The Member State Effect

In the book The Brussels Effect, Anu Bradford well explains how EU regulation is transmitted to both market participants and regulators outside the EU. Take for example the EU Emissions Trading System (ETS), which served as a model for countries like Korea and China. However, this ‘defining position’ is challenged by a fast-changing world. Developments in digitalization and green energy are of such a pace that the traditional way of establishing European regulation can be too slow or even unfeasible. Take for example the legal and political limitations of the EU competences or the time-intensive negotiations between member states and institutions.

To counter these limitations and secure a leading position, member states often decide to unilaterally develop national regulation instead of waiting for a comprehensive European framework. In effect, they may inspire other EU member states and countries outside the block to also follow a national approach (see examples below). This evolving process, in which an EU member state decides to regulate a certain policy area on the national level and inspire other regulatory jurisdictions to follow suit, is what I refer to as the ‘the Member State Effect’.

The Member State Effect in practice

Two examples of the Member State Effect can be found in the areas of mandatory corporate due diligence and (green) hydrogen. In the case of due diligence, France created momentum across Europe by adopting the ‘Loi de Vigilance’ in 2017, which requires all large French companies to draw up and publish a due diligence plan to prevent human rights violations and damages to the environment in their production chains. Recently, Germany decided to follow France’s example by implementing the ‘Supply Chain Due Diligence Act’ and the Netherlands and Denmark are considering to also take a national approach if the EU-track progresses insufficiently in the months to come. In 2020 the European Commission announced to develop a legislative initiative on human rights and environmental due diligence obligations for EU companies but failed to deliver on their initial deadline of early 2021.

In the case of hydrogen, a similar policy development can be observed, although the process is in an earlier stage. Member states are calling upon the European Commission to come up with a regulatory framework for hydrogen while they are speeding up their national plans for a hydrogen economy. For example, Germany launched the H2 Global initiative to build an international market for green hydrogen with an investment of €900 million and France announced to invest in two large green hydrogen production facilities as part of their €30 billion plan to “re-industrialise” the country. Countries like the Netherlands are following these announcements with great interest and it serves – at least – as a form of inspiration to also develop national (supportive) policies and not fall behind. Looking at the policy challenges and divergent (geopolitical) interests of member states in the area of hydrogen, it seems likely that more member states will decide to take a national approach and not await comprehensive and harmonized European regulation.

Consequences for the regulatory landscape

The decision of a member state to choose national regulation over EU regulation can have various justifiable reasons. However, it leads to greater fragmentation of the European regulatory landscape and reduces the chances of effective EU policy since multiple member states have already introduced their own (except if one member state’s policy has been leading in the drafting of the other national policies). This is worrisome because tackling climate change and enhancing the free movement of goods and services call for an internationally coordinated and comprehensive approach from governments.

Ambitious policy measures like the Fit for 55 package* can counter the policy fragmentation and put the EU back in the driver’s seat. It harmonizes a large number of existing regulations and contain a much needed catch-up in the field of sustainable technologies. In the upcoming period, it will be interesting to see to which extent the EU is able to push through European-wide initiatives like the Fit for 55 package as a better alternative to national policy initiatives.

Influence and manage the Member State Effect

The Member State Effect shows that international companies and NGOs should not only pay attention to the EU dimension but also to progressive countries. Being aware of the policy developments on both level allows you to manage and influence policy fragmentation by engaging with policy makers in a country that considers to introduce national policy.

*Package of proposals to make the EU’s climate, energy, land use, transport and taxation policies fit for reducing net greenhouse gas emissions by at least 55% by 2030.

Photo “European Union Flags 2” by Thijs ter Haar