EXPLANATORY MEMORANDUM

1.CONTEXT OF THE RECOMMENDATION

•Reasons for and objectives of the recommendation

On 25 July 2018, the President of the European Commission and the President of the United States of America reached agreement to launch a new phase in the trade relationship between the United States and the European Union with a view to facilitate trade and avoiding an escalation of trade tensions. The Joint Statement envisaged the establishment of an Executive Working Group to consider, inter alia, measures to reduce administrative obstacles and costs, while preserving the high level of protection of each side.

This recommendation for the opening of negotiations with the United States forms part of a larger set of actions aiming at improving cooperation between the European Union and the United States on regulatory issues and on the use of standards in support of regulations. The recommendation provides for draft negotiating directives to facilitate trade and thus increase trade flows in industrial goods between the European Union and the United States through a reduction of the costs of conformity assessment, in a reciprocal and balanced manner.

The EU and US are the largest and most integrated economies in the world, with a long, shared history of trade and a similar rate of economic development. The US is the main export destination of EU exports in industrial goods and is the second largest exporter of industrial goods to the EU (after China). EU-US trade in goods amounted to EUR 633 billion in 2017, composed mostly of industrial products (EUR 598 billion, mostly composed of EUR 166 billion trade in machinery and equipment). Around 4.7 million EU jobs are associated with production for exports to the US. Industrial goods account for most of our trade in goods with the US (94 % of EU exports and 95 % of imports). EU-US trade in goods has been growing consistently over the last 10 years. In light of these important trade flows, economic operators on both sides of the Atlantic stand to benefit greatly from the elimination of duplication of testing, inspection and certification requirements, thereby reducing the costs for companies to access our respective markets.

The European Union and the United States have their respective practices of conformity assessment to ensure that manufacturers can only place a product on the market when it meets all the applicable requirements to ensure that unsafe or otherwise non-compliant products do not find their way to their respective markets. These may include testing, inspection and certification. Differences in approaches to conformity assessment can result in additional costs and lengthy and complex administrative processes without necessarily improving the safety of products. In case of mandatory third party conformity assessment (approximately 70% of cases in the United States), enabling exporters to seek certification in the country of export of products to prove compliance with the applicable rules in the country of importation can facilitate trade. This possibility only exists for certain sectors under the existing mutual recognition agreement concluded between the EU and the US in 1998, which does not function properly for all of the sectors covered. Costs of conformity assessment can thus be significant for EU exports in particular in key sectors such as machinery and equipment.

The reduction in the costs of conformity assessment can bring significant economic benefits, in particular for small and medium-sized enterprises (SMEs) who are disproportionally affected by them. Given their size, it is often much harder for SMEs to cope with trade barriers than it is for larger firms. They often lack the capacity and/or resources to deal with differences in product requirements and applicable conformity assessment procedures, and struggle to find the relevant information. Therefore, a reduction in the number of barriers in relation to conformity assessment could be of particular benefit for exporting SMEs in the manufacturing industries. They are likely to gain in greater proportion from a decrease in costs of trading. This decrease in trade costs can sometimes make the difference between exporting or not.

Facilitating acceptance of conformity assessment results requires an international agreement in order to allow, upon fulfilment of the relevant requirements, the conformity assessment bodies that are not established within the territory of the EU to certify product compliance with the relevant EU legislation. This recommendation therefore proposes entering into negotiations with the US with the objective of reducing conformity assessment costs for economic operators on both sides of the Atlantic by agreeing on acceptance of results of conformity assessment carried out by conformity assessment bodies located in the territory of the exporting Party in the territory of the importing Party in accordance with the technical requirements of the latter.

•Consistency with existing policy provisions in the policy area

The scope of this recommendation is limited to the implementation of the part of the Joint Statement of 25 July 2018 to improve trade in goods through the facilitation of the acceptance of conformity assessment results while ensuring that the high level of protection is fully preserved. The objective is to facilitate trade and de-escalate trade tensions between the EU and the US and is fully consistent with the Treaty on European Union (TEU), which enshrines that the EU should encourage the integration of all countries into the world economy, including through the progressive abolition of restrictions on international trade.

•Consistency with other Union policies

The recommendation is consistent with other Union policies.

2.LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY

Legal basis

Article 207(3) and (4) first subparagraph in conjunction with Article 218(3) and (4) of the Treaty on the Functioning of the European (TFEU).

Subsidiarity (for non-exclusive competence)

According to Article 5(3) of the TEU, the subsidiarity principle does not apply in areas of exclusive EU competence. The common commercial policy is listed among the areas of exclusive competence of the Union in Article 3 of the TFEU. This policy includes the negotiation of trade agreements pursuant to, inter alia, Article 207 TFEU.

Proportionality