The U.S. and the EU do not compete, it is companies that compete--and not on a national basis either. That competition, moreover, is now more important than ever for the world’s economic health. It is precisely because our relationship is not a zero-sum game that I believe the “Lisbon Process” is one of the most critical issues that the European leaders will take up at their Seville summit tomorrow. This is the goal to make Europe one of the world’s most competitive, knowledge-based economies by 2010.

Indeed, since I arrived in Brussels last fall, the most frequent question journalists ask is whether or not I believe the Lisbon Process will achieve its goals. They are surprised when I tell them that not only do I believe it, I'm counting on it.

Is Vivendi an American firm or a European one? What about Daimler-Chrysler? With employees, customers, suppliers, and shareholders on both sides of the Atlantic, the question is moot. As governments, a key priority must be to assure an environment for healthy business competition. The Lisbon Process aims to do just that for Europe, and given tremendous economic interdependence in the trans-Atlantic relationship, the U.S. will also benefit.

Better Regulation

If Lisbon is a blueprint for building a more competitive Europe, then an efficient, balanced European regulatory system is the foundation. Commission President Romano Prodi rightly has focused on “better regulation.” The commission is not alone. In Barcelona last March, Pat Cox, President of the European Parliament, made a similar statement to the 15 leaders. Messrs. Prodi and Cox both recognize that the EU's economic vitality depends on its ability to develop not necessarily more regulation, but smarter regulation.

In his speech, President Prodi, describing the changes the commission would need to make, called for wider consultation among all parties concerned and a more exhaustive, in-depth analysis of the economic, social, and environmental impact of legislative proposals. We strongly agree.

As governments, we have the important responsibility of providing appropriate regulation to protect important societal goals – the health and safety of workers, our consumers’ privacy, and the environment, to name just a few. The key question is how a government can do this without imposing costs on the economy that hamstring growth and cost jobs.

Governments must ensure that the regulatory burden we impose on our societies is appropriate to the goal we wish to achieve. In the first Bush Administration, as deputy secretary of the U.S. Department of Commerce, I served on the vice president's Council on Competitiveness. In that group, we looked hard at what federal regulations were costing U.S. business – and consequently the American consumer – every year. Right now, the White House's Office of Management and Budget is continuing this careful review of regulations. That office tells us that figure in the U.S. is now almost $8,000 per household.

Through the Lisbon Process and concurrent efforts to develop “Better Regulation” at the EU level, Europe is now undertaking an unprecedented effort to put its own regulation under the same broad scrutiny. Because our economies are so closely linked, the answers European leaders develop will affect firms and citizens both in Europe and in the U.S. There is only one way to achieve the balance between objectives and costs that produces smart regulation – regulation that meets society’s objectives without strangling innovation and growth.

The solution lies in a transparent, inclusive and well-supervised – and limited – regulatory system. The first step to balance appropriate protection with economic growth is to ensure that all stakeholders – governments, businesses and consumers – can contribute meaningfully to the formulation of rules and regulations in their earliest stages.

The premise is simple: you will get better regulations and better compliance if those affected have a voice, whether that stakeholder is inside or outside the EU. It is important that regulators be called upon to explain the rationale for a rule, and why they structured it as they did. This is the only way to ensure a rule is working for all of the people, and not simply selected stakeholders.

Regulators should weigh the costs and the benefits to society of any regulation through appropriate impact analysis. The commission, I am pleased to see, seems to recognize this principle. To make the assessments a useful tool, the analysis must be based on sound science, not political considerations.

Independent Oversight

Finally, well balanced, quality regulation does not simply happen. Bureaucracies are too large and too diffuse to depend on voluntary measures to ensure that opposing viewpoints are entertained and appropriately considered and that proper analyses are carried out on proposed legislation. Independent oversight of the process is essential.

It is interesting to note that 23 of 28 OECD member countries recently surveyed, including most EU member states, have a centralized unit responsible for quality regulation. The commission's action plan, by contrast, calls for a network internal to the commission to be responsible for regulatory quality without any centralized oversight. Is it reasonable to ask regulators to take on the burden of policing themselves?

There is no perfect model for good regulation, but there are useful principles that can influence the development of appropriate, balanced regulation. Continuing to improve its regulatory processes will be one important step for the EU to reach its Lisbon goals. As long as this process progresses, I will continue to tell journalists that I'm optimistic about the EU's economic future.