Audi to Zappa See Trade Talks as Chance to Cut Rules

Photographer: Robert Knight Archive/Redferns via Getty Images

Negotiators will seek to replace a patchwork of rules and regulations with common standards governing everything from how motorists dim their headlights to how much the trust that owns the rights to Frank Zappa's work is paid for "Don't Eat the Yellow Snow" when it is played on the radio. Close

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Photographer: Robert Knight Archive/Redferns via Getty Images

Negotiators will seek to replace a patchwork of rules and regulations with common standards governing everything from how motorists dim their headlights to how much the trust that owns the rights to Frank Zappa's work is paid for "Don't Eat the Yellow Snow" when it is played on the radio.

For years Audi AG (NSU) has sought to get U.S. regulators to allow its futuristic headlights, which automatically dim for oncoming drivers, to be sold in the U.S.

The company -- and any other manufacturer that wants to use advanced lighting systems -- can’t do so because a 45-year-old U.S. rule for headlights doesn’t permit the 21st century technology.

That could change if negotiations that started today in Washington result in a trade accord between the U.S. and the European Union. In addition to reducing $10.5 billion in annual tariffs, the pact could streamline disparate regulations on either side of the Atlantic to facilitate trade.

Some companies see it as an opportunity to eliminate burdensome rules -- a rare second chance to achieve on a global scale what they’ve been unable to win from individual governments. That has safety and consumer advocates warning that hard-fought protections could be diluted or eliminated.

“We don’t want a trade agreement to become an opportunity for a race to the bottom, to take the weakest law on each side of the pond and make that the only law forever,” Ed Mierzwinski, consumer program director for the U.S. Public Interest Research Group in Washington, said.

World’s Largest

The proposed pact, carrying the unwieldy title of the Trans-Atlantic Trade and Investment Partnership, would create the world’s largest free-trade zone, with 29 nations representing about a third of world commerce and a cumulative gross domestic product of $33 trillion (26 trillion Euros). Negotiators will seek to replace a patchwork of rules and regulations with common standards governing everything from how motorists dim their headlights to how much the trust that owns the rights to Frank Zappa’s work is paid for “Don’t Eat the Yellow Snow” when it is played on the radio. Zappa died in 1993.

“This proposed agreement would be a perfect place” to end an anomaly in U.S. law regarding royalty payments, artist groups and the Recording Industry Association of America, said in a letter filed with the Office of the U.S. Trade Representative in May.

Record labels want AM and FM radio broadcasters in the U.S. to pay artists for their performances as the EU does, not just their songwriting, as is done in the U.S. The groups acknowledged that Congress must ultimately decide the matter.

Spying Scandal

To achieve success, negotiators will have to overcome entrenched interests and protectionist instincts. There are already signs of trouble. France convinced its EU partners to pass a resolution supporting the nation’s ability to protect its film industry from Hollywood in the trade talks.

Revelations that the U.S. had spied on EU diplomats haven’t helped build trust. French President Francois Hollande demanded the talks be delayed as a result, though his partners disagreed.

“The reason why we decided to hold the talk now is we are convinced that this deal is good for Europe,” European Trade Commissioner Karel De Gucht said today during a press conference in Geneva. “We will of course meet a lot of problems and stumbling stones, but if we reach an agreement, it would be a historic one -- so let us work now.”

A review of hundreds of documents filed with U.S. and European officials reveals long and contradictory wish lists, hinting both at the difficult negotiations ahead and the potential impact of a deal to workers, businesses and consumers.

Buy American

European contractors, for example, want to compete for U.S. government work despite buy-American preferences in many jurisdictions. Ship lines such as AP Moeller-Maersk A/S (MAERSKB) of Copenhagen, owner of the world’s largest container line, want to be able to move more cargo between U.S. ports under their own flags, essentially nullifying parts of a 93-year-old U.S. law that limit that work to ships built in the U.S. and crewed by Americans.

American farmers want greater access to EU markets for their wares, including genetically modified foods that European consumer groups fiercely oppose. Pharmaceutical companies want the guaranteed 12-year protection for data on biologic drugs they enjoy in the U.S., which consumer advocates say inflates prices and limits access to generic drugs.

“There are going to be sensitivities on both sides,” President Barack Obama said June 17 during the official start of the talks at the Group of Eight summit in Northern Ireland. “I’m hopeful we can achieve the kind of high-standard, comprehensive agreement that the global trading system is looking to us to develop.”

First Round

Negotiators plan to meet through July 12 at government buildings within the White House complex. They then plan to meet every few months, with a goal of reaching an agreement within two years. When a deal is struck, it must be approved by both the U.S. Congress and the European Parliament and European Council. Member states of the EU are Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany (TBBLGRMN), Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Malta, Luxembourg, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the U.K.

The U.S. and EU already have the world’s largest bilateral economic relationship, with $4.5 trillion in trade and investment passing between them a year. Historical and cultural ties bind the two continents, though industry groups for years have lived with a fragmented trans-Atlantic regulatory network.

Economic Turmoil

The global economic turmoil that began in 2008 -- and the ensuing sovereign debt crisis that has threatened the existence of the euro -- changed everything. With economic growth sluggish on both sides of the Atlantic, the Doha round of global trade talks stalled, and all eyes on China’s rise in global commerce, politicians and business leaders see now as the time to cement their trading ties.

“This is a once-in-a-generation prize and we are determined to seize it,” U.K. Prime Minister David Cameron said at the G-8 summit in June.

Though officials from the EU and U.S. have been meeting since November 2011 to discuss the prospects for a potential accord, the process began in earnest in February, when Obama announced during his State of the Union address the intent of the U.S. to join in a trans-Atlantic trade deal.

Business Lobbying

In April, corporate and government officials crammed inside a room of the U.S. Capitol for the start of the Business Coalition for Transatlantic Trade, a lobbying behemoth that includes Citigroup Inc (C)., Dow Chemical Co (DOW)., Ford Motor Co (F)., FedEx Corp (FDX)., General Electric Co (GE)., Intel Corp (INTC)., JPMorgan Chase & Co (JPM). and United Parcel Service Inc (UPS). It’s run by the U.S. Chamber of Commerce, which last year spent $136 million on lobbying all issues -- more than the five next top spenders combined, according to the Center for Responsive Politics, a Washington-based watchdog group.

Consumer advocates and labor unions say they’re worried the corporate influence on the trade talks will lead to back-door deregulation, watering down standards designed to protect public health and safety.

“Such standards should not be subject to negotiations heavily influenced by corporations that would profit from the dismantling of those standards,” Ben Beachy, research director for trade issues at Public Citizen in Washington, said in a phone interview.

Food, Chemicals

The San Francisco-based Sierra Club said in a report in June that regulators should adopt common standards only if they are tightening regulation, not relaxing it. The group warned against potential efforts to weaken European limits on greenhouse-gas emissions, food-safety rules and chemical regulations.

Business groups and officials on both sides say cutting red tape and other regulatory barriers to trade would boost wealth and help unsteady economies heal. Achieving that will mean finding common ground on hundreds of issues dear to individual constituencies, from mail carriers to merchant mariners.

For example, French vintners oppose sparkling wines not produced in France’s Champagne region being called “champagne.” In 2006 the U.S. and EU struck an agreement to grandfather in some American producers, while preventing others from using the term. French producers now view the trade talks as a chance to make sure only bubbly from Champagne carries that esteemed designation.

French Champagne

The U.S. is among a handful of countries including Russia, Vietnam and Argentina that permit non-French sparkling wines to be called champagne, Sam Heitner, director of the Champagne Bureau USA, which represents French producers, said in a phone interview. “It would be wonderful if they would join the rest of the world in educating consumers” where the product comes from, he said.

U.S. food processors are just as unhappy with existing EU rules on food. Campbell Soup Co (CPB). is among companies looking to end a 1997 European import restriction on the American practice of rinsing chicken with a chemical solution to kill germs.

“Campbell is currently prevented from exporting its innovative line of chicken soups and related products to EU countries as a result of a number of trade barriers,” the Camden, New Jersey-based company said in a filing with the U.S. trade office. Campbell said 18 percent of its $7.7 billion in revenue last year came from the arm of its business that sells soups outside the U.S.

Jones Act

European ship lines including Maersk are seeking to finally gain exceptions to a 1920 U.S. law known as the Jones Act, which prevents, say, Dutch freighters from picking up goods in New York dropping them off in Baltimore.

“We don’t want a situation where European ship owners or ship interests can control our domestic trade,” Don Marcus, president of the International Organization of Masters, Mates & Pilots union in Linthicum Heights, Maryland, said in a phone interview.

In recent years FedEx of Memphis, Tennessee, and Atlanta-based UPS have lobbied Congress to raise the minimum value of goods that can be transported duty-free across the Atlantic. Legislation that would increase the amount to $800 from $200 is languishing in Congress. They want the trans-Atlantic accord to step in where lawmakers have not.

FedEx also wants to end the European practice of designating historic areas of cities -- think of narrow, cobblestoned streets and centuries-old homes -- as “Limited Traffic Zones” where national postal carriers have favored access.

Clothing Labels

Clothing retailers on both sides of the ocean are seeking to relax restrictions on “rules of origin” so that they’re not limited in the amount of merchandise they can sell.

“If you’re producing a batch of T-shirts in Portugal, for example, or Spain, you want to sell them to the EU and U.S. markets,” said Tim McPhie, who represents a branded-clothing trade group that includes Levi Strauss & Co. and H&M LP. “You might then realize that they’re flying off the shelves in North America, but not so much in Europe, so you want to move your stock around.”

The European Automobile Manufacturers’ Association, which includes Audi, owned by Wolfsburg, Germany-based Volkswagen AG (VOW), Daimler AG (DAI) of Munich and Turin, Italy-based Fiat SpA (F), is siding with the U.S. industry for trans-Atlantic acceptance of each other’s standards for headlights, child-restraint systems, crash tests and windshield-wiper blades. Lifting the tariffs and reducing the regulatory restrictions would increase European auto exports to the U.S. by 149 percent -- and U.S. exports to the EU by 347 percent -- by 2027, according to a joint regulatory filing by U.S. and European industry groups.

Regulatory Fragmentation

“Regulatory fragmentation is a significant barrier to trade,” said Matt Blunt, president of the American Automotive Policy Council, in an interview. The council represents Ford, General Motors Co (GM). and Chrysler Group LLC.

While U.S. and EU automakers have tried for decades to gain mutual recognition on vehicles standards, they haven’t succeeded because different environments -- open road and rural driving in the U.S., city driving in Europe -- have led to the use of different products on either side of the Atlantic.

“What you’re really talking about is two different kinds of cars,” Bill Visnic, an auto analyst with Edmunds.com, said in a phone interview. “Nobody in Europe buys a pickup truck. That’s a tank on a European street.”

Highway Safety

Audi has been working with U.S. regulators on acceptance of its lighting technology for several years, Brad Stertz, a company spokesman, said in an e-mail. He said that it’s too soon to tell how auto-safety differences will be resolved in a trade deal.

Toyota Motor Corp (7203).’s North American subsidiary in March petitioned the National Highway Traffic Safety Administration to update its lighting guidelines, which the agency is reviewing.

Even before the talks started, participants began to rope off areas of disagreement. France in June won a non-binding exclusion to retain subsidies for its filmmakers and other artists. The U.S. Treasury wants some aspects of financial regulation to be dealt with outside of the talks.

EU Trade Commissioner De Gucht has said he’ll respect the “precautionary principle” that some European governments have used to limit agricultural imports on grounds of public safety concerns.

“It’s easier to negotiate with one country than 27 countries,” Gary Doer, Canada’s ambassador to the U.S. said June 19 in Washington.

His nation has been trying to complete a trade deal with the EU since 2009 and the talks have been at an impasse over issues including market access for agricultural goods.

“You’re going to have an interesting time in the United States with Europe,” he said.

To contact the reporters on this story: Brian Wingfield in Washington at bwingfield3@bloomberg.net; Rebecca Christie in Luxembourg at rchristie4@bloomberg.net

To contact the editor responsible for this story: Jon Morgan at jmorgan97@bloomberg.net

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