If the “Brussels effect” fades in tech markets, the EU will only have itself to blame

The EU’s ability to project its regulatory standards across the globe is under pressure. Policy-makers within the EU fret that over-regulation, especially in tech, is contributing to the bloc’s slow economic growth. Tech firms are increasingly withholding innovative services from European consumers, blaming new EU tech laws. And countries like the UK and the US are taking a deliberately different approach to the EU in regulating newer technologies like artificial intelligence.

But the main drivers of the so-called Brussels Effect – Europe’s importance as the world’s largest importer of digital services, its relatively open markets, and the lack of alternative global standards – remain relatively undiminished. If the Brussels Effect fades in tech, it will be because law-makers have become over-confident in its influence – rather than ensuring EU tech laws reflect good regulatory practice.

INTRODUCTION

The EU’s ability to project its own market standards across the globe is renowned. The Union may not be a military superpower. But the “Brussels effect,” to use the famous phrase coined by Anu Bradford of Columbia University,2 allows Europe to export its high standards globally. It may do so when firms voluntarily apply EU standards elsewhere or when foreign governments adopt EU laws as their own standards. The Brussels effect means the costs of Europe’s often stringent regulatory standards are passed onto consumers globally – not just onto Europeans.

However, there are growing concerns that the Brussels effect – which was initially a happy side effect of the EU adopting high-quality laws, but is now increasingly adopted by EU law-makers as an explicit goal of law-making – is under pressure.

In physical goods, the Brussels effect still seems to be holding up. For example, the UK government – despite launching its own conformity assessment marking, UKCA – has been forced into continuing to accept Europe’s CE market for most products,3 largely because many firms were uninterested in undergoing a separate conformity assessment just for the relatively small UK market.

But the digital sectors of the economy pose a more acute dilemma. On the one hand, prompted by new EU “common charger” rules,4 Apple is ditching its proprietary iPhone connector worldwide. The British government is considering following the EU in mandating the use of USB-C for electronic devices.5 And rather than developing separate processes for the EU, several of the world’s largest tech firms have complied with at least parts of the EU’s data protection law, the General Data Protection Regulation (“GDPR”), everywhere they do business.

The EU’s more recent and significant digital rules – such as on digital competition6 and artificial intelligence7 (“AI”) – face a tougher challenge in achieving global reach. There is growing concern in the EU that many of these rules are contributing to Europe’s lack of innovation and competitiveness:8 both by making it harder to use emerging technologies in Europe, and by posing barriers to tech start-ups hoping to start business on the continent. That is encouraging countries like the U.S. and the UK to forge their own approaches in areas like regulation of AI. There is also increasing evidence that tech firms are prepared to withhold innovative services from Europe, or offer Europeans only a degraded service. And Donald Trump’s reelection means that the U.S. might be more willing than in the past to retaliate against efforts by Brussels to influence global norms which Trump perceives to be counter to U.S. interests. If the Brussels effect frays, global tech firms could find ways to pass regulatory compliance costs solely onto European customers – putting Europe’s competitiveness further at risk.

Despite its relative economic decline, this paper argues that the EU is still capable of exerting a strong Brussels effect – leaving the U.S. and UK with little choice but to live with the EU’s global sway over tech regulations. But that relies on EU law-makers accepting the limits of Brussels’ influence – and focusing more on delivering high-quality laws than on actively seeking to maximize the Brussels effect.

IS THE EU’S SHRINKING SHARE OF THE GLOBAL ECONOMY A PROBLEM?

Some commentators already view the EU’s ability to project global norms as moribund. Detractors of the Brussels effect commonly point to the EU’s slow-growing economy and its lack of global tech firms. The Economist, for example, often suggests that Europe has too few tech giants to carry much influence.9 The Financial Times similarly points to the EU’s shrinking share of the world economy as a sign that other countries may shun Europe’s regulations.10 These voice have grown in volume since former Italian prime minister Mario Draghi’s recent dire diagnosis of the state of Europe’s economy.11

However, in cross-border trade, regulations are set not by the biggest economies but by the most important importers. The Brussels effect therefore does not depend on the size or growth of the European economy generally. Instead, it requires that foreign tech firms see Europe as an unavoidable trading destination.

Because the digital economy is dominated by services – and EU digital regulations most commonly target how services are delivered, not how hardware is designed – the EU’s share of global services imports is a useful starting point in assessing how important Europe remains to global tech firms. As the chart below shows, Europe was already the world’s largest services importer in 2012, and its lead since then has only increased: it now attracts about 30 per cent of global service imports. Despite concerns that EU regulation has recently become increasingly discriminatory, even from 2022 to 2023, the EU’s share of global services imports continued to increase.

What about for digital services specifically? Research from the Jacques Delors Institute suggests the EU’s position as an importer of digital services is particularly strong.12 But we can be even more specific when examining the relatively small number of U.S. tech firms whose productivity is driving the American economy. According to their recent annual reports, Meta and Apple obtain 22 per cent and 24 per cent of their revenue from Europe, for example – second only to the U.S. Other large U.S. tech firms do not isolate their European revenues in public reporting, but their published figures are consistent with Europe being their most important foreign market.

Furthermore, while many see the Brussels effect as being stronger in goods than services, digital service exporters may in fact be more susceptible to the Brussels effect than goods exporters are. If good exporters see EU regulations as too onerous, they can try to divert their products to alternative markets. Digital services providers do not have this option. They often have very low marginal costs, which means it is nearly costless to accrue new users, so they have less need to prioritize some markets over others. And since these services are delivered online, and face less domestic regulation than goods do, many digital services providers already have access to a global marketplace of users. In these circumstances, leaving the EU market, or delaying the rollout of new services to Europe, represents a loss of revenue which cannot be mitigated through diversion of those services elsewhere. As a consequence, although some tech firms threaten to leave, or to not rollout new services in Europe, until recently many have tended to backtrack.13 In other cases, delays do not seem to have upset consumers or the economy much: Meta delayed rolling out its competitor to X/Twitter, Threads, in the EU because of the way the Digital Markets Act limited its use of data from Instagram users. But the service is struggling globally.

Europe’s growing share of global services imports suggests that – if EU regulations do not become more burdensome – the Brussels effect would become stronger over time. Put another way, the EU can afford to impose some new regulatory burden on technology firms before they think harder about leaving the European market, compared to the status quo. However, the EU should not take too much comfort from this conclusion. Many new EU digital regulations in the last few years like laws on digital competition and artificial intelligence have not yet been fully implemented, and so firms are not yet feeling the costs. The EU might have already done enough to start weakening the Brussels effect in tech.

EVIDENCE OF THE END?

Europe’s relatively open markets and its clear standards are complemented by the lack of viable alternatives. Congressional deadlock has meant the U.S., for example, has been unable to establish a federal privacy law or set comprehensive standards in other digital areas. And Donald Trump’s re-election, with his stated desire to cut regulation, means the U.S. is unlikely to start challenging Europe as a global standard-setter.

The Biden administration had been engaging heavily in bilateral and international forums – such as the various international discussions on AI regulation – to help influence global digital standards. But these have often only resulted in non-binding or high-level commitments, rather than providing a persuasive counterpoint to EU laws. The primary forum for Washington to engage with the EU on tech regulation, the EU-U.S. Trade and Technology Council (“TTC”), is widely viewed as having lost momentum and will probably not survive under the second Trump presidency.

Similarly, the U.S. has made efforts to regulate AI without legislation – both through the White House blessing U.S. AI firms’ voluntary commitments, and by issuing an executive order setting standards for AI systems procured by the government.14 But these commitments and rules remain weaker than Brussels’, and they are seem unlikely to endure: Donald Trump has vowed to rip up Biden’s AI order, for example.

There are therefore good reasons to believe the Brussels effectstill exerts some influence on the EU’s trading partners in tech. However, there are three risks Brussels law-makers need to pay more attention to if it wants the Brussels effect to continue.

A. Unrealistic Expectations

In some cases, the EU risks sabotaging the Brussels effect by conditioning market access on foreign countries adopting EU standards to an extent which is not politically realistic or feasible. One recent example is EU law-makers’ push for cybersecurity rules which could limit the use of foreign cloud computing services, except where those foreign services could prove they were “immune” to non- EU laws (particularly laws regarding access to data for law enforcement and national security purposes).15 This is unrealistic given the globalized nature of the internet and the widespread use of cross-border data flows, and the unlikelihood that the U.S. will undermine its data-gathering powers to respect European sensitivities. There are similar concerns that the GDPR’s rules on cross-border data transfers may be becoming so stringent that other countries will simply give up on trying to meet them. For example, the U.S. is in no position to enact a federal privacy law, without which it seems likely that European courts will (again) stop the free flow of data between the EU and the U.S. (those arrangements have been struck down as illegal twice already).

What makes these cases even more egregious is perceptions of double-standards: for example, EU courts have found that certain member-states have adopted surveillance practices which breach EU fundamental rights. But those countries continued to enjoy the free flow of personal data with the rest of the EU. When non-EU members breach EU standards, however, those countries may lose the ability to transfer data freely to and from the Union. If EU laws continue to impose unrealistic or discriminatory expectations on the EU’s trading partners, other countries and firms may give up even trying to meet EU standards and the bloc’s role as the world’s most important digital importer will be undermined.

B. Consumer Detriment

For firms, the benefits of adopting one set of practices and standards globally must be weighed against the costs of complying with European laws. Another important factor is whether compliance with EU laws provides benefits or disadvantages to users or consumers. One reason the Brussels effect is powerful is that firms face reputational risks if they give Europeans better services or more choices, but at the same time withhold those benefits from consumers elsewhere.

This reputational risk is reversed, however, if EU laws harm, annoy or confuse consumers. It is one thing to accept administrative or compliance costs. But firms may think twice when compliance with EU laws imposes actual detriment to consumers – and adopting the European-mandated approach elsewhere would risk unnecessarily losing consumers, damaging the firm’s reputation or undermining a firm’s competitive position.

This may explain why in some cases firms have pursued “EU-only” parallel business practices – for example. Meta has not rolled out its GDPR-compliant version of Facebook and Instagram (which rely on paid subscriptions instead of targeted advertising) outside Europe. And both Microsoft and Google rolled out changes to their products after EU antitrust action – Microsoft produced versions of Windows without Microsoft’s own media player or browser, and Google amended its listings for comparison shopping sites – but limited their compliance to the EU. It is noteworthy that in both cases that the product changes achieved very little take-up and/or made very little discernable difference to businesses the changes were supposed to help. This poses important questions about how the EU should implement laws like its laws on digital competition and on AI. Both risk annoying consumers and making it harder to rollout new services.

One way that EU laws can focus on avoiding negative consequences for consumers is by ensuring new laws are principles-based and outcomes-focused, and then closely involving industry in “translating” these principles and desired outcomes into detailed technical specifications. This is one area where the EU’s AI Act may excel. The AI Act allows industry to take the lead in translating the law’s goals into workable technical rules. Once these technical standards are approved by the Commission, firms will be presumed to comply with the AI Act if they follow the approved standard. Standard-setting bodies are open to all firms that want to participate – including non-European ones – and they typically reach decisions by consensus. This means decision-making is slow, but standards are credible, objective and reflect market realities – avoiding unnecessary negative consequences for consumers. EU standards have immense global influence, strongly boosting the Brussels effect: for example, 81 per cent of standards set by the EU’s standard-setting body CENELEC are identical to global standards.16

C. Good Quality Law-Making

Many countries see a need for digital regulation in areas like competition, online safety, privacy and AI. They are turning away from what Bradford calls the U.S. “techno-libertarian” approach, which seems likely to make a reappearance under a second Trump presidency.17 The Brussels effect is therefore not just perpetuated by the private sector: foreign governments also often model their laws on EU regulations, or incorporate EU regulations wholesale into their own domestic legal systems.

The main reason why foreign governments tend to adopt – or be influenced by – EU laws is because they are considered to reflect well-accepted values (like the need for competition and to protect fundamental rights); to be of high quality; and to be drafted so as to accommodate the needs of all of the EU’s member-states, which differ widely in their legal systems, priorities, and levels of development and digitalization, rather than for parochial European interests.

While the U.S. has sometimes tried to present EU digital laws as protectionist,18 these attempts have mostly not been very persuasive. For example:

• American firms may be the targets of the EU’s Digital Markets Act – but given it also has the most startups trying to compete with the big players, U.S. firms rather than European ones will be the main beneficiaries of the law. The European Commission’s competition directorate, which will enforce the DMA, has been prepared to enforce competition laws in ways which undermine powerful countries’ desire to pursue a European industrial strategy.19

• The AI Act poses another good example. Whether or not one accepts American arguments that the law is anti-innovation, regulating the most powerful AI models has sound objectives which have achieved broad global support in forums like the G7 Hiroshima AI Process. For example, many countries agree that firms providing powerful models should be transparent about how the models work and take steps to ensure the models are safe. The EU’s AI Act simply makes these obligations more concrete.

A second Trump administration may prove moe willing to retaliate aggressively against the EU, if it perceives EU digital laws or their enforcement to be unfair to U.S. tech firms. That will require the EU to focus even harder on avoiding the perception – or the reality – of singling out U.S. firms or imposing regulation to boost Europe’s own tech sector. This may prove difficult: the fear of Trump weaponizing Europe’s reliance on U.S. tech firms may persuade European law-makers to do more to give European firms an edge over U.S. ones.

The other big issue which may undermine the Brussels effect is the growing doubt about the quality of EU tech laws. Over one hundred new digital laws have been passed in recent years,20 often at unprecedented speed. Law-makers have spent too little time considering how these laws interact, overlap and form a coherent and comprehensible rulebook, or fully thinking through the intended and unintended impacts of new laws. The recent reports by Enrico Letta21 and Mario Draghi paint a damning picture of the EU’s law-making processes. They urge the EU to spend more time codifying, consolidating and simplifying regulation and properly assessing the impacts before imposing new obligations. Draghi and Letta both point to EU member-states increasingly “gold-plating” or “supplementing” the EU’s digital laws, for example. These pose the risk of breaking the Brussels effect from within the EU, forcing services to adopt different business practices in certain member-states and undermining attempts to create a single European market.

Over time, a growing sense of incoherence – and the increasing perception that regulatory burden and complexity is a reason for the EU’s relative economic decline – seems likely to give both foreign governments second thoughts about automatically using EU laws as a model. Commission President Ursula von der Leyen has emphasized the need for regulatory simplification and respect for good regulatory practice in her “mission letters” to her new Commissioners. But better regulation has been on the EU agenda for many years with little discernable effect.

CONCLUSION

The EU is increasingly reliant on the Brussels effect to square its high regulatory standards with the need to maintain its attractiveness as a place for investment and jobs, and to prevent European consumers facing higher prices than consumers elsewhere. The EU’s regulatory influence in the tech sector should be relatively immune to Europe’s economic challenges, so long as EU regulations impose realistic expectations on foreign firms and governments; laws benefit consumers; and EU law-makers live up to the bloc’s reputation for producing reasonable and high-quality regulation – a reputation which is increasingly fraying.

There are already signs that the EU may have pushed the Brussels effect too far. The number of services being delayed or not rolled out at all in Europe seems to be growing. These include Apple’s recent decision not to roll out its AI services to EU consumers, and the Italian data protection authority’s decision to force OpenAI to stop processing Italians’ personal data, resulting in OpenAI’s services being suspended in Italy. The full economic impact of these decisions is yet to be seen. Perhaps, these AI services will prove a massive productivity boost which Europe will miss out on. Alternatively, these AI services may remain curiosities like Threads with little economic impact and little harm to consumers from missing out. However, it seems likely that over time the consequences of holding back innovation in Europe will have an ever increasing risk of becoming economically damaging.

If EU law-makers can double down on adhering to principles of better regulation, however, the bloc will probably maintain its ability to set global tech standards – and leave the U.S. with little choice but to accept that its tech firms must live with EU rules.

1 Zach Meyers is assistant director of the Centre for European Reform.

2 ANU BRADFORD, THE BRUSSELS EFFECT: HOW THE EUROPEAN UNION RULES THE WORLD (1st. ed. 2019).

3 Product Safety and Metrology etc. (Amendment) Regulations 2024 (UK).

4 Directive 2022/2380 (EU).

5 UK Office for Product Safety and Standards, Common charger for electrical devices: call for evidence (2024) https://www.gov.uk/government/

calls-for-evidence/common-charger-for-electrical-devices-call-for-evidence.

6 Regulation 2022/1925 (Digital Markets Act) (EU).

7 Regulation 2024/1689 (AI Act) (EU).

8 Mario Draghi, The future of European competitiveness (European Commission, 2024).

9 Why the EU will not remain the world’s digital über-regulator, THE ECONOMIST, Sep. 21, 2023.

10 Andy Bounds, EU an economic superpower struggling to get its way, FINANCIAL TIMES, Jun. 5, 2023.

11 Above n 8.

12 Nicolas Köhler-Suzuki, Mapping the EU’s digital trade: A global leader hidden in plain sight? (Jacques Delors Institute, Policy Paper 292,2023).

13 Supantha Mukherjee and Martin Coulter, ChatGPT-maker OpenAI says has no plans to leave Europe, REUTERS, May 26, 2023.

14 Executive Order on the Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence, Oct. 30 2023.

15 Zach Meyers, Can the EU afford to drive out American cloud services? (Centre for European Reform, Insight, 2023).

16 CENELEC, https://www.cencenelec.eu/about-cenelec/cenelec-in-figures/.

17 ANU BRADFORD, DIGITAL EMPIRES: THE GLOBAL BATTLE TO REGULATE TECHNOLOGY (1st. ed. 2023).

18 See, e.g. Robert D. Atkinson, Go to the Mattresses: It’s Time to Reset U.S.-EU Tech and Trade Relations (ITIF report, 2024).

19 European Commission, Commission prohibits Siemens’ proposed acquisition of Alstom (EC press release, Feb. 6, 2019).

20 Kai Zenner, J Scott Marcus and Kamil Sekut, A dataset on EU legislation for the digital world (Bruegel, dataset, Jun. 6, 2024).

21 Enrico Letta, Much more than a market (European Council report, 2024).