The stalemate of transatlantic liberalization: It started before Trump

JCMS | 20 April 2021

In the immediate aftermath of the election of Joe Biden the European Commission proposed ‘A new transatlantic agenda’. This ambitious plan emphasizes that together the EU and the US ‘have the reach to set regulations and standards that are replicated across the world’. This very much sounds like a revival of the major priority of the unfortunate Transatlantic Trade and Investment Partnership (TTIP) talks. Their failure in 2016 is mostly explained by the ‘Trump effect’, that is the protectionist agenda of the former US president. The Commission’s hope for a new transatlantic relation with the new US administration reflects this appreciation. In an article in JCMS I show that such optimism misses the fact that even before Trump, the EU and the USA did not manage to agree on the transatlantic harmonization of standards and regulations. Indeed, such technical harmonization is likely to undermine the functioning of the market on either side of the Atlantic.

Traditional free trade agreements aimed at removing so-called at-the-border obstacles such as tariffs and quotas. The latter are rather readily quantifiable and therefore offer a solid ground for reaching a clear compromise. Under such circumstances, liberalization can be expressed in straightforward numbers, referring for instance to a specific level of mutual tariff reductions. Despite a recent rise of tariffs, there is a clear downward tendency since the foundation of the General Agreement on Tariffs and Trade (GATT) in 1947.

Consequently, contemporary free trade agreements intend to remove so-called behind-the-border obstacles to trade. Technical standards and regulations and conformity assessment procedures famously fall into this category. However, the actual impact on trade of this technical infrastructure is difficult to assess. This makes bargaining more complex. As if that were not enough, unlike tariffs, the technical infrastructure does not only divert trade flows. It actually also organizes the functioning of an integrated market: Goods are not exchangeable by nature; they need to become knowable and identifiable by the market participants. Technical standards and regulations perform this essential function by fixing the requirements a product or process needs to fulfil. Conformity assessment procedures test whether goods correspond to these requirements.

The institutions that set standards, regulations and conformity assessment procedures are bound together by a relation of institutional complementarity – defined as ‘a constellation in which the combination of two (or more) elements increases the benefits attained from any of them’. The technical infrastructure thus forms a coherent set of institutions and it is organized around a coordination principle, which can differ from market to market. My research illustrates that the US market follows the principle of competition while its European counterpart is characterized by the principle of order. Each principle organizes the complementary links between the three different elements of the technical infrastructure in a distinct manner.

What makes the convergence of different technical infrastructures so tricky is that bargaining generally means making compromises. More specifically, insofar as each technical infrastructure forms a coherent set of institutions any trade-off is likely to disorganize complementarity. In order to know whether the transatlantic technical infrastructure divergence really mattered for TTIP it needed to be tested against evidence from the negotiations. However, the TTIP talks took place behind closed doors. Fortunately for this research, in 2016 Wikileaks released a significant amount of secret TTIP documents that provided substantial evidence on the bargaining process. I matched these leaked documents with official publications from the stakeholders.

What strikingly stands out from the empirical evidence is that each party did not only try to extend parts of its technical infrastructure to the other side of the Atlantic. Most likely, such a partial approach would give rise to an incoherent transatlantic technical infrastructure, which eventually would suffer from operational deficiencies. Rather, the proposals on standards, regulations and conformity assessment show that each party consistently promoted the coordination principle of its own technical infrastructure.

Table 1: EU and US proposals for technical convergence

The EU negotiators advocated the use of international ISO-IEC standards. By contrast, the latter promoted the use of US standards or standard-developing organizations (SDO), and they argued for opening European standardization to US stakeholders. In the field of regulations, the EU suggested to generalise the use of international regulatory bodies, whose rules should apply on the federal and sub-federal scale in the USA. The USA more modestly aimed at maintaining the specificities of their existing regulatory scales and direct incorporation of standards into regulation. They claimed improved access for US stakeholders to drafting European regulations. Regarding conformity assessment, the EU argued for manufacturer self-certification, based on prior harmonization of standards and regulations. The USA were at most willing to accept the mutual recognition (MR) between US and EU conformity assessment bodies. All these requests were perfectly coherent with the technical infrastructure of the party proposing the measures. Yet, the other party was unlikely to satisfy such requests that would profoundly transform the institutions that technically frame the functioning of its domestic market.

The outlined difficulties of transatlantic technical convergence illustrate that behind-the-border liberalization faces a contradiction. On the one hand, its very meaning is to address and transform national institutions in an upfront manner. On the other hand, these institutions are embedded in a set of complementarities that ensure the functioning of an integrated market. Finding an agreement implies compromises on both sides, but in the case of technical infrastructure striking a balance is simultaneously likely to harm its coherence. This fact tends to reduce the leeway of negotiators, especially if they represent similarly powerful economies whose technical infrastructures rely on different coordination principles. Highlighting this shows that the failure of TTIP is not merely the result of temporary protectionist pressure. Rather this research pointed out an additional institutional challenge for policy makers involved in the governance of global trade. The currently available cooperation tools – harmonization, mutual recognition and early information exchange – seem unable to overcome the dead end, where one party would need to abandon (parts of) its technical infrastructure in order to conclude an agreement.

With the growing relevance of behind-the-border liberalization the diversity of national or regional institutions increasingly becomes a matter of trade. Research on international trade therefore needs to address diverging institutional complementarities. This is all the more important as recent research on the construction of the Single market shows that the formation of the European technical infrastructure was also expected to institutionally boost the competitiveness of European multinational firms.

This blog post draws on the JCMS article “The Limits of Traditional Bargaining under Deep Integration: TTIP Stumbling over Technical Barriers to Trade”

Short bio

Benjamin Bürbaumer holds a Ph.D. in economics from Université Sorbonne Paris Nord and a master’s degree in international relations from Sciences Po Paris. He is working on international trade, with a special interest in standards and regulations, and international political economy.