Brussels effect


The Brussels effect is the process of unilateral regulatory globalisation caused by the European Union de facto externalising its laws outside its borders through market mechanisms.

Cause

The combination of market size, market importance, relatively stringent standards and regulatory capacity 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.

Name

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

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. 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.

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.

Chemicals

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

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. 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.

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. Its successor, the EU's General Data Protection Regulation, was adopted on 14 April 2016 and had a global effect. 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.
Facebook announced in April 2018 that it would implement parts of the GDPR globally. Sonos announced in April 2018 that it would implement the GDPR globally, and Microsoft announced in May 2018 that it would implement GDPR compliance for all its customers globally.

Reception

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