Sunday, 23 September 2007

Transformative Power In Action

It has been an interesting week for the students of geopolitics. Earlier in the week, the European courts upheld a previous ruling by the European Commission that Microsoft had been engaged in anti-competitive practices within the EU (see report in The Times). Microsoft, after paying a fine of just under half a billion Euros, will have to share some of its source code with other software developers, and will have to unbundle some of its products that are sold in the EU.

This is a clear example of the ‘Transformative Power’ of the EU. The thinking behind the use of Transformative power is quite simple. The EU is the largest trading area in the world, and those corporations who wish to trade in that area have to conform to the trading regulations of the EU. If foreign companies (e.g. Microsoft) wish to trade in the EU, then they have to become ‘European-like’ in their modus operandi. This has two interesting implications for the future.

First, as Mark Leonard pointed out in ‘Why Europe Will Run The Twenty-First Century’ (see our review), this will mean that, increasingly, global corporations will have to adopt the attributes of European corporations if they wish to access European markets. Although the Global Corporations may be incorporated and listed outside of Europe, they will have to become ‘European’ in what they do. They will have to transform themselves into European companies if they wish to operate within the EU.

This is not too much of a problem if European practices area broadly similar to the practices elsewhere. Sadly, they are not. There is a major difference in approach between the commercial practices in the US and in the EU. The EU operates on the basis of the Precautionary Principle (a good must be shown to be safe before it can be sold), whilst the US operates on what The Economist calls a ‘Cost Benefit Approach’ (if a good brings a net benefit to the US, irrespective of the collateral harm it may cause, then it may be sold in the US). In the US, the presumption of innocence lies with the companies, in the EU it doesn’t.

This theme is taken further by The Economist to develop the second implication (see article). Just as Russia has been using its energy policy as an instrument of foreign policy, there are also grounds to suggest that the EU has been using its trade policy as an instrument of a wider foreign policy agenda. It is interesting that the EU Trade Commissioner is Peter Mandelson, a British nominee who might be described as a hard core Federalist who is not at all sympathetic towards the US, and who is not uncomfortable in situations of conflict with the US.

The putative struggle between the EU and the US in setting the regulatory agenda for world trade is important because the trading regulations form a key piece of the architecture of globalisation. If the EU prevails, as the article in The Economist suggests, then Europe will be running the 21st Century. It will set the rules which the rest of the world will follow in global trade. In doing so, it will control a vital piece of the architecture of globalisation.

In the years to come, we shall look for further examples of US companies adopting a European modus operandi. If examples come readily to hand, then the EU is prevailing. If not, then perhaps Europe will not be running the 21st Century.

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