If U.S.-Canada Cooperation Is Good Idea, Why Aren't More Federal Agencies Doing It?

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By Cheryl Bolen

Oct. 10 — President Barack Obama ordered it, top regulators swear by it and businesses could save billions of dollars from it. But when it comes to regulatory cooperation with Canada, some agencies just aren't getting it.

A sweeping public pronouncement on Feb. 4, 2011, by Obama and Canadian Prime Minister Stephen Harper set the stage for a new era of regulatory cooperation between the two countries, to be implemented by the newly created U.S.-Canada Regulatory Cooperation Council (RCC)

From the start, the RCC was directed to promote economic growth, job creation and benefits to consumers and businesses through increased regulatory transparency and coordination.

So what happened?

Sometimes it works. And many stakeholders say that recognition of the RCC is building, not waning. However, there may be no better example of a rule crying out for coordination than newly proposed standards for rail tank cars carrying crude oil. 

New Rules Wanted Fast

With a growing domestic oil supply, transportation by rail has increased dramatically. Industry estimates the volume of crude oil carried by rail increased 423 percent between 2011 and 2012. Crude oil production from the Bakken region of the Williston Basin in eastern Montana, parts of North Dakota and South Dakota and the southern portion of Saskatchewan province in Canada, is more than 1 million barrels per day.

But on July 6, 2013, a catastrophic accident in Lac-Megantic, outside Quebec, Canada, occurred when a freight train transporting crude oil derailed, causing an explosion and the deaths of 47 people. Also in 2013, trains carrying crude oil derailed in North Dakota and Alabama, and more recently in Lynchburg, Va.

Following this series of high-profile accidents, politicians on both sides of the border called out for stronger safety measures for rail cars carrying crude oil. And they wanted the new rules fast.

On July 23, U.S. Transportation Secretary Anthony Foxx unveiled proposed new operational requirements for certain trains transporting flammable liquids as well as improvements in tank car standards.

Just days earlier on July 18, Transport Canada proposed new standards for the manufacture of rail tank cars coming into ethanol and crude oil service, as well as a proposed retrofit schedule for older tank cars. But the U.S. and Canadian standards are different.

On its website, Transport Canada said it remains committed to a North American solution for tank car standards and continues to monitor the U.S. regulatory process. “Transport Canada has shared this proposal with U.S. regulators and will consider all their comments,” it said.

Transportation Talking

For many months, the Department of Transportation has worked closely with its Canadian counterparts on improving the safe transportation of crude oil by rail, a department spokeswoman said in an e-mail Oct. 10 to Bloomberg BNA.

Deputy Secretary of Transportation Victor Mendez regularly speaks with his Transport Canada counterpart to discuss crude by rail and other transportation safety issues, the spokeswoman said.

On Sept. 30 and Oct. 1, representatives from Transport Canada's Transport of Dangerous Goods Directorate met with Pipeline and Hazardous Materials Safety Administration (PHMSA) and Federal Railroad Administration staff to review actions undertaken by each country to date to address the safe transport of crude oil by rail, she said.

“The meeting afforded an opportunity for discussion on issues relevant to tank car specifications, rail operational conditions, and transitional periods for prospective amendments that may be considered by either country,” the spokeswoman said.

In addition, Transport Canada provided an overview of the comments received on their recently published explanatory note, which is a precursor to their soon-to-be-published notice, and PHMSA provided an overview of its recently published notice and comments received to date.

“Canada and the U.S. continue to focus on regulatory cooperation and where feasible, the sharing of technical and other data,” the spokeswoman said.

American Railroads Raise Red Flag

In written comments submitted Sept. 30 on the proposed U.S. rule, the Association of American Railroads (AAR) emphasized, among other concerns, that PHMSA and Transport Canada must coordinate their tank car standards.

“PHMSA's proposed regulatory program bears little resemblance to Transport Canada's proposal,” AAR said. “It is critical that Canadian and U.S. tank car standards be very similar, if not identical,” it said.

There are myriad trains crossing the border in each direction every day with significant crude oil traffic, AAR said. It isn't in the public interest, either from a safety or economic perspective, to implement tank car standards that will frustrate commerce at the border, it said.

In the RCC's initial action plan released in 2011, it specified that one of its objectives was to better align Canadian and U.S. standards on the containment of dangerous goods, while another objective was to align rail safety standards, AAR said.

“If Canada and the U.S. do not align their standards, costs and service could be impacted,” AAR said.

Further, for PHMSA and Transport Canada to proceed along the different paths they have proposed would be antithetical to administration policy in both countries, AAR said.

Rule Alignment Is Critical

Michael Fitzpatrick, a founder of the RCC while at the White House and now following the tank car rulemaking as head of regulatory advocacy at General Electric Co., said that moving forward, he expects there will be substantial coordination between the U.S. and Canada on this rule.

Fitzpatrick said he believes it is now apparent to regulators on both sides of the border, to the prime minister's office and to the White House, from the filed written comments and multiple discussions with stakeholders, that the Canadian and U.S. regulations must align. “To end the process with regulations that do not align, would, in many people's eyes, be a failure of the spirit and the letter of the RCC effort,” he said.

“These regulations are, in my view, the paradigm for regulatory cooperation and alignment,” Fitzpatrick said. “You have two close allies with sophisticated regulatory systems, whose regulators do communicate in this area,” he said.

The relatively new issues presented in the rule are being confronted by regulators at the same time, and there is by all indications sufficient discretion on each side to handle the issue in an aligned way, Fitzpatrick said. The rail system at issue is, quite literally the same, as are the entities subject to regulation, the locomotives pulling the trains, the tank cars carrying the commodities, and the commodities themselves, he said.

Danger of 'Franken-Rule.'

Moreover, the danger of misalignment is real, Fitzpatrick said.

Because the two countries' rails systems are integrated, the railroads, tank car manufacturers, and shippers must be able to operate seamlessly in both countries with the same assets, Fitzpatrick said. If the rules are misaligned, the regulated entities will have to comply with the most stringent features of each regulation in order to operate across the border, he said.

This would not be good government, because the expectation is that each of these rules will be designed to be a balanced and contiguous whole, with careful consideration of the interaction of the rules' many components addressing rail operations and tank car design, Fitzpatrick said.

“And if, instead, regulated entities are having to pick and choose the most stringent components of each rule with which to comply, what you've created in essence is a Franken-rule, and not a coherent, efficient and effective regulatory approach from either a cost or safety perspective,” he said.

“The huge opportunities for the people of Canada and the U.S. presented by a robust and integrated North American energy market will either be advanced through harmonized, reasonable and well-designed safety regulations, or hobbled through unnecessary misalignment,” Fitzpatrick said.

Extreme Inconsistency

Mathew Wilson, vice president, national policy at the Canadian Manufacturers & Exporters, said the ability of regulators to remain consistent is critical to the RCC's efforts.

In some cases, regulators talk and coordinate from the beginning or research stage of the rulemaking process, Wilson said. “That does happen in some cases—the auto sector now is moving much closer to that type of an arrangement,” he said. “But in other areas it never happens.”

For example, the U.S. Food and Drug Administration issued a new food labeling guide in January 2013, while Canada issued its guide about six months ago, Wilson said. “Two completely different things,” he said. “That has a huge impact” on companies that produce packaged food products, he said.

“The RCC movement is really well ingrained in some areas and not even on the radar in other areas,” Wilson said. “And it's very frustrating to companies,” he said.

The council has spent a lot of time talking about the need to institutionalize regulatory cooperation and ensure it can survive shocks to the system, Wilson said. “Because right now, it may happen, it may not; it's more of a personality issue and how well the regulators get along than it is a necessity and a process,” he said.

Twofold Solution

Adam Schlosser, director of the Center for Global Regulatory Cooperation at the U.S. Chamber of Commerce, said regulators right now do not have the incentive to coordinate unless the heads of their agencies or political leaders tell them it is a priority.

Whenever there is a new action plan or a new initiative for increased cooperation, there are some changes and more cooperation, but after a while, the momentum slows and regulators return to their same routines, Schlosser said. Some regulators, such as Jim Jones, assistant administrator for the Office of Chemical Safety and Pollution Prevention at the Environmental Protection Agency, are extremely dedicated, but there's no consistency across all agencies, he said.

“So you have some agencies that are way out ahead and doing great things, and you have other ones that are not moving very fast because no one is telling them they have to cooperate,” Schlosser said. “So one of the main things we need to do to make sure that regulatory cooperation works broadly is to ensure consistency,” he said.

The solution is twofold, Schlosser said. First, ensuring consistency through top-down leadership to let regulators know cooperation is important. Second, some members of Congress and in the Canadian parliament need to be better educated about this effort, he said.

“While it's growing in Canada, especially, in the U.S. it's somewhat obscure,” Schlosser said. “You talk regulation and often people's eyes glaze over and they don't realize how important it is. So I think it's a two-prong approach that we need to ensure success long term,” he said.

Overflow Meeting

The RCC met in Washington Oct. 8 with regulators and stakeholders from the U.S. and Canada. More than 400 attendees packed a conference and overflow room at the Canadian embassy, hearing first from Erin O'Toole, the parliamentary secretary to the minister of international trade of Canada.

“Trade, and the efficiencies that come with free trade, are not materialized unless there's collaboration on the front of the border and on regulatory collaboration and cooperation,” O'Toole said.

Canada is the largest direct export market for 39 of the 50 states, with $2 billion in goods and services trading on a daily basis, O'Toole said. Canada is the largest export market for U.S. services and the leading energy supplier to the U.S., with strong safeguards and environmental standards, he said.

In their initial joint statement in 2011, Obama and Harper said the U.S. and Canada are committed to working through the RCC to provide early notice of regulations with potential effects across their shared border, to strengthen the analytic basis of regulations and to help make regulations more compatible.

“Both countries are committed to evidence-based, predictable, cost-effective regulatory approaches carefully targeted to enable businesses to continue to innovate and grow,” the statement said.

White House Support

In remarks to the RCC meeting, Howard Shelanski, the administration's top regulator and head of the Office of Information and Regulatory Affairs, reiterated the strong commitment of the White House to international regulatory cooperation.

“Our bilateral work with Canada in particular presents a tremendous opportunity to expand and advance our economic relationship,” Shelanski said.

It also advances the objectives that Obama set out in May 2012 in Executive Order No. 13,609, promoting international regulatory cooperation, Shelanski said. That order explicitly tied regulatory cooperation with broader economic and regulatory policy objectives, he said.

In August, the Office of Management and Budget released a new Joint Forward Plan by the RCC, calling it a “significant pivot point” in the two countries' regulatory relationship.

The most important achievement embedded in the forward plan is that regulatory cooperation has to be “more” going forward than simply aligning particular rules, Shelanski said.

Building a Better Framework

To be sure, alignment of rules can be important, Shelanski said. “But a rule-by-rule approach over the long term is neither practicable or sufficiently scalable to meet our ever-changing regulatory environments,” he said.

Instead, the forward plan sets out a broad approach to building cooperative frameworks to achieve economic and policy goals in a more dynamic and systematic manner, Shelanski said.

Businesses now work within a variety of regulatory frameworks and have to meet a variety of regulatory requirements, Shelanski said. A key premise of the RCC is that, consistent with sound regulatory principles, dynamic approaches to international regulatory cooperation can help businesses grow more efficiently over time, he said.

To contact the reporter on this story: Cheryl Bolen in Washington at cbolen@bna.com

To contact the editor responsible for this story: Heather Rothman at hrothman@bna.com