US corporations increasingly take regulatory lead from Brussels, not Washington

LEIGH PHILLIPS

16.07.2008 @ 10:05 CET

EUOBSERVER / INTERVIEW - Power is notoriously difficult to locate, quantify and date. It cannot so easily be measured as GDP or milk production or barrels of oil that remain under the ground or the effect on an economy due to sick-days taken the fortnight after an new edition of Grand Theft Auto is released.

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Historians brawl over the precise causes and date of the collapse of civilisations' empires. Did Suez deliver the definitive coup de grace to the British Empire, or should we avoid such exactness and rather talk more generally of the empire's near-bankruptcy at the end of the Second World War? Do we date the fall of the Roman Empire as 476, when Romulus Augustulus was deposed by Odoacer? Or as 395 - upon the death of Theodosius I - the last point at which the empire was politically unified? Or do we yet wait a decided few centuries later for the Fall of Constantinople in 1453 to hold funeral rites?

Mark Schapiro - an American investigative journalist of some twenty years' standing and the editorial director of the Center for Investigative Journalism - believes however that we can date the eclipse of the United States by the European Union quite precisely indeed - 25 June, 2004.

On that day, some 200 million Europeans went to the polls to elect their representatives to the European Parliament, consolidating the union's ascendancy. Europe's parliament leap-frogged the US Congress in size of population represented, with an additional two member states, Romania and Bulgaria, boosting the numbers still further to almost half a billion people in 2007. Even more critically, in 2005, the GDP of the EU overtook that of the States.

"The EU is now the single largest trading partner with every continent except Australia," he writes in his recent book, Exposed, which considers the massive global economic power shift that has occurred as a result of these changes. He looks at how companies and state governments in the US, China and the rest of the world increasingly take their legislative lead - whether willingly or dragged kicking and screaming - on issues such as environmental standards, health and safety regulation and consumer protection not from Washington, but Brussels.

The book looks particularly at the effect on American firms of EU legislation such as REACH, Registration, Evaluation, Authorisation and Restriction of Chemical substances - the world's strictest chemicals regulatory framework, and RoHS - the Removal of Hazardous Substances directive, as well as moves in the realms of genetically modified organisms, endocrine disruptors in plastics and Europe's embrace of the precautionary principle.

"With wealth comes trade, and from trade comes the power to write the rules of commerce," he announces.

Mr Schapiro was recently in Brussels to meet with European officials and speak to company representatives about this profound but little reported power shift. The EUobserver sat down with the author to discuss his ideas.

EUobserver: What has happened here? Only a few years ago, American commentators, particularly on the right, from such quarters as the Project for a New American Century, were talking of American global dominance - which emboldened them to go into Iraq believing themselves essentially to be invincible. The French no longer called the US a superpower, but an hyperpuissance - a hyperpower.

Mark Schapiro The world is changing, and it's changing in dramatic ways in a number of different arenas. What's interesting is that the role of the United States is shifting very sharply, independent of Iraq.

Let's not even talk about Iraq - which has also delivered a body-blow to American power in the world - let's just look purely at the level of economics. In 2005, the US was supplanted as the world's largest single market by the EU, and that was reported to us by our own CIA in their World Factbook.

With 490 million people, the EU is first of all far larger than the US population, but these people are also pretty much equal in terms of affluence and education. So what happens to American transnational companies that have been operating for decades according to American rules, because the US was the world's largest market?

US companies and companies around the world historically accommodated to American rules when it came to health and environment standards, because if they could sell there, they could sell anywhere in the world, including Europe.

I wanted to investigate what happens when in the first time in our history, it's not our government that is writing the rules for corporate behaviour.

EUobserver: What was the reaction from corporate America?

MS:After 2005 kicks in, we're no longer the largest economy. The EU now is, and what does this new biggest economy do? They start imposing all sorts of restrictions in terms of environmental protection. They demand that chemicals be taken out of a whole array of consumer products. They demand more sustainable production practices and energy efficiency.

Globalisation is taking hold very deeply, so US corporations along with other companies are increasingly reliant on foreign markets to sustain their profitability. For many American firms, that means Europe. In order to hold on to access, how do they react at the same time when Europe starts saying: "Take the chemicals out of cosmetics! Take the chemicals out of your electronics! Take the phthalates out of toys!"

Nothing close to this had ever happened before to American companies. Reaction number one has been to launch a massive transatlantic lobbying campaign to try to prevent these measures from happening. There was a wholesale shift from K Street in Washington, the heart of lobbying and think-tanks in the US capital, to Brussels. K Street expanded dramatically, essentially dropping another K Street in Brussels. Hill and Knowlton, Burson-Marsteller, Ernst and Young - all these firms, which had become quite expert at influencing the rule-making apparatus in the United States through lobbying in congress and campaign contributions - suddenly had this new beast to deal with - the EU.

"How do you do lobbying in the EU?" they had to find out. "How do you lobby the European Commission, members of the European Parliament? How does it work?" These lobbyists flooded over here and their first reaction was to try to do whatever they could to stop the Europeans.

EUobserver: And what was the response here to this invasion of lobbyists?

MS: The reaction of the Europeans was very interesting. I spent a lot of time while researching the book talking to parliamentarians and people in the commission - DG Trade, DG Environment, DG Industry - and the reaction was not always the warmest.

It used to be that the US could go to any foreign capital and basically say: "Look, we don't really like what you're doing, so change it here and there." The US had huge influence in terms of foreign governments, but now for the first time, there were people saying: "Wait a minute, what are you doing here? We're talking about what we're doing to protect Europeans. We're not here to worry about your problems as an American company."

So they encountered a great deal of resistance. Not totally - obviously they did have some impact.

EUobserver: And this also had a knock-on effect within the US.

MS: Yes. The second interesting reaction was that as US companies were now facing a whole array of rules to obtain access to their most important foreign market, they suddenly began to be saying to themselves: "Well, if we have to take these chemicals out of our products for Europeans, what are we going to do with the products we sell to Americans?" And one of the implications was that some industries actually began adapting to the European regulations.

For example, in the electronics area with RoHS, when the big international electronics firms were beginning to learn what was happening in the EU, I sat in on some of these meetings where advisors were telling them: "Hey, this is what you have to do to hold on to Europe." And it was like an electric shock going through the crowd. They had no idea this was coming down the pike.

The Bush Administration has been moving aggressively away from ideas about environmental protection, cutting the enforcement budgets of the EPA and the FDA and the consumer product safety commission. They've introduced rules that make it much more difficult to act on chemical and other hazards, and taken a position more in alignment with US industry. That works fine for them in the US.

But on a global level, we've got another player setting the rules. This aggressive retreat from environmental protection in the US is essentially being challenged by the EU.

But some of the companies have started to adapt to the new rules, producing products that meet European standards for the US market as well as for the European market. Not all companies, but increasingly they are taking their lead from Brussels, which is really at the vanguard of environmental and health and safety standards, rather than Washington.

EUobserver: What was the reaction of American politicians?

MS: I'm not sure the Bush Administration entirely grasped the magnitude of what has been happening. The first people in the Bush Administration to really notice this was the Commerce Department, because the Commerce Department understands how money moves. But the reaction was vociferous to the actions being taken by the European Union in order to tighten standards. The level of opposition was high in every department that engaged with the EU. The State Department, trade representatives, the Commerce Department, various emissaries from the executive branch, all came here and launched a massive lobbying campaign to try to stop this from happening.

They did this in a number of different ways. They started orchestrating meetings with US allies to try to pressure the commission to slow down proposals. There was a real effort to divide the new countries from the older countries. They went into Poland, the Czech Republic, the Baltics, to try to get them on board to support the American position.

Some of the arguments were that the moves by Europe would make European companies less competitive with American companies - a pretty unusual position to be taking for an American trade representative. But they were desperate to try to stop these initiatives. They would send out emails to members of the environment committee, telling them which way to vote on amendments on REACH, for example.

They also very closely aligned themselves with corporate interests in the United States. There were joint meetings between some of the major chemical companies in the US and State Department representatives who met with officials here in Brussels as well as some of the national capitals. The lobbying effort was unprecedented by the Bush Administration, attempting to intervene in the legislative process here in Europe.

One commission representative told me: "Can you imagine what would happen if we Europeans sent a delegation to Congress to argue what our position was on a particular bill that affects Americans? We'd be thrown out the window."

EUobserver:: This is clearly a very American perspective on what's going on here in Brussels. From a European perspective, one could say this is looking at Europe with rose-tinted glasses. We have our own problems here with corporate influence, with lobbying. If anything, lobbying is less transparent here than in the US. The lobbying registry in the US is very strict, while here, there has been a lot of resistance from the commission to the idea of a mandatory register, for example. The influence of European corporations in the European institutions is substantial.

MS: In 2004, watching the European Parliamentary election results, I saw how the EPP-ED strengthened its hand. Not hugely, but they boosted their numbers. This rightward shift in Europe is also interesting. The danger that I face in talking about my book in the US, is having Americans thinking that the EU is some sort of benevolent Shangri-La where everyone is in sync with nature and that there's this great harmonious relationship between a huge economy and sustainable principles that beat in the people's heart. This is the conclusion that people tend to jump to whenever I talk about my book.

So I have to add a cautionary note that this is as self-focussed and competitive an economic organism as the US is. It is also filled with its own corruptions, big and small. And without proper lobbying transparency, you're going to have even more potential for improper influence-wielding here too.

This is indeed a self-interested political beast, but that makes it even more interesting. Because what this entity has agreed is that some basic principles of environmental protection are both important and economically feasible. They may not reach the level that some of the environmental NGOs would like it to reach. There's a constant battle in all these issues over how far you go. But they've made a decision that their economy has room for these kind of ideas.

There's a really interesting distinction about how the EU and the US approach the basic idea of economics and profitability. One of the principles at the core of many European ideas is the question of externalised costs that make something appear economically possible.

When it comes to externalities, taking chemicals for example, part of the EU calculation when it comes to REACH, is that by creating a body of knowledge of the toxicology of many thousands of substances that have never been tested for their toxicity, it is going to ultimately lead, ten to twenty years down the line, to the phase out of these products from the marketplace, on the principle that you don't want people exposed to things that are toxic to their health. On the one hand this an admirable goal because you want to protect people from these dangers, but there's an economic calculation in that too, which is that if you don't do that, somebody's going to end up paying the cost in the future when people get sick from the exposure to these chemicals over the course of their life. And who is that? Here in most cases that's the state.

The key difference here is that you have a public healthcare system in Europe, so the costs of illness that come from chemicals or environmental degradation are borne by governments. Thus the state is looking at this and thinking: "Wait a minute - we're paying the cost for this so-called low-cost production. Let's shunt that cost back onto the producers and deliver an accurate rendering of the costs."

The basic approach to costs in the US is skewed very deeply in the short-term interests of the manufacturers, and does not have to take into account healthcare costs in its assessments. This is an inaccurate rendering of the benefits and costs of these decisions because the costs of environmental contamination borne by the US are actually borne by ourselves, the citizens, and that cost is not reflected in the corporate balance sheet.

Our regulatory structures are operating under old-fashioned economic principles in terms of who actually bears the cost. We are subsidising their profits.

Mark Schapiro is the author of ‘Exposed: The Toxic Chemistry of Everyday Products and What's at Stake for American Power'.

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