The European Union in a globalised world: the "Brussels effect"

There is a general feeling, at least outside of the EU, that it is becoming increasingly irrelevant from most points of view. On the other hand, in your latest book, you claim that the EU remains an influential superpower that shapes the world in its image: it is actually the only global regulatory superpower, due to what you term the “Brussels Effect”. What is the Brussels Effect?

Anu Bradford : I do not deny that the EU has multiple weaknesses, but my book is an invitation to ask what power means today and what kind of influence is actually important. In this regard, my intuition is that we have underestimated one particular type of power; taking it into account shows that the EU really is a global hegemon. 

By the de facto Brussels Effect, I refer to EU’s unilateral ability to regulate global markets by setting the standards in competition policy, environmental protection, food safety, the protection of privacy, or the regulation of hate speech in social media. Interestingly, the EU doesn’t need to impose its standards coercively on anyone – market forces alone are sufficient. In fact, the EU is one of the largest and wealthiest consumer markets, supported by strong regulatory institutions. There are few global companies that can afford not to trade in the EU, and the price for accessing the single market is adjusting their conduct and production to EU standards, which are often the most stringent standards globally. Importantly, often these firms choose to abide by the same rules across other markets too, so as to avoid the cost of complying with different regulatory regimes. 

The de facto Brussels Effect is complemented by a de jure Brussels Effect, i.e., the adoption of EU-style regulations by foreign governments. This might be the result of lobbying by local companies that already comply with EU rules and standards, but there is a broader set of mechanisms that transmit EU rules to foreign jurisdictions. Indeed, the EU rules often appeal as a template, due to EU’s overall political influence and bargaining power coupled with its experience, expertise, and willingness to extend technical assistance and engage in capacity building. More prosaically, the civil law tradition of the EU typically leads to precise and detailed rules, drafted in multiple languages, which are easier to emulate in developing countries that may have less-skilled administrative agencies and judiciaries. The Brussels Effect presents these countries with an opportunity to outsource their regulatory pursuits to a more resourceful and experienced agency.

You make the point that your observation is not only about the EU and Brussels, but that the “Brussels Effect” might emerge in other jurisdictions too. What are its necessary and sufficient conditions?

The book attempts to lay down a generic theory of what it takes for a jurisdiction to be a global regulatory power, although the EU is now the only one who meets these cumulative conditions.

The starting point is that the jurisdiction needs to have a large and sufficiently homogeneous consumer market, so as to become an unavoidable trading destination. The next condition is that the jurisdiction needs to have sufficient regulatory capacity; being a regulatory power is a conscious choice pursued by a state rather than something inherent to its market size. The state must commit to building institutions and vesting them with regulatory capacity to translate its market power into tangible regulatory influence. Next, there should be a political will to deploy this regulatory capacity towards designing stringent rules; unlike the US, for instance, the EU has just such a political will. 

The last two conditions help identify the policy domains where this kind of power can exist. First, one can only regulate unilaterally inelastic targets. Unlike capital, which can move elsewhere if regulation becomes cumbersome, consumers are not mobile, and companies need to abide by the rules applicable in the relevant market. This explains the difference between the US, which predominantly targeted the more elastic financial sector in recent decades, and the EU, which focused on regulating consumer markets and the environment.

The last condition does the most analytical work in the theory, as it allows us to explain why some companies follow the same rules globally in some circumstances while others take advantage of different regulatory regimes in others. This is the non-divisibility of production: the Brussels Effect emerges where companies conclude that it is in their interest to pursue a uniform conduct or production pattern as opposed to taking advantage of lower regulations in other markets. 

However, you also claim that there are companies for whom it would be feasible to divide their production patterns, but that choose not to do so, for reputational reasons. 

Indeed, sometimes companies just want to retain a uniform global brand. Moreover, firms can send the markets and consumers a valuable signal by associating themselves with high standards across many areas of regulation, be it by listing their company in a stock exchange that holds them to more stringent reporting requirements or by adhering to high environmental, human rights, or labor standards. In this way, firms can enhance their legitimacy, obtain reputational gains, and win over consumers whose values drive their customer behavior. Some firms cannot afford sending a signal to some consumers that their interests are less taken care of than those of European consumers. 

In fact, there are many further reasons that push companies towards non-divisibility. For instance, legal non-divisibility refers to legal requirements and remedies as drivers of uniform standards. It typically manifests itself as a spillover effect that follows from the corporation’s compliance with the laws of the most stringent jurisdiction. Global mergers provide an illustrative example in that they cannot be consummated on a jurisdiction-by-jurisdiction basis. Technical non-divisibility refers to the difficulty of separating the firm’s production or services across multiple markets for technological reasons. It often applies to the regulation of data privacy, where the GDPR’s “privacy by design” principle increasingly ensures that products are designed to a single standard, with the EU determining the default settings as the most stringent regulator of data protection. Finally, even where companies are able to identify a technological solution that allows them to produce different product varieties for different markets, the underlying economics, and in particular the importance of scale economies, can often make such divisions untenable. 

We read your book as an interesting attempt to rethink power. You come up with a very broad theory of power. One can’t but wonder, however, whether it is not overly reliant on economic factors. For instance, isn’t EU’s perceived legitimacy, as an organization promoting certain ideals, important in explaining its hegemony? 

I think that the five conditions explain how markets expand EU’s regulatory capacity. However, this is clearly not only a story about bureaucracy and regulatory capacity. 

The idea of the EU being perceived as a legitimate regulator comes down to whether the values reflected in its regulations are embraced by governments, companies and consumers. Partially, the answer determines whether companies themselves would be willing to be seen as following certain rules and standards. This is clear in the tech industry, where companies now want to be seen as being associated with the values embodied in the EU rules. This is the reason why they do not adopt, for instance, the more stringent Chinese rules on free speech online. US techno-libertarianism is now widely held to be obsolete, while the Chinese digital authoritarianism is inacceptable; therefore, the best way to gain their consumers’ trust might be to subscribe to EU rules and underlying values, which are generally well thought and produced through an appropriate legislative process. 

EU’s perceived legitimacy is also clearly important for the de jure Brussels Effect; indeed, foreign governments are only comfortable with emulating the EU because it is perceived by their own citizens as a good example to follow. 

What about multilateral cooperation – is there any place left for it from the perspective of the global regulatory hegemon? 

The book might be read as challenging the prevailing narrative that views the EU as a champion of multilateral cooperation and universal norms, painting a stark contrast with the United States’ unilateralism in international affairs. Through the Brussels Effect, it is the EU, and not the United States, which best deploys the market forces to unleash its unilateral global regulatory power. What is distinctive about the unilateral Brussels Effect is that it is a peaceful and quiet power. The EU doesn’t need to rely on coercion or cooperation. It doesn’t need to get the governments to agree on those rules, as the market incentives push the companies towards complying. In contrast to traditional channels of international influence (e.g. economic sanctions), regulatory power is one of the few areas where unilateralism still works.

This doesn’t mean that this is the only way through which the EU wants to exercise its regulatory power. The EU also wields norm-setting power through a number of different channels such as trade agreements and participation in international institutions and transnational government networks. Clearly, it has a substantial vested interest in the resilience and continuation of the liberal international order. The EU is very active in international organizations and attempts to enter into multiple multilateral agreements. However, here the EU is forced to secure a political agreement, which is hard to achieve even within the EU itself. Treaty-driven harmonization is particularly difficult if states do not agree on the benefits of global standards. Their enforcement is also tricky, as there is no guarantee that treaties will be implemented or enforced. The existing divisions that make multilateral cooperation challenging appear to only be growing. 

This being said, the theory developed in the book does suggest that the EU is expected to rely on cooperative instruments in situations where the Brussels Effect fails to reach EU corporations’ important export markets, as, in the absence of a level playing field, the EU’s export-oriented firms face difficulties penetrating these markets. Similarly, the theory would suggest that the EU is more likely to pursue treaty-driven harmonization in areas where the EU has limited regulatory capacity and hence a diminished ability to generate regulations. 

Does the European Court of Justice (ECJ) play any role in the Brussels Effect?

The ECJ has often been asked to rule on the extent of the regulatory powers of the EU and has been on balance pro-integration, enhancing the powers of the Commission and other EU institutions. Indeed, many central concepts of EU law—including the supremacy of EU law and its direct effect—stem from ECJ rulings. In recent years, it has also been asked to directly rule on the extraterritorial effect of EU rules. The right to be forgotten is a good example: prior to its inclusion in the GDPR, it was promulgated by the ECJ. However, my feeling is that mostly the ECJ has an internal focus, any external effect being either an afterthought or an instance of the “Brussels Effect”.

Beyond this interpretative role, the European courts have provided an institutional template for regional courts. Indeed, some studies show that there are multiple copies of the ECJ around the world. Moreover, foreign courts often cite the ECJ rulings in multiple areas. Foreign jurisdictions also tend to follow the EU’s lead and engage in “copycat” litigation in cases where the effects of some conduct—such as anticompetitive practice extend across multiple markets, especially where EU investigations alert foreign governments and plaintiffs of the conduct that calls for enforcement action, or where relying on EU investigations lower the costs of enforcements for jurisdictions with fewer resources.

As you clearly point out, market power alone is not enough. For instance, the US has an important consumer market – indeed, it already had one before the EU was created. It also has the regulatory capacity, and a legal tradition close to the European one. However, it does not seem to enjoy the same kind of influence, mostly because it doesn’t pursue the most stringent standards. What is special about the EU and its normative agenda?

The main reason for the European appetite for regulation is that it has been the primary tool of European integration. There has always been a dual motivation behind regulation: not only setting the substantive rules for a particular field (e.g. environmental regulation), but also building a single market that allows for a harmonized regulatory environment and thereby frictionless trade across the member states. This dual role has paved the way for compromise, as parties across the political spectrum, businesses and consumer organizations alike can fall behind regulation as a means to increase integration. In a way, regulation is the only means for the Commission to intervene in the economy, given its tight budgetary constraints restricting EC’s ability to pursue direct-expenditure programs; when the Commission seeks to expand its competencies, it tends to do so via regulation. 

The second reason is that Europeans trust the market less than Americans do, and have generally structured their economies so as to allocate more rights to the state as opposed to the individual. Furthermore, the EU does not share the US’ reliance on private litigation and tort liability rules to deter firms from placing unsafe or otherwise harmful products on the market. Instead, the EU relies on the government to promulgate, and then enforce, ex ante regulations, such interventions being often perceived as legitimate and desirable.

As to the content of the rules, there are several reasons why EU regulation usually favors “harmonizing up” rather than “harmonizing down”. 

First, stringent standards were often adopted to reassure the European public that economic integration would not be pursued at the expense of consumer health and safety or environmental quality. Moreover, Europeans generally subscribe to a “precautionary risk culture”. Indeed, the EU and the United States both share the administrative culture of analysing the costs and benefits of regulatory action before enacting a new regulation. However, the adoption of this “impact assessment” is more recent and hence less entrenched in the EU. When regulatory risks are uncertain and hard to accurately quantify, the EU is more comfortable intervening, even based on precaution. 

Upward harmonization has also been politically more palatable among the states that already had the highest standards in certain regulatory areas. High growth rates and competitive economies in Northern Europe enhance these countries’ ability to advocate for environmental regulations that do not compromise economic goals. They also have a strong incentive to Europeanize their standards so as to ensure that their domestic firms are not disadvantaged when competing in the European market. 

When considering the views of the various key interest groups, harmonizing up as opposed to down also provides a fertile ground for compromise. Marrying each standard’s economic purpose to its broader societal purpose helps build coalitions among different stakeholders. Even for businesses that would prefer laxer rules, upward harmonization remains preferable to discordant national standards, which inevitably increase costs and complexity. 

What about protectionism? Might the Commission be engaged in protecting European companies from international competition? 

Those skeptical of the EU’s external regulatory influence often portray the EU as a protectionist actor, eager to impose costs on foreign firms in an effort to protect EU firms, especially regarding antitrust investigations of the tech sector. However, a closer look at the relevant cases suggests that European companies are hardly the main beneficiaries of the Commission’s competition actions. In most instances, the winners are other US companies, including the ones who had filed complaints with the Commission as affected competitors in the first place. 

We understand that, in a way, engaging in an extensive regulation is almost an existential concern for the EC. Does this mean that the Brussels Effect is consciously pursued?

For a long time, the resulting Brussels Effect was just an ancillary and largely unintended by-product of a regulatory agenda that was driven by internal motivations. However, the Brussels Effect itself proved to be useful for furthering European integration. For one, it helps the Commission level the international playing field, thus mitigating concerns from EU firms of their global competitiveness. This helps win broader support for further EU regulation. For another, due to the Brussels Effect, the EU increasingly becomes a global standard setter, which enhances the legitimacy and influence of its standards, both at home and abroad. The Brussels Effect also offers an important foreign policy instrument, compensating the Commission for the lack of power it otherwise has in external affairs. 

The external dimension of the single market was only fully realized when the EU’s trading partners, including the United States, expressed concerns that the single market might impose costs on third countries. Indeed, various statements from EU institutions point to a growing awareness of the external effects of the single market, and the realization that this dimension presents the EU with opportunities. 

The economic goal of ensuring a level playing field for, and protecting the competitiveness of, European industry likely goes a long way in explaining the EU’s willingness to externalize its regulatory agenda. However, the EU may also be motivated by a desire to obtain greater legitimacy for its rules through globalizing them. It may also attempt to replicate its own governance model and regulatory experience abroad. The EU’s own successful experience in creating a common market has encouraged it to pursue a global order based on those same rules. The EU subscribes to a view that trade liberalization fails to achieve economic goals without a simultaneous harmonization of policies. Finally, being able to set norms globally allows the EU to prove to its critics that it remains relevant as a global economic power. Embracing the role of a regulatory hegemon reinforces the EU’s identity and enhances the EU’s global standing even in the times of crises where its effectiveness and relevance are constantly being questioned.

Whatever the motivation might be, you claim that the result is a certain convergence on stringent standards across the globe. How does your observations fit with the prevailing studies on regulatory competition, which usually point to a race to the bottom?

Thinking about the Brussels Effect detaches globalization from the idea of deregulation and the race to the bottom. It shows how the benefits of uniform production across the global marketplace incentivizes companies to adjust their regulatory standards upward rather than downward. 

From this perspective, the Brussels Effect builds on the so-called “California Effect”, expanding its dynamics from a US federal system to a global context. However, it also outlines the precise conditions that allow an upward regulatory convergence to emerge. The theory underpinning the California Effect recognizes the importance of market size and scale economies as a source of a jurisdiction’s external regulatory clout. Yet it fails to acknowledge factors such as regulatory capacity and inelasticity as key components of the theory and overlooks factors other than scale economies that can prevent a company from producing different varieties for different markets. 

Finally, the literature on regulatory competition generally focuses on the “de jure regulatory convergence”, which fails to account for regulatory convergence that takes place in the absence of formal changes to legal rules. In fact, the de facto convergence can take place in the midst of a great-power disagreement. When the conditions for the Brussels Effect exist, rival standards between two equal powers fail to materialize. Instead, the outcome of the regulatory race is predetermined: the more stringent regulator prevails.

One cannot but think that the conditions you explain are specific to the institutional, economic and political features of the EU. Does it mean that a similar effect cannot be expected in Washington, or indeed in Beijing?

A similar effect might in fact emerge elsewhere, although the reasons for engaging on the stringent regulation path may differ. The US and China are not completely oblivious to regulatory competition. Indeed, we already see such competition for the regulation of technology, where every one of those jurisdictions attempts to assert its own philosophy. The US tries to enshrine its techno-libertarian approach, making sure that no regulation would compromise the free internet and incentives to innovate, while China makes significant incursions by asserting its authoritarian vision. 

To be sure, the political economy behind the rise of the regulatory state might be different in other jurisdictions, but the endpoint could very well be the same. The US has not been willing to regulate from the beginning of the 1990s, but there seems to have been a change of heart in the past several years. While predictions are difficult, I expect that the EU will turn out to be on the right side of history, and that other jurisdictions will move towards accepting that significant dangers arise out of an unmitigated free market, prompting the need for regulation. 

However, can it be expected that a similar effect would emerge in countries that do not follow the same approach to social regulation? China, for example, seems to use technical standards more than legal regulation; indeed, it seems that using the law as the main tool of social regulation is very much a European and US tradition. Couldn’t there already be a “Beijing Effect”, deployed through other means? 

Thus far, Beijing has not chosen EU’s path for becoming a regulatory hegemon. It chose to use infrastructure building as a way to export its standards; this is indeed a different logic, and the “Beijing Effect” might be something altogether new, rather than a variant of the Brussels Effect. However, if Beijing were to choose to enhance its influence by following the EU model, the five conditions for the emergence of the Brussels Effect might provide a clear roadmap, if China also truly opens its markets to foreign companies. 

Nevertheless, I think that even in such circumstances the Beijing Effect would take a long while before emerging. The reason is that the regulatory capacity is tied to GDP per capita rather than GDP: the Chinese consumption per capita is not high enough, for the time being, for consumers to be concerned about stringent protective regulations as European consumers do. 

In some areas, and most importantly the regulation of digital platforms, these jurisdictions seem to actually be drifting apart. Might the reason be that there is no common ground in this area, meaning that such convergence is indeed an important part of the Brussels Effect? European hateful speech may very well be US free speech, and both have an incentive to be the first ones to set the prevailing rules.

We might witness an increased balkanization of the Internet through the emergence of competing regulatory centers. This is inevitable to some extent – it has happened already, as attested by the fact that there are other dominant digital platforms in China or in Russia. Partially this is explained by the lack of agreement on fundamental principles in these areas. 

This being said, a full balkanization is unlikely. Taking your example, some Silicon Valley companies do actually follow the EU more stringent rules, staying away from the full extent of the more permissive US doctrine of free speech. However, content moderation will be a great challenge going forward, for it is an area where values clash and decision making in concrete instances is difficult, especially considering the amount of relevant data. 

Based on your research, we understand that international power might emerge from an interplay between legal and economic forces. Indeed, this kind of power allows the EU to set global standards protecting some values dear to European consumers and citizens. But how long can it be expected to last, in light of the expected evolution of its relative economic power? What if the global markets do get balkanized, perhaps under Chinese pressure?

It is indisputable that the EU will be a smaller market going forward; its relative share of the global GDP will go down, just as that of China’s will increase. I expect, however, that EU’s regulatory power will outlive its pure economic might. 

One reason is that it takes a significant amount of time and energy to build a regulatory capacity similar to the one embedded in the “Brussels Effect”. Moreover, the willingness of a jurisdiction to set stringent standards depends on the GDP per capita more than on relative economic power. It might be that by the time Chinese GDP per capita becomes sufficiently high, its economic growth will slow down to the point where the government would not be willing to take any risks of further slowing down growth by creating regulatory barriers. Finally, China heavily relies on export-driven growth, while it is the import markets that get to set the global standards. 

In any case, to the extent that China is building its internal regulatory capacity, we actually observe that it is copying the EU model; here, its standards and values are therefore entrenched and institutionalized through the de jure “Brussels Effect”; in the end, the de facto market governed by EU-style rules and standards becomes larger that the European consumer market. 

I do not expect the Brussels Effect unravel due to the balkanization of global markets. For one thing, Europeans have in fact been quite skillful in engaging with China, at least where it is possible to do so without compromising its values. There might be some areas, including the regulation of digital economy, where the required consensus is lacking. In those instances global markets may be balkanized and the EU will not be able to exert any regulatory influence over Chinese companies. But, I am hopeful that increased transatlantic cooperation in technology regulation will allow the EU and the US to provide a normative counterweight to China, and hence limit its efforts to deploy and export its digital authoritarian model abroad. More generally, while the liberal international order might be on the verge of unraveling, the Brussels Effect challenges the view that globalization is necessarily in retreat. It shows that international norms may continue to emerge in many policy areas even in the absence of multilateral cooperation, for the Brussels Effect is a way to mitigate the demise of international cooperation and institutions in some policy areas.

This being said, there are indeed multiple existing and emerging threats and challenges that have the potential to undermine the conditions sustaining the Brussels Effect in the future. In particular, the EU’s relative market size will diminish. The EU’s relative regulatory capacity could weaken, whether as a result of Brexit, due to the threat posed by populist anti-EU parties or following China’s relative increase in regulatory capacity. The EU’s willingness to promulgate stringent rules could similarly be undermined, in particular if the populists’ anti-EU agenda leads to attempts to repatriate powers back to the member states. The non-divisibility of production could become less common due to technological developments such as additive manufacturing or geo-blocking. Further, the weakening of the de facto Brussels Effect could be accompanied by the fading de jure Brussels Effect as the anti-globalization sentiment hinders treaty making and institutionalized cooperation. 

These forces and challenges combined may, over time, corrode the most potent version of the Brussels Effect, squeezing the EU’s regulatory hegemony from the outside as well as from within. However, it is unclear if any of these developments will challenge the Brussels Effect in the immediate future. It is also highly plausible that the EU’s regulatory machinery will simply hum along, extending EU’s regulatory hegemony into the foreseeable future.