Saturday, September 22, 2007

Europe Rules!

It seems somewhat paradoxical for a magazine like The Economist, which strongly favors free trade to somewhat write a positive opinion article on Europe’s regulatory body, the European Commission.
They summarize very well the opposite philosophies of the American and European models which are at the core of many commercial disputes between Europe and the U.S.:

The American model turns on cost-benefit analysis (…/…) 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. In Europe corporate innocence is not assumed.

Such a principle sparks many transatlantic disputes: over genetically modified organisms or climate change, for example

But it seems that against all odds, it is the European model that’s winning:

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.

Yet the more proscriptive European vision may better suit consumer and industry demands for certainty. If you manufacture globally, it is simpler to be bound by the toughest regulatory system in your supply chain. Self-regulation is also a harder sell when it comes to global trade, which involves trusting a long line of unknown participants from far-flung places (talk to parents who buy Chinese-made toys).

(…/…) firm after firm gave in and began applying EU standards worldwide, as third countries copied European rules on things like suspected carcinogens in lipstick. Even China is leaning to the European approach

The most interesting part is that the Economist acknowledges what all those who are familiar with their history know (think of the Sherman and Clayton anti-trust laws of the late 19th and early 20thj century): real competition can only be ensured by fair regulations.

Perhaps zealous EU regulators may be what jumpy consumers need if they are to keep faith with free trade and globalisation.

One last ironical point: whereas many French left-wing leaders have accused Brussels of being too “free market” oriented, it has actually regulated the most, even becoming “the world's regulatory capital”.


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