It seems noble on its face — the European Union crafts the world’s best regulations and is a shining beacon for other countries to follow. America will innovate and export its innovations. Asia will produce and export its products. And Europe will regulate and export its regulatory logic.
Even in post-Brexit Britain, Prime Minister Sir Keir Starmer is also now proudly boasting about a new legislative and policy posture of “dynamic alignment” with Brussels. New legislation went into effect in July giving the government broad powers to align with the EU in a whole host of key areas.
This is the “Brussels effect,” a phenomenon Brussels bureaucrats eagerly embrace. Due to the size of the EU market, firms around the world desiring access will align themselves with its regulations over and above what their domestic regulators demand. The latter regulators, eventually, will follow, in what has been termed a “race to the top” of regulation.
For those of us who live in the developing world, however, such luxurious notions are largely academic. The Brussels effect has proven to be a compelled race to the bottom that strangles economic dynamism at best and causes economic catastrophe at worst.
The Free Market Foundation (FMF) has launched a new report, “The Brussels effect in South African policymaking: An imperialism of expedience?”, in association with the European Policy Information Center and the Initiative for African Trade and Prosperity. Our report reveals how South Africa’s uncritical adoption of EU-style regulations stifles its growth. The impact of bad EU regulation is compounded by the fact that South Africa is already poorer than all of the bloc’s member states, making these rules especially ill-suited to its economy.
In digital policy, the SA Protection of Personal Information Act (POPIA) mirrors the EU’s General Data Protection Regulation, enforcing stringent data rules that stifle AI development and burden small businesses with compliance costs.
Similarly, the Competition Commission’s recent binding “recommendations,” inspired by the EU’s Digital Markets Act and Copyright Directive, target digital platforms with measures like anti-self-preferencing rules and compensation that must be paid by these platforms to old, established press and media houses, risking reduced access to information for news consumers.
The National AI Policy Framework, while vague, leans towards incorporating the EU’s Artificial Intelligence Act, proposing restrictive regulations that could hinder innovation in this nascent sector that will be critical for growth. Meanwhile, other jurisdictions, like China, who are outside the EU, UK, or SA, will continue to pursue AI development without hindrance.
South Africa’s economic realities — near-zero growth, the world’s highest formal unemployment rate, and declining investment — demand flexibility, not the rigid frameworks designed for wealthier economies. European Union regulations, crafted for high-income contexts, disproportionately harm SA startups and small enterprises, diverting resources from innovation to bureaucratic compliance.
For instance, POPIA’s consent requirements impede data-driven research, while the EU-inspired AI framework risks overregulating low-risk technologies like large language models, sidelining smaller tech firms.
This regulatory mimicry, often embraced by local policymakers as a shortcut to excuse their bad policies in the name of “global best practice,” entrenches political control of markets — arguably what has kept Africa destitute — and stifles competitiveness.
The report argues that SA’s policymakers, eager to emulate prestigious EU models, overlook domestic needs, effectively importing a form of bureaucratic imperialism.
This approach not only hampers local innovation but also guarantees regulatory failure by obsessing over formalistic compliance rather than ensuring the regulatory objectives are measured by outcomes. Spam still dominates SA cell and email inboxes, meaning the EU-esque POPIA data protection law has simply not worked over the more than a decade since its adoption. But because firms have ticked all the relevant boxes, all seems well in the land of form-over-substance.
We recommend in the report that SA prioritise strategic adaptation over passive adoption, urging policymakers to tailor regulations to the domestic context.
Exempting research from stringent data rules, resisting censorious policies like the EU’s Digital Services Act, and adopting a very light-touch approach to AI, could foster a competitive digital economy. Innovation-driven models like that adhered to in the United States, or outlined in Marc Andreessen’s “Techno-Optimist Manifesto”, should be preferred, all but guaranteeing growth and development and avoiding the economic strangulation imposed by the Brussels effect’s one-size-fits-all regulatory logic.
The Brussels effect does not only threaten the developing world, however. As Europe itself begins to ponder whether its own sons, Ludwig von Mises and FA von Hayek, were in fact right when they encouraged liberalisation and market-driven growth, the UK too should heed the sound insights of Adam Smith.
Despite the size and health of the UK’s economy compared to SA, the Brussels effect should be avoided.
Starmer’s PR around his rapprochement initiative with the EU has understandably focused on the trade and defence benefits.
Other parts — of the UK having to adhere to EU regulatory regimes like emission trading and carbon regulation — are left mostly out of the limelight. With the UK out of the EU but still bound — deflective terms like “dynamic alignment” aside — by its rules, is not a great deal.
The new Product Regulation and Metrology Act even provides that the UK government “may” in regulations make rules that “correspond, or are similar, to a provision of relevant EU law” in respect of the environmental impact of products.
That this had to be stated so bluntly in an Act of the sovereign British Parliament as regards a foreign jurisdiction shows just how advanced the Brussels effect has developed in the minds of many in the British political elite.
Mercifully, SA legislation does not yet spell out that the government may simply copy the EU’s regulatory standards if it felt the desire. But in substance, SA has gone a long way in domesticating the EU mindset — certainly in tech and digital innovation, but if one starts to dig, also in agriculture and energy as well. This should be seen as a cautionary tale by lawmakers in London.
Martin van Staden is Head of Policy at the Free Market Foundation and a Fellow at the Initiative for African Trade and Prosperity.
