The Icarus Effect in EU Law

Abstract The European Union (EU) seeks to shape global markets by setting standards in several policy areas. This ‘Brussels Effect’ success depends on its market power and the willingness of business and countries exporting to the EU to adopt the EU’s standards. If they are unwilling or lack the capacity to adopt, the EU is entering into a regulatory competition in which its regulatory model risks losing influence. Such a loss is likely to adversely affect the EU internal market, as it undermines the law-making power of the EU and its Member States, thereby facilitating further loss of market power. Losing out on the ‘Brussels Effect’ may incentivise businesses to relocate production outside the Union where regulatory compliance costs are lower. To prevent this, three measures need to be taken: First, a careful empirical analysis of whether the prerequisites for the ‘Brussels Effect’ are present in the respective market and intervention is warranted before taking regulatory action. Second, the regulatory measures adopted must incorporate mechanisms capable of integrating the outcomes of regulatory learning concerning the Effect’s of the regulatory intervention. Third, stakeholder involvement in the regulatory process is crucial to determine if the regulated are willing to bear additional regulatory costs. Following an introduction and terminological clarifications, the article will first present the concepts of the ‘Brussels Effect’ and Global Regulatory Competition, and how they interrelate. It will then illustrate how this interrelation plays out in EU law, using the EU’s legislative measures to implement the extraterritorial effects of the EU’s Farm to Fork Strategy following the Green Deal. Using the example of the provisions concerning chemicals in the Ecodesign Regulation, and the due diligence requirements in the Deforestation Regulation and Corporate Sustainability Due Diligence Directive, the article will demonstrate how these goals are intended to be achieved. Subsequently, it will discuss the EU’s market power in this area, with the potential to make it more attractive for companies to exit the EU market rather than comply globally with the new EU rules. Finally, the article will connect this to the dynamics of the ‘Brussels Effect’ and Global Regulatory Competition, concluding that consideration of the three aspects mentioned above is essential before intervening in markets with the intention of triggering a ‘Brussels Effect’.