Effective regulation of cross-border activities
Companies and regulators face choices. Companies can take private regulation initiatives, but can also wait to be regulated by national or international government agencies. These regulators have the option to take action, or to leave the initiative to other actors in the rulemaking process. What are the trade-offs here? What guarantees are in place for accountability and transparency?
The challenge: regulating cross border activities
Corporations increasingly operate across borders. Banks set up transnational payment systems. Advertising agencies launch international campaigns. Employees and customers of multinational corporations (MNC’s) see their data go into central databases and be accessed by subsidiaries in far away countries. Private security companies help governments to maintain law and order in distant countries. For the efficiency of these business operations, corporations formulate their own rules and standards.
Individual states have a limited capacity to regulate cross border activities. International law does not contain many rules that apply directly to the activities of MNC’s. So private regimes have to offer protection. Can citizens rely on these regimes to protect their interests? What is the legitimacy, quality and effectiveness of such regimes and their enforcement mechanisms?
The response: a framework for assessing the right regulatory regimes
The project has developed a framework for assessing different regulatory regimes, based on a literature review and empirical analysis in the context of eleven case studies. It contains four dimensions: effectiveness, legitimacy, quality and enforcement. This can help regulators and policy-makers to determine when and under what conditions regulation can be left to the private sector or when (parts of) it require public interference. Companies can use such a framework to facilitate their choices, or as a benchmark for their regulatory regimes.
Recommendations per case study and across sectors have been generated as well. In most cases the norm-setting process has some shortcomings. Transparency and participation are not always guaranteed, which affects the beneficiaries of the regulation, but sometimes also the interests of companies not involved in the rule making process. In other cases, private rulemaking seems to be the way forward.
In the area of data-protection, multinational companies have resorted to "Binding Corporate Rules” (BCR). They offer employees and consumers the same level of protection in every country. They accept responsibility and offer local access to a dispute resolution mechanism, for complaints about data handling by any of the subsidiaries anywhere in the world. They ask one lead-regulator to deal with them, so both regulators and companies can save administrative costs.
Implications: a patchwork of rules
Companies can take the intitiative and go for private regulation, or wait and see what regulators do. Regulators can choose to issue norms, or leave room for private regulation first, adding protection where they think this is necessary. In reality, the situation is often even more complicated, because national and EU regulators can both take action, or different national regulators can regulate the same activities. Moreover, industry groups from different continents (US and EU) can try to take the lead, or even come with competing norms.
The result of these interactions is that many cross border activities are governed by a patchwork of rules from different sources. Sometimes these rules compete, many times they will build on each other, one rulemaker trying to fill the gaps left by the other ones. Whether such a patchwork of rules gives a sufficient level of protection is not so easy to establish. The framework developed in this project may be a first step towards measuring and evaluating the quality of these hybrid regulatory regimes.
Policy brief series:
- Cafaggi, F., and Renda, A., (2012), Effectiveness of Private Regulation, TPRER Policy Brief n.1
- Cafaggi F., Scott C., Senden L., (2011), The Challenge of Transnational Private Regulation: Conceptual and Constitutional Debates, Wiley Blackwell Edition
- The Challenge of transnational Private Regulation: Conceptual and Constitutional Debates, Cardiff University Law School Journal of Law and Society, Vol 38(1), March 2011, pp. 1-188
Articles & Working papers
- Cafaggi, F., (2012), Transnational Private Regulation and the Production of Global Public Goods and Private ‘Bads’, European Journal of International Law, Vol. 23, No.3, pp 695-718
- Cafaggi, F., (2011), Private Regulation in European Private Law, European University Institute - Department of Law, Working Papers Series
- Scott, C., (2010), Regulatory governance and the challenge of constitutionalism, European University Institute Florence, Working Papers, Robert Schuman Centre for Advanced Studies, Private Regulation Series 02
- Cafaggi, F., (2010), Private Regulation, Supply Chain and Contractual Networks: The Case of Food Safety, European University Institute Florence, Working Papers, Robert Schuman Centre for Advanced Studies, Private Regulation Series 03
- Cafaggi, F., (2010), New foundations of transnational private regulation, European University Institute Florence, Working Papers, Robert Schuman Centre for Advanced Studies, Private Regulation Series 04
- Senden, L., (2010), The OMC and its patch in the European regulatory and constitutional landscape, European University Institute Florence, Working Papers, Robert Schuman Centre for Advanced Studies, Private Regulation Series 05
- Cafaggi, F., (2010), Private Law-Making and European Integration: Where do they meet? When do they conflict? apearing in: The Regulatory State, edited by Down O., Prosser T. and Rawling R., Oxford University Press
- Cafaggi, F., (2009), Private Regulation in European private law, European University Institute Florence, Working Papers, Robert Schuman Centre for Advanced Studies, Private Regulation Series 01