How the European Union Rules the World

Anu Bradford is the Henry L. Moses Professor of Law and International Organization at Columbia Law School and a director for the European Legal Studies Center. Her research and teaching focus on European Union law, international trade law, and comparative and international antitrust law. In a new book, The Brussels Effect: How the European Union Rules the World, she argues that the EU has become a leader in establishing standards worldwide, and that it is uniquely positioned to continue to set the pace in global policymaking.

Global Finance: To read in your book that the EU has “unilateral power to regulate global markets” is surprising and counterintuitive. How did you reach this conclusion? Where does this EU strength come from?

Anu Bradford: By observing the market behavior of numerous multinational corporations, it became obvious to me that these companies are adjusting their production and conduct to EU regulations in many fields, whether in the domain of antitrust law, data protection, speech that they tolerate on their platforms, or environmental norms or food-safety standards.

The EU’s strength comes from its large internal market, consisting of over 500 million relatively wealthy consumers. Few companies can afford to abandon trading with Europe. The EU can further leverage its market size to concrete regulatory influence given its strong regulatory institutions and the broad political support among the EU citizenry and among the political parties—both left and right—for protective regulations.

GF: Your research seems to contradict a general perception of the EU as weak and divided, and not influential in the rest of the world. Why is that perception so strong and how does the Brussels Effect surmount impediments to greater EU power and influence?

Bradford: It is true that the EU has limited hard power to exert global influence. Economic power is also gradually shifting to Asia and other growing markets. But portraying the EU as weak rests on an outdated vision of what kind of power matters today. Hard power is very costly to exercise. In contrast, the regulatory power that the EU possesses has tremendous impact on everyday lives of corporations and citizens around the world. It drives outcomes and determines which products are produced and consumed.

GF: Your thesis is that the EU does not impose standards on the rest of the world, but that it doesn’t have to. EU standards have become the de facto standard worldwide in several areas. Do companies conform to EU regulations because they are often the most stringent ones, and are thus accepted worldwide?

Bradford: Yes. All the EU has to do is regulate its internal market. Companies that provide goods or services to the EU must comply with EU rules. And once these companies have incurred the costs of adjusting their conduct or production to EU regulations, they typically extend those rules to govern their global operations. This allows them to take advantage of scale economies associated with uniform production, which is often cheaper than tailoring their conduct and production to each market in which they operate.

GF: To what extent is EU leadership in regulation due to the weakness or constraints faced by regulators elsewhere in the world in areas like antirust regulation, data protection, anti-money laundering and financial services in general?

Bradford: It is true that the EU’s relative regulatory power is partially explained by the weakness of other regulators. China has a large market but lacks sophisticated regulatory institutions in many fields. The US would have the regulatory capacity but has been unwilling to exercise it. The political mood in the US has favored deregulation over the last two decades, which has only served to increase the EU’s relative influence over the global marketplace.

GF: Does this leadership in regulation affect other areas of operation of the EU, now or potentially in the future?

AB: It is unclear if it will. However, the EU is increasingly conscious of its role as a global standard-setter and will likely learn to play to its strengths even more in the future. This is especially the case as the EU’s hard power remains limited, and its “normative power” is weakened due to the rule of law backsliding in countries like Poland and Hungary.

GF: What is the future of the Brussels Effect in light of Brexit and anti-EU sentiment in so many European countries?

Bradford: The Brussels Effect explains how Brexit will not liberate the UK from the EU’s regulatory reach. Even after leaving the EU, UK companies will continue to abide by EU regulations, since half of UK exports are destined for the EU. These companies are further likely to extend these regulations globally—as opposed to running separate product lines for the EU and the rest of the world. The UK’s departure from the EU will likely further strengthen the Brussels Effect, as the UK will no longer have a restraining influence over those rules. Post-Brexit, the UK will be a voiceless rule-taker in Europe, where rules are set by others.