The EU needs a more agile regulatory system for external trade and competitiveness

The EU frequently finds itself under scrutiny when its regulations are discussed. The recent trend of rapidly introducing broad, new regulatory proposals across multiple sectors has complicated the business environment for companies both within and outside the Union. Some even argue that this approach could cause the EU to fall behind the rest of the world in technological development. But what are the reasons behind this situation? And is there a solution?

The EU should have recognised long ago that its regulatory system is relatively inflexible compared to countries outside the EU. Once the EU adopts an extensive regulatory package, the Union and its Member States are committed to it, making it difficult to adjust individual regulatory components, when the trade environment evolves.

Other markets enjoy greater flexibility to adapt their regulations and strategies independently. As a result, the EU currently faces significant challenges in international trade.

A successful regulatory system efficiently addresses legitimate regulatory concerns.

A successful regulatory system efficiently addresses legitimate regulatory concerns, while simultaneously considering the needs of businesses and trade. This balance is an area where the EU’s technical harmonisation system has excelled – until recently. The EU's current regulatory framework was established in the 1980s and 1990s to support the internal market, the free movement of goods and integration with non-EU countries. However, the system was not designed to address modern challenges, such as digital risks, sustainability and resilience issues.

In May 2024, the National Board of Trade Sweden published an analysis of the cumulative effects of EU regulation on external trade and investment, highlighting the current regulatory challenges. The study focused particularly on EU regulations related to digitalisation, sustainable development and resilience.

The report shows that new EU regulations may restrict trade. The analysis emphasises the overlooked cumulative impact of these regulations on external trade.

Read the report The Cumulative Effect of EU Regulations on External Trade.

It is essential to ensure that the necessary resources and tools are available to apply and enforce regulations.

It is crucial to analyse how the situation affects EU trade with third countries. Businesses report that it is challenging to interpret new EU requirements. The terminology across different regulations is inconsistent, and requirements often conflict with one another. This complexity imposes costs on businesses. While large companies may have the resources to navigate this regulatory maze, SMEs in particular need guidance to do so.

Implementing extensive regulations also demands a large administrative apparatus. It is therefore essential to ensure that the necessary resources and tools are available to apply and enforce regulations; otherwise, a level playing field in the EU single market could become a thing of the past.

If EU regulations are questioned, the criticism should be taken seriously.

A complex regulatory environment can lead to welfare losses across the EU. Well-intentioned regulations may also inadvertently prevent enterprises in developing countries from trading with the EU, undermining international trade obligations and efforts to support these countries.

It is of vital importance that Member States maintain good relations with third countries and build trust. If EU regulations are questioned, the criticism should be taken seriously.

Given the concerns raised above, the Board has several recommendations:

• Specific mechanisms are needed to support companies and developing countries in implementing new policy requirements.
• EU Better Regulation Practices, including impact assessments (IA) and fitness checks, should be applied more systematically to address the cumulative effects of EU regulations in complex policy areas and ensure that measures achieve their intended effects without creating unnecessary trade barriers.
  
  
• Regulatory areas addressing strategic autonomy or digital sovereignty require special consideration in EU regulation.
  
  
• The EU should enhance cooperation with trading partners in third countries to clarify uncertainties and facilitate the implementation and application of EU regulations.

In today's complex trading environment with multiple regulatory concerns, achieving desired regulatory outcomes has become more difficult. One example is cybersecurity regulations, which, in some cases, fail to increase security as intended. It is not just about what the EU regulates, but how it is done. Rather than striving to be a global regulatory leader, the EU should reflect on how to make its own regulatory system more agile and flexible to align with its trading partners.

 

Heidi Lund
Senior Adviser, National Board of Trade Sweden

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