Brussels effect

The Brussels effect is the process of unilateral regulatory globalisation caused by the European Union de facto (but not necessarily de jure) externalising its laws outside its borders through market mechanisms.

The Berlaymont building in Brussels, the headquarters of the European Commission

Cause

The combination of market size, market importance,[1] relatively stringent standards and regulatory capacity[2] of the European Union can have the effect that firms trading internationally find that it is not economically, legally or technically practical to maintain lower standards in non-EU markets. Non-EU companies exporting globally can find that it is beneficial to adopt standards set in Brussels uniformly throughout their business.[3][4]

Name

The term Brussels effect was coined in 2012 by Professor Anu Bradford of Columbia Law School[1][5] and named after the similar California effect that can be seen within the United States.[6]

Race to the top and race to the bottom

The California effect and the Brussels effect are a form of "race to the top" where the most stringent standard has an appeal to companies operating across multiple regulatory environments as it makes global production and exports easier.[7][8][9] The effects are the opposite of the Delaware effect, a race to the bottom where jurisdictions can purposely choose to lower their regulatory requirements in an attempt to attract businesses looking for the least stringent standard.[10]

Examples

Antitrust

The October 2000 $42 billion proposed acquisition of US-based Honeywell by US-based General Electric was blocked by the EU antitrust authorities on the grounds of risking a horizontal monopoly in jet engines. The merger could not proceed because, despite the American Department of Justice having already approved the merger between these two US-based entities, it was not legally possible to let the acquisition proceed in one important market, but not in another.[1][11]

Chemicals

US-based multinational Dow Chemical announced in 2006 it would comply with the EU's Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) regulation for the production and use of chemical substances across its global operation.[1][12][13]

Airplane emissions

In 2012 the EU included aviation into its existing Emission Trading Scheme. This means that any airline, regardless of their country of origin, has to purchase emissions permits for any flights within the European Economic Area.[14] The cost of complying with EU aviation emission regulation puts pressure on manufacturers to design airplanes with improved efficiency and reduced emissions. As major airlines would not likely purchase airplanes specifically to fly outside the EEA, the EU's stricter aviation standards have an impact on global airplane fleets, regardless of the jurisdiction of the airline.[1]

Data protection and privacy

With the introduction of the Data Protection Directive in 1995 the EU had opted for a strict top-down approach to data privacy.[15] Its successor, the EU's General Data Protection Regulation (GDPR), was adopted on 14 April 2016 and had a global effect.[16][17] In 2017, during negotiations for a new Japan-EU trade deal, Japan set up an independent agency to handle privacy complaints to conform with the EU's new privacy regulation.[18]

Facebook announced in April 2018 that it would implement parts of the GDPR globally.[19][20] Sonos announced in April 2018 that it would implement the GDPR globally,[21] and Microsoft announced in May 2018 that it would implement GDPR compliance for all its customers globally.[22]

Exploitation of natural resources

The Brussels effect can be observed in two regulatory frameworks that regulate the exploitation of natural resources, the Conflict Minerals Regulation and Country by Country Reporting Rules for payments to governments. [23]

Reception

Scholars could so far not empirically verify the limits of the Brussels Effect in international law, especially WTO law. [24] Furthermore, for the Brussels effect to occur, it was shown that not all prerequisites identified by Bradford have to occur cumulatively.[25] Research has indicated that the EU's regulatory power varies substantially depending on the context of the regulation involved.[26][27]

See also

References
  1. Bradford, Anu (2012). "The Brussels Effect". Northwestern University Law Review. 107 (1). SSRN 2770634, Columbia Law and Economics Working Paper No. 533
  2. Bach, David; Newman, Abraham (2007). "The European regulatory state and global public policy: micro-institutions, macro-influence". Journal of European Public Policy. doi:10.1080/13501760701497659.
  3. "The Brussels Effect: The Rise of a Regulatory Superstate in Europe". Columbia Law School. 8 January 2013. Archived from the original on 4 May 2018. Retrieved 17 May 2018.
  4. "Hot U.S. Import: European Regulations". The Wall Street Journal. 7 May 2018.
  5. Lecture, March 2012 – "The Brussels Effect: The Rise of a Regulatory Superstate in Europe"
  6. Vogel, David (1995). Trading Up: Consumer and Environmental regulation in a global economy. Harvard University Press. ISBN 9780674900837.
  7. "Why the 'Brussels effect' will undermine Brexit regulatory push". Financial Times. July 2017.
  8. "Why the whole world feels the 'Brussels effect'". Financial Times. November 2017.
  9. Bach, David (25 May 2018). "Three Questions: Prof. David Bach on the Reach of European Privacy Regulations". Yale Insights.
  10. Wright, Robert E. (8 June 2012). "How Delaware Became the King of U.S. Corporate Charters". Bloomberg View. Retrieved 18 May 2018.
  11. European Commission – Case No COMP/M.2220 – General Electric/Honeywell
  12. "Dow and REACH – Protecting human health and the environment". dow.com.
  13. "Reach External FAQs". Archived from the original on 2018-05-25. Retrieved 2018-05-17.
  14. "European Commission – Reducing emissions from aviation".
  15. Gady, Franz-Stefan (2014). "EU/U.S. Approaches to Data Privacy and the 'Brussels Effect': A Comparative Analysis". Georgetown Journal of International Affairs: 12–23. JSTOR 43773645.
  16. "Information wars: How Europe became the world's data police". Financial Times. May 2018.
  17. International Centre for Trade and Sustainable Development (May 2018). "Europe's Data Privacy Rules Set New Global Approach to Consumer Rights".
  18. "Europe's new data protection rules export privacy standards worldwide". Politico.EU. 31 January 2018.
  19. "Facebook's commitment to data protection and privacy in compliance with the GDPR". facebook.com.
  20. "Complying With New Privacy Laws and Offering New Privacy Protections to Everyone, No Matter Where You Live".
  21. "We're Updating the Sonos Privacy Statement". sonos.com.
  22. "Microsoft's commitment to GDPR, privacy and putting customers in control of their own data". blogs.microsoft.com.
  23. Nissen, A. (11 November 2019). "The European Union as a Manager of Global 'Business and Human Rights' Regulation: Country-by-Country Reporting Rules". UCL Journal of Law & Jurisprudence. 8 (2): 708.
  24. Sinopoli, Dominique; Purnhagen, Kai (2016). "Reversed Harmonization or Horizontalization of EU standards?: Does WTO Law Facilitate or Contrain the Brussels Effect?". Wisconsin International Law Journal: 92–119.
  25. Sinopoli, Dominique; Purnhagen, Kai (2016). "Reversed Harmonization or Horizontalization of EU standards?: Does WTO Law Facilitate or Contrain the Brussels Effect?". Wisconsin International Law Journal: 92–119.
  26. Young, Alasdair R. "The European Union as a global regulator? Context and comparison." Journal of European Public Policy 22, no. 9 (2015): 1233-1252.
  27. Young, Alasdair R. "Europe as a global regulator? The limits of EU influence in international food safety standards." Journal of European Public Policy 21, no. 6 (2014): 904-922.
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