How the 'Brussels Effect' will continue to run Britain's economy long after Brexit

  • Brexit backers promise that EU departure will liberate the UK from the grip of Brussels.
  • The reality is likely to be very different.
  • It comes down the “Brussels effect,” a term coined by law professor Anu Bradford which describes the huge and growing influence Europe’s single market wields over companies across the world.

LONDON – Speaking last year, foreign secretary Boris Johnson said it would be “madness” to leave the EU “without taking back control of our regulatory freedoms,” adding that Britain “may just may want to do things differently” after Brexit.

It echoes a key pledge from Brexit backers before the referendum: That EU departure would liberate the UK from the grip of Brussels, allowing Britain to forge its own future as an independent trading powerhouse.

The reality is likely to be very different. “In many ways, the promise of taking the UK out of the EU’s regulatory leash was one of the biggest false promises of the campaign, because it’s not going to happen,” Anu Bradford, an EU legal expert and professor of law at Columbia University, told Business Insider.

Why? It comes down the “Brussels effect,” a term coined by Bradford which describes the huge and growing influence Europe’s single market wields over companies across the world.

What is the Brussels effect?

The idea is simple enough. Companies operating in markets with different rules tend to adopt the toughest set of rules, because the alternative would be running several different compliance systems for the same product.

The EU has some of the strictest regulations of any market in the world – generally much higher than the US, its rival in the battle for regulatory supremacy – and any company which wants to access the EU’s lucrative market needs to comply with those regulations.

In essence, therefore, the EU sets global rules across a huge range of areas, including food, chemicals, competition, and the protection of privacy.

“There are very few companies that can afford to forego Europe. It’s [a market of] over 500 million relatively wealthy consumers,” Bradford said.

“Few global companies can divert all their trade and find enough business opportunities in the US or in China, which also are big markets. It’s very unlikely that if your scale is big enough you can just say that you don’t care about the EU market.”

Take the example of REACH, the EU’s chemical regulator, which sets rules for everything from toys and paint to furniture and fabrics. US regulators dislike Reach, because it sets the barriers for a product entering the market much higher than the US does.

But many big US companies such as the Dow Chemical Company are now committed to producing Reach-compliant dossiers on all their products, regardless of whether they are sold in the EU.

Or take the example of the EU’s strict new privacy regulations, which come into force in May. North American companies like Microsoft will still have to comply with those regulations if they want to avoid huge fines the EU plans to levy on tech companies which flout its rules.

“Microsoft has a single global privacy policy and that’s the EU’s privacy policy,” Bradford said. “It’s very hard for them to take advantage of laxer privacy regulations somewhere.”

“If you have customers in the EU, this [new privacy legislation] matters to you,” Brad Smith, Microsoft’s chief legal officer and president of Microsoft Corp told the Financial Post in November. “If you have employees in the EU, this matters to you. If you’ve even heard of the EU, this matters to you.”

What does the “Brussels effect” mean for Brexit?

In the decades-long battle for regulatory supremacy between the EU and the US, the former appears to be winning – and that should have big repercussions for post-Brexit Britain.

The UK and EU are yet to decide what their trading relationship will look like after Brexit. Options range from full single market membership to a no-deal scenario which sees the UK revert to World Trade Organisation tariffs.

The Brussels effect suggests, however, that UK companies will continue to comply with EU regulation anyway – whatever their politicians decide.

“It’s the market forces that convert the EU standard into the global standard,” Bradford said. It is the market forces, too, which will likely keep the UK bound to the EU long after it leaves.

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