Restoring respect for the law in Canada-U.S. commerce: the Regulatory Cooperation Council so far.

• Author: Sands, Christopher
• Position: 35th Annual Henry T. King Conference: The US-Canadian Border Action Plan

If you have ten thousand regulations, you destroy all respect for the law.

--Winston Churchill

Anecdotes concerning ludicrous regulation are almost as common in democratic societies as complaints about taxes and poor public services. While the average voter accepts the need for regulation in principle, the proliferation of regulation in modern society has gradually reduced respect for the role of government in regulating economic activity. Particularly in the United States, concern over the size and cost of government has put pressure on regulators to focus on economic impacts, cost-benefit analyses, and competing claims about the public good. (1)

Regulation has particularly become a growing issue in international trade, with regulatory compliance in multiple jurisdictions adding to costs (and consumer prices), and occasionally limiting or prohibiting market access for certain products or personnel. (2) In 2011, the United States and Canada embarked on their latest effort in a series of negotiations aimed at limiting the negative impact of regulatory differences on bilateral trade and the economic competitiveness of firms operating in either country. (3) This paper looks at the context for these talks, their structure, and some of the challenges that will be faced.

PROTECTIONISM'S RESORT TO REGULATION

International trade was badly damaged by the wave of protectionism that coincided with (and exacerbated) the Great Depression. (4) The United States Congress adopted the Smoot-Hawley tariff in 1930, which raised tariff rates in the United States and prompted other countries to retaliate, (5) This essentially closed the United States to trade for several years following. (6) The passage of the Reciprocal Trade Agreements Act of 1934 not only rescinded the Smoot-Hawley tariff rates, but also limited American protectionist measures to just two relatively minor tools: anti-dumping duties (used when another country or a foreign company "dumps" products into the United States market at prices below the cost of production, just to gain a foothold in the market at the expense of other producers) and countervailing duties (a tariff applied provisionally to counter the effect of a foreign subsidy or unfair trade practice). (7) These two emergency trade measures were retained just in case foreign trade partners attempted to take advantage of the renewed openness of the United States. (8) This domestic reform was reinforced by the launch of international negotiations under the aegis of the General Agreement on Tariffs and Trade ("GATT") (9) in 1947 in an effort to promote international trade disarmament and further the global retreat from trade protectionism. (10)

Within the decade, anti-dumping and countervailing duties were sought by a growing number of American producers, and what had been marginal instruments of trade protection for "emergencies" became the mainstay of both American protectionism and protectionism abroad. (11) The lesson of this experience was that the motivations for protectionism are strong and firms will seek to use whatever means are available to gain an advantage (or to compensate for a disadvantage) in their domestic market.

As the GATT negotiations, the Canada-United States Free Trade Agreement ("CUFTA"), (12) and the North American Free Trade Agreement ("NAFTA") (13) lowered tariff barriers affecting trade between the United States and Canada, regulatory differences became more significant as obstacles to market access for companies in both countries. At the same time, regulations proliferated in both countries became more significant in shaping each domestic marketplace.

RISE OF THE REGULATORY STATE

Progressivism as a political movement gained adherents and influence in both the United States and Canada in the early part of the twentieth century. (14) Distinct from liberalism, progressivism advocated meritocracy and government by experts as a counterweight to corrupt patronage politics and electoral manipulation. (15) This more enlightened approach to government, progressives believed, would help society to progress with improved living conditions for all, through greater consumer safety, better working conditions, and rising quality standards. (16)

The rise of progressivism coincided with the growth of the social welfare state in the years following World War II, which saw the role of government in the economy grow in both Canada and the United States as a provider of income security, access to health care, and public infrastructure. (17) Thus, as the state expanded its economic role, it also expanded its regulatory role and the ranks of the civil service were bolstered by credentialed experts. (18) The number of regulatory bodies and agencies in both countries multiplied, and the annual number of pages in publications like the United States Federal Register and the Canada Gazette surged. (19)

The growth of regulation became a burden for domestic economic activity as well as for cross-border commerce. Compliance costs with numerous and often contradictory regulations implemented by federal and also by state and provincial governments grew and became a drag on North American competitiveness. (20) Even though other countries had followed a similar path in establishing social welfare programs and regulation of market activity, the European Union ("EU"), for example, also sought to harmonize regulation across the EU region, (21) while the market growth in developing economies, such as China, outpaced the capacity of regulation, resulting in a greater degree of freedom for economic action. (22) Despite the CUFTA and the NAFTA, the goal of a single North American market for goods and services was not realized due in part to regulatory mismatches. (23) Instead, the three federal governments, along with thirty-one Mexican states, all fifty states in the United States, all ten Canadian provinces, the three Canadian territories, and many county and municipal jurisdictions, sought to regulate cross-jurisdictional transactions with increasing assertiveness. (24)

REGULATORY REFORM IN THE UNITED STATES

Despite the incidence of regulatory overlap, the United States has generally received high marks for its regulatory system, due to its transparency, non-discrimination between domestic and foreign entities, and the capacity of foreign interests to participate in regulatory processes and reviews. (25) For this reason, the United States has been able to attract foreign direct investment and to engage in international trade with little or no tension with its foreign partners concerning market regulation and access. (26)

Rather, the principal initiative to reform regulation in the United States has been domestic. During the second half of the twentieth-century and continuing today, as the regulatory capacities and interests of government have expanded, a movement of commercial interests, nongovernmental activists, legal scholars, and academics, has emerged to press for greater efficiency in market regulation; in some cases, this has manifested as a call for less regulation, and in others for regulations that do a more effective job at reducing risks to the public. (27)

In his review of regulatory reform efforts from the Ford to Clinton Administrations, Murray Weidenbaum noted that presidents of both parties had mixed success in attempting to discipline the growth of federal regulation. (28) Presidents established review groups and executive branch clearinghouses, and issued executive orders mandating review of new regulations, cost-benefit analyses, and other impact assessments, prior to the issuance of new regulations. (29) More often than not, Weidenbaum notes that the source of regulatory problems was statutory, that is, originating in congressional action and not in an executive action. (30) While there had been an increased awareness on the part of federal regulators regarding the compliance costs of new regulations and some evidence of regulatory parsimony at particular times and in particular agencies, Weidenbaum argues that Congress drove an expanding regulatory state steadily forward in its ambition and reach during the 1970s, 1980s, and 1990. (31)

Jonathan Adler offers a different view, one in which Congress has lost control of the regulatory process to the ambitions of executive branch regulators:

Over the past several decades, the scope, reach, and cost of federal regulations have increased dramatically. As the federal regulatory state has grown, legislative control over regulatory policy has declined. Long after authorizing legislation is adopted, agencies continue to adopt regulations and implement policies with relatively little legislative input or oversight. At the same time, presidential administrations of both parties have used administrative regulations to implement policies and programs that Congress failed to approve. As legislative control over regulatory policy has waned, so too has congressional accountability for the regulation. (32) Whether Congress or the Executive Branch is to blame, domestic regulatory reform efforts in the United States in recent decades have had only a modest impact on the growth of regulation. As Jodi Short noted in a recent article on this movement:

The promise of the late-twentieth-century regulatory reform movement was a significantly deregulated polity in which the regulators that remained would manage the risks of contemporary society more efficiently and effectively, but four decades of regulatory reform have produced a society that is neither significantly less regulated nor significantly less risky. (33)

However, domestic regulatory reform advocates in the United States have gradually increased the stigma of regulation and the growth of the government in voter perception (34) Similar to the way in which tax rates, fiscal deficits, and public debt began to be a cause for concern among economists and scholars, then among conservative...