AFP PHOTO / FRANCOIS NASCIMBENI

TTIP

How regulatory practices differ in the US and the EU – and how that could affect TTIP

von Nicole Raz / 31.10.2015

One of the challenges facing TTIP is that Europeans think their regulatory practices are infinitely superior to American regulators. Depending on the way the Volkswagen scandal is handled, Americans are also at risk of growing a superiority complex and causing more trouble for TTIP. Nicole RazDie US-amerikanische Radio- und Multimediajournalistin Nicole Raz war im September und Oktober 2015 als US-Austrian Journalism Exchange Fellow bei NZZ.at und hat dabei insbesondere die Wirtschaftsberichterstattung bereichert. reports.

The recent Volkswagen scandal has spawned a major question for Americans: Are American regulators more effective than European regulators? In some ways yes, and that may prove another barrier for TTIP.

The regulatory frameworks in the US and EU are fundamentally different in the way they are structured.

„In Europe there is no central enforcement body, but it’s in many cases up to the member states to enforce laws,“ said Caroline Freund, a senior fellow at the Peterson Institute for International Economics.

A state-by-state enforcement model at times results in inconsistent enforcement, and what can be seen as a mockery of an American value on the letter of the law.

„The experience of U.S. companies is that even when European regulations are written in a way that appears to establish stricter standards than in the U.S., these regulations are sometimes not fully enforced,“ said Greg Skelton via email, senior director for regulatory and technical affairs at the American Chemistry Council, an industry trade association for American chemical companies.

„This was one of the failures in the Volkswagen case,“ Freund said. „There’s this European Commission report that discovered the concern some three or four years ago and what was done about it there? Absolutely nothing. Then it comes up in the US and how quickly does the EPA act? Right away.“

US: The Responsible Sibling?

Michael Horn, CEO of Volkswagen Group of America testifies before the House Committee on Energy and Commerce Subcommittee on Oversight and Investigations on the Volkswagen emissions cheating scandal on October 8, 2015.
Credits: AFP PHOTO/MANDEL NGAN

Though the American regulatory culture has its flaws, the Volkwagen scandal is a new addition to a growing list of perceived European bodies that have been left to run amuck in Europe, only to get caught and put to justice in the United States.

A three year investigation by the US, FBI and IRS into FIFA, for example, culminated May 27 into a 47-count indictment against 14 FIFA officials and sports marketing executives. The indictment charges the defendants with bribery exceeding $150 million, racketeering, wire fraud and money laundering spanning 24 years, including bribes to award the 2018 World Cup to Qatar and the 2022 World Cup to Russia. A British newspaper, The Sunday Times, reported that a Qatari official bid more than $5 million for the 2022 tournament.

Europeans have a view that their standards are higher. Depending on how Volkswagen responds to the scandal, I think this could shift. Americans could view Europe as a place for low standards and cheating companies.

Caroline Freund, Peterson Institute for International Economics, Washington, D.C.

„Everybody knew the issues, yet it was the US side that is bringing charges,” Freund said. “There’s a long list of these cases that shows big business is a lot more protected in Europe than in the US.“

There is more incentive to regulate and enforce standards in the US because of strict liability laws and high financial penalties that are commonly — perhaps even too commonly — enforced.

„I think that enforcement is just infinitely better here [in the US],“ Freund said, but she cautions that if a significant amount of Americans start think poorly of European regulatory practices and standards, projected overall US support for TTIP could be at risk.

„Europeans have a view that their standards are higher, and I think the American view has been that our standards are similar. Depending on how Volkswagen responds to the scandal, I think this could shift,“ Freund told NZZ.at. „Americans could view Europe as a place for low standards and cheating companies.“

In order for TTIP to work, a deal that so heavily relies on harmonizing standards, regulators on both sides of the Atlantic must have the trust and confidence of one another. Ultimately, it’s the political will of each country’s electorate that will determine just that.