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The EU's growing impact on American business and consumers

ASK THIS | December 19, 2005

The European Union is increasingly setting standards that American firms must meet to remain competitive in the global marketplace. The standards affect costs and quality of life in all parts of the U.S., and deserve more notice in the press.

Q: Every state has multi-national corporations: How have they been affected by decisions made thousands of miles away? Do they feel a loss of control because of it?

Q: Have American companies hired more lawyers and policy experts? A few more, or many? Have they opened offices in Brussels, have they hired more international specialists or foreign nationals to assist in complying with directives?

Q. What about time and energy spent designing and testing new products?

Q: Business in the United States depends a great deal on lobbying government officials for favorable treatment. Is a similar practice at work in the EU? If so, is it an open or closed process?

Q: For regulatory issues, is the United States (or certain states within it) planning similar requirements? Why or why not? Do the regulations make sense for different countries?

Q: Is the regulatory movement confined to the EU or have other nations adopted statutes?

By Amie Kreppel

European Union regulations and directives, both existing and potential, are having a major impact on American businesses and consumers. As the largest market and the most important trading partner for the US, the EU is increasingly setting standards American companies must meet if they wish to remain competitive in the global marketplace.

Given the tendency of the EU to ascribe a generally higher priority to protection of the environment, consumer health, safety and privacy as well as the minimization of free-market distortions resulting from monopolies and/or unfair trade practices, the increased impact of EU regulations may be welcomed by many consumers.

However, the impact on businesses, and particularly large businesses, in America is negative to the extent that the EU now constitutes an additional regulatory hurdle over which neither American citizens nor American businesses have any direct say or influence. Whether this is a good or bad thing depends largely on your perspective and personal interests. Either way, it is surely a topic that merits more discussion in the press and a greater level of awareness among American politicians and the general public.

The four general areas highlighted below are significant in terms of their direct impact on the ability of American companies to conduct business and sell their products in the European market.

1. Environmental protection

Example: There is a wide array of EU directives that regulate and enforce high standards of environmental protection. One recent decision that will have a significant impact on the American automobile industry is the End of Life Vehicles (ELV) Directive (Directive 2000/53/EC) regulating the proportion of re-usable, recoverable and recyclable end products and hazardous waste. The directive also regulated the assignment of costs associated with the delivery of end of life vehicles to appropriate recycling sites.

Impact: The ELV directive was strongly opposed by the American automobile industry, and in particular by Ford, which has large manufacturing plants in the EU. The new regulations are expected to greatly increase the cost of new car production to car manufacturers, especially in terms of reducing lead and other toxic substances that cannot be reused, recovered and/or recycled.

2. Consumer health and safety

Examples: Consumer health can be best seen in the continuing battles over the use of genetically modified organisms (GMOs) in food products (Directive 2001/18/EC) which is heavily regulated within the EU by the European Food Safety Authority (EFSA). Non food-related consumer safety protection mechanisms are evident in the development and implementation of the "CE" safety mark Directive 92/59/EEC), which must be procured by the manufacturer "for any product placed on the market that is intended for consumers or likely to be used by consumers.

Impacts: The restrictions placed on American agriculture have been significant, as numerous American producers find the largest foreign market in the world closed to their products. Manufacturers of packaged food products are faced with costly requirements to trace and label all components that are or may be genetically modified organisms and list these clearly on all packaging. The prerequisite of complying with CE mark safety requirements prior to gaining access to EU markets forces American companies to assume a significant cost simply to be able to market their goods within the EU.

3. Consumer privacy and access

Example: For more than a decade the European Union has required a higher level of protection for personal information transferred or communicated over the Internet. In particular, EU regulations (Directive 95/46/EC) stipulate that transfer of stored personal information to any country outside of the EU can only occur if the receiving country provides the same level or greater protection for personal data. This requirement holds even for companies which operate both within and outside of the EU.

Impact: This limitation severely restricts all companies, including American firms, from freely transferring personal data between their European offices and those located elsewhere. American regulations protecting personal data are far less restrictive than those passed and currently in force in the EU.

4. Market access and competition

Example: The European Union has been a staunch protector of the free market through its competition policies that severely curtail monopolistic tendencies within the EU market. In particular, mergers between companies are regulated to insure fair access to the market (Directive 139/2004 EC). An important example was when the European Commission blocked a proposed 45-billion-dollar deal between two American firms General Electric (GE) and Honeywell, which had already been approved by US officials. The 2001 decision marked the first time a proposed merger between two US companies failed solely as a result of European regulations.

Impact: Large US companies wishing to implement mergers must now face an additional hurdle. Ignoring the EU's regulations or the decisions of the Commission is not feasible given the significance of the EU market across almost all sectors of the economy. Microsoft and other American companies have felt the burden of EU competition policy in other realms unrelated to mergers such as unfair practices leading to market dominance.

The impact of the EU on American business and business practices is significant but remains generally unknown to a great many beyond those most directly affected in the business community. News organizations could do a much better job of providing information about these issues. Most citizens, even ones who keep up with current affairs, probably know little about these types of EU policies and have no idea that some of them are more environmentally or consumer friendly than American practices.

An article by Amie Kreppel
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More on the European Union
Links to various European Union Web sites

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