The Brussels Effect

Abstract Chapter 2 lays out the conditions under which a single jurisdiction exerts global regulatory authority and shows why the EU today is in a unique position to assume the role of a global regulatory hegemon. These conditions explain the emergence and prevalence of the Brussels Effect. A country’s market size is a well-understood proxy for its ability to exercise regulatory authority over foreign corporations and individuals. But market size alone does not guarantee global regulatory influence. The state must also have the regulatory capacity as well as the political will to generate stringent rules. Moreover, the Brussels Effect only occurs when the EU regulates inelastic targets, such as consumer markets as opposed to capital. Unlike capital, consumers are not able to flee to less regulated jurisdictions, compromising the EU’s regulatory clout. Finally, EU standards become global only when companies’ production or conduct is non-divisible—in other words, when a company’s benefits of adhering to a single standard exceed the benefits of taking advantage of laxer standards in other markets. These conditions, taken together, explain why the EU is the only regulatory regime that can wield unilateral regulatory influence across global markets today.