Second Meeting of the U.S.-EU Transatlantic

UNCLAS USEU BRUSSELS 000859

SENSITIVE

SIPDIS

White House for NSC/Price, Herrmann
White House for OMB for OIRA/Dudley, Mancini
USTR for USTR Schwab, EUR
HHS for FAO/von Eschenbach
Pass SEC for Commissioner Atkins

E.O. 12958: N/A
TAGS: ECON ETRD EIND EINV EFIN EAGR ENRG
ECIN, EUN
SUBJECT: Second Meeting of the U.S.-EU Transatlantic
Economic Council, May 13, 2008, Brussels

Ref: USEU (scene-setter)


1. Summary: The May 13 U.S.-EU Transatlantic
Economic Council:

-- discussed in a principals-only lunch policy
issues related to Russia and protectionism (reported
septel);

-- agreed that EU Commission would follow through on
its November 2007 commitment to remove a major
impediment to EU imports of U.S. poultry, with the
EU Commission proposing legislation to allow the
U.S. meat cleaning process, explicitly acknowledging
the absence of a scientific basis for a continued
ban and committing to work actively to get the
proposal adopted;

-- acknowledged a Commission administrative fix to
problems importers of U.S. cosmetics could face when
implementation of the EUQs new chemicals legislation
REACH begins June 1 while agreeing the Commission
would take steps to provide transparency, greater
legal certainty, and non-discrimination in
implementation of REACH ;

-- accepted a Department of Labor offer to publish a
Request for Information on the subject of suppliers
declaration of conformity for low-risk electrical
equipment;

-- issued a joint statement on Open Investment ;

-- welcomed steps to avoid unnecessary divergences
in our approaches to regulation, improve
consideration of international trade and investment
impacts of our regulation, enhance import safety
through better sharing of confidential information,
and improve our approaches to risk assessment; and

-- discussed recent steps to further transatlantic
capital markets integration, including through steps
to grant equivalence to one anotherQs accounting
standards, achieve mutual recognition of our
comparable securities regimes, and address
structural and other potential problems in our
insurance markets.

End Summary


2. The U.S.-EU Transatlantic Economic Council met
in Brussels on May 13, 2008. The U.S. side was co-
chaired by Assistant to the President for
International Economic Policy Dan Price, and
included Secretary of Agriculture Ed Schafer,
Secretary of Labor Elaine Chao, United States Trade
Representative Susan Schwab, Treasury Deputy
Secretary Robert Kimmitt, State Department Under
Secretary for Economic Affairs Reuben Jeffery III,
Commissioner of Food and Drugs Andrew von
Eschenbach, SEC Commissioner Paul Atkins, Special
Envoy to the European Union C. Boyden Gray and OMB
Office of Information and Regulatory Affairs
Administrator Susan Dudley. EU Commission Vice
President Guenter Verheugen co-chaired on the
European Union (EU) side, accompanied by Trade
Commissioner Peter Mandelson, internal Market
Commissioner Charlie McCreevy, Consumer Safety
Commissioner Meglena Kuneva, and Taxation and
Customs Commissioner Laszlo Kovacs.


3. The Council addressed a wide range of subjects,
including :

-Russia and combating protectionist sentiments (in a
principals-only lunch, reported separately);
-steps to reduce unnecessary regulatory divergences
between the U.S. and EU, improve the sharing of
information relating to import safety, take better
account of the trade and investment impacts of
domestic regulation and improve risk analysis;
-specific sectoral regulatory problems and issues
such as the EU ban on the import of U.S. poultry
meat processed using chlorinated pathogen reduction
treatments, the U.S. requirement for independent
third party certification that certain electrical
equipment is safe for the workplace and the effect
of the EUQs chemicals regulation on imports,
especially of cosmetics;
-measures being taking to integrate transatlantic
capital markets, including in the areas of
accounting, securities and insurance ;
-the need for open investment policies; and
-next steps for the Council.


4. The TEC issued a Progress Report to the Summit,
including as an annex a Joint Statement on Open
Investment. It also received two reports from the
High-Level Regulatory Cooperation Forum: one on the
analysis of trade and investment impacts of
regulation, and one on our respective approaches to
import safety, particularly our approaches to
information sharing.


5. The co-chairs also met with a small group of EU
parliamentarians. The co-chairs and the U.S.
delegation then met with the TEC Advisory Group
(consisting of the U.S. and European co-chairs of
the Transatlantic Legislators Dialogue, the
Transatlantic Business Dialogue and the
Transatlantic Consumer Dialogue); these meetings, as
well as the TEC co-chairs post-session debrief of
the Advisory Group, are reported separately.


I. Review of TEC Achievements


6. Commissioner Verheugen opened the first plenary
session commenting that the stakeholders session was
a strong indicator that the TEC project would surely
be successful as it already had a strong and visible
impact on transatlantic economic relations. Both
Price and Verheugen highlighted the significant
concrete accomplishments TEC already has under its
belt. Price emphasized the strategic importance of
the crucial relationship, and the need to ensure
sustainability of the TEC to continue to build on
this relationship, identifying short, medium and
long term goals. He affirmed our obligation to get
it right amongst usQ so that we can get it right
with others. He pointed to common commitments
already made, including horizontal regulatory
cooperation to bring regulatory processes in line,
science-based approaches to regulation, improved
transparency and more rigorous impact assessments.
Price pointed to three areas where there has been
concrete action beyond simply agreeing to roadmaps:
1) IPR enforcement highlighting Operation
Infrastructure, the joint customs border operation
in which at least 360,000 integrated circuits with
40 different faked marks were seized in the last
months of 2007 2) E-Accessibility where the European
Commission has invited NIST and GSA to join their
experts group on developing standards while the USG
has invited Commission experts to join discussion on
reassessment of U.S. regulations; and 3) further
enhanced cooperation on medicinal products whereby,
based on the joint administrative simplification
goals, there will be several specific initiatives
related to inspections, including joint inspections.


7. Verheugen reminded the group of the TECQs long-
term vision of removing obstacles to achieve the
transatlantic economyQs full potential, ensuring our
continued competitiveness. He asserted that the
TECQs political guidance gets things moving even
on a nasty issue like poultry. TEC
accomplishments include a Federal Communications
Commission commitment to begin a rulemaking on
allowing use of suppliers declaration of conformity
for products it regulates; a joint roadmap on patent
harmonization; Food and Drug Administration/DG
Enterprise cooperation on administrative
simplification (including enhanced inspection
cooperation),collaboration on biomarker development
and validation, parallel scientific advice and other
regulatory cooperation initiatives for veterinary
medicines that should reduce costs of pharmaceutical
R&D and get new medicines to market sooner; car
safety cooperation including cooperation at the
UNECE to establish new global technical
regulations(GTRs),including adoption of two recent
GTRs; biofuels standards cooperation; FDA/DG
Enterprise agreement to facilitate and support a
more routine and formal process by which the EU, US,
Canadian, and Japanese alternative testing
validation organizations can work more cooperatively
to address validation priorities, methodologies, and
processes. In addition, FDA/DG Enterprise have
agreed to work together bilaterally on the
regulatory acceptance with respect to cosmetics of
validated animal tests. Both of these initiatives
should assure public health protection and help
mitigate possible interruptions to trade that may be
caused by the upcoming EU ban on animal testing for
cosmetics. Verheugen said this progress was going
too slow to address the looming crisis, and asked
why scientists cannot agree. (Comment: This
reference was to the disingenuous assessment that if
not for the intransigence of the U.S. scientists,
the EU requirement to move to non-animal testing of
cosmetics would be possible by the 11 March 2009
deadline set in EU legislation. Alternative methods
to determine certain safety requirements have not
yet been validated or accepted in both the EU and
the U.S. as the science has not yet caught up to
this EU statutorily-imposed deadline. End comment)

II. Horizontal Regulatory Cooperation and the High
Level Regulatory Cooperation Forum (HLRCF):


A. Impact Assessment, Transparency and Consultation


8. EU Commission Deputy Secretary General Alexander
Italianer and OMB/OIRA Administrator Susan Dudley
summarized the accomplishments of the meeting of the
High Level Regulatory Cooperation Forum (HLRCF) that
took place on 25 April. The Secretariat General and
OMB completed a joint report on including trade and
investment impacts in regulatory analyses that both
opened to comment. Italianer explained that
although there were few comments, those who did
comment (including the U.S. Chamber of Commerce and
BusinessEurope) represented the major players in
transatlantic trade and investment. At the HLRCF
stakeholders discussion, both the USG and the
European Commission broadly outlined how
transparency and public participation are handled
under our respective systems. Administrator Dudley
added that, in the future, OMB would likely ask U.S.
agencies to identify which regulations might have
trade and investment impacts or might otherwise be
of use to our trading partners.


B. Risk Assessments


9. Dudley explained the conviction both sides have
that we need a sound risk-based pathway to
regulation. Sharing of data and analysis will help
build a broader consensus on risk assessments,
limiting but not excluding regulatory divergence at
the risk management stage. Dudley referred to the
trilateral (EU-US-Canada) government-only workshop
on risk assessment, management and communication in
July, whose conclusions will be reported at the fall
TEC. Conclusions from this session would be folded
into the broader international conference hosted by
DG SANCO in November in Brussels.


10. Dan Price asked EU participants how they
QsquaredQ risk assessment with their variant of the
precautionary principle. SANCO Director General
Robert Madelin underscored that scientists
understand uncertainty and that the precautionary
principle had nothing to do with risk assessment and
everything to do with risk management. He stated
that the objective was not zero risk, and not to
default to prohibition, but he recognized the
political challenge of risk managers to avoid
distortion of the precautionary principle. Price
felt that the risk assessment conference would help
to dispel the caricature of U.S. and EU positions,
allowing us to focus on our agreed goals of science-
based approaches to prevent new barriers from
arising.


11. SEC Commissioner Paul Atkins pointed out SECQs
statutory requirement to use cost/benefit analysis
when formulating new regulations. Without it, their
regulations could, and likely would, be overturned
in court. FDA Commissioner von Eschenbach hoped the
U.S. and EU regulators would also emphasize benefits
of regulated technology/activity when doing
cost/benefit analysis and risk assessments.
Highlighting benefits, for example for
nanotechnology, is crucial when communicating risks.


12. USTR Schwab suggested that such risk discussions
would go a long way towards precluding prolonged and
intractable bilateral disputes by Qmanaging issues
at the front end. Emphasizing the need to use
sound science and objective criteria, Schwab warned
that any abuse in the U.S. and the EU would be
copied and worsened in third countries creating
bigger non-tariff barriers.


13. Verheugen pointed out how the conversation in
the room did not reflect that this is a very hot
issue. He wondered how the precautionary principle
impacts (EU) legislation practically, suggesting
that it would be a topic for future discussion.
Italianer noted that we have different priorities
and societal preferences, and that the precautionary
principle could lead risk managers to preclude
taking any risk. Dudley commented about the risks
of action and inaction, pointing out that an overly
precautionary approach could create serious
opportunity costs or prevent society from enjoying
crucial benefits in areas such as nanotechnology and
biotechnology.


14. Verheugen felt efforts to create consistent
methodologies and risk assessment benchmarks would
be crucial. Taking a step further, Verheugen
believed that U.S. and EU policymakers looking at
equivalent risk assessments should also be able to
Qfind a common approach to deal with the issue at
hand. Von Eschenbach added that regulatory agencies
often wait for science to come to them. His hope
was that aligning our regulatory processes ahead of
scientific developments, for example in
nanotechnology, could make sure our approaches were
more integrated.


C. Import Safety


15. Dudley explained that the joint paper on
strengthening transatlantic cooperation on import
safety was almost complete. (Comment: the report
was completed on Thursday, May 15th and released to
the public on the ECQs website shortly thereafter.
End comment) The report has recommendations in
several product areas: motor vehicles,
pharmaceuticals, cosmetics, toys, electrical
equipment for consumer use, food and customs
procedures. One key challenge highlighted in the
report was the importance of confidentiality among
regulators, especially with respect to the
protection of confidential business information.
The U.S. import safety working group would be
providing a report on its efforts.


16. EU Consumer Safety Commissioner Meglena Kuneva
stressed the importance of information sharing,
stating her conviction that once U.S. legislation is
adopted expanding Consumer Product Safety Commission
(CPSC) authorities for external communication,
information sharing would be easier. Kuneva
implored the USG, specifically CPSC, to gain a more
thorough understanding of their rapid alert system
(RAPEX),to better understand the type of safety
information that could be shared. (This was in
reference to a comment made during Commissioner
NordQs last Brussels visit that the RAPEX system did
not contain much information useful for CPSC.) She
assured all that Commission efforts to improve
safety would not affect open trade policy. Kuneva
reminded the group that she invited Chinese Minister
Li and Commissioner Nord to Brussels in November for
a trilateral meeting to Qproperly communicate
priorities.


17. Price asked what precludes our regulators from
sharing information, for instance on product
recalls. Dudley stated that even where cooperation
is already mature and deep, such as in
pharmaceuticals and cosmetics, improvements can be
made. She pointed out that EU and Member States
need to set up mechanisms to ensure that
confidentiality is adequately protected across their
network. Some U.S. agencies lack statutory
authority to engage in more extensive information
exchange, for example CPSC. Commissioner von
Eschenbach said FDA was looking beyond its borders,
and that even if barriers existed to external
outreach, political will could overcome those
barriers and impediments.


18. Agriculture Secretary Schafer provided examples
of where international cooperation in international
organizations was complementary and at other times
counterproductive. At the international standards
setting body for food safety (aka CODEX),U.S. and
the EU agreed on aflatoxin presence levels in tree
nuts. However, the EU was also using CODEX to
export its non-science-based, non-food-safety based
policies on food labeling by recommending that CODEX
focus on specific standards for biotech food
labeling instead of sticking with the perfectly
acceptable existing CODEX language. He asserted
that TEC could help spur actions for bilateral
opportunities. Here he pointed to EU legislation on
equivalence of meat standards. The EUQs 17
exporting member states represent only 4% of US meat
imports, but 50 percent of U.S. foreign inspection
funds. Given the generally uniform EU food safety
system, and more consistent EU audit results, this
could allow the USDA to work on an EU-wide basis,
greatly reducing resource costs.


19. Verheugen agreed on TEC prospects in this area,
and suggested they consider food safety for the next
meeting. Verheugen pointed to the impacts of the
EUQs improved market surveillance efforts resulting
in sharp increases in import bans and recalls.


20. Price asked for clarification on EUQs
information sharing limitations related to
reciprocity requirements. (Note: At the HLRCF,
SANCO Deputy Director General Paola Testori
indicated that the EU could not and would not share
with the U.S. information on safety if they were not
getting what they considered Qreciprocal
information from the U.S. The conversation was
largely related to a misunderstanding of OSHAQs
responsibilities, but also related to CPSC statutory
limitations.) SANCO Director General Madelin
indicated that the European Commission has more
discretion to share information than the U.S. He
hinted that information would not be shared if not
considered reciprocal. At the same time, he stated
that safety information held by one side when it is
known that products are also imported by the other
side should be shared to avoid incident. He stated
that in his experience, when agencies trust each
other, issues get on the radar screen sooner.
Madelin mentioned that, in other cases, they could
not be confident that silence means nothing is
going on. (Madelin was referring to an incident in
which a U.S. technology company reported minute
traces of an unapproved biotech corn event in a
small amount of seed. There were no safety concerns
related to the incident and no corn is shipped to
the EU. Despite this, the USG shared the
information with the EU shortly before the
information went public, at the same time it shared
the information with major corn importers such as
Japan. SANCO had, however, learned of the event
from the company earlier, some two months after it
was reported to U.S. authorities, which is why he is
concerned that it could be difficult to report to
the European Parliament that silence from the U.S.
side means there are no problems.)


21. Commenting on MadelinQs statement, Deputy FDA
Commissioner Murray Lumpkin reminded the group that
FDA (like its EU counterparts) is prohibited by
statute from sharing trade secrets; however, FDA and
its EU counterparts, under executed confidentiality
agreements, have been sharing other non-public
information (commercial confidential, investigative,
pre-decisional, etc) for many years. In addition,
on the matter of information that has significant
public health implication, he stated that even in
the case when FDA is not sure if the product is
marketed in Europe, FDA notifies its European
counterparts anyway just to be sure.


22. Kuneva asserted that, in addition, we do not
sufficiently share third party information. She
touted the EUQs four-year young RAPEX system as a
well-built enforcement tool, complaining that US
officials preferred to go to Member States.
(Comment: Despite her reference to improved
statistics on reporting into the RAPEX system, there
is inconsistent use of this tool throughout the EU,
thus requiring communication with Member States to
get a fuller picture. End comment)


23. Referring to MadelinQs hints that some in the
U.S. were not sufficiently sharing, Dan Price asked
him to name names. During a side conversation at
the end of the session, Madelin told Price about the
biotech product incident.


24. Speaking more generally on the third party
issue, OMBQs Dudley reported that in the April
meeting between OMB and Commission, DG Enterprise
Director General Zourek suggested when analyzing
standards both sides should first look to see what
international regulations and standards are in
place. Deputy Secretary General Italianer suggested
both sides needed to discuss standards. He
indicated that the EU has done away with EU
standards for autos and instead uses
international/UN standards. FDAQs von Eschenbach
stated that the US has begun to bring China and
India into the international discussions on
harmonization of technical requirements for
registration of pharmaceuticals (ICH) and medical
devices (GHTF).


D. Regulatory Burdens


25. Treasury D/S Kimmitt asked for an update on EU
efforts to reduce regulations, although this was not
on the formal agenda. Commissioner Verheugen
described the program as part of the CommissionQs
Better Regulation efforts. He indicated that
fulfilling reporting requirements of various kinds
cost 3.5% of EU GDP and for SMEQs the cost of
complying can be as high as 10% of turnover. More
than 100 reporting requirements stem from the
Company Law alone. Seventeen Member States have
started screening administrative procedures and the
Commission is now measuring the costs of complying.
The ten actions they have taken this year saved 1.9
billion Euro. Unfortunately it is not a net savings
because in the meantime the EU is proposing other
legislation. The Commissioner offered to share any
of the details of the program with the US side.

III. Removing Barriers to Transatlantic Trade


26. The third major part of the TEC agenda was a
discussion of steps either side is taking to remove
barriers to transatlantic trade in key areas. In
summary, on the question of suppliersQ declaration
of conformity, Secretary Chao indicated the
Department of Labor would publish a new Request for
Information in the Federal Register. On poultry, by
the end of May the Commission will table a proposal
to amend two pieces of EU legislation to allow the
import of poultry meat processed using pathogen
reduction treatments (PRTs),as well as the use of
PRTs in the EU for processing poultry meat for
consumption in the EU. (Comment: EU law already
allows the use of PRTs in the processing of poultry
meat for export. End comment.) On REACH, the
Commission asserted its pragmatic approach to the
cosmetics problem would avoid immediate trade
disruption. Verheugen agreed a legislative change
was needed to provide legal certainty to industry,
but could not commit to Commission support for such
a legislative fix at this time as he cannot yet
guarantee that all Commissioners would support this.


A. Suppliers Declaration of Conformity (SDOC)


27. Verheugen indicated the issue had been on the
table since the first TEC meeting, and he was happy
to note that OSHA is willing to review its
requirement that certain electrical equipment be
tested and certified under the NRTL (Nationally
Recognized Testing Laboratories) system even where
suppliers are willing to provide their own
certifications. He hoped the request for
information (RFI) would be open soon and without a
pre-judged outcome.


28. Dan Price confirmed the U.S. understands this
issue is a high priority for the EU; the U.S.
government has given the issue a lot of attention.
Secretary Chao then reviewed the many meetings Labor
has had with the Commission and with other
stakeholders on SDOC and confirmed the plans to
release an RFI. She then outlined some of the
strengths of the NRTL system including the fact that
it is open to laboratories from all countries, it
relies on the private sector not a government
bureaucracy and it has proven effective in
delivering safety in the workplace. In considering
SDOC, Secretary Chao mentioned her concern about the
budget impact that establishing a post market
surveillance program would require and indicated
several aspects could require legislative changes.
She also wanted to better understand how EU Member
States implemented SDOC as there appear to be
different approaches in different countries. She
emphasized that its process is open and that
regulatory decisions are based on the best data, not
the volume of submissions. Finally, she offered to
talk to the Commission about other trade
facilitation issues besides SDOC. Verheugen ended
the discussion by expressing hope that OSHA would
continue the process that has started.


B. Pathogen reduction treatments (PRT) for poultry


29. Price emphasized that (despite complaints of
some about the attention paid to PRTs in the TEC),
the issue had not received undue but appropriate
attention. There is no substantive basis for what
is an effective ban on the import of U.S. poultry
meat; further, the EU had earlier agreed to lift the
ban. He thanked Verheugen for his efforts to move
this issue. He also distributed copies of a
Financial Times article (published May 12 on page 4)
on EU use of PRTs.


30. Verheugen agreed the attention to the issue was
appropriate. He expressed regret that the
Commissioner in charge of the issue [Comment:
Probably referring to DG Environment Commissioner
Dimas, but note that Commissioners Vassiliou and
Fisher-Boel, who also have a role and were not
present] was not at the TEC meeting and committed
that the Commission would adopt a proposal to amend
the two relevant pieces of legislation (Food Hygiene
and Marketing Regulations) before the end of the
month; these proposals will be with the Council and
Parliament before the Summit. He noted that the
scientific studies indicate no health concerns from
the use of PRTs, and that there are no known
environmental concerns related to use of PRTs in the
EU. That said, he commented -- as he had done in
the stakeholders meeting -- that it made no sense to
him to ban imported chicken because of possible
concerns about environmental impacts in Europe,
especially when European producers used PRTs for
exported poultry meat.


31. Verheugen expressed confidence the Council would
support the changes. The European Parliament was
less certain but based on the discussions earlier in
the day with the European members of the
Transatlantic Legislators Dialogue and a motion
passed by Parliament on the transatlantic economic
relationship, he believed the two largest political
blocks in Parliament supported the changes. He
ended his opening remarks by pointing out this issue
would not have moved without the TEC.


32. Price commented that it was inconceivable that
there would be an environmental risk in the EU from
US use of PRTs. Ambassador Schwab thanked Verheugen
but stressed that, after 12 years, real success
would only result from actually selling poultry in
the market, thus we look forward to the next step in
the process. Ambassador Schwab asked what assurance
the U.S. had that the proposal would not be blocked
by the Member States, what strategy the Commission
had for overcoming such obstacles, and what role the
Slovenian presidency would be playing in the Council
to remove this problem.


33. Price then directly asked Slovene Minister of
Economy Vizjak whether the Presidency would support
the proposed changes in Council and whether poultry
would be flowing by the next TEC meeting. The
Slovenian representative indicated Slovenia supports
the changes and would try to play a major role in
the discussions but since the discussions had not
yet started they could not speculate where other
member states were on the issue. Verheugen stressed
that Member State positions would be decided at the
highest levels, not by agriculture ministers. He
suggested the US not put too much public pressure on
the EU now as it could be counterproductive. In
terms of timing Verheugen said the solution could
possibly be in place by the next TEC meeting and
there was a high chance it would be resolved (i.e.,
chicken trade would commence) by the end of the year
and this administration.


34. At the end of the discussion a representative of
the French Ministry of Economics stated that the
Financial Times article was not accurate: France
banned PRT use in 1997 and has not used them for
exports since 2005.


C. REACH/Cosmetics


35. The U.S. delegation then raised concerns with
the EUQs new Regulation on the Review, Evaluation
and Authorization of Chemicals (REACH). Price
mentioned two sets of issues: first, the June 1
deadline affecting U.S. personal care products
(including cosmetics) exports; second, broader and
more long-term concerns with the REACH regulation
itself.


36. Price believed the cosmetics problem was
unintended but that a legislative fix was necessary.
Ambassador Schwab stated that REACH is an example of
regulation that would have benefited from closer
bilateral dialogue. She pointed to significant and
growing concerns being voiced about various aspects
of REACH including the list of candidate substances
requiring further evaluation and authorization that
could act as a Qblack listQ that creates a chilling
effect and could promote substitution to untested
chemicals, and the QOnly RepresentativeQ (OR)
provisions that put US suppliers at a disadvantage
over their EU counterparts since non-EU suppliers
must use an intermediary to register and may have to
divulge proprietary information to competitors. She
stated that impacts from REACH implementation are
broader than these few issues; implementing REACH
will be a nightmare. The estimated cost for
registering and testing a single substance is
$100,000 and there are 400 substances in a single
perfume. On cosmetics, EU ingredients for export
were grandfathered from the June 1 deadline and
receive a phase-in period; US ingredients were not
which raises national treatment concerns. More than
$2 billion in trade could be impacted by this
discriminatory treatment. She predicted there will
be other REACH issues in the future and said that
how we resolve will be an example for the TEC.


37. Verheugen responded that probably no one fully
understood REACH, including himself. The final
legislation was a complex compromise between all
three bodiesQthe Commission, the Parliament and the
Council. Trade offs during the legislative process
led to some unintended consequences. No one wanted
discrimination; no one was aware that EU ingredients
had previous chemical registration (EINECs) numbers
but US ingredients did not.


38. Unfortunately, according to the Commission Legal
Services, this aspect of REACH cannot be changed by
a simple written procedure (corrigendum) as this
would be a substantive rather than technical change
to the legislation. However, the Commission wanted
to resolve the problem and is working out a
pragmatic solution with the European Chemicals
Agency (ECHA),essentially allowing suppliers of
imported cosmetics and their ingredients to submit
partial files on June 1 and then have a longer
period of time to complete these. This should
ensure there is no risk that trade would be
disrupted. [ Comment: ECHA has not yet opined on
whether this is feasible.]


39. On the other REACH issues, Verheugen said the
candidate list and OR provisions were not
discriminatory. The candidate list would be done in
the most transparent way possible and the actual
authorization list would not come until much later,
perhaps only after 15 years. (Comment: Verheugen
seems to have missed the point. The fact that the
authorization list will not come until much later is
precisely the problem. Inclusion of a substance on
the candidate list means that it is in a sort of
limbo. Consumers may well refrain from using the
substance for fear that it eventually will be
prohibited. They may well resort to substitutes
with unproven track records. This is what is meant
by a black list effect. End comment.) He suggested
technical people on both sides get together to
discuss the other issues.


40. Price responded that we need to finalize our
understanding of the path forward. He summarized
the Commission would propose an amendment to give
the companies legal certainty on the cosmetics
issue. Verheugen stressed he would try, but could
not give that assurance because REACH is a shared
responsibility and Environment Commissioner Dimas is
against such a change. Price noted that it was
unfortunate that two Commissioners with issues
before the TEC did not attend. (Comment: Price was
referring to Dimas and Fischer Boel, who also did
not attend. End comment.)

IV. Capital Markets Integration


41. (SBU) Charlie McCreevy, Commissioner for
Internal Market and Services, began the discussion
of joint progress in capital market liberalization.
McCreevy lauded the excellent cooperation between
Treasury and the SEC with his Directorate General
for Internal Market and Services (DGMARKT) through
the five-year old Financial Markets Regulatory
Dialogue (FMRD),which predates the TEC. He said
the FMRD had made great strides in cooperation,
which were unthinkable five years ago. McCreevy
underscored how the U.S. and EU economies have
become inextricably linked, accounting for 80
percent of global capital market flows.


42. He stressed how current financial turmoil has
heightened the importance of transatlantic
cooperation, and that increased integration enhances
financial market resilience. In addition, existing
priorities must continue.


A. Progress on Accounting Equivalence:

43. McCreevy emphasized how the first TEC meeting in
all 2007 had contributed to progress on U.S.-EU
accounting convergence, based on work in the FMRD.
He noted that the SECQs action in December, 2007 to
abolish the reconciliation requirement for foreign
companies using International Financial Reporting
Standards (IFRS) as issued by the International
Accounting Standards Board (IASB) was a Qremarkable
achievementQ. McCreevey assured TEC members that the
EU is making good progress toward a reciprocal
declaration Q as outlined in the 2005 U.S. QEU
accounting QroadmapQ Q to accept U.S. Generally
Accepted Accounting Principles (GAAP) as equivalent
to IFRS, allowing U.S. firms to file in the EU
without reconciliation.


44. The Commission has received good technical
advice on this issue from the Committee of European
Securities Regulators (CESR),he noted, which issued
a recommendation in January 2008 that U.S. GAAP is
equivalent to IFRS. The Commission will issue a
proposal to this effect within a few weeks, he
continued. The Council and European Parliament will
consider the proposal, said McCreevy, and he expects
final approval by the end of 2008. This would meet
the roadmap deadline of eliminating the
reconciliation requirement by 2009.


45. McCreevy then noted the importance of also
making progress on IASB governance issues. In
particular, he underscored the need to improve the
IASBQs transparency and public accountability. He
welcomed the joint SEC, Japanese FSA, and European
Commission statement at the IOSCO meeting last fall
in Japan as providing a good basis for forward
progress. He was encouraged that the IASB had
accepted the proposal, but expressed frustration at
the pace of progress. He encouraged increased
monitoring and engagement by both sides on this
issue to encourage changes in the IASBQs process.


46. Treasury Deputy Secretary Kimmitt complimented
McCreevy in response on the good bilateral
cooperation in both the FMRD and TEC. He stressed
that such cooperation has been vital to addressing
market confidence during the current financial
crisis. Kimmitt noted that the strong consensus
within the Financial Stability Forum (FSF) on how to
address policy issues raised by the financial crisis
closely tracked the analysis and recommendations in
the PresidentQs Working Group on Financial Markets
and the European CommissionQs own work in this area.
Kimmitt also praised SEC work with the Commission on
accounting convergence and issues around mutual
recognition of securities regimes, saying this had
been moving swiftly.


47. SEC Commissioner Paul Atkins likewise stressed
the strength of transatlantic cooperation on
security regulatory issues. He noted that open
issues include the funding and governance of the
IASB. In addition, he noted that more work remains
to be done regarding consistency of application of
IASB standards. He agreed that the SECQs decision
to eliminate the reconciliation requirement between
IFRS and US GAAP would have been unbelievable five
years ago. He noted the March 2008 CESR
recommendation that the EU make an equivalence
determination. Atkins also noted that MEPS seem
still confused by the U.S. process, with some
seeming to think that Congressional action might be
needed to make the SECs regulation on IFRS final.
He clarified that no Congressional action was needed
in this area and expressed an interest in helping
the Commission with outreach to the European
Parliament if necessary in order to facilitate
approval of the CommissionQs draft regulation.


48. Atkins then asked McCreevy for a more specific
timeline for EU action. McCreevy reiterated that
the Commission would issue a proposed equivalence
regulation within weeks, affirming that he fully
expects it will be approved by the Council and
European Parliament this year (despite some MEP
concerns). McCreevy underscored his personal
commitment to obtaining approval from Parliament and
the Member States in the Council.


B. Mutual Recognition of Comparable Regimes for
Brokers


49. McCreevy noted that work on mutual recognition
of securities regimes is proceeding well. He
recalled his joint statement with SEC Chairman Chris
Cox in February 2008 defining a process to engage in
discussions regarding mutual recognition of U.S. and
EU Member State securities regimes in mid-2008. He
stressed that the aim of such discussions should be
a system based on mutual trust, greater coordination
between regulators, and transparency. He welcomed
the Qunilateral opennessQ associated with the SEC
proposal to provide expanded exemptive relief for
certain foreign brokers as an update to rule 15a-6
for large investors. However, he noted the
ultimate, long-term goal of these discussions should
be regulatory convergence.


50. Atkins underscored the SECs commitment to
moving forward on a broad range of mutual
recognition issues. He explained that the SEC is
also in talks with Australia and Canada on mutual
recognition, noting it might conclude an agreement
first with one of these countries before the EU. He
noted skepticism exists in the U.S. Senate regarding
broad mutual recognition agreements in the
securities area and that much work can proceed using
the SECQs broad exemptive authority.


C. Insurance Issues


51. McCreevy then turned to address reinsurance
collateral, which he recognized was a thorny issue
in the U.S. He explained that currently EU
reinsurers in the U.S. must post 100 percent
collateral against their gross liabilities. In
contrast, U.S. reinsurers do not face such a
requirement. He estimated that the cost of the U.S.
requirement to EU firms was $500 million/year. He
indicated that his goal was to achieve mutual
recognition for insurance supervisory systems as
well, but that reform in the United States was a
necessary precondition for such agreement. He
expressed sympathy for the difficulty the Treasury
Department faces in addressing this issue, since
insurance regulation authority is reserved to U.S.
states. He welcomed, therefore, the U.S. Blueprint
for Financial Regulatory Reform, which proposes an
optional federal charter for insurance and an
interim Treasury insurance office to with authority
to engage internationally. He lauded a legislative
proposal in the Congress that would establish an
Office of Insurance Oversight in the Treasury
Department as part of the solution. He also
expressed frustration with the difficulties the
Commission sometimes faces in engaging the National
Association of Insurance Commissioners.


52. Kimmitt noted that significant progress had been
made in other areas of the Financial Markets
Regulatory Dialogue because the relevant parties in
the United States had authority to address the
issue.


53. He appreciated the CommissionerQs understanding
of the challenges created by the state-based
insurance regulatory structure. Regarding
reinsurance collateral, he noted that the U.S. is
open to foreign insurers, which have 85 percent of
the U.S. reinsurance market, so this is not a market
access issue.


54. Kimmitt then noted that there are actually two
different insurance issues on the TEC agenda:
reinsurance collateral and the EUQs proposed
treatment of the insurance companies from third
countries that do not have consolidated home country
supervision (the proposed Solvency 2 directive).
Solvency 2 would require an equivalence
determination; it seems likely that the 50 state
systems in the U.S. would not receive such a
determination, which could significantly affect the
ability of U.S. insurance firms to operate on an
equal footing in the EU.


55. Kimmitt expressed an interest in working with
the Commission at the tactical level to address
Solvency 2 and other insurance issues in the FMRD.
He noted that one key aspect of the Treasurys
proposed blueprint would be to create an optional
federal charter. An intermediate step would be to
create an office of federal insurance oversight
inside the Treasury Department, and noted that, as
Commissioner McCreevy had observed, Mr. Kanjorski
and Ms. Pryce in the U.S. House of Representatives
had already introduced a bill to make this a
reality. He indicated that the U.S. and the EU
would need to work closely together to avoid a
potentially distracting and counterproductive fight
over Solvency 2. He also noted that in an earlier
meeting with the Commissioner that day, they had
agreed to work together and that the Treasury
Department would be sending specific ideas on how to
address the issues raised by Solvency 2.


V. Keeping our Investment Regimes Open


56. Trade Commissioner Peter Mandelson opened this
part of the meeting by underscoring the importance
of working together to promote open investment
regimes, calling this a Qkey economic issue for the
coming decade.Q He stressed that foreign direct
investment (FDI) is an important driver for the
competitiveness of both the EU and U.S. economies,
noting that FDI is critical to support our supply
chains in foreign countries. There is nothing to
gain, Mandelson continued, from tit for tat
policies restricting foreign investment. He
underscored that there is no international regime
backstopping global openness to investment, pointing
out it is subject to political pressure within
countries.


57. National security reviews of investment have a
legitimate place, Mandelson said, but should not be
overused. In this regard, the EU and U.S. must
avoid applying a double standard to Qstate backed
investment. National security restrictions on
investment should be Qcarefully calibrated
exceptions to a strong rule,Q he explained.


58. Mandelson said the U.S.-EU Open Investment
Statement adopted by the TEC was strong but should
be backed up with concrete steps. He identified two
specific EU concerns regarding the U.S: tax code
requirements for EU firms and the negative political
response to the recent Northrup-EADS military tanker
contract announcement. The latter must be upheld on
a technical basis, he declared, noting that we must
apply our standards consistently and objectively.


59. Commissioner McCreevy underscored the EUs
treaty commitments to open investment with limited
exceptions. He then noted that some Member States
are seeking to expand these exceptions to strategic
sectors. He stressed that DG MARKT examines all EU
legislation on investment to ensure compliance with
EU rules, and underscored that the Barroso
Commissions is more pro open-investment than prior
Commissions. In his opinion, efforts to create an
EU-level security


60. review process would generate a system based on
the lowest common denominator, which would not be a
good thing. He considered that protectionist
pressure may have eased somewhat over the last year,
saying it is an ongoing, fluctuating problem.


61. Dan Price responded that U.S. foreign affiliate
sales overseas dwarf U.S. exports, so it is critical
to get investment rules right. He encouraged the
Commission to remember its roots in the pioneering
bilateral investment treaties with Germany, the
Netherlands, and the U.K. Those treaties created
only narrow exceptions to the principle of national
treatment and open investment markets to address
national security issues. He encouraged the EU to
lead by example globally, particularly given
developments in Japan, Canada, and France.


62. Kimmitt said that a free flow of capital based
on investment policies is the lubricant of the
global economy. He highlighted how establishment of
the U.S.-EU Investment Dialogue last fall was an
early TEC success that has already borne fruit in
improving legislative proposals in Germany. He
noted excellent U.S.-EU cooperation in developing
policy toward Sovereign Wealth Funds (SWFs) through
the OECD, and he congratulated the Commission on its
recent communication regarding SWFs. Even though it
is important for SWFs to develop best practices in
consultation with the IMF, Kimmitt noted that the
U.S., EU, and other recipient countries also have
responsibilities to promote basic principles of
openness, transparency, nondiscrimination and
predictability regarding investment policy. He
underscored the importance of the first ever joint
statement between the U.S and the EU on this topic
as a good foundation on which to build. He suggested
that in the next year the U.S. discussion will
likely shift to investment by State Owned
Enterprises (SOEs),which raise more complex issues
than those of SWFs.


63. Much more work is needed on maintaining open
investment climates, Kimmitt underscored, noting
recent actions by Japan and Canada to block FDI. We
need to publicize better the benefits of open
investment, such as the three to four million U.S.
jobs created by EU FDI. When EU business leaders
are in the U.S., he said, they should visit not just
FDI sites around the country and the Administration,
but also Congress to highlight their role in
providing jobs and other benefits associated with
FDI.

VI. Sustaining the Work of the TEC


64. Verheugen then moved on to discussing next steps
for the TEC. He noted that there are good reasons
to hold the next meeting in Washington in October,
before the U.S. elections; Price agreed. Kimmitt
suggested that the TEC should discuss an agenda for
the next year or two, to show continuity across
administrations. Verheugen agreed, saying that
stakeholders have asked for an 18 month-two year
workplan. Kimmitt said that TEC members should ask
stakeholders for their suggestions on such a
workplan; Verheugen said this was a great idea.

VII. Finalizing the Joint Statement and Progress
Report


65. Price and Verheugen then discussed finalizing
the TEC joint statement and progress report.
Verheugen suggested the documents needed some work,
including additional language to provide greater
political emphasis, before release. Price expressed
serious concern about having the concluding TEC
session with stakeholders and a press conference
without having finalized the Joint Statement. He
asked if there were any issues still open that the
TEC itself should resolve. When told yes, he asked
that the negotiators be brought into the room to
report to the TEC plenary.


66. The first unresolved issue that was addressed
concerned the language in the Progress Report on
poultry. Price pushed hard for recognizing in the
document that the scientific reports the Commission
had received in March concluded that the use of PRTs
was safe. Verheugen was clearly concerned about
making such a flat statement, saying that while it
applied to consumer consumption of the poultry, the
environmental studies left open that some problems
might arise. He also noted during the at times
animated discussion that he was facing
interference (presumably from the French presidency
representative) and even that the staff of President
Barroso was telling him not to go any farther.
Price wryly commented that the Commission was
unlikely to adopt a proposal that would allow for
something that was unsafe, and then proposed that
instead the Progress Report note that the studies
showed there was no scientific basis for continuing
the ban on imported poultry. A commission staffer
noted the ban was on the use of PRTs, not on imports
per se. After conferring with each of the
Commissioners present (Mandelson for Trade, Kuneva
for Consumer Safety, McCreevy for Internal Market,
and Kovacs for Customs and Taxation),Verheugen
agreed to this language.


67. A second issue related to poultry was related to
the wording of an explicit commitment from the
Commission to take active steps with the Council
and the Parliament to get the proposal enacted
before the next TEC meeting in the Fall. This was
ultimately agreed.


68. The third issue addressed concerned REACH and
cosmetics, and specifically the nature of the
commitment the Commission could enter into to
describe what the Commission would do, in addition
to its administrative measures, to provide legal
certainty for imported products. Verheugen again
reiterated that he could not bind the Commission to
seek an amendment to REACH, but that he would
advocate this. The language ultimately agreed was
softer than this, but indicates a clear commitment
not to allow REACH to disrupt trade in these
products.


69. Finally, Kovacs asked to make sure that the
language about the EUs concerns about the U.S.
legislative requirement for 100 pct scanning of
containerized cargo imports was sufficiently strong.
He agreed to the language after it was read to him,
and seemed pleased that the TEC had agreed this
issue would be addressed in more detail at the next
TEC meeting.


70. The Progress Report was then closed (pending
some additional political language for the opening).
Price and Verheugen both agreed that the Joint
Statement should be aligned with the language that
had just been agreed.


71. Price and Verheugen thanked participants for an
incredibly worthwhile meeting. Price said the TEC
is proving its worth as a key problem-solving
mechanism; Verheugen agreed.

VIII. Other TEC-Related Outcomes


72. While the TEC discussed poultry, SDOC, REACH,
capital markets and investment, the process leading
to the TEC, and discussions on the margins of it,
brought additional accomplishments. Among other
things, Verheugen agreed to chair on the EU side a
Council-level video-conference of climate change and
energy issues. In addition, the two sides agreed to
bring experts together to get an overview of the
various sanitary and phytosanitary issues each has
with the other.

Comment


73. Indeed, the TEC has proved its worth if in fact
the poultry issue Q a stumbling block in U.S.-EU
trade relations effectively since the Chicken Wars
of the early 1960s is finally resolved. The
Framework and the TEC provide a vehicle for
identifying priority issues to address to promote
transatlantic economic integration, providing a
political profile to those issues, shining a bright
spotlight on the work experts are undertaking to
address them, and ultimately, if necessary, actually
resolving them at the political level. This can be
particularly important where the issues are long-
term such as ensuring greater coherence in the way
the U.S. and EU approach regulation and where each
side has long-cherished approaches that
(intentionally or unintentionally) impede trade.
Further, the opportunity to have a principals-only
inter-agency/inter-services discussion of our
respective approaches to such strategic economic
policy issues as China, Russia, protectionism and
investment provides policy makers valuable insight
into how the other side perceives these issues. All
these advantages should help assure the TECs
continued viability through the 2008 change in
Administration in the United States and change in
the Commission in 2009.

Murray