World Scientific Studies in J J International J Vlv Economics Systemic Implications of Transatlantic Regulatory Cooperation and Competition Simon J Evenett University of St Gallen, Switzerland Robert M Stern University of Michigan, USA World Scientific NEW JERSEY LONDON SINGAPORE BEIJING SHANGHAI HONG KONG TAIPEI CHENNAI
Contents Preface xiii Chapter 1. Condemned to Cooperate? 1 1. Introduction 1 2. Economic Interdependence, Transatlantic Cooperation, and Multilateralism 3 2.1. From economic interdependence to the Merkel Initiative 3 2.2. Economic interdependence and the case for transatlantic cooperation 8 2.3. The impact of transatlantic initiatives on the multilateral trading system, and vice versa 11 2.4. Transatlantic cooperation and cosmopolitan regulation 15 3. Contributions to this Volume 17 4. Concluding Remarks 19 References 21 Chapter 2. The Banking Crisis: Causes, Consequences and Remedies 23 1. The Basics of Banking 23 2. The Efficient Market Paradigm 25 3. Are Financial Markets Efficient? 27 3.1. Bubbles and crashes are endemic in financial markets 27 3.2. The mirage of self-regulation of financial markets 33
vi Contents 4. Unintended Consequences of Regulation 35 5. On Causes and Triggers 39 6. The Reaction of the Authorities 40 7. Short-term Solutions 41 8. Long-term Solutions: A Return to Narrow Banking... 42 9. Conclusion 45 References 46 Chapter 3. The Political Economy of Transatlantic Regulatory Cooperation and Competition: A (Unofficial) View from Europe 47 1. Introduction 47 2. The New Transatlantic Economic Partnership: Hype or Hope? 49 3. New EU and a New World 52 4. Prospects for the New Transatlantic Agenda 55 5. Conclusion. 60 References 61 Chapter 4. How Hard and Soft Law Interact in International Regulatory Governance: Alternatives, Complements and Antagonists 63 1. Introduction 63 2. The Canonical Literature on International Hard and Soft Law: Their Attributes as Alternatives and their Interaction as Complements 67 2.1. Definitions of hard and soft law 68 2.2. Advantages and disadvantages of hard and soft law as alternatives 72 2.3. Hard and soft law interaction as complements... 78 3. Theorizing International Hard and Soft Law Interaction: Power, Distributive Conflict and Regime Complexes.. 82 3.1. The EU, the US, and power in international regulatory governance 83 3.2. The challenge of distributive conflict 87
Contents vii 3.3. The challenge of fragmented regime conflicts... 93 4. Hard and Soft Law Interaction as Antagonists 96 5. Hypotheses as to the Interaction of Hard and Soft Law Instruments Ill 6. Conclusions 120 References 122 Chapter 5. EU-US Regulatory Cooperation and Developing Country Trade 131 1. Trade Policies 134 2. Market Access 139 3. Non-tariff Measures 141 3.1. Other sources of trade costs 143 3.2. Services policies 147 4. Reducing Regulatory Differences and Associated Cost Differentials 151 4.1. Trade costs vs. border barriers: Gravity simulations 156 4.2. Services 157 5. Policy Implications 158 6. Concluding Remarks 161 References. 161 Chapter 6. Transatlantic Trade, the Automotive Sector: The Role of Regulation in a Global Industry, Where We Have Been and Where We Need to go, How Far Can EU-US Cooperation go Toward Achieving Regulatory Harmonization?. 165 1. Globalization 166 2. Regulating a Global Industry 167 3. Example of Disparity Surrogates for Humans in Crash Testing, 171 4. Comparison of US and EU Safety Regulations 174 5. US-EU Market Competition and Manufacturer Cooperation 175
viii Contents 6. EU-US Cooperation The Transatlantic Business Dialogue 176 6.1. Transatlantic automotive industry conference on international regulatory harmonization 177 7. International Harmonized Research Activities 177 7.1. Industry petitions for functional equivalence determinations 180 8. 1998 Agreement Administered by WP.29 181 8.1. 1998 Agreement accomplishments and lessons learned 183 9. Discussion of Several GTR Efforts, Successes and Unsuccessful Outcomes to Date 184 9.1. Lighting installation GTR 184 9.2. Controls and displays GTR 185 9.3. Pedestrian protection GTR 186 9.4. Electronic stability control (ESC) GTR 187 10. Summary of Global Technical Regulation Experience 188 11. An Additional Initiative: A Competitive Automotive Regulatory System for the 21st Century 190 12. Conclusion and Recommendations to Help Achieve Vision for the Future 192 Chapter 7. Systemic Implications of Deeper Transatlantic Convergence in Competition/Antitrust Policy 197 1. Introduction 198 2. The Differing Historical Origins and Orientations of Competition Policy in the US and the EU, and the Process of Convergence Thus Far 202 2.1. The United States, 203 2.2. The European Union 207 2.3. Recent indications of convergence: The adoption of more economics-based approaches in the EU.. 210
Contents ix 2.4. Possible Indications of Further Convergence: Antitrust Policy in the Obama Administration... 214 3. The Need for Cooperation in Principle, and the Cooperation Arrangements that Have Been Implemented Thus Far in the Transatlantic Context 216 3.1. Rationales for cooperation in the competition policy field 216 3.2. Existing transatlantic cooperation arrangements.. 220 3.2.1. The 1991 US-EU Competition Cooperation Agreement 220 3.2.2. The 1998 US-EU Positive Comity Agreement 221 3.2.3. The Administrative Arrangement on Attendance (AAA) 221 3.2.4. The set of best practices on cooperation in merger cases 222 3.3. Use and effectiveness of the above arrangements..... 222 4. Are Current/Future Policy Conflicts Manageable Through Voluntary Cooperation/Convergence Alone? and What About the World Beyond the Transatlantic Zone? 224 4.1. Examples of US-EU policy clashes to date 225 4.1.1. The Boeing/McDonnel Douglas merger 225 4.1.2. The GE/Honeywell merger 226 4.1.3. The Microsoft cases. 228 4.2. The broader global context 230 4.3. Summary observations 232 5. Concluding Remarks 234 References 235 Chapter 8. Transatlantic Regulatory Cooperation on Chemicals An Idealist's Dream? 241 1. Introduction 241
x Contents 1.1. Some figures concerning transatlantic trade and investment in chemicals 243 2. The Chemical Industry's Input to Regulatory Cooperation: The Race against REACH within a Declining and Re-emerging TABD 248 2.1. Industry's input to TABD 249 2.2. Governments'Responses to the New TABD... 262 2.3. New Industry Initiatives Towards Harmonization 264 3. Regulatory cooperation on chemicals in the context of the Transatlantic Economic Council 265 3.1. The Transatlantic Summit of 2007 and the Transatlantic Economic Council: The re-emergence of a political will to co-operate 265 3.2. REACH and cosmetics: A new transatlantic trade war? 269 3.2.1. Registration of existing substances 270 3.2.2. REACH and animal tests 271 3.3. The Globally Harmonized System Harmonization of classification and labeling of chemicals? 276 3.4. Cooperation on chemicals within the OECD... 279 4. Conclusions: How to Achieve a Barrier Free Transatlantic Market 281 Chapter 9. Transatlantic Regulatory Cooperation on / Accounting Standards: A 'Varieties of Capitalism' Perspective 287 1. The Puzzle: Successful Transatlantic Regulatory Cooperation on Accounting Standards 287 2. Convergence in Substantial Terms: A Variety of Capitalism Perspective on Accounting Standards 290 3. Convergence in Institutional Terms: From National Representation to the Rule of Experts 296
Contents xi 4. The Politics of Transatlantic Convergence on a US Regulatory Model 297 5. The Broader Picture: Towards Global Convergence on the Liberal Regulatory Model? 303 6. Conclusion 308 References 308 Chapter 10. Transatlantic Regulatory Competition and Cooperation in Pharmaceuticals _ 313 1. Introduction.. 313 2. Regulatory Differences in the United States and European Union 315 2.1. Snapshot of the US and EU industries 315 2.2., Competitive structure and challenges 316 2.3. Comparative regulatory systems 318 2.3.1. Drug approvals 319 2.3.2. Pricing regulations 321 2.3.3. Intellectual property rights (IPRs)... 323 3. Evolution of Regulatory Cooperation 325 3.1. Bilateral regulatory cooperation 325 3.2. Trilateral cooperation: The ICH 327 3.3. Intra-EU coordination 330 3.4. Cooperation in intellectual property rights 334 4. A Concluding Assessment 336 References 337