About the Author
Nicolas Godeau
By Nicolas Godeau, Policy Intern
The automotive sector is a flagship example of benefits that a comprehensive Transatlantic Trade and Investment Partnership (TTIP) agreement can deliver. Maybe with reason: It embodies like no other sector what the treaty aims to do.
Over decades national regulators have sought to regulate in response to national concerns and requirements. In an increasingly globalized world, however, some of these regulations have become unnecessary barriers, so called non-tariff barriers (NTBs) to trade. NTBs can refer to domestic measures and instruments, restraints on distribution including technical regulations, minimum standards and certification systems for consumer health and safety and other non-competitive practices. From a trade-perspective, NTBs can also distort trade in the same way as border measures do[1]. In the case of European automotive manufacturers this means simply put, having to produce two different cars: one to fit all EU requirements, and one to fit all US requirements.
This duplication can be counter-productive and expensive for both manufacturers and consumers, the latter as the impact of these non-tariff barriers translates very clearly in the price. Indeed, differences in regulations, account for up to 26% add valorem extra cost on exports[2].
This price and sale difference in the US may explain why despite having a 22% share of the world market, European cars only account for 7% of the US market[3]. It is known that tariffs (which the treaty also seeks to remove) are only partially responsible for this. The ‘higher’ hurdle to be overcome by European car exporters and thus by the treaty, are the regulatory differences between the EU and the US
Regulatory differences can affect every aspect of production. From the initial design to every part in the production supply chain down to the red parking light in a car’s dashboard. The latter in particular illustrates well the meticulous impact of diverging regulations on the manufacturing process. The parking break warning light is a symbol accepted around the world. In the US however, this symbol differs as the light has to show ‘park’ with a red background and a black font. This little detail causes the manufacturer to differentiate between vehicles destined for US sales from the ones destined to other countries all along the assembly line.
One can imagine the costly and complex exercise that differences in regulations regarding other parts cause at every level of the supply chain. The answer is enough to discourage manufacturers like Vauxhall or Renault to export to the US.
Automotive is not only one of the industry sectors that would benefit the most from the envisaged treaty; but it would benefit European exporters even more so than US ones[4]. Given the popularity of European cars, it would be overly naïve to underestimate the huge potential TTIP could unlock for European manufacturers by making the US market incredibly easier to access. In fact, European car manufacturers are set ‘to get the Lion’s share’ of the deal or three quarters of all the expected 18 billion euros annual profit[5].
The treaty is looking to mutually recognise regulations and practices where equivalent, to align procedures and avoid costly duplications. It is hard to believe a crash in the EU differs greatly from one in the US, but the test for it does.
A good way to start he mutual recognition process would be the acceptance that US and EU regulatory systems are very elaborate with laws and practices which affect almost every car part to achieve equally high safety objectives. ‘Our standards may differ in some modest ways, but the ones that we’re looking at harmonizing are essentially equivalent’[6] asserted Gloria Bergquist, a spokeswoman for the Alliance of Automobile. A mutual recognition between EU and US standards and regulations would also tempt other car manufacturing countries to adopt them to access a market which would account for 45% of world GDP[7].
To help identify points of equivalence (where mutual recognition is possible) between US and EU regulators US and EU car industries and government representatives commissioned numerous reports. Their findings recognize the equivalence of standards present in a multitude of reports on headlights, mirrors, seatbelts and more[8]. However, as a finding in a report by the University of Michigan, the UK’s Transport Research Laboratory (TRL) and others, published in 2014-2015 revealed that EU regulations made the car 33% safer than those from the US. This is interestingly because some US vehicles are equipped with popular bull bars that would raise pedestrian safety concerns in Europe.
Regulators will not seek to align front side regulatory procedures without guaranteeing the same risk injury protection. There are areas, like the one cited, where the outcome of differing US and EU regulations leads to non-equivalent safety outcomes. Safety has to be equally guaranteed on both sides of the Atlantic and for that reason there are where areas mutual recognition is not possible and will not take place. Full mutual recognition, of even harmonization is possible for new standards, for example for electric vehicles.
Sceptics of the treaty will of course focus on one finding to claim that mutual recognition would be a synonym to lower European Standards and rightly so. However, such narrow focus only serves to denigrate the vital technical process conducted by experts on both sides to establish what is and is not feasible. One can only observe the missing objectivity around the automotive sector under the proposed treaty when a single finding is used to produce headlines like: ‘Car industry ‘buried report revealing US car safety flaws over fears for TTIP deal’.
Again, TTIP is not a zero sum game and will not harmonize regulations where there is no complete equivalence. One must simply acknowledge that fear does sell better, and focusing on a single negative finding is more attractive than to do so on positive ones. However it has led to the demonization of a necessary and productive expert process conducted by concerned industry sectors and the European Commission.
Were there such cynicism towards cultural differences in regulatory mechanisms and efforts to align them when the UK entered the European Single Market? Hard to believe that people would fear James Bond driving his British-built DB5 in the Alps. Why shouldn’t he do this also in the Rocky Mountain, even with a bull-bar?
[1] OECD (2001): The OECD Economic Outlook: Sources and Methods, available at: https://stats.oecd.org/glossary/detail.asp?ID=1837
[2] ECORYs Nederland BV (2009): Non-Tariff Measures in EU-US Trade and Investment: An Economic Analysis (page 48)
[3] International Organisation of Motor Vehicle Manufacturers, 2011, available at: www.oica.net.
[4] Frédéric Simon, “TTIP : les constructeurs automobiles européens devraient rafler la part du lion”, Euractiv, July 31st, 2015
[5] Ibid footnote 5
[6] Gabe Nelson, “Automakers call for backup in quest to align EU, U.S. safety standards”, Automotive News Europe, December 18, 2013
[7] Eurostat: The EU in the world – economy and finance
[8] Caroline Freund and Sarah Oliver: “Gains from Harmonizing US and EU Auto Regulations under the Transatlantic Trade and Investment Partnership”, Peterson Institute for International Economics, June 2015; Bill Canis and Richard K. Lattanzio: “U.S. and EU Motor Vehicle Standards: Issues for Transatlantic Trade Negotiations”: Congressional Research Service, February 18th, 2014.