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The Brussels Effect: why to comply with the European Union's normatively... Even though your company is in Latin America
At exoap we always suggest adhering to European regulations to start the internationalization processes of companies, whether for the export of products or for the expansion of digital platforms.
Not only because of the European market of more than 500 million citizens, nor because of its purchasing power, but rather because of how difficult it is to comply with its regulations... ¡¿What's so good about that?! In this publication we will explain why it is advisable and the best way to explain it is by addressing the concept of the Brussels Effect.
Let's start from the beginning, why is it called the Brussels Effect?
Bruselas es la capital de Bélgica. Paralelamente, Bruselas es considerada (en conjunto a Luxemburgo y Estrasburgo) como la capital de la Unión Europea (UE) puesto que ahí se encuentran los organismos de toma de decisiones de la comunidad.
There we find part of the European Parliament, the European Council and the Council of the European Union (yes, they are different), the European Commission, the European Committee of the Regions and the European Economic and Social Committee. To summarize, these are the most relevant institutions in the creation of the Union's regulations.
¿In what does the famous Brussels Effect consist?
As we repeat in our various media, European regulations are the strictest at the international level. European Union law places special emphasis on environmental, health or consumer protection issues, food safety, protection of privacy or regulation of hate speech on social media.
The creation of detailed European regulations is the result of the high quality standards for consumer goods and services demanded by the citizens themselves and which will be applicable to all Member States of the community by means of regulations or guidelines.
For example, the General Data Protection Regulation is a product of people's concern for their privacy. This concern emerged during the Second World War, when data were systematized to identify and persecute people in the Holocaust. Learn more here.
The juicy European market attracts large multinational companies, which will seek to comply with EU regulations not only for the revenues it represents, but also to increase their reputation for offering quality products or services and concern for their customers. By adopting European regulations, they bring their standards to their countries of origin, which will be projected to other non-European companies in competitive processes. Eventually, the same multinationals will pressure their governments to legislate with respect to the standards they already meet, thus gaining an advantage over companies that are unfamiliar with the relevant controls.
In this process, the European Union becomes hegemonic in regulatory matters, setting quality and safety standards, in order to make other countries adopt them. It should be emphasized that this is a process that was not planned, it is simply the result of the characteristics of the common market.
Based on the above, the Brussels Effect has two elements. The first is of factoin which companies decide to adapt their behavior to the regulations of the single market without the need for intervention by the governments of their home states.
The second is of jure, in which non-European governments adopt EU regulations. This is because multinationals that have already adopted European regulations put pressure on their jurisdictions not to compete at a disadvantage with other national companies that do not meet the same quality standards.
Some examples of the Brussels Effect
The Brussels Effect has had an impact on antitrust, chemicals, aircraft emissions, data protection, privacy and international trade.
Here are some examples:
- Blocking of the acquisition of Honeywell by General Motors in 2001 on grounds of monopolistic practices, even though the operation had already been approved by the United States.
- The Dow Jones chemicals company that decided to submit to the regulatory framework for its entire production chain in 2006.
- All digital platforms that have European users have adopted the General Data Protection Regulation (GDPR). For example Google, Facebook, Amazon and Netflix.
Usually, compliance with EU regulations is mandatory to be able to offer products or services in European territory. However, due to the characteristics of digital platforms and their easy global access, they can offer them and as they acquire users they must comply with the GDPR.
If your company, through a digital platform is violating the privacy of European users, the Union has the tools to be able to fine extraterritorially. This means, even if your company is not incorporated in an EU Member State.
Learn more about the GDPR and its extraterritorial scope here.
Fortunately, among European regulations, the GDPR is the easiest to start following. Here you can learn the essentials to avoid fines!
Why not comply with the regulations of other economic powers such as the United States or China?
The author of the book The Brussels Effect: How the European Union Rules the World, Anu Bradford, argues that there are 5 elements by which the European Union can be a hegemon in international regulatory frameworks.
- A large domestic market: within the European single market, there are around 500 million citizens. In parallel, there are more than 24 million companies and its GDP is similar to that of the USA. China also has a large population and a high GDP, however, the Union's GDP per capita (distributed among the population) makes the difference.
- Considerable regulatory capacity: all the institutions in charge of making the single market work, including those created specifically for certain matters.
- Creation of strict rules: in comparison with the United States, which is characterized by allowing hyper-liberalism online, and China, which censors a large part of its networks.
- Predisposition to regulate inelastic markets: this means that companies must comply with EU regulations, otherwise they will not be able to sell in the EU territory.
- Indivisibility of standards: producers adopt European standards for all their global production.
Conclusion: ¿why to adopt European Union regulations?
EU regulations are the most advanced, complying with them is a choice for visionary entrepreneurs who want to expand their business to other regions. By taking the EU regulatory regime as a starting point, you won't have to struggle to comply with less stringent ones - you've got it covered! So you avoid the costs of adapting your company's standards on a country-by-country basis.
The Brussels Effect and the adoption of European regulations in your company is a shortcut, in which, like many transnational companies, you can acquire more revenue.
First, by complying with European rules, you will be able to offer your products or services to a large market with high purchasing power.
Second, you consolidate your brand as one that cares about quality, privacy, security, sustainability and more.
Third, you will be at the vanguard of requirements that will eventually become mandatory in your country.
Sources:
EU Institutions, bodies and agencies.
Anu Bradford (2020),The Brussels Effect: How the European Union Rules the World.
Martin Dixon: Booket on International Law.
Eurlex: TFEU.
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