EUs regulatory imperialism puts African products at risk as exporting world bows to European norms
 At one time it was the United States that sat on its high horse demanding that deals between foreigners in foreign lands conform the US rules or be banned from US markets.
Ten years ago, Swiss forwarding giant Panalpina felt compelled to withdraw from its Nigerian domestic business after being caught by American authorities of paying a "facilitation fee" to a Nigerian official.
The vast US market was too good to lose, so Nigeria was dropped after the incident that cost Panalpina more than US$15 million on legal and consulting fees.
Today, it is Europe that takes the high hand, but to a far greater extent and reaching far into many spheres and many sectors, touching mergers and acquisitions, environmental law, health and safety rules and especially vulnerable consumer products.
"Without resorting to international institutions or seeking other nations’ cooperation, the EU is able to promulgate regulations, leading to the ‘Europeanisation’ of important aspects of global commerce," said Columbia University trade law professor Anu Bradford, who coined the term the "Brussels Effect".
"The EU is the only jurisdiction that can wield unilateral influence across a number of areas of law - ranging from antitrust and privacy to health and environmental regulation - and why the markets, other states and international institutions can do little to constrain Europe’s global regulatory power," she said.
The big stick is the same one that the US once wielded and still does to a limited, but increasing extent: Simply put: If you do not not play ball the EU way, you cannot trade in the EU market.
Today, EU regulations have a tangible impact on the everyday lives of citizens around the world. Few are aware that EU regulations determine the makeup women apply in the morning, the cereal children eat for breakfast, the software uses and the privacy settings on their Facebook pages must comply and conform.
And that’s just before 8:30am. The EU also sets the rules governing the interoffice phone directory they use. EU regulations dictate what kind of air conditioners one uses and why children no longer find soft plastic toys at McDonald’s. Not just in the EU but in many other countries. This phenomenon is what Prof Bradford calls the Brussels Effect.
To some, the EU agenda is “regulatory imperialism”, though European Commission denies this is the case, saying it is simply an effort to set European trade standards for Europeans. But whether they mean to or not, the unelected Eurocratic elites have had a profound impact on markets worldwide.
While the conspicuous compassion of enormous pension funds has increased in recent years as their investment priorities are often set by social justice critics from the trade union and/or education sectors, regulators have limited power to enforce their will over international capital movements as they investor can usually find less stringent regulatory environments in which to invest. America's right-to-work states of the southeast of the United States are an example of this, which have siphoned off investment from hyper-regulated states such as New York, Massachusetts and California.
Where the European regulator regains the whip hand is in the area of mergers and acquisitions among multinationals, and, more importantly as far as the countries around the Mediterranean are concerned, in the regulation of products available to consumers.
As Prof Bradford points out, it is one thing to find a less stringent regulatory environment in which to locate a factory, but quite another to find another affluent market of 500 million people in a more congenial regulatory environment outside the EU.
Thus, US beef is banned from the EU, and until at last Europeans had to bow to international pressure and China's threat to boycott Airbus, the EU was to impose a carbon tax on flights into the EU, not only for emissions over Europe but for the entire flight. In the end the EU relented and let the UN's International Civil Aviation Organisation handle it, as it was mandated to do.
As Prof Bradford sees it, feelings about these unilateral moves are mixed, with many who feel regulations are too lax. Such people care little for freedom and care a great deal about safety. And electoral results show the world is pretty much divided 50:50 on that divide. Another factor, or more concern to Mediterranean Europeans, is that these regulations come from the northern states and are imposed on the countries in the south. They may be more forgiving, preferring price advantages over safety. More senior EU members can opt out of some rules. But recent EU members like Poland and the Czech Republic have little say about Brussels decrees if they want the financial benefits that accrue to a "have-not" EU member state. Of course, all consumers pay the price of regulatory non-tariff barriers having to suffer higher costs.
There are other elements to the power of regulation that makes the EU method so far reaching. In America, a similar phenomenon has been was called the "California Effect" for the same reason. It amounts to having regulatory control over large affluent market in which most exporters, certainly the major ones, seek to access. Second, it appears that effective exercise of this international "soft power" favours the most stringent regulator.
What typically happens, says Prof Bradford, is that to reduce costs, manufacturers are likely to adopt a one-size-fits-all strategy by accepting the strictest regulatory regime, knowing that it is likely to be acceptable to all if not most others jurisdictions. In the US domestic market that means most everything fits Californian requirements, and internationally, Europe's.
This also affects M&A activity. The US may approve a merger of two American multinationals, but Europe may say no. The EU may allow the merger pass if the new entity divests itself of a particular company in Africa, let's say. So while, Med states will be more interested in the consumer goods impact of EU regulatory imperialism, the M&A aspect can bite them too.
The idea that unelected European civil servants have the ability to block global transactions by foreign companies can be disconcerting to those involved. However, others might claim that the Brussels Effect does not undermine democracy.
When power is defined in terms of the actual influence that a country can wield, the EU’s ability to penetrate vast areas of global commerce is important. The EU does not have to do anything except regulate its own market to exercise global power. The size and attractiveness of its market does the rest.
By virtue of being the world’s largest trading bloc, the EU can dictate what is traded. It is one of the few areas of influence where unilateralism still works. Regulatory power is a less costly, more deployable, and more durable that most other types. Also, unlike other forms of power, it cannot easily be undermined by others.
The EU’s regulatory clout shows that the EU can be a superpower without being a super state. It is a shrewd and influential actor that projects its values and makes the world do its bidding. While the EU portrays itself as a champion of multilateralism, it is selectively supporting multilateralism in areas where it lacks unilateral power.
The more the EU bolsters the authority of the UN Security Council, the more the EU can constrain the exercise of unilateral power of others. But when it comes to the regulation of global markets, the EU can go it alone and hence is less concerned about pursuing multilateral institutional cooperation.
The EU’s unilateral employment of tools of soft coercion go against the preferences of its trading partners. An understanding of the existence and the full impact of the Brussels Effect is likely to influence the perception of the EU by its trading partners.
But it is also likely to change the perception of the EU within the EU itself. The EU is already a superpower and, importantly, a superpower of a meaningful kind.
Prof Bradford sees the non-EU world as relatively helpless against this soft power. Yet when one speaks of the EU, she says, one speaks of a small body of self-appointed civil servants of the European Commission. There is the powerless European Parliament that can pass no law. Then there is the supposedly all-powerful Council of Ministers, made up of heads of state or heads of government of the 28 member nations. But the EU is hardly a full time job for council members, who rarely if ever get down to detailed debate of regulatory teeth unless some outrage has hit the headlines. These prime ministers and national presidents have much worry about placating their own electorates and tend to leave the running of the EU to the European Commission bureaucrats who don't worry about elections.
So what opposition there is, is largely internal. Strict regulations protecting Europeans from US beef and curved bananas have brought about a vote to leave the EU from Britain and its looks like that such forces are just beginning to assert themselves in France and Germany. This may well provide states around the Mediterranean new opportunities to thrive with the expected advent of de-regulation and freer trade that is now sweeping the world. |
