What if a mild-mannered economic superpower was shaping the world economy, and most people didn’t notice? What if the decisions that drove globalisation were not made in televised meetings between world leaders at Davos, but quietly by technical compliance officers in anonymous corporate office buildings? What if American protectionist bluster and China’s steely nationalist defiance were largely a sideshow?
The EU is not generally thought of as an aggressive economic hegemon. Its main concern in the US-China conflict is to avoid being trampled. But in sector after sector, it has set the rules for the world economy.
This “Brussels effect” is well known in old-economy industries like chemicals and cars. Often it spreads through market forces. Companies adopt the rules as the price of participating in the huge EU market, and then impose them across their global businesses to minimise the cost of running separate compliance regimes. The rules are sometimes codified by foreign governments or through international organisations, but not necessarily.
Many EU policymakers say they export not just technical standards but also European values of consumer rights, environmental stewardship and the restraint of corporate monopoly. The EU started as a marketplace. Setting rules is central to its identity. Trade and regulation are, to a large extent, the only effective foreign policy the EU has.
The Brussels effect is powerful, then, but not necessarily benign. Prof Bradford admits there are fair criticisms to be made. In the case of GDPR, it tends to benefit big tech corporations like Google that have the money and capacity to comply.
It also has limitations. Where markets are what she calls “divisible” and companies can maintain different standards in each, the effect is weaker. A company producing in several countries may keep the same EU environmental regulations throughout, but get away with different employment practices depending on the jurisdiction. The EU has struggled to influence labour standards abroad via trade deals. As shown by France’s retreat last week on taxing tech companies, it also has difficulty exporting its tax regimes.
Vir: Alan Beattie, Financial Times