COPING WITH FAR-REACHING REGULATIONS

Being an insider is best way to sway Europe’s shifting rules

by Takashi Kitazume

Japanese companies need to act as insiders — not outsiders — in Europe as they try to cope with the increasingly tough environmental, safety and other laws of the European Union, whose regulatory power extends beyond the region, experts told a recent symposium in Tokyo.

They should utilize various lobbying options available and forge alliances with European firms to influence the EU lawmaking processes, and, on the home front, the companies’ top management must be fully committed to these efforts, said Franz Waldenberger, professor at the Japan Center and the Faculty of Business at Munich University.

Waldenberger and other panelists spoke at the Sept. 15 symposium, organized by Keizai Koho Center at Keidanren Kaikan under the theme, “How to cope with new and changing EU regulations?” They discussed how Japanese companies can overcome their distance from Brussels and effectively take part in the processes that lead to the passage of EU laws, in order to have their interests represented.

The regulatory power of the EU as a supranational authority — deriving from its task to create a single market — has proven so potent that its rules on competition policy have effectively blocked a merger between two non-EU firms, GE and Honeywell, and resulted in the imposition of heavy fines on software giant Microsoft after it was accused of abusing its dominant market position, Waldenberger said.

The bloc’s power extends across many policy areas, including competition policy, environment, health and safety regulations, consumer protection, and so forth. And its impact will not be limited to business activities in Europe.

“Given (the EU’s) economic size and its progressive nature, EU regulations are likely to become something like a global standard. Countries outside of the EU are in fact adopting EU regulations in the field of environment and health,” said Waldenberger, who is also visiting professor at Hitotsubashi University.

While compliance is the only option when dealing with existing regulations, there are various ways to influence the making of future EU laws, the professor stressed.

Tough environment and safety regulations in the making could generate more problems — including the threat of noncompliant products being pulled out from the European market — but they can also open up new opportunities because some companies will win and others will lose from the new regulations, depending on their technological capabilities, he noted.

To respond to the threats posed by new laws and exploit the opportunities, it is essential for companies not only to know as early as possible what new legal developments are afoot, but also to actively participate in the lawmaking processes, Waldenberger said.

One of the keys to success in influencing the EU lawmaking processes, he said, is for companies to not just rely on Japanese networks — such as Japanese diplomatic and trade missions or regional Japanese business associations — but also to make use of European resources, namely local business partners, service providers or associations.

While such partnerships will provide additional lobbying knowhow and closer contacts with lawmakers, it is important to build an alliance of common interests with European companies, and present a Japanese company’s issue as a European issue, rather than an exclusively Japanese one, Waldenberger said.

Also important is that the companies’ top management in Japan stays fully committed to those efforts.

“You can only have influence over lawmaking processes if the company as a whole is fully committed. This is only possible if relations with EU become a top management issue in Japan,” he said.

“To be able to formulate and commit to a clear strategic goal, you need to first align the divergent interest within your own company. You need to provide Brussels with the newest and most accurate knowhow about technologies, markets and products that are available in your company, and it is likely that you will have to adjust your global strategy. All this is only possible through top management leadership,” he said.

He added that the head of the company’s European operation must be a member of the board in the Japanese headquarters.

Toshihiko Fujii, a former secretary general of the Japan Business Council in Europe, emphasized that Japanese companies need to be involved in the EU lawmaking processes as insiders — not as outsiders as they had done in the past.

Japanese lobbying activities in Europe have been active since the 1970s and 1980s — mainly over trade disputes concerning Japanese exports to the region. In those days, it was a battle between Tokyo and Brussels: Japanese exporters and the then Ministry of International Trade and Industry versus European industries and European authorities who were trying to limit imports from Japan, said Fujii, now an official with MITI’s successor, the Ministry of Economy, Trade and Industry.

“At that time, Japanese industries dealt with Europe as an outsider,” he said.

But the primary regulatory issues in the European Union today — such as environment and health — do not pit Japanese interests against European interests, because the environmental regulations are not designed to drive Japanese companies out of the region, noted Fujii, who engaged in lobbying activities in Brussels for Japanese industries between 2000 and 2004.

“It is a process of formulating EU’s social values, and the most effective way (for Japanese firms and industries to influence the process) is to act as an insider in Europe,” he said. “It will be difficult to take part in this process as a representative of Tokyo.”

Katsuhiro Shoji, professor at Keio University’s Law School, said Japanese companies should be aware that lobbying targets may vary depending on the issues, because, on certain regulatory matters, national governments still hold greater power over the European Union. They may need to contact the EU institutions, or national governments, or both, he said.

The companies should also realize that even on issues on which there are no EU regulations today, there is always the possibility of the EU launching regulatory harmonization in the future, and they should constantly be prepared to take part in future lawmaking processes, Shoji told the audience.