Exporting Standards: The Externalization of the EU's Regulatory Power via Markets

Innovation and Economic Growth, Competition Policy and Antitrust and Privacy and Security

Article Snapshot

Author(s)

Anu Bradford

Source

International Review of Law and Economics, Vol. 42, pp. 158-173, 2015

Summary

The European Union (EU) exports power and influence to the rest of the world through its legal institutions and standards. Global commerce has become “Europeanized.” This trend is an inadvertent byproduct of the EU’s effort to create a single market, not “regulatory imperialism.”

Policy Relevance

When other nation’s laws are too lax, the “Brussels Effect” is beneficial. But when the EU’s laws are too strict, adoption of European standards by other nations is harmful.

Main Points

  • The “Brussels Effect,” Europe's power to influence global markets by promulgating strict regulations governing areas such as food, chemicals, the environment, competition, and privacy, is often underestimated.
     
  • The “Brussels Effect” is an example of "unilateral regulatory globalization," the spread of one nation's laws and regulations outside its borders through market mechanisms.
     
  • The “California Effect” is similar; California is a large market, and firms that sell in California must conform to its strict regulatory rules, therefore, because it is too costly for firms to offer a different product for other states, California’s rules apply nationwide.
     
  • The EU's stringent rules apply only within the EU, but multinational firms often standardize their production globally, adhering to a single rule;
     
    • Multinational firms then lobby governments outside the EU to adopt similar rules, to ensure that smaller local competitors do not have an advantage.
       
    • Neither firms nor other governments necessary believe the EU standard is best but find the cost of challenging EU standards too high.
       
    • Market forces do not always suffice to spread EU rules; for example, the EU’s environmental standards for automobiles have little influence in the United States.
       
  • The EU is the only regime with unilateral power over global standards, because EU rules target products that cannot easily be marketed outside the EU, its regulatory institutions are consistent and mature, and its rules are strict.
     
    • China lacks consistent and mature regulatory institutions.
       
    • The United States has strict rules that target financial markets, but firms can easily move capital to evade the rules, and these rules are unlikely to spread.
       
    • Regulators in the United States often consider whether the costs of regulation outweigh the benefits; EU regulators emphasize the cost of inaction.
       
  • Foreign governments and firms have little power to constrain the EU, but forces within the EU check the EU's regulatory powers.
     
    • Internal forces include EU citizen’s resentment loss of national regulatory powers, and problems with the Euro.
       
    • The United States won challenges to some EU rules at the World Trade Organization (WTO).
       
  • Some critics charge the EU with exercising “regulatory imperialism” or with trying to “level the playing field” to ensure that EU-based firms do not bear the costs of stringent EU rules alone.
     
  • The EU presents rules such as environmental regulations as benevolent, but the spread of EU-based norms is largely unintentional.
     
  • The EU also influences outside regimes through political negotiations, but market forces achieve the same goals without the uncertainties of treaty negotiation and enforcement.
     
    • The EU tends to use political methods to influence outside nations more often when it exports a product, and to rely on markets when it imports the good.
       
    • The EU tends to use political methods when other nation’s lax standards violate a moral imperative, such as promotion of human rights.
       

 

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