EU Autonomy, the Brussels Effect, and the Rise of Global Economic Protectionism

The Brussels Effect, once emblematic of the EU’s alleged influence in shaping global regulations, has now become a factor contributing to global regulatory fragmentation. The EU must recalibrate its trajectory towards a liberal and rules-based trading order, prioritising widespread regulatory liberalisation to counteract the risks of global protectionism and regulatory spirals. A holistic approach, both internally and globally, is crucial to prevent regulatory and subsidy spirals on a global scale. This recalibration is essential to keep global markets open and enhance the EU’s own economic and technological competitiveness.

In response to the 2008 financial crises, the EU underwent a shift in its approach to global trade, transitioning towards Strategic Autonomy. However, this gradual move away from a liberal global trade order has led to increased regulatory burdens and regulatory fragmentation, impacting businesses within and beyond the EU.

The Brussels Effect, as denoted in this paper, highlights the EU’s signalling effect on other governments in considering and implementing regulations. This effect has contributed to increased trade restrictiveness and regulatory fragmentation globally. The EU’s insistence on "autonomy" and "European values" not only empowers others to follow suit, contributing to the rise in global protectionism, but also contradicts the EU’s historical support for open trade principles and its commitment to a highly competitive social market economy.

A wealth of EU regulatory data reveals a stagnation and, in many cases, a regression in regulatory cooperation within the Single Market. This is evident from rising trade restrictiveness and a tendency towards increased legal fragmentation instead of convergence across the EU. The evolving regulatory acquis of the EU, coupled with insufficient cooperation and stalled trade agreements, poses risks beyond its borders. The EU’s paradigm shift towards autonomy contributes to global regulatory spirals and protectionist measures, particularly evident in services trade. Despite the EU’s historical commitment to harmonisation and liberalisation, many sectors, such as transport and logistics, telecoms, and digital services, have witnessed the imposition of new laws and rules that hinder trade.

With the EU’s share of global GDP expected to decrease to 9% by 2050, there is a critical need for EU governments to enhance their regulatory capabilities and foster innovation. To wield influence in global economic diplomacy, EU policymakers must prioritise policies that unleash the collective ingenuity of individuals and businesses that help to maintain high levels of productivity, competitiveness, and prosperity.

In response to these observations, we put forth some essential policy recommendations:

• Return to a Liberal Global Economic Order: The EU should reaffirm its commitment to a liberal global economic order, prioritising economic freedom, government accountability, knowledge, innovation capacities, and prosperity.
• Refocus on the Internal Market: The EU should implement a comprehensive internal strategy involving liberalisation, de-bureaucratisation, legal harmonisation, and tax code simplification. EU policymaking should foster regulatory coherence through collaboration between EU governments and the European Commission.
• Flexible Approach to Economic Integration: The EU and Member State governments should adopt a more flexible and adaptive approach to economic integration, emphasising mutual recognition to respond effectively to evolving global dynamics while preserving open markets. EU governments should engage in a constructive dialogue to streamline regulations and eliminate barriers hindering the free movement of goods and services within EU borders.
• Promote Regulatory Coalitions: EU institutions and Member State governments need to recognise the challenges in achieving consensus among all EU member states. They should promote regulatory coalitions among willing Member States for more agile horizontal and sector-specific regulatory frameworks.
• Enhance Global Regulatory Cooperation: The EU should seek more regulatory cooperation globally, emphasising mutual recognition (interoperability) of regulations, and, as a guiding principle, work towards an open and rules-based international trading system.
• Advocate for a Strategic Free Trade and Technology Alliance: EU policymakers must acknowledge the adverse consequences of evolving regulatory silos and champion the international coordination of trade and behind-the-border policies. The EU should actively advocate for the establishment of a strategic free trade and technology alliance among market-oriented democracies, such as the larger group of OECD or G20 countries. The EU and Member State governments should embrace market-led standardisation in international forums to develop global technology standards, enabling smoother cross-border digital trade. To fuel intra-EU and extra-EU digital trade, EU policymakers should take a leading role in harmonising digital and technology standards both within the EU and globally.

For further details on the research conducted by ECIPE Director Dr Matthias Bauer and Junior Analyst Dyuti Pandya click here.