How the EU Affects American Corporations

Editor's Note: The views and opinions expressed in this article are those of its author and do not reflect or represent the official views and opinions of the Global Research and Consulting Group, its branches, nor its management team.

Why Does Nobody Talk About the European Union?

In the early 2000s, many European politicians and scholars proclaimed their dream of integrating the European Union, turning it into a global superpower whose political and economic power matched that of the United States.

This view was shared between the highest echelons of European politicians such as previous European Commissioner Romano Prodi and Previous French President Jacques Chirac, who proclaimed

“we need a means to struggle against American hegemony.”

In that decade, it seemed that the European Union was headed towards the path of becoming a considerable counterbalance to the US. However, the events during the 2008 Global Financial Crisis hit the EU harder than other continents, and the ensuing Eurozone Crisis exposed the fundamental flaws in the system’s design.

With the Yellow Vest Protests in France, the fall of liberal politicians including Chancellor Angela Merkel and President Emmanuel Macron, and the rise of authoritarian leaders in Italy, Hungary, and Poland, it’s clear that the European Union is politically fractured and has not lived up to the global superpower that it aimed to be. And that’s not even mentioning the utter political humiliation that the Brexit negotiations have turned out to become.

Under these circumstances, it is easy to understand why no one is discussing the potent economic influence that the European Union has over businesses globally. People are more frightened about the rise of China as the world’s next economic superpower, on target to surpass the US’s GDP within the next few years.

What news sites don’t mention, however, is that the European Union’s combined GDP has already surpassed the United States, not just as a onetime incidence, but for a period of almost 12 years between 2003 and 2015. In fact, the European Union is the world’s second-biggest economy, calculated by GDP.

A 2017 Pew Research Center Survey showed that only 9% of respondents viewed the EU as a global economic power. There are multiple reasons why people are not as aware of the EU’s economic might.

The first might be because we don’t see the European Union as a single entity, but rather a collection of loosely-organized countries.

A second reason is that Americans may perceive Europeans to be a less threatening presence than China because of the similarities in culture and political structure.

A third reason may be that the constant coverage of various European Union members’ political crises, such as Brexit, detracts from our perception of its real economic power.

Why Should We Care?

Whatever the reasons may be, it is important that American Multinational Corporations are aware of the real scope of the European Union’s influence. On their own, each of the EU member states does not have much power over how multinational corporations are run, but together, they have considerable influence over any corporation that even hopes to operate in the EU.

Though it is true that EU member states retain their individuality and sovereignty - albeit, a limited form of sovereignty - for all intents and purposes, the European Single Market operates as a unitary economy with the same regulations in each of the 32 participating nations. To do business in even one of those nations would mean to comply with the regulations of all those nations.

Due to the EU’s considerable share in the global market, multinational corporations cannot afford to not comply or push back against EU regulators, because it would mean that they lose access to the world’s second-biggest marketplace. This is the genius of the European Union’s design which allows it to influence the world’s biggest corporations like Google, Apple, and GE.

The EU’s immense economic and regulatory influence has already manifested in a variety of ways. Perhaps the most memorable instance of this came when European regulators blocked General Electric’s $42 billion acquisition of Honeywell International Inc. in 2001.

The merger, which had already been approved by US regulators, failed solely because the EU regulators said it violated European antitrust laws. This was the first time that the EU stopped a merger between two American corporations, and though there was outrage about the EU meddling in American businesses, it sent a clear message to other American multinationals conducting business within Europe.

Businesses should also be aware of cultural differences between the two markets, as an analyst from Credit Suisse mentions,

"It's a fundamental difference. The United States cares more about the impact of a merger on customers. The European Union seems to be focusing more on the concerns of competitors. This is a very interesting precedent set by the EU today."

Perhaps a more contemporary and relevant example comes from the EU’s General Data Protection Regulation (GDPR), which came into effect on March 25, 2018. This EU directive aims to protect consumer’s rights to data privacy at a time when the US Congress has not been fruitful in drafting any concrete measures to address concerns surrounding Cambridge Analytica’s Facebook data hack and other similar scandals.

The EU GDPR will have far-reaching consequences, even on small US businesses. This is because the GDPR legislation applies not only to EU member states, but it protects all EU citizens regardless of where they reside in the world.

Thus, an American company doing business with a French citizen in New York City would have to comply with the GDPR just as much if they were a French company doing business in Paris. The GDPR is not a piece of legislation to be ignored, either, as any company that fails to comply is liable to forfeit up to 4% of their annual revenue.

These are standout cases that greatly affect multinational corporations and technology giants, but EU regulations can potentially affect every single American company looking to do business with any EU nation. Thus, it is important that American business owners are aware of the EU’s influence and the cultural differences in their economic policies.

Overall, the trend we are seeing is that European governments are more comfortable pursuing a heavy-handed approach to regulating their businesses, whereas American policy-makers tend to favor a free-market economy. To end off, here is a quote from the New York Times in 2003 that seems as applicable today as it did over 15 years ago.

In Washington, corporate lobbying has weakened or killed legislation aimed at regulating tobacco, pharmaceuticals, and pollutants that contribute to global warming. In all three cases, the affected industries spent tens of millions of dollars on lobbying and advertising, all to persuade lawmakers that regulation restricted the free market and would hurt American business. Such tactics would not play well in Europe, where there is a long history of state intervention in the economy and where senior government officials are usually more highly regarded than are corporate executives.

By Linda Wang