It was early in 2001 when the American chemical executives first heard the news from Brussels: The European Union was going to require manufacturers on both sides of the Atlantic to conduct extensive safety and environmental tests on 30,000 common chemicals. Of these, an estimated 1,500 deemed the most hazardous would be severely restricted or banned.

The executives were taken aback. Thanks to their lobbying muscle, a plan like this would never have gotten off the ground in Washington, D.C. Most of the affected chemicals had been around for decades in everything from computers to cosmetics, bathroom cleaners to baby toys. Testing them all, industry estimated, would cost companies more than $8 billion. But losing access to the EU’s 370-million-person market was simply not an option.

A delegation of senior chemical-industry executives prepared to meet with European regulators. The Americans were poised to argue that the legislation was unnecessary and unworkable, that it would choke off trade and ruin the European chemical market. With revenues of $460 billion a year, the chemical industry is America’s largest exporter and is used to getting what it wants. "Some of them felt if they could just tell the Europeans what a bad idea the new policy was, it would be dropped," says Fred McEldowney, senior director for international affairs at the American Chemistry Council, the Washington lobbying group that represents corporations like Dow, DuPont, and ExxonMobil.

But the American executives were in for another surprise when their counterparts at European companies told them to call off the trip. The Europeans were afraid that such "cowboy" tactics would upset their negotiations with EU regulators, which were already difficult, given the industry’s poor environmental reputation. Rather than attempt to kill the proposal, the European companies thought that the best they could do was limit its scope, says Alain Perroy, director general of the European Chemical Industry Council. "There was no way to get that legislation to disappear."

This was more than a tactical dispute. It represents a fundamental difference in the way Europeans and Americans view capitalism and the role of the state. While the EU had challenged U.S. corporations before, quashing the proposed mergers of Sprint and WorldCom in 2000 and General Electric and Honeywell in 2001, those actions were dismissed by American business leaders as overzealous protectionism. With new environmental regulations like REACH (Registration, Evaluation, and Authorization of Chemicals), it is becoming clear that Europeans are not merely picking on a few companies to favor their own industry. They are challenging the way America does business.

Until now, multinationals have mostly used their power and mobility to strong-arm governments into weakening environmental and labor regulations. This kind of globalization has proceeded more or less unchecked for decades. But as the chemical industry found out, the process doesn’t have to lead downhill. The REACH proposal has sparked a bitter battle, one that could decide whether global trade can also raise standards. Heavy pressure from both European and U.S. industry—as well as an all-out lobbying effort by the Bush administration—finally took its toll in October, when the European Commission released a scaled-back draft of the legislation. But even under the current version, U.S. companies would have to dramatically alter their practices.

The influence of Brussels will be even stronger with the admission of 12 new countries by 2007, expanding the European market to almost half a billion consumers. Since making products differently for Europe wouldn’t be cost-effective, the new green initiatives coming out of these once-sleepy halls of power have the potential to reduce industry’s impact on the environment all around the world. Just as California’s caps on greenhouse-gas emissions could force automakers to build cleaner cars, U.S. companies will have to make greener products if they want to sell to Europe.

While the chemicals-testing legislation is the most ambitious European environmental action yet, it’s by no means the first. Early last year, the EU passed rules that will require foreign and domestic electronics makers who sell products in its member states to stop using lead, cadmium, mercury, and various flame retardants; domestic manufacturers will also have to pick up the tab for recycling their products. Similar legislation was adopted in 2000 for the auto industry, after lobbying pressure from U.S. carmakers backfired. "They tried to scare us," says Karl-Heinz Florenz, a conservative German member of the European Parliament. "The effect was that they didn’t have any chance to influence the [debate]. We didn’t have any interest in meeting with them after that."

Because the new electronics laws will affect not only EU manufacturers, but their global supply chain, the American Electronics Association has informed its members that they have less than two years to comply. Companies that fail to do so risk heavy fines or may even be banned from Europe’s markets. In an association press release, senior vice president Tim Bennett says the legislation has the "most far-reaching environmental policy requirements for electrical and electronic equipment established by any polity in the world."

Europe did not always wield such influence. In the era following Rachel Carson’s revelations about the hazards of chemicals in Silent Spring, the United States was the world’s environmental leader. Between 1969 and 1977, the United States set up the EPA and passed the National Environmental Policy Act, the Clean Air Act, the Endangered Species Act, and the Clean Water Act. It was also a model for its democratic institutions; its booming, innovative economy; and its stringent financial regulations.

But behind the scenes, corporate America quickly began working to turn back these gains. And over the years, the United States developed what journalist Bill Moyers has called Washington’s "mercenary culture," where government officials are drawn from industry, while regulators—including top environmental watchdogs—leave office to sell their services to the very companies they used to police.

Ironically, these changes occurred just as Europe started going green. With its roots in the antinuclear movement, European environmentalism cuts across party and class lines. Since many Europeans live in crowded cities, problems like air and water pollution hit home. The EU also lacks the unified rural and suburban base that sustains the U.S. Republican Party, whose current leaders are largely anti-environmental. Europeans’ daily lives are not so dominated by corporate interests. Many people still buy their food from neighborhood markets, and take pride in locally produced goods. Intrusive advertising is not as accepted, with serious efforts being made to ban ads for tobacco, pharmaceuticals, and products directed at children. The Bush administration’s fight with EU regulators over their controls on genetically modified crops and its abandonment of the Kyoto global-warming protocol solidified the United States’ declining reputation. Now "Old Europe" is leading the way.

"The EU is moving aggressively, while U.S. policy is stalemated," says David Vogel, a professor of business and public policy at the University of California at Berkeley. "Our public is much less outraged than the European public. The median voter in America wants the status quo. The median voter in Europe wants more regulation."

With its laissez-faire roots, the United States has historically been loath to pass preemptive regulation. "There has to be a crisis, like Love Canal, where the environment is being totally trashed," explains Professor Richard Stewart, director of the environmental law center at New York University. "You have to have something dramatic."

While U.S. corporate lobbyists commonly delay regulations by demanding that government conduct more studies, the European Union embraces an approach known as the precautionary principle. Simply put, this means "better safe than sorry." In practice, the principle requires that when there seems to be a significant risk, governments should act to protect the public regardless of whether research is complete. The precautionary principle is still a long way from being accepted in the United States. John D. Graham, a Bush administration gatekeeper for new regulations, dismisses it as "a mythical concept, perhaps like a unicorn." But the EU has enshrined the principle in one of its core treaties. "Those in public office have a duty not to wait until their worst fears are realized," the European Commission’s director general for health and consumer protection, Robert J. Coleman, declared in 2002.

The debate is epitomized by the controversial REACH legislation, which could be enacted by late 2005. Instead of asking regulators to demonstrate that chemicals are harmful, the new system would not allow chemicals on the market until industry can establish that they are safe. Manufacturers will have to do (and pay for) the work, which will include providing data on the toxicity of their products and an assessment of their environmental risks. Currently such testing is only done for new chemicals—a mere 3 percent of the 100,000 substances in use in Europe.

Originally, REACH required companies to test all chemicals they produced or imported in amounts over one ton. But the ground shifted last October, when the European Commission handed over the draft legislation to its parliament and the Council of the European Union. The implementation costs—once estimated at $14 billion—had been reduced by around 80 percent. And the most rigorous testing would now be required only of the 10,000 chemicals produced in quantities over ten tons. (By volume, those substances still amount to more than 95 percent of all chemicals on the market.) The remaining 20,000 chemicals would be subject to basic toxicity tests, but they would be exempt from important analyses for effects on reproduction and biodegradability.

"The U.S. push increased exponentially in the time leading up to the changes," says Veronique Scailteur, a lobbyist for Procter & Gamble. Secretary of State Colin Powell asked American ambassadors in the various EU member nations to lobby against the "burdensome" and "complex" testing requirements. Senior EPA officials pushed for voluntary regulation, like the version used in the United States that covers only 2,200 chemicals, and the Commerce Department threatened a trade war. The Bush administration also mobilized domestic business interests and encouraged trading partners Canada, Japan, and China to weigh in.

Even with the scaled-back requirements, industry and environmental groups agree that the legislation is a radical change. Greg Lebedev, the head of the American Chemistry Council, calls the regime "a nightmare for companies who do business in the EU and globally." REACH offers "a stronger grip on industry," says Stefan Scheuer, chief chemical lobbyist for the European Environmental Bureau, a coalition of over 100 nongovernmental organizations. Scheuer and other environmentalists are optimistic that the parliament will restore many of the toughest provisions when it takes up the legislation in early 2004.

American business leaders and politicians regularly deride Europe’s unwieldy legislative process and the power it gives to unelected bureaucrats. But ironically, these very qualities have made it effective. The Council of the European Union (made up of heads of state and senior cabinet officials from each member country), the European Commission, and the 626 constantly squabbling members of the European Parliament all have a say in new laws. The laws originate in the giant Commission, whose appointed regulators are generally less vulnerable to corporate persuasion than U.S. congressional representatives. And while having three large bodies creating laws does slow the process, it results in a striking level of diversity and a kind of multisided debate that has virtually disappeared from American politics. The parliament includes many political parties, among them socialists, greens, conservatives, and hard-line nationalists. And the 15 sovereign countries that make up the EU are not bound by the same ideological and economic interests. This makes compromise the name of the game. "You don’t have winners and losers like in the United States. Here if you get 50 percent you are happy," says Darcy Nicolle, a European lobbyist with the Connecticut-based firm United Technologies.

The ever-shifting balance of power means that European policymaking is much more difficult for industry to control than in the United States. Each country gets its turn at the presidency of the Council of the European Union, while leadership within the European Commission is divided among the member nations. With a highly paid and powerful bureaucracy, the "revolving door" between politicians and industry is practically nonexistent.

In the United States, there is often little functional difference between, say, a senator from Alaska and one from North Carolina. Whether the issue is tobacco, health insurance, or nuclear power, corporate lobbying tactics in Washington are the same: Give tens of thousands of dollars to candidates, hire former officials who used to regulate the industry, look for sympathetic ears on the relevant authorizing and appropriations committees, and use mass mailings and front groups to produce the bogus grassroots support known as "Astroturf." While American politicians are constantly in need of cash to run for reelection, members of the EU’s parliament generally spend a tiny amount on campaigns. American lobbyists often express surprise when forced to argue an issue on its merits in Europe rather than shake a few hands and pass on a campaign check.

Differing histories and cultures also come into play. America was founded to protect citizens from an intrusive state. In Europe, however, bureaucrats are not so scorned and businesspeople not so widely revered. People tend to believe that corporations, like children, will misbehave if left to themselves. This "underlying socialist suspicion," as one lobbyist for a U.S. investment bank calls it, shocks Americans when they encounter European regulators. Less troubled by "big government," European countries’ social-democratic welfare system stands in stark contrast to the increasingly free-market (and often explicitly pro-big-business) climate in Washington. European corporations tolerate government interventions because many of them were, and in some cases still are, closely connected to the government.

In the United States, we can’t turn back 200 years of free-market capitalism. But there are many things we can do to follow Europe’s lead. So far, American corporations have been the face of globalization, often with devastating results for the environment as they take their factories to poor and unregulated countries and propagate unsustainable consumption. But if Europe’s green globalization begins to take hold, we may be the ones left behind—unless the Bush administration stops fighting progress and emulates the approach of some forward-looking local officials.

Last summer, for example, a bipartisan coalition of northeastern states led by New York’s Republican governor George Pataki announced plans to create an emissions trading system to combat global warming—in direct defiance of White House policy. Thirteen states have mandated minimum percentages of their total electricity that must be produced from renewable energy sources. In California, the state legislature has enacted an EU-style ban on dangerous flame-retardants. New Jersey officials recently began seeking natural-resource damages from polluters; if they are successful, industrial giants like ExxonMobil and Lockheed Martin will have to go beyond cleaning up their contaminated sites and pay for polluted groundwater, lost recreational opportunities, and other costs to the public. And the city of San Francisco has become the first U.S. municipality to embrace the precautionary principle. If more and more states and cities adopt similar laws, polluters will have nowhere to go.

In time, we may even elect some politicians like Karl-Heinz Florenz, the small-business owner and conservative German member of the EU parliament who worked on the vehicle-recycling legislation. He says he wants to teach Americans that environmental and economic policies cannot be separated. Some Americans "believe economics is everything," says Florenz. "But we are trying to find a healthy basis for our industry. You need good water, healthy air, and clean soil."