories or in their products. And American companies have a lot of factories in Europe that are going to be affected by these regulations.

“The point is, if you’re going to come out with regulations, give notice that you’re thinking about doing it and let people have input before you write a regulation, which is how the United States does it.”

What is business asking of the U.S. and European Union governments?

“They’re asking for a formal regulatory mechanism for all the regulatory disconnects — present and future — that business will face. When we do have regulatory disconnect, have a process through which you can get mutual recognition so the light bulb you make in Europe can be sold in the United States without having to be retested, or the engine that’s clean enough for Europe is clean enough for the United States.”

There’s a lot of regulatory disconnect in the chemical and electronics industries and in vehicle emission standards, so there’s a lot of opportunity for collaboration, he said. IT accessibility is a potential future problem if governments don’t collaborate.

“Globalization is upon us. Businesses want governments to collaborate so that regulations and standards across national lines are in harmony somehow so there is more seamless movement of services and goods across national boundaries, kind of like a common market.”    

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