Europe is getting jittery. Soon the borders of the European Union will stretch from the Atlantic to the Black Sea, bringing the population of the world’s biggest trade bloc to almost 490m – bigger than the US and Japan combined.
Seen from some European capitals, the accession of Bulgaria and Romania in 2007 or 2008 is a worrying sign of overstretch, fuelling fears that the EU is becoming too cumbersome and too diverse to have real clout in the globalised world.
In Washington there is another view. Senior officials see the latest step in the creation of a behemoth that will use its economic weight to impose European values on the rest of the world, often through excessive regulation.
According to Rockwell Schnabel, the former US ambassador to Brussels, Europe is “increasingly seeking to act as the world’s economic regulator”.
Little surprise then that Mr Schnabel’s successor, Boyden Gray, is not a career diplomat but a top regulatory lawyer, whose mission is to minimise transatlantic friction between the world’s two biggest trading partners.
On Thursday Mr Gray set out plans to improve regulatory co-operation between Europe and the US but added: “We’re not interested in convergence if it would mean raising the regulatory burden in the domestic US market.
“From a US perspective, the main problem is less that our regulations differ than a general sense that Europe is overregulated and that this overregulation is stifling growth,” he told the European Policy Centre think-tank.
Companies trading with Europe must comply with EU standards that are often more risk-averse than those seen in the US, manifested in new legislation on the testing of chemicals or restrictions on genetically modified food and hormone- enhanced beef.
European regulations also reflect other cultural preferences, for example in the setting of high environmental standards or the rejection of animal testing.
As Mr Schnabel notes: “The only way to make sure that EU standards do not put European industry at a competitive disadvantage is to ensure that industry around the world has to work to the same standards.” Of course, it is a two-way process: US regulations such as the Sarbanes-Oxley Act imposed onerous reporting restrictions on European companies operating in America after the Enron scandal. But as Mr Schnabel notes: “Washington regulates far less than Brussels or the EU member states and, when it does regulate, it is less likely to act on the principle of precaution.”
Not doing business with Europe is an unattractive option. The 27 members of the enlarged EU are projected by the IMF to have a gross domestic product of $14,290bn (€11,133bn, £7,584bn) in 2007, bigger than the US, at $13,943bn.
Europe’s regulatory clout is particularly visible in the cars sector, where EU standards and norms are applied by countries across the world, including Japan, India, South Africa, Australia and China.
That means that European companies such as Fiat, Volkswagen and Peugeot can simply ship their cars to Japan and elsewhere without making costly tweaks to their models or getting the approval of foreign safety authorities.
US groups such as GM and Ford, on the other hand, face the administrative burden of persuading Japanese authorities that their cars meet all the requirements of domestic law.
“It is a huge advantage if you are the one setting the standards, because it is always better to make the policies rather than to follow them. That is also hugely important for our industry,” says the spokesman for Günter Verheugen, the EU industry commissioner.
Mr Gray on Thursday praised the campaign for “better regulation” promoted by Mr Verheugen, which aims to minimise burdens on business. The flow of new EU regulation has slowed considerably since the new European Commission took office in 2004.
But Mr Verheugen admits that a passion for regulation still resides among officials in Brussels, not to mention members of the European parliament and government ministers in member states who continue to push pet projects. Mr Schnabel concludes that his successor still has his work cut out: “It is too soon for liberals to declare victory,” he says.
Mr Schnabel, who left Brussels in 2005, observes in his book, The Next Superpower?, that the Commission, the EU’s executive arm, is adept at deploying economic soft power.
During a dispute over US steel tariffs in 2003, the Commission threatened trade sanctions against products from electorally sensitive states. “A market that big is why the Commission could credibly threaten to use trade sanctions to influence the 2004 US presidential election,” he writes.
The EU is a regulatory machine, churning out common standards to make the bloc’s single-market function effectively, allowing companies to exploit fully the economies of scale offered by a huge home market. Such rules are determined by majority voting, so the EU’s expansion should not necessarily lead to legislative gridlock.
In developing common standards for its member states, it in effect imposes the same rules on companies wishing to trade with Europe, a fact that can give European companies a big competitive advantage.
For example, Europe’s decision to adopt GSM as its standard for mobile communications gave a head start to companies such as Nokia of Finland and Eriksson of Sweden. The EU’s role in opening national telecommunications markets to competition was also vital.
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