Opinion & Analysis

In tech, the death of the Brussels effect is greatly exaggerated

The US and post-Brexit Britain want to carve out their own paths to regulating technologies like artificial intelligence. The EU, however, will continue to enjoy the most influence on global technology regulations.

The EU’s ability to project its own market standards across the globe is renowned. The Union may not be a military superpower. But the ‘Brussels effect’, to use the famous phrase coined by Anu Bradford of Columbia University, allows Europe to export its high standards globally. The Brussels effect protects European firms from being undercut by foreign competitors with lower standards. It also means the costs of high standards are passed onto consumers globally – not just those in Europe.

The Brussels effect is especially pronounced in the digital realm. Prompted by new EU ‘common charger’ rules, Apple is ditching its proprietary iPhone connector worldwide. And rather than developing separate processes for the EU, many of the world’s tech firms comply with at least parts of the EU’s landmark data protection law, the General Data Protection Regulation (GDPR), everywhere. The jury is still out on whether other EU digital rules – such as on digital competition, platform accountability and the proposed law on artificial intelligence (AI) – will have global reach, however. In some of these areas, the US and UK are trying to forge their own approaches.

Some commentators already view the EU’s ability to project global norms as moribund. The Economist frequently suggests the EU’s digital laws are too onerous or too protectionist to be adopted worldwide and that Europe has too few tech giants to carry much influence. The Financial Times points to the EU’s shrinking share of the world economy as a sign that other countries may shun Europe’s regulations. If their premonitions come to pass, Europe could suffer dearly. Foreign businesses might delay the roll-out of their innovations in Europe and pass regulatory compliance costs onto European customers. The US and the UK would be freer to forge their own regulatory path.

But these warnings are too pessimistic. Sensible EU rules will perpetuate the Brussels effect – leaving the US and UK with little choice but to live with the EU’s global sway over tech regulations.

Is the EU’s shrinking share of the global economy a problem?
Detractors of the Brussels effect commonly point to the EU’s slow-growing economy and consumer base, and its lack of global tech firms. However, in cross-border trade, regulations are set not by the biggest economies but by the most important importers. The Brussels effect therefore requires that foreign tech firms see Europe as an “unavoidable trading destination”, as Bradford puts it.

Because the digital economy is dominated by services – and EU digital regulations most commonly target how services are delivered, not how hardware is designed – the EU’s share of services imports is a useful starting point in assessing Europe’s regulatory influence in tech. As Chart 1 shows, Europe was already the world’s largest services importer in 2012, and its lead has only increased: it now attracts about 30 per cent of global service imports.

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About the author

Zach Meyers is assistant director of the Centre for European Reform where he works on EU competition policy, particularly in the digital sector.

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