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The United States and Europe: Regulatory Cooperation and Conversion
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by Clifford Sobel, U.S. Ambassador to the Netherlands 24 USA

Remarks by Clifford M. Sobel, Ambassador of the U.S. to the Netherlands to the International Law and Practice Association of the New York State Bar Association Amsterdam, October 26, 2003

It’s entirely appropriate that the New York State Bar Association has chosen to hold a conference on ‘National Legislation and Extraterritorial Effects’ here in the Netherlands, the home of so many international legal institutions.

What I want to review with you today is cross-border regulation, especially as it concerns business. My focus will be the growth of regulatory cooperation, particularly between the US and Europe. Conventional wisdom says that these are divisive issues. Let me propose that the reality is just the opposite.

Cross-border regulatory issues, such as corporate governance, are in fact leading to more harmonization in our regulatory approaches, which not only serves the common interests of the US and Europe, but benefits the entire world.

As all of you know in today’s integrated world economy, it’s not surprising that regulatory issues in 1 country often spill over into other jurisdictions. And sometimes differing national authorities will take different approaches towards those issues, based on their own traditions, regulatory philosophies, and judicial systems. These differences in regulatory approach sometimes spark controversies, which make good headlines.

As the American ambassador, I am often asked how concerned or pessimistic I am. I reject the whole premise of such questions. I am an optimist, and I’m confident that we can and will resolve these regulatory issues, for 3 primary reasons.

First, we’ve done so before. As a colleague of mine told the Congress last week, ‘We too often overlook the progress that we’ve made when we focus our attention on the issues that still divide us.’ While it doesn’t make headlines, the vast majority of the trade and investment between the US and Europe is without controversy.

Secondly, whatever our differences in history and tradition, we’re working toward the same goals – whether in corporate governance or consumer safety or antitrust regulation. Whether we’re trying to promote corporate integrity, protect consumers, or ensure fair competition, our differences boil down to differences in tactics. And those can be worked out through negotiation and compromise.

Finally, and perhaps most importantly, both the US and Europe simply have too much at stake to let our differences go unresolved. Let me give you a few facts and figures to illustrate how intertwined our economies really are.

  • 25% of US foreign trade is with Europe – over $400bn.
  • 50% of US foreign direct investment abroad is in Europe – some $800 bn.
  • 75% of foreign investment in the US comes from Europe – roughly a trillion dollars.
  • Finally, 58% of total US corporate assets abroad are located in Europe – some $3.0 trillion dollars, while Europeans control $3.3 trillion of corporate assets in the US.
All this transatlantic investment generates jobs. Over 4 million Europeans work directly for US companies, while almost 4 and a half million Americans work for European companies.

I’m confident that, with this degree of mutual dependence, we can and will find the ways to resolve our differences!

Special Role of the Netherlands

When you talk about trade, investment, and mutual prosperity, remember that you are in the Netherlands, a country that is a prime example of the benefits of global economic involvement.

I hope that you will have time to get out to see this beautiful, dynamic country. Take a walking tour, a boat ride on the canals, maybe a trip into the countryside before you return to the US.

Some things you’ll see – like the Netherlands’ diverse, multicultural population – will remind you of this country’s high level of involvement in the world economy.

That’s a tradition that goes back a long way, in fact – at least to the 17th century, when the Dutch became one of the world’s leading trading nations, and when many of the mansions that line Amsterdam’s canals were built. Less visible is the fact that this tradition continues.

I frequently hear from other Ambassadors that this nation of only 16m people is the 2nd or 3rd largest foreign investor in their countries. This was confirmed to me only this week when I met with the new Russian and Chinese ambassadors.

That’s true with the US as well – where the Netherlands is the 3rd largest foreign investor (after UK and France), with $155bn in direct investment.

Conversely, the Netherlands is the 3rd largest destination for US foreign investment, behind only the UK and Canada, and more than twice the level of US investment in either Germany or Japan (NL - $145bn, Ger - $65bn, Jap - $66bn).

In fact, as integrated as we are with Mexico after NAFTA, US companies have invested 2-and-a-half times as much in the Netherlands as in Mexico ($145 vs. 58 bn)

Corporate Governance and Regulatory Convergence

Clearly, this growing economic interdependence has created a range of legal and regulatory issues that need to be developed and harmonized, which is why it is so important to have conferences like the one you are attending today.

Take corporate governance. Enron, WorldCom, and other corporate scandals in the US raised serious questions about the integrity of our financial markets and the reliability of the information provided to investors. As a result, last year the President laid out a 10-point plan to improve corporate responsibility and improve shareholder protection, which led to Sarbanes-Oxley.

We also set up a corporate fraud task force and significantly increased the SEC’s enforcement staff. The result is that we have a new set of rules, requirements, and enforcement mechanisms – all in keeping with the traditional US approach of a rule-based, enforcement-backed system.

I don’t want to get into the various legal issues raised by Sarbanes-Oxley and their cross-border implications; I know that there are many here today who are far more qualified than I am to do that. But I do recall the outcry that greeted the legislation on this side of the Atlantic a year ago.

Not only were objections raised as to the specifics of the law, such as the obligation for CEOs to personally certify their company’s accounts. It was also seen in some quarters as an attempt by the US to ramrod our own approach into different regulatory environments.

One European corporate governance expert said that Sarbanes-Oxley was “like using a bulldozer to export corporate governance rules.” In fact, Frits Bolkestein, the EU official in charge of these issues (who’s from the Netherlands), wrote to the SEC complaining about Sarbanes-Oxley’s “unnecessary extraterritorial consequences” and the “unnecessary difficulties” for European companies it would cause. A year later, I find that much of the passion that Sarbanes-Oxley stirred up in Europe has subsided and that we’ve moved to the phase of making the law work.

We’ve had a year full of dialogue between American and European officials in which a lot of the apprehensions and misconceptions that were expressed a year ago have been cleared up.

Moreover, and more importantly, not only are people finding that Sarbanes-Oxley is workable, they’re also realizing that it’s stimulated corporate governance reform here, as well.

In the Netherlands, the debate on corporate governance has shifted to the so-called “Tabaksblatt recommendations,” which is a proposed corporate governance code drafted by a committee of experts under the chairmanship of Morris Tabaksblatt the former chairman of Unilever. The code deals with such issues as:
  • The relation between the management board, which has day-to-day operating responsibility, and the supervisory board; an interesting 2-tier concept.
  • Compensation policy, especially for management – which I can assure all of you is a hot issue here!;
  • The independence of the supervisory board, and its responsibilities with regard to the external auditors;
  • And finally, it is focused on increasing the voice and influence of the shareholders; and improving financial reporting.
I don’t want to dwell on the details of the Tabaksblatt recommendations. But I would like to stress that, although the code will be consistent with the traditional self-regulatory, principles-based Dutch approach to corporate governance, it will also incorporate, as a legal requirement, what’s called the “comply or explain” principle – a requirement that companies must either comply with the code or publicly explain any deviation from it. That, as Mr Tabaksblatt has explained, is meant to give it some teeth.

Meanwhile, in our country, even while we’ve added rules and tightened enforcement, there’s also been a recognition that simply toughening up our rules will not restore the credibility and public confidence that our financial system relies upon.

In short, if corporate governance in the US is to be improved, what we need is not just more rules but more integrity, a restoration of what SEC Chairman Bill Donaldson calls the “moral DNA” of a company.

As he told the Economic Club of New York last May, “As we move past Sarbanes-Oxley and the requirements, rules, and regulations that have come in its wake, it’s essential that corporate boards look beyond the letter of the law and be ever mindful of the spirit of the reforms.”

So, while in the Netherlands you see the need for more enforcement in the US we recognize that rules are not enough, that ethics, integrity, transparency, accountability, adherence to principle – self-regulation, if you will – is also a necessary part of corporate governance reform. In short, while our approaches to corporate governance must necessarily start from our distinct legal and regulatory traditions, our common search for improving corporate governance allows us to see virtue in the other’s perspective.

And as we both, on each side of the Atlantic, work to improve corporate integrity, I hope that we take care not to stifle the entrepreneurial spirit that is the driving force of the world economy.

Speaking as someone with a business background, I think that smothering that innovative spirit with an excess of regulation would be a tragedy in its own way less visible perhaps, than our recent corporate scandals, but still a drain on shareholder value.

More Regulatory Convergence

I could cite other examples of what I might call this “regulatory convergence,” because, in a global market, regulatory issues are clearly not a one-way street.

What we’ve seen evolve over the past few years is that, while the US is the world’s largest economy, we have to be good listeners as well.

It’s clear that the EU will play a very important role with the US and other countries in resolving, updating, and developing a convergence in the regulatory environment.

A good example is antitrust. The former CEO of General Electric knows all too well, from his proposed acquisition of Honeywell, that the European Commission has an important role to play in fashioning antitrust policy. And, you can be sure, Microsoft has its eyes on Europe and its regulators also. Only last week, Bill Gates visited the Netherlands but also paid a visit to Brussels.

These issues illustrate that, while we may disagree on tactics, the US and Europe share the same vision, and are working together to achieve common goals -- whether in product standards, pharmaceuticals regulation, or the protection of the food supply.

In evaluating Sarbanes-Oxley, or other approaches to regulatory reform, we need to avoid hasty judgments and wait to see how these reforms work in practice. In the case of Sarbanes-Oxley, we need to remember that it has only been in effect for a year, and that achieving a significant change not only in adherence to rules but in attitudes will take some time.

So I remain an optimist. I believe, as the Dutch say, in a step by step process, in which our huge mutual stake in each other’s prosperity will lead us to continue to work together to reach acceptable solutions.

And when we do resolve our differences, it resonates far beyond the US-European relationship. Regulatory cooperation between the US and the EU sets the benchmark for sound rule-making in the rest of the world. That kind of agreement benefits real people – entrepreneurs, farmers, and workers – in developing countries, who aspire to participate in the global economy.


As we all know, this has been a difficult year for transatlantic relations. But I am confident that, whatever the issues before us, whether they are political, security-related, or economic, we can and will have the vision to work through them. That’s why I firmly believe that a split between the US and Europe is not inevitable, is not desirable, and is unacceptable – either for us or for the world at large and I reject the need for Europe to be a counterbalance.

When you look at the challenges facing the world today, who can possibly believe that the US and Europe do not have to work together? As one of my colleagues likes to say, “What divides us makes headlines, what unites us makes progress.”

Look at Iran. Just last Tuesday, Iran agreed to suspend its uranium enrichment program and cooperate fully with the UN nuclear agency, a step that followed the united front presented by the US and its European allies. Hopefully, Iran’s actions will match its words. But Iran is a textbook example of what can be achieved when the US and Europe work together for a common purpose.

With that kind of incentive for cooperation, I am sure that, with the aid of countries like the Netherlands, a country that has never seen a conflict between being a good Atlanticist and a good European, we can and will meet the challenges before us!!

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