How Europe employs disguised regulatory protectionism to weaken American free enterprise *.

• Author: Kogan, Lawrence A.
• Position: Precautionary Preference - Report

Abstract

The European region regulates more than any single country in the world, and such over-regulation, along with higher taxes and labor and environmental standards, has increasingly caused European industry to lag behind its Asian and American competitors. As a result, a growing competitiveness and technology gap has arisen in a number of important advanced industrial and high technology industry sectors between European and American and Asian companies. Naturally, European industry is extremely concerned that it has become less globally competitive. In response, it has actively sought to 'level the global economic playing field' by working with regional and global environmental and social activists, grant-seeking academics, risk-averse European politicians and United Nations bureaucrats to export the systemically higher European costs of doing business throughout the world. It has proceeded to do so by promoting sustainable development as a broad new international legal paradigm premised largely on the Precautionary Principle.

The Precautionary Principle is a non-scientific 'better safe than sorry' European regulatory philosophy that favors banning or severely restricting particular substances, products and activities if it is merely possible that they or the processes used for their manufacture, formulation or assembly might, sometime in the uncertain distant future, cause potentially serious health or environmental harm. The Precautionary Principle is inconsistent with World Trade Organization law because it does not require governments to provide scientific and economic justification before they regulate to block or severely restrict the market access and/or use of new foreign products and processes. The European Commission has worked to bind foreign exporters by incorporating the Precautionary Principle into a number of international environmental treaties. And, where the Precautionary Principle does not expressly appear, the European Commission has sought to interpret the treaty and general customary international law as including it.

In order to establish it as absolute international law, the EU Commission must first secure United States adoption of and compliance with the Precautionary Principle as a matter of 'state' (U.S. national) law and business practice. For this reason, the EU Commission and several EU member state governments have waged an all-out campaign, with the help of misguided American politicians, activists and academics, to inject the Precautionary Principle within the U.S. at the federal, state and local levels, as well as, up and down U.S. global industry supply chains. Europe's ultimate goal is to reform the very same U.S. law and business practices that have served as the cornerstone of the U.S. national economy and the source of America's comparative advantage in international trade since the end of World War II. This article documents precisely how Europe seeks to accomplish its objective, how it significantly threatens the American legal and free enterprise systems, and why Americans should endeavor to prevent the Precautionary Principle from ever becoming U.S. law.

1. INTRODUCTION: EUROPE AS THE NEW GLOBAL REGULATOR

   U.S.-based businesses of all sizes, but especially small and medium sized businesses will, over time, likely be subject to more stringent environment, health and safety ('EHS') regulations and related technical product standards. Whether they know it or not, many of these rules will have originated within the European Union ('EU') without their constructive input or consent--'regulation without representation'. According to a 2002 Wall Street Journal article,

   Americans may not realize it, but rules governing the food they eat, the software they use and the cars they drive increasingly are set in Brussels, the unofficial capital of the EU and the home of its executive body, the European Commission. 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 high-tech fields, such as software, electronic commerce and biotechnology ... The EU requires any product that contains even 1% of a genetically altered ingredient to say so on its label ... pending European recycling rules, which are tougher than U.S. standards ... would require electrical equipment makers to eschew certain hard-to-recycle plastics and chemicals, such as brominated flame retardants ... the EU is considering requiring companies to test 30,000 chemicals already on the market to see whether they are hazardous, as well as thousands of products that use some of the chemicals in question ... another EU initiative targets auto makers ..." (1) Indeed, as reflected in official EU policy documents, the products covered by these regulations, directives (2) and standards (3) "represent a large proportion of [all] products that are 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 billion) (4)] per year." (5)

   Given the breadth and reach of these regulations and standards, the U.S. business community should be alarmed, no matter the sector (goods or services) in which they operate and no matter where they design and manufacture their products. These rules will affect small and medium-sized companies operating within specialized market niches that serve as catalysts for research and development in areas of new technology or processing techniques (e.g., information technology, nanotechnology, biotechnology, pharmaceuticals, processed foods, vitamins, etc). They also will affect small and medium-sized businesses providing valuable inputs for larger manufactures (e.g., parts and component suppliers, industrial chemical manufacturers, electrical and electronic equipment manufacturers, etc.).

   In addition, they will affect U.S. small and medium-sized businesses operating within more 'downstream' product sectors that incorporate or use substances or products developed by much larger companies within their own manufacturing processes or final products (e.g., cosmetics, paints, textiles, plastics, automotive, agriculture, etc.). (6) These downstream companies are likely to comprise the largest group of businesses that will be adversely impacted by overly stringent European EHS regulations. Downstream service sector companies will also be potentially affected by such rules to the extent they utilize banned or severely restricted substances in rendering their services to third parties (e.g., dry cleaners, auto garages, lodging, catering services, transport services, printing, farming, etc.). And, services companies operating within the construction and real estate development industries will also likely encounter these rules, both here and abroad, to the extent their land use activities are deemed to threaten the environment.

   A growing number of these EHS regulations and product standards are based on an evolving international legal norm known as the 'precautionary principle'. The precautionary principle is essentially a non-scientific, 'better safe than sorry', risk-averse philosophy of regulation. It has already assumed the status of regional law within Europe, and European regulators and environmental groups are eager to establish it as an international and a U.S. legal standard.

   The aim of this article is to highlight how European environmental, health and safety regulators have imposed hundreds of precautionary measures and controls on business conduct, the nature of these regulations, and how they affect U.S. enterprises doing business internationally (within Europe and third countries, including China). It also discusses how such hazard-based, rather than science/risk-based, regulatory controls are becoming increasingly popular in the US, as well as, how our economic competitors would benefit from the widespread export of the precautionary principle to America. The paper begins by explaining what the precautionary principle is and how it has assumed a central role in Europe's grand global strategy of achieving 'sustainable development'.

   It then explains what American companies can expect if precautionary principle-based regulations were adopted within the United States. It does so by pointing out the high business and legal costs borne by European companies in comparable industry sectors, as well as, the chilling effect these regulations have had on European research and development, capital investment and technological innovation. This article also discusses how precautionary principle-based regulatory changes would profoundly impact, in a negative way, several areas of U.S. law beyond environmental, health and safety, namely tort, insurance, corporate, and securities law.

   Furthermore, the study discusses how the EU, with assistance from European and American environmental non-governmental organizations ('ENGOs'), has already begun to inject similar rules into U.S. law. Thus far, they have been limited mostly to state and local initiatives, though a number of state attorneys general have filed suit against the U.S. Environmental Protection Agency over the issue of global climate change. There are also various efforts underway to review federal environmental, food, drug and chemical regulations that precautionary principle advocates believe fail to ensure a high enough level of public safety. These reviews will likely be critical of current rules and procedures and be brought into the public spotlight for purposes of inducing...