The Brussels Effect: How the European Union Rules the World

Competition Policy and Antitrust and Innovation and Economic Growth

Article Snapshot

Author(s)

Anu Bradford

Source

Oxford University Press, 2021

Summary

Popular commentators often predict the failure of the European Union (EU), but data shows that the European Union exercises global regulatory power and enjoys continued relevance.

Policy Relevance

EU regulations shape markets worldwide. The rise of China challenges the EU’s global influence.

Main Points

  • The EU enjoys unique unilateral power to regulate global markets, the “Brussels Effect;” EU regulations influence how business is conducted everywhere in the world.
     
    • The EU has a large consumer market.
       
    • Trade with the EU requires compliance with EU rules.
       
    • Capital may flee regulation, but consumers will not.
       
    • Multinational firms have an incentive to standardize global production.
       
  • The United States is associated with pro-market views, while the EU relies more on government institutions and distrusts markets; however, the EU, not the United States, benefits from market forces in support of its global regulatory power.
     
  • Most nations’ attempts to exercise regulatory power unilaterally will fail.
     
    • Economic sanctions often fail, as embargoed nations find alternate trade partners.
       
    • Trade wars harm all parties, including the instigating nation.
       
    • The World Bank and the International Monetary fund have less power, as China and other nations extend aid to rogue countries.
       
  • The “de facto” Brussels Effect arises from global firms’ willingness to adjust their global conduct to EU rules; the “de jure” Brussels effect refers to the adoption of EU-style rules by foreign governments, as multinational firms lobby for EU style rules in their home countries to ensure they are on equal footing with firms that do not export to the EU.
     
  • Within the United States, because firms that export to California must meet its standards, California sets regulatory standards for all other states, the “California Effect.”
     
  • Within the EU, stringent regulatory standards were adopted to reassure the European public and ensure political support for trade liberalization.
     
    • The EU Commission lacks the power to tax and spend, and can increase its influence only through regulation.
       
    • The EU originally sought to harmonize internal rules, not to increase its global influence.
       
    • Later, the EU began to emphasize the importance of promoting EU standards globally.
       
  • Areas where EU regulations have influenced law and policy around the world include:
     
    • Competition law and policy.
       
    • Regulation of the digital economy, including the EU’s 2016 General Data Protection Regulation and regulation of hate speech online.
       
    • Consumer protection, including regulation of genetically modified organisms.
       
    • Environmental policy.
       
  • The Brussels Effect can deter innovation by increasing firms’ costs and discouraging experimentation; however, it can also benefit innovation, by encouraging firms to develop products that are cost effective and environmentally sustainable.
     
  • Future challenges to the Brussels Effect will include:
     
    • The rise of China and other emerging powers.
       
    • The decline in international cooperation.
       
    • The departure of the United Kingdom from the EU.
       
    • The rise of anti-EU sentiments.
       

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