Businesses are on the defensive when it comes to the EU’s trade and regulatory agendas. This situation requires rethinking from both policy makers and lobbyists.
The EU is headed away from open markets – and that is in line with global trends. ‘Managed economies’ featuring ‘special’ arrangements between governments and corporates are returning to fashion.
For business stakeholders uncomfortable with this direction of travel, some renewed thinking is required in how best to counter the prevailing trend and political narrative.
Right now, most policy-makers see regulation as a relatively costless way to deliver for their public. What is needed is a renewed message on why a dynamic business environment matters to Europe.
Business is losing influence
There is a sense that this European Commission is in a hurry to pass an extensive agenda. It was only in December 2020 that the Digital Markets and Digital Services Acts were proposed, and both look likely to be passed with implementation starting by the end of the year.
Such swift progress has confounded the views of those sceptical about the EU’s ability to regulate at pace, particularly on complex files such as the international digital environment.
Although the proposals received a broadly positive response, there were plenty of concerns not least from the major technology companies who were the primary targets. Concerns that business scepticism could cause delays to adopting the regulation have not materialised. If anything, the focus of the European Parliament has been on going further than initial commission proposals.
Add to that the continued strength of the EU’s ‘strategic autonomy’ agenda in trade, and there is evidence of a business voice losing influence.
Policy-making has certainly been different during the COVID-19 pandemic.
The paucity of face-to-face meetings and events has meant less opportunity for discussions in which differing opinions could be expressed, and potentially more difficulty in building alliances to change plans.
But even after the pandemic it looks like business interests no longer have the same impact on the policy agenda as was the case previously. There are signs that this trend will persist. This could have quite an impact on policy in the coming years.
Understanding the changed political position of business
For many years, businesses and their representative bodies across the EU have been key players in discussions of legislative proposals on the reasonable grounds of being wealth-creators and large-scale employers. Typically, the heart of their message was about the risks of too many poorly-designed regulations adding costs and reducing competitiveness.
The backlash against globalisation that has been growing in force over the last decade has reduced the potency of such messages. Business could point to diminished growth as a sign that their forecasts were accurate. But politicians, reflecting public mood, have rather been seeing repeated obstruction and warnings of doom that didn’t come true.
Larger companies may also think that they can work with major regulatory change more effectively that potential competitors. Their opposition may thus be to an extent tokenistic.
Notwithstanding the many emails and stories from lobbying groups, it can be difficult to judge what is of particular importance to the economy. That is a problem for businesses.
EU institutions still need to find the right balance among stakeholders
A diminishing role for business in the work of the EU institutions should please a range of NGOs whose work is dedicated to exposing what they see as a currently oversized role for business in European lobbying. The commission may also be thankful to have a parliament supporting – and indeed seeking to strengthen – their agenda.
EU institutions should at this point be careful what they wish for.
For one of the evident political changes is an increased confidence that regulatory policy will shape the behaviour of international corporates.
Whether it is sustainability of products, or the specifics of providing digital services, regulation is now the key interface between what governments want and business will provide.
There are significant risks to this, of targeting particular outcomes such as sustainability while ignoring others such as small business participation, and diminishing innovation in favour of rewarding policy capture by particular incumbents or ‘national champions’.
Policy-makers tend to forget that the power of the famous Brussels Effect, i.e. of EU regulator approaches becoming a global norm, came from voluntary corporate and governmental adoption rather than extra-territorial regulation.
They may also be taking continued levels of competition in the market too much for granted.
Adjusting to new realities
The pandemic has made for an exceptional two years in everyone’s life, with a working environment that was transformed immediately, and which has yet to return to normal.
Changes to the relative positions of EU stakeholders have been happening on a slower track, but is now becoming more evident.
Many businesses seem to expect that there will be a return to former times, with their voice important in pushing for open markets supported by appropriate regulations.
But that seems exceptionally optimistic. It is unlikely to be supported by domestic politics that will likely keep alive the current suspicion of globalisation.
Given the changing circumstances, it is time to find a new balance that works across all of the EU’s interests, but particularly respecting the economic importance of business.
David Henig runs the column ‘Perspectives’ on the politics of global trade for Borderlex. He is also a UK director at the think tank ECIPE.