Monday, January 28, 2008

EU Injects Political Precautionary Principle and Anti-Patent-based Industry Standards to Secure Global Competitive Advantage

By Lawrence A. Kogan

Back during 2002, a Wall Street Journal columnist prepared a prescient but largely unnoticed article that unfortunately was a negative harbinger of things to come. It described how the European Union had largely become the de facto global legislator and regulator of all kinds of rules concerning the environment, human health and safety that would eventually touch and materially impact practically every industry sector within the United States, and by extension, the world.

“Because of differing histories and attitudes toward government, the EU…with the world’s second-largest economy, regulates more frequently and more rigorously than the U.S., especially when it comes to consumer protection. So, even though the American market is bigger the EU, as the jurisdiction with tougher rules, tends to call the shots for the world’s farmers and manufacturers. EU rules often cause particular friction in the high-tech fields, such as software, electronic commerce and biotechnology” (emphasis added). [1]

EU policy documents then reflected that the products covered by EU environment, health and safety regulations, directives and standards “represent a large proportion of [all] products placed on the market. It is estimated that, as of 2003, the trade of products covered only by the major [agricultural and industrial] sectors regulated…largely exceeds the volume of 1500 billion euro (1.5 trillion euro) [(or approximately $2.25 trillion)] per year”. [2]

In effect, this article implied that America would, over time, lose its sovereign ability to determine its own economic fate and destiny, first outside, and then within its own borders, if it did not act quickly and resolutely enough to slow down and reverse Europe’s regulatory juggernaut.

Now, more than four years later, this has become abundantly clear.

“Sometimes voluntarily, sometimes through gritted teeth and sometimes without knowing, countries around the world are importing the EU’s rules. It is a trend that has sparked concerns among foreign business leaders and that irritates US policymakers. But whether they like or not, rice farmers in India, mobile phone users in Bahrain, makers of cigarette lighters in China, chemical producers in the US, accountants in Japan and software companies in California have all found that their commercial lives are shaped by decisions taken in the EU capital.

...The EU’s emergence as a global rulemaker has been driven by a number of factors, but none more important than the sheer size and regulatory sophistication of the Union’s home market...At the same time, the drive to create a borderless pan-European market for goods, services, capital and labor has triggered a hugely ambitious program of regulatory and legislative convergence among national regimes.

This exercise has left the Union with a body of law running to almost 95,000 pages – a set of rules and regulations that covers virtually all aspects of economic life...Compared with other jurisdictions, the EU’s rules tend to be stricter, especially where product safety, consumer protection and environmental and health requirements are concerned. Companies that produce their goods to the EU’s standards can therefore assume that their products can be marketed everywhere else as well.

...As...two US-based academics point out in a recent paper that examines the global impact of three recent EU laws on chemicals, electronic waste and hazardous substances, ‘The EU is increasingly replacing the United States as the defacto setter of global product standards and the center of much globally regulatory standard setting is shifting from Washington DC to Brussels’”. [3]

Indeed, Europe had long targeted the U.S. regulatory and free enterprise systems for fundamental restructuring. Its aim has all along been to achieve supranational legal and economic governance over the affairs of global (mainly U.S.) industry through an environment-centric negative paradigm of ‘sustainable development’.[4] There is, in fact, significant documentary evidence showing how the European Community and a number of EU member state governments have, for many years, tried to persuade/compel American-based international businesses and their domestic and foreign suppliers, as well as, U.S. federal, state and local legislators, to adopt similar rules. In so many words, Europe has been engaged in a legalistic and economic war with the United States in an effort to reshape the post-World War II paradigm in the European image.[5] And, it has employed ‘soft’ regulatory rather than ‘hard’ military power to achieve this. The unfortunate reality is that Europe is now well on its way to governing the American way of life, that is, re-colonizing America and the world, unless America and its allies find a way to reverse this trend.

“...Brussels is becoming the world's regulatory capital. The European Union's drive to set standards has many causes—and a protectionist impulse within some governments (eg, France's) may be one. But though the EU is a big market, with almost half a billion consumers, neither size, nor zeal, nor sneaky protectionism explains why it is usurping America's role as a source of global standards. A better answer lies in transatlantic philosophical differences.

The American model turns on cost-benefit analysis, with regulators weighing the effects of new rules on jobs and growth, as well as testing the significance of any risks. Companies enjoy a presumption of innocence for their products: should this prove mistaken, punishment is provided by the market (and a barrage of lawsuits). The European model rests more on the “precautionary principle”, which underpins most environmental and health directives. This calls for pre-emptive action if scientists spot a credible hazard, even before the level of risk can be measured. Such a principle sparks many transatlantic disputes: over genetically modified organisms or climate change, for example.

In Europe corporate innocence is not assumed. Indeed, a vast slab of EU laws evaluating the safety of tens of thousands of chemicals, known as REACH, reverses the burden of proof, asking industry to demonstrate that substances are harmless. Some Eurocrats suggest that the philosophical gap reflects the American constitutional tradition that everything is allowed unless it is forbidden, against the Napoleonic tradition codifying what the state allows and banning everything else.

...One American official says flatly that the EU is “winning” the regulatory race, adding: “And there is a sense that that is their precise intent.” He cites a speech by the trade commissioner, Peter Mandelson, claiming that the export of “our rules and standards around the world” was one source of European power. Noting that EU regulations are often written with the help of European incumbents, the official also claims that precaution can cloak “plain old-fashioned protectionism in disguise” (emphasis added). [6]

Europe's efforts to define global standards has now extended beyond politically motivated environmental and health standards to also include intellectual property standards. This was revealed within a recent IP Watch newsletter article.[7]

Efforts by European Union authorities to take advantage of standardisation as a de facto regulatory tool have not been sufficiently systematic in recent years, according to a study published by the European Commission last week. Yet standards especially in information and communications technology (ICT) are becoming more important, said Patrick Van Eecke, attorney at the Brussels office of DLA Piper UK and co-author of the study. [8] .

The study recommended a dialogue between standardisation organisations and all stakeholders. Also urgently needed is a balance between technical standards and intellectual property rights, according to the study. Concerns that overly rigid IPR protection might become a problem for invention and innovation recently also resulted in other recommendations and decisions at the EU level. A call for changes in the EU patent system was made in a study commissioned by the European Parliament’s Scientific and Technological Options Assessment (STOA) unit and an inquiry into possible anticompetitive practices by the pharmaceutical industry that was initiated by European Commissioner for Competition Neelie Kroes.

A debate on future EU standardisation policy will take place at a conference organised by the European Commission on 12 February in Brussels.Author Van Eecke, speaking with Intellectual Property Watch, pointed to the growing relevance of technical standards that “are more important than legislation.” Companies and citizens either abide by laws passed by governments or not, but to not follow well-established technical standards would mean to be excluded from the market.

“If you are a policymaker, you really would like to make sure that companies and citizens abide by the rules, so instead of drafting a law you could put them into a standard,” he said.

Using privacy as an example, he said, “You can draft one hundred laws that should protect it - and hope that people follow the law. But if you are able to have EU data protection implemented in the technical standards, it might be much more effective.” Van Eecke said that legislators who try to rule via standards would end up drawing the conclusion from American cyberlaw luminary Lawrence Lessig’s theory that code is the (new) law and shifts legislators’ attention to standardisation.

[1] See Brandon Mitchener, “Rules, Regulations of Global Economy Are Increasingly Being Set in Brussels”, WALL ST. J., (4/23/02).
[2] See “Enhancing the Implementation of the New Approach Directives, Communication from the Commission to the Council and the European Parliament”, COM (2003) 240 final, May 7, 2003, at 3, at: .
[3] See Tobias Buck, “Standard Bearer”, Financial Times (July 10, 2007) at: .
[4] For a discussion of this concept, See, e.g., “Issues”, The Institute for Trade, Standards and Sustainable Development, website at: .
[5] See Lawrence A. Kogan, “Exporting Europe’s Protectionism”, The National Interest (Fall 2004) at p. 95, at: .
[6] See “Brussels Rules OK - How the European Union is Becoming the World's Chief Regulator”, The Economist (Sept. 20, 2007) at: .
[7] See Monika Ermert, "Standardisation Policy More Effective Than Legislation On IP?", Intellectual Property Watch (Jan. 25, 2008) at: .
[8] DLA Piper and the Universidade Nova de Lisboa and T.U. Delft, "EU Study on the Specific Policy Needs for ICT Standardisation" (July 2007) at: .

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