Ambassador Gray: People ask me how I’m breaking in here to Brussels and I say I’m glad the sun has come out. I’m doing fine. I’ve located most of the bathrooms. [Laughter].

I think that I owe something of an apology to some of you who may have heard me talk about my residence in Uccle, which is always asked about. It was purchased from a Russian oligarch who disappeared and has not been found, but he had the most secure arrangements for the house, such as bullet-proof windows,which are a great reassurance to me. [Laughter].

I’ve told this story often, much to my staff’s dismay, but I want to correct it for the record. The high point of the house, however, is that I am the beneficiary of a unique protection known as a Fourth Century door, which guards my bedroom. I didn’t have enough courage, until the second briefing, to ask: “What on earth is a Fourth Century door?” I finally got up the courage to ask “What is a Fourth Century door?” I was told that it is that door which for one-half hour, to allow you to call for help in the event of an attack, will withstand anything that could have been thrown at it in the Fourth Century. [Laughter]. I was puzzled by the Fourth. Why not the Third or the Fifth? Or maybe even more precisely the Twentieth or the Twenty-First, so as to capture developments like dynamite and what not. But no, it was a Fourth Century door, which had a certain quaint ring to it.

Then my staff, terribly concerned that I would embarrass myself really badly in public, researched this and could find no evidence of any reference to a Fourth Century door anywhere in the literature for security, and suggested that what, in fact, was happening was that I was being briefed on what, in fact, I have - which is a “forced entry” door. [Laughter].

So those of you who come to the residence I want to show you my “forced entry” door. It’s not a Fourth Century door.

My height, people have heard me talk about this. My height is Scots-related. It comes from an ancestor who was 6’8”. About the time of the Civil War, he got into a duel with Douglas, of the Lincoln-Douglas debates, who was very, very short. My uncle didn’t like dueling. Douglas said to him: “I’m giving you a choice of both weapon and place.” And my ancestor figured okay, if that’s the way you want it, “let’s do broadswords in the middle of the Potomac.”

So they got out into the Potomac River and there was no water for Mr. Douglas, who was completely under it. My ancestor went on to ridicule dueling to death in the state of North Carolina, which, by the way, you should understand has always been known was the “veil of humility between two mountains of conceit,” in case you wondered. [Laughter]. He ridiculed it to death, and I think that was a mistake because I think there is a certain finality to dueling, a clean way of resolving disputes so they don’t fester amid partisan bickering. [Laughter]. I’m reassured by this.

My staff pointed out the story of Edward Bates [Lincoln’s Attorney General]. You can read this in the latest biography of Lincoln and his senior cabinet, Doris Kearns Goodwin’s biography. Bates was one of Lincoln’s competitors and colleagues. He impulsively at one point challenged a South Carolinian to a duel. Fortunately the South Carolinian, that’s one of the “mountains of conceit,” declined, agreeing to apologize for his offensive language.

Years later, reflecting on the Southern code of dueling, Bates’ friend, Charles Gibson, maintained that as wicked as the code was, the vulgar public behavior following the demise of dueling was worse still. Quote, “The code preserved a dignity, justice, and decorum that have since been lost,” he argued, “to the great detriment of the professions, the public and the government. The present generation will think me barbarous, but I believe that some lives lost in protecting the tone of the bar and the press on which the Republic so largely depends are well spent.” I think that’s right, but I think it’s too late to bring it back. [Laughter].

Dueling, by the way, took the life of one of the key figures in our founding, Alexander Hamilton. If ever there were anyone relevant to the situation of the European Union today, it is Alexander Hamilton. He was the guiding light in the creation of our central market. Europe has done very well, but still has a ways to go, and I think everyone would be advised to go back and read Ron Chernoff’s biography of Hamilton.

He was really quite an extraordinary individual, as most of you know. He was obsessed with trying to break down the parochialism of the States to form a stronger and better economic union and he was quite successful in that quest. It’s interesting to take quotes from Jean Monnet and from Hamilton, mix them up, and see if you can guess who said what.

Hamilton’s great collaborator on the Federalist Papers was, of course, James Madison. I belong to the Federalist Society, a little group of what people think are hyper-conservative lawyers, in Washington. We had a meeting a couple of nights ago with some parliamentarians who were asking about the Federalist Society guiding mentor, who was Madison. The executive director was there from Washington, D.C. and he said “No, Madison’s not the one you should look at it, it’s Hamilton.” So just remember that.

My daughter, who is taking a course in European integration at Harvard, told me that a guest lecturer had come and lectured on Hamilton and she felt like making sure the lecturer got in touch with me or I got in touch with him. Anyway, if Harvard says it, and the Federalist Society says it, then I think Hamilton is the man you ought to look at.

He’s important not just because of what he did, but because of the role he shared with Chief Justice Marshall, both of them great admirers of President George Washington. Marshall was, even as Chief Justice, the first official biographer of George Washington and noted when he was doing his research that he was stunned to find out just how close President Washington was with Hamilton and how much he relied on him. It wasn’t just a question of personality, it was a question of policy.

Marshall is important because he took every opportunity to level the playing field with the States, to put an end to state parochialism and to advance the greater good of trying to create a common market. Gibbons v. Ogden was the first of this line of cases. He laid the groundwork for reviving the dormant Commerce Clause in a case involving tax discrimination, which has a sort of eerie resemblance to recent cases in the European courts. So I think the European courts are headed in the same direction.

Of course, the most famous recent European ruling was one where Austrian medical schools were told they couldn’t turn down German medical students. This is a decision I am sure that both Marshall and Hamilton would have greatly applauded.

The trouble now is that, even though the Single European Market is not yet finally complete and has a way to go, both sides of the Atlantic face yet a new challenge, the rise of the regulatory state, which would have been total news to Hamilton and Marshall but also to Monnet. How do we advance a regulatory framework that can manage an integrated transatlantic market in a way that allows this great relationship, this economic relationship, to continue? There’s some reference to it already.

The economic stakes are enormous. We are almost 60 percent of the world GDP. There’s $3 trillion in trade and investment across the Atlantic. Deeper economic integration would benefit both sides and so we need to worry about the non-tariff barriers that are emerging as the biggest source of potential friction. We want to make sure that neither side offers regulatory requirements that impose costs on firms and consumers without any compelling public benefit.

Why, for example, should we use different crash dummies for testing cars in the United States and in Europe? For 30 years we’ve been trying to harmonize the crash dummy. If that can’t be done, you can see how difficult it is to do some other things.

Why, for another example, do the Europeans blend ethanol, which is a rapidly growing bio-fuel, blend it with an ether called ETBE, much easier to deal with. Why does Europe go this way and we can’t use ETBE? Another question worth looking at. Our prices would come down, European exports would go up. Why is this? A short answer is we have trial lawyers and you don’t, which raises a question about tort lawyers. I’ll get into this in a little bit more detail later, but I think one of the excuses that Europe uses for not having judicial review of regulations, which is a key part of our regulatory procedure, is that it doesn’t want to have trial lawyers. I think that’s a very good excuse, but it’s a good reason if that means you don’t actually have trial lawyers. So I hope that trial lawyers aren’t introduced here. If you had the worst of both possible worlds, which is trial lawyers and no judicial review, that would be a terrible thing.

My goal is to cement the grand alliance in regulatory harmony by making a grand trade. That is, we would trade our trial lawyers to Europe in exchange for the French farmer. [Laughter]. This would, I think, be to the mutual advantage of both sides.

I used this example to a high government official just three days ago in Berlin and there was a hesitation on the other side of the table. I said “Oh my God, I’ve committed a huge diplomatic gaffe.” The German official came back and said “If you take the German farmer, it’s a deal.” [Laughter].

Unfortunately this is not a simple task, as many of you know. One of the things we’re interested in is convergence, but not at the expense of “dumbing up.” That is, we’re not interested in convergence if it would mean raising the regulatory burden on the U.S. domestic market. I think the thing we see is less a question of divergence than that the Europeans are just plain over-regulated, both at the EU and the Member State level.

Europeans, for their part, may view regulations that Americans consider an obstacle to growth as a reflection of differing societal and cultural attitudes towards risk and competition that must be recognized, and yet President Barroso and the EU Member States and Commissioner Kroes, with whom I had dinner last night, I think are pretty solidly agreed that better regulation, innovation, and competitiveness should be an important part, or are an important part of the Lisbon Agenda and should be pursued with great vigor.

I had the privilege of working on deregulation in the beginning of the Reagan administration where a lot of this was accomplished following on from work begun, surprisingly, by a leading Democrat, Senator Edward Kennedy, with the able assistance of now-Justice Breyer, showing how bipartisan all of this has always been. But my experience led me to two conclusions that I think are relevant to the current situation here in Europe.

First is the importance of an agreed set of principles for assessing and judging the appropriateness of regulations. In the case of the United States, we established a widely accepted model for using cost/benefit analysis in a very rigorous way. The benefits should always exceed the costs. This had broad bipartisan support from the very beginning. We don’t expect the EU to adopt the exact approach, but during the dialogue that has been occurring between the EU and the Commission, they have developed an approach that, although not exactly the same, is very, very similar in principle, and I’m happy to say that the regulatory impact analysis is alive and well in the EU.

The second important issue was to have an enforcement mechanism to see that the principles were adhered to. It’s one thing to have them, but someone has to apply them. In the United States that’s been done very effectively by the Office of Management and Budget (OMB), and OMB has been, I think, successful, I’m glad to say, in persuading Europe to try to mimic some sort of enforcement mechanism. It can’t do it exactly the same way, but I’m happy to say that the Commission has recently increased the authority of Commissioner Verheugen and the Commission General Secretariat to monitor regulations. This is a welcome development. It’s mirrored in Germany, where I was, as I said, three days ago. The Chancellery official responsible for the German government’s regulatory reform effort told me that the Germans have now established a National Regulatory Council to monitor regulations. It sounds very much like the role that OMB is playing and that was played by the Task Force on Regulatory Relief.

As I said, none of this is easy because the regulations themselves are quite complex and they have large spillover effects. Sarbanes-Oxley and REACH are just but two recent examples of the international implications of domestic regulation and the need, therefore, to be especially vigilant when these things get adopted.

Fortunately, our regulators individually have, over the years, recognized the importance of cooperating on these non-tariff barriers and have greatly increased their informal dialogue. And then, more recently, the U.S. and the EU have now formally expanded and deepened this program of regulatory cooperation. Last June at the summit Presidents Bush and Barroso agreed to a roadmap for regulatory cooperation and this is now being pursued by regulators on both sides in a bunch of different ways, ranging from informal information exchanges to structured sectoral dialogues to binding mutual recognition agreements. I’m always warned by Stanley [Crossick] not to get too much into the sectoral, vertical, at the expense of the horizontal, and I don’t want to do that now, Stanley. I want to emphasize it’s both. You’ve got to have the common analytical framework and then attention to each sector.

As part of this commitment made last June, I was in Washington last week with EU counterparts to discuss best practices, and let me run through some of these with you right now. They’re all common sense, but easier said than done.

The first is to clarify the goals of cooperation. I think it’s important to confirm the mutual interest and commitment of relevant key U.S. and European regulators to pursue cooperation on given topics. Absent the continued engagement of key officials, on each side, well-intentioned cooperation can founder. We have very strong cooperation with the European Commission on competition policy for example, particularly with respect to cartels and mergers, because our objectives are so closely aligned. But this is a very strong relationship, reaffirmed last night by Commissioner Kroes who acknowledged in a little speech that cooperation with the United States was very fruitful. She has similar arrangements with many other countries including Russia and China. So this is a well-trod path that I think we may have started, but it is being followed through in a very useful way.

It is necessary in this context to identify how differences in regulatory structure can create barriers. Sometimes there just aren’t the same authorities on either side and banking authorities may have more authority here over certain issues than we do in the United States. Of course, the way these authorities are developed and promulgated will differ. All of this is common sense, but don’t forget common sense.

There’s also the problem of bifurcated regulation at the state and federal level. Sometimes I think people think that the big bifurcation problem is here in the EU with the Member States and not in the United States which is viewed as more federalized, and yet if you look at something like insurance, of course insurance is regulated totally at the state level. This is a concept that must constantly be borne in mind. So are trial lawyers, also a product of state courts, not federal courts.

A second important point is to identify the appropriate mechanisms for cooperation. There are many, many ways to do this, both informal and formal. I think that informal is probably better, and the earlier you get together the better. But informal dialogues produce regular contacts at a staff level that go very, very far in making sure that neither side adopts surprises for the other side.

One example of informal dialogue is our financial markets regulatory dialogue, which has been going on for three years, given a big push by my predecessor. It is very low key, not that much press, but very, very effective and a lot of conflicts have been ironed out. Of course we haven’t yet seen a repeal of Sarbanes-Oxley and I’m hoping for that, or its being cut back. I don’t expect the dialogue to do that, but it has laid the groundwork for discussion of active change in the United States.

There is also a place for more formal dialogues and that happens too, but I think informality, if engaged in early enough, produces better long-term results. This assumes, I think, that the staff will continue to talk. Staff, of course, is always around, principals come and go. We’re just transient occupiers of seats. We used to joke in Washington that they’ll go around a corner while you’re looking down the corridor, the career staff will, and you’ll prowl around hoping to find someone to latch onto. They’re waiting. They’re waiting in the closets. The minute you get back to your office they come out of the woodwork again and go about their business, which they will continue.

I remember once having to deal with a regulator from the Occupational Safety and Health Administration, or OSHA, who had a noise regulation that was truly goofy, but her whole life had been spent on it. The Administrator of the agency brought her and brought this issue to Stockman who was very tough on useless regulations, and persuaded Stockman that he should let this regulation go through because this woman, her whole life, she might have a nervous breakdown if she couldn’t get her life’s work. Stockman said if you can persuade Gray, it’s okay.

So he came into my office and almost went into tears over this poor woman and her plight concerning this noise regulation. And damned if he didn’t persuade me, too. So this happens. [Laughter].

Last night at dinner, I was talking to the German ambassador, who says that they want to have a time limit. It’s not sunset in the American sense, but a time limit that if you haven’t got a proposal from the Commission adopted by the parliament done, as law, within say 10 or 15 years, it lapses of its own accord. [Laughter]. He told me there’s one recent one that was 31 years in the making. Think of how relevant it was at the end of the process compared to when it was proposed in the beginning. [Laughter].

So staff are the people who often drive this. They’re the ones who should be as fully engaged as political appointees.

I think that experts should also get together. This is beyond just the staff level, but outside experts should also be engaged and I want to get into the question of stakeholder involvement in just a minute. But one very good example of early intervention at the staff level is the dialogue and the relationship between DG SANCO [Directorate General for Health and Consumer Affairs] and the Consumer Product Safety Commission in Washington.

Before any major decisions were made the stakeholders were brought in with the staff and we now have two parallel regulatory systems built on the same principles that are harmonious and compatible in approach and easily understood by business. With this kind of example of success behind this, these two agencies are now looking for new ways to coordinate, for example, on international standards and on the enforcement of consumer rights.

There’s also the question of resources and, obviously, if you can use a set of examiners, bank examiners for example, to examine on both sides of the Atlantic, rather than duplicate staff work that’s even better. We ought not to constantly reinvent the wheel. The Basel Capital Adequacy regime is a very good example of bank standards that need not be reinvented every time you turn around. There are differences, but the basic commonality is there.

Resources, of course, are economized when you can avoid duplication.

There also should be transparency for stakeholder involvement. When I was Chair of the Administrative Law Section of the ABA [American Bar Association] we commenced a line-by-line black letter law comparison of the Administrative Procedure Act of the United States with similar procedures or lack thereof in the EU. I think one of the things that will come out is a slightly greater level of transparency in the U.S. Hopefully this will get ironed out with transparency becoming more prevalent here. This is very important for the involvement of people, many of whom are in this room.

You are the best critics of the process. We depend on you to tell us where we’re going wrong, and of course we depend on you for expertise. If you’re not being both supportive when it’s appropriate and unsupportive when it’s appropriate, then I think you’re not doing your job or you’re doing your clients or your companies, your employers, any service. Bad news, if it is bad news, should be communicated. In the United States, people are not shy. Sometimes I wonder whether there’s a little shyness here. People are maybe a little nervous about standing up. Hopefully greater transparency will encourage stakeholders to say what they really mean.

The importance of the Atlantic relationship cannot be exaggerated, so we depend on you in the United States as much as the EU depends on you for understanding the importance of this relationship, understanding how to make it work better. So please don’t hesitate to squawk in Washington as well as in Brussels. I think our companies that are based in the United States are hopefully going to squawk in Brussels as much as they do in the United States. I hope it’s reciprocal on the other side.

Having said all that about squawking, beware of rent seeking. I used this word at a speech I gave recently in Berlin and some people came out of the speech wondering what is “rent seeking?” I’m sorry to say I didn’t explain it, but I will now. It’s an economist’s term, sort of mangled from the economic profession, but it has to do with businesses and any regulated entity taking advantage of government power to feather their own nest, to raise a barrier to entry to one’s own competitors. There’s a lot of this that goes on. Some of it is not intentional. You issue a reg. Pretty soon there are barnacles that grow around it. People who therefore get their living off of the way the reg is written in a certain way and they don’t like change. Apparently Ms. Merkel likes to tell the story of a 32-page bicycle safety reg in Germany that they couldn’t change and apparently still haven’t been able to change, not so much that the 32 pages represent such intrinsic safety merit but that the Japanese and the Asians have found it so hard to comply with that it’s a great non-tariff barrier. That is the kind of rent seeking that can creep in.

David Stockman used to say to me, I hope I’m not offending anybody in this room, “If you see the Business Roundtable coming in to talk to you about a regulation, hold onto your wallet.” [Laughter]. He had a healthy skepticism that anything big business wanted was to be looked at very, very carefully. I kind of agree with that. We should always bear in mind the needs of small businesses and businesses that don’t yet exist. You might find regulations to be an insuperable barrier to entry.

I’d like to sort of finish with one example of what some of us might think is a little over-reach, which is REACH [Registration, Evaluation, and Authorization of Chemicals]. Is there anything we can do about REACH? I don’t know. It is late in the game. But our EPA Administrator will be here this weekend for a day of talks on Monday and some talks on Sunday. I think he grew up in chemicals regulation as a career path in the agency, as a career scientist, and I think he looks kind of funny at some aspects of reach as being unnecessary and counterproductive. Hopefully he can help us enrich our dialogue over here about this.

I think our EPA has demonstrated success, and notwithstanding a three-fold increase over the last 30 years in our GDP, our emissions of air pollutants have gone down by 54 percent. I think our EPA has demonstrated its commitment to health issues and should be and will be listened to when asked or when given the opportunity to talk.

REACH is another example of where the judicial review issues crop up and create something of a problem. You can get judicial review in the EU as I understand it, if you are singularly affected. If you’re a drug company who has been denied a drug approval or if you’re a Microsoft or if you have a merger that’s been denied, that is okay, you can go into court. But if you are affected in a general way by a regulation such as REACH that affects everybody more or less the same and you’re a member of a class, you can’t get judicial review, which sort of turns things on their head. The more people are affected by something, the more opportunity there ought to be for judicial review, but that’s not the way it works here, as I understand it. You can probably find a Member State maybe to bring the challenge, but that’s cumbersome and fraught with potential for political favoritism and the like.

In the case of REACH, of course, the logical group to challenge would be the smaller companies who say we can’t afford to do this. This is really incredibly regressive and counter-productive, innovation-snuffing legislation, but any grounds to challenge, however good they might be, are not going to be aired in court because no small business group could ever apparently challenge this thing if it becomes law.

One final point about innovation and small business, I had a discussion about this last night with Commissioner Kroes. Small business in the United States is the source of 80 percent of all new jobs. I don’t think the figures are much different here in Europe. They don’t have as much encouragement here for a host of different reasons, one of them beginning with the lack of relative competitiveness in European universities, competitiveness in the sense of generating huge research centers that can churn out intellectual property that can later be commercialized by product firms. It’s not such a tradition here on the continent as there is in the United States. We can do a lot better in the U.S., but I think Europe has further to go. That’s part of the problem. Part of the problem is the tax structure, no deductibility for donations. That’s a Member State problem, but one that I think really needs to be attended to.

I had a conversation about this recently with a high-ranking official of British Airways who is co-chair of the Transatlantic Business Dialogue. He’s gone to Oxford and then later in his career had a three-month senior executive course at Harvard Business School. He hears frequently from the Harvard Business School asking for money, but rarely ever hears from Oxford. He says his wife thinks he’s got a mistress in Boston because he gets so many communications from Harvard. This is not the case, of course, but the EU universities could learn a little bit about donor harassment from some American institutions. [Laughter].

If you want to ask me, I can tell you myself. Personally, I can give you plenty of stories. But the point is that the infrastructure for small business incubation is not as strong, as Commissioner Kroes pointed out. She said a lot of it’s right in between the ears, that in Europe if you have on your resume that you started a business and failed, you are really in trouble with potential employers. In the United States, she said it’s just the reverse. If you don’t have a failed business from which you got back on your feet and tried again, you’re not thought of as someone who will really stick with encountering risk.

So there are attitudinal differences on both sides. These affect students, of course, and I think there’s a lot of improvement that can be gained over here, but I think it starts with the sort of competitiveness. I have a daughter at Harvard, this very rich university, that feels it’s going into Chapter 11 bankruptcy every day, but the students there, as exclusive as you might think they’ve been selected, are scared to death that they’re being gained on by somebody and they’re always looking over their shoulder and always anxious to improve their internships and their job opportunities, and they’ll go through life always trying to do better and that’s the attitude that I think hopefully pervades universities here, although if you read the polls on French students, 75 percent want to work for the civil service, which is, if you’re a libertarian like me, a little discouraging. [Laughter]

Anyway, I’ll stop there and answer any questions you have. I hope I haven’t talked too long, but my staff was worried I wouldn’t talk long enough.

[Applause].

Question: (inaudible)

Ambassador Gray: It’s a good question. This is why the developments here in the EU with the new sort of regulatory oversight office, and in Berlin, the parallel, actual regulatory council, why this is such a good development, because in the United States people, of course, do communicate with the primary agency. But when there’s a problem that is being ignored by the agency or that people think is being ignored by the agency, the place where they naturally sort of go to appeal internally is OMB. I think that should develop the same way here. Either Commissioner Verheugen or Secretary General Day. The person that’s been put in charge in her office is an economist named Alexander Italianer, who was a key figure in the creation of the euro, so he’s a very high-powered economist, a very, very well respected figure, and to put someone of that stature in a job like this I think tells you, illustrates the commitment that the Commission has to this.

So I think you’re going to find there will be a better place to call –- There’s always the old joke, Kissinger saying, “Well, who do I call?” In the EU that’s sort of an unfair thing. We’ll know better who to call at least in Germany and now in the Commission. It’s really unfair because we have the same problem, I mean it’s not that much better in the United States. But OMB is where people, businesses go to get appeal, and I think you’ll see a parallel thing emerging here. It’s under active discussion, and has been. There is a dialogue, as I think I described, between the regulators.

What’s missing and implicit in your question is well, what about the European Parliament and our Congress? Don’t they matter? Of course they do, but bear in mind the differences between laws or regulations developed on the two sides. In America, typically it’s proposed in the Congress then given over to the Executive Branch for implementation. It is true, there’s an old saying in Washington that over the course of a decade or more, 90 percent of what a law actually means is set by the regulatory agency and not by Congress. Sometimes Congress’ words are twisted quite out of recognition. But sometimes Congress’ words were so vague to begin with that they were meant to be twisted out of recognition. Our Congress has a way of kicking the can down the road, squawking, not to over-use the word, when the regulatory agency doesn’t quite do it the way they thought they wanted it done, but then it’s a little too late. Usually they won’t go back and revisit anyway.

Tom Korologos, my colleague here in Brussels who is a veteran of congressional lobbying, probably the best the U.S. ever produced, certainly since Bryce Harlow, is fond of saying Congress and our system can do only one of two things -– nothing, or over-react. [Laughter]. I think the Dubai Ports, and maybe Sarbanes-Oxley, are both examples of over-reacting.

But the European Parliament, the way it works here is that the Commission, as I understand it and I’m still learning, has the sole exclusive authority of proposing legislation. Parliament can perhaps fiddle with it or do more as they’re now getting more aggressive and things are changing as we speak; but then it gets back to the Commission for implementation.

I think our typical U.S. congressman doesn’t think that the typical European parliamentarian has quite the same hold over the regulatory process as he does or she does. We’re trying to get this dialogue going, but I’m worried that that is one of the reasons why you don’t get so many congressmen coming over here. They just don’t think, they don’t really know who to meet with. Who they end up meeting with is members of the Commission and it’s not exactly apples and apples.

So the Parliament’s got to get a little more active.

One of the things, I don’t want to say something that’s going to get me in trouble, but our races, and you hear the discussion who’s going to win 2006, “Are the Democrats going to take the House back? Are they going to take the Senate back?” There’s no discussion here in Europe is so and so going to take the Parliament back? I’m not even sure I know who’s in control of the Parliament. There are different parties and stuff, they go back and forth, but it’s not quite the same debate. I think it’s because people in the local elections don’t necessary have a particular eye on the member of Parliament who’s up for election. In part, because the Parliament itself, it’s a chicken and egg process. The Parliament itself isn’t perceived as having that direct of an impact on the lives of the citizens who are voting for a particular slate that included a lot of other candidates.

This is all a work in progress, and as I say, Alexander Hamilton would be having a wonderful time if he were alive. But I certainly encourage, I do everything I can to encourage. This is something that our Deputy Secretary Bob Zoellick is very keen on, the CPN process. There is a group that does, it’s chaired on our side by Senator Bennett. He was over here just a couple of weeks ago. He comes over here quite frequently. He’s very knowledgeable. We should definitely encourage that. I think to do that would strengthen the democratic anchor for a lot of what the European Union does.

So I’m completely in favor of what you’re suggesting and I’ll do everything I can when I can to promote it.

The measurement is important, and I discussed this in Washington last week. Of course it’s a baseline. How do you prove how much you improved a regulation when you don’t really know if you’ve gotten in early enough, what it might have been if you hadn’t engaged. So it’s always a measurement, economists would say it’s always a question of baseline and it’s difficult to do.

When we were struggling with this in the beginning of the Reagan years to try to figure out all right, how do we show our accomplishments to keep the momentum going in public support? It was much easier to say how much money we’d saved the public and consumers and what not when we took out an old regulation than when we said this is what we did do the new regulation, because how do you know how it would have turned out absent your efforts? So it’s a baseline problem. Any help, any thoughts you have would be welcome.

It’s not easy, but I do think we do need examples and I made this point just last week, that in order to show that this should continue you ask the logical, “what have you done for me lately?”. That’s why I think the ultimate outcome, this is a touchy subject, but the ultimate outcome of two of these statutes that I’ve mentioned that kind of are examples of the US overdoing it and perhaps Europe overdoing it, Reach and Sarbanes-Oxley, we’re seeing changes being made with greater and lesser degrees of effectiveness on both sides of the Atlantic, and I think that may be a good starting point when that process is completed, which it will be, we’ll know one way or the other even though I suppose it could be another 31 years before Reach is adopted, but that in itself might be a victory of sorts. No. I won’t say that. [Laughter]. But it won’t take 31 years, I’m sure, and we’ll know.

And I think some of the changes, the exemptions, getting small business out from underneath Sarbanes-Oxley, I think we’ll know how that’s going to play out within another year. But you’re absolutely right, keep our nose to the grindstone on that, and people here in Europe as well.

Then on the question of OMB, well, that’s where you really get the results. OMB has the whip hand, and if you can permit me one little story about this. I’m very proud of this for reasons that maybe you’ll see.

As we were drafting the Executive Order which provided OMB with this authority -– the analytical business plus the enforcement part – I used the word review. [Inaudible] shall have the right to review the regulations coming. It didn’t say reject, it just said review. It was practiced, the term review and reject. But Jim Miller, who was my boss at the time, he later went on to be Chairman of the Federal Trade Commission and Director of OMB. He was head of the Office of Information and Regulatory Affairs, that little mouthful that’s so powerful. He said this word review is too strong, because it was so revolutionary. It was revolutionary. I said no, I think it’s too weak. He said well check with Nino. Nino was then a professor at Chicago, an Administrative Law professor and the most respected AdLaw expert in the world probably at the time. I said I don’t want to -– He said check with Nino. That’s an order.

So I called up Nino and Justice Scalia said Boyden, it’s too strong. I didn’t change it. [Laughter]. It never got challenged in court, and I’m so glad. I never rub it in with Justice Scalia, though. I never say anything to him about it. [Laughter].

But later, this Executive Order would be circulated for comment over the President’s Weekend, that is the first big weekend of the year, of a presidential year. Martin Luther King is before the inauguration, but this is after the inauguration, mid February. We circulate it Friday night so it would get to the Cabinet officers when they were home and were out of reach of the career bureaucrats, and probably didn’t want to read it anyway over a three day weekend. I don’t think any of them did.

So they came in on Tuesday, it was approved by President Reagan with the Cabinet all there saying cluck, cluck, cluck, yes, yes, yes. And nobody to say no, no, no. It was wonderful. Dick Darman said I think this is a power grab. I said no, Dick, it’s not, no, no. Then we had all the career general counsel and what not come into Room 248 in the old EOB, that may be familiar to some of you, and we gave them this Executive Order to read. They thought they were being given it to read to comment on, so they started to read it, and you could hear the grumbles, no, no, no, no, people scribbling madly. All around the room. It was wonderful. Then sooner or later each of them got to the next page and saw Ronald Reagan’s name on it. The most glorious moment. [Laughter].

But I tell the story to underscore that you’ve got to have someone who can tell somebody else no. You’re absolutely right, and hopefully this will develop in Europe. It’s very hard for one commissioner to tell another commissioner, sorry, old boy or old girl. It’s hard to do. Someone’s got to get above that and say no, go back and do it again or change this or change that.

I encouraged Commissioner [Kroz] last night to do what our Antitrust Division and Federal Trade Commission did in the early Reagan years when this process was beginning, they would file comments in other agency regulatory proceedings, thought to be quite impolite at the time, in the beginning, saying this regulation, if you want to achieve this goal you can do it with far less competitive impact if you do it this way rather than that way. That set the stage for the process of looking at these things from a competitive point of view which is survived -– she acknowledge this was very very important that they do this, and they’ve done it in an abstract way, done it as a question of principles. She said if they can get the resources, they will do it in individual proceedings, and you should encourage that because her agency really does get it. They know exactly what needs to be done on the level of competition and they I think will help ensure that the regulations that come out aren’t going to be anti-competitive at a minute.

Question: I learned a new expression, keeping the nose at the grindstone.

Ambassador Gray: Where did that come from? I don’t know.

Question: [Inaudible].

Ambassador Gray: I’m aware of studies that say that wage growth vis-à-vis inflation has not done much since the dot-com meltdown, but I think the figures are now showing a big catch-up in the last year, 18 months. As for the last 30 years, I’m not familiar with that date. I think they’re wrong. I think there’s been tremendous economic wage growth in the United States, and all you need to do is look at how many cars Americans own, how many appliances, what a fairly good lifestyle they lead. If they hadn’t had any wage growth I think none of this would have occurred. So I can’t accept the data except for a period in the last four or five years where there’s been some stagnation., as I said, I think now coming out of it at the end of the dot-com bust.

On the regulatory process, no, I don’t think it’s been captured. I think that’s one of the great hallmarks of the American system. That’s why I talked about rent seeking earlier in my talk. I think we are pretty good at trying to make sure the consumer is the paramount interest, not the company. The consumer is the person we’re worried about, and competition is what we’re worried about, not competitors. I think we do that fairly well. The Business Roundtable is probably as disgruntled half the time with what happens in our regulatory regime as anybody else is because the focus is on consumer, small business job creation. So I don’t accept that.

Now I won’t get into a discussion of the tax laws. That’s being argued right now today in the United States, extending the Bush tax cuts and whatever. But I really don’t agree with your data. I think the United States has done extremely well. People say all right, well productivity per hour is equal. The French have as high a productivity per hour as we do, but if they don’t work very many hours it doesn’t make much difference. My daughter’s fond of saying that you should grade students on an hourly input basis. Should you take an A away from a student because that student spent ten hours longer on a paper than a B student did? Or can you just ignore the Chinese because they work very hard? No, I don’t think in the real world we can say China isn’t really happening because there are so many of them and they work so hard.

Well, good question, California is sort of a different place. [Laughter]. There’s an old saying that they do have the authority under our Clean Air Act to do almost anything they want, and they’re the only state that can do that. Any other state can copy California, but can’t do anything other than either do what they’re told by EPA or what California has done. The implementation, of course, is up to the states, but I’m talking about the generation of standards.

There’s an old saying that environmental protection for air quality starts in California at the California Air Resources Board and the South Coast Air Quality Management District, how about that for a mouthful? Based in El Monte, how about that for a well-known place? Then about five years later it ends up at our Environmental Protection Agency in Washington and then about five years later ends up at the EU. [Laughter].

So we are very proud of California. I have great friends there. I’ve worked with CARB and South Coast all my life, and they are very very sharp. They don’t like diesel very much, I have to tell you that. They are very anti-diesel, so in that context they’re very anti-European diesel. They try to step ahead of where the European carmakers are and I think they devise their regulations to make sure that the latest advance will be blocked –- I’m kidding, a little bit. [Laughter]. But they really don’t like diesel because of the particulate matter. And as I say, they’ve had an unbelievably good track record of guessing right on these air quality issues.

As for global warming, you’ve sort of given me a chance to point out that Europe really should get together with us because we have the only transportation CO2 control mechanism. You may think you have agreed to Kyoto but in fact you exclude the transportation sector from the enforcement mechanism which is the trading regime. At least we have the CAFÉ standards which are not biting at the moment for cars, and the President’s asked for more authority to toughen them up. But I wouldn’t think our President would be a bit remiss if you helped us get Congress to adopt those and then perhaps adopted them yourself.

Voice: Thank you very much. I’m afraid we have to close the debates at this point in time. I didn’t really get an answer to my initial question about good regulation versus deregulation, but I --

Ambassador Gray: Say it again. I know that when I first came here in January oh, don’t talk about deregulation, it’s only better regulation. But Baroso has been quite candid. I’ve heard him make speeches where he has talked about deregulation and the German officials that I met with on Monday were talking about reducing bureaucracy, and you can’t reduce bureaucracy without reducing regulation and vice versa. So I’m very bullish on pruning out the old stuff and getting on with the new.