Report: Addressing Fragmentation for a Global Circular Economy: Lessons from the EU Single Market

Many new laws and regulations are currently being developed to promote the transition to a circular economy. However, the flora of requirements risks creating problems for companies that must adapt their products to varying rules on different markets. This report shows that there are ways to promote greater convergence.

The National Board of Trade (Kommerskollegium) has investigated how the EU and Member States regulate the transition to a circular economy and how they approach the barriers to trade such regulations might create.

It is not the environmental requirements themselves but rather the varying rules that hinder trade. The regulatory landscape is difficult for companies to navigate and prevents them from fully benefitting from scalability. To some extent, different rules may also hinder the transition itself, such as by making it more difficult to import waste to produce recycled goods.

Subjecting the same product to several different requirements presents a barrier to trade

One fundamental principle of the EU single market is that companies should be able to sell the same product in every member state without having to make any adaptations. However, member states are also free to impose their own regulations on products to achieve environmental objectives such as the transition to a circular economy, for example, national requirements for packaging to be labelled with certain sorting instructions or disposal information.

Companies conducting cross-border trade within the EU must comply with the various national regulations and adapt or repackage their products accordingly. This makes it more difficult to sell the same product in all member states. This situation is sometimes described as the market and the regulatory landscape being fragmented.

At the same time, the EU has worked to harmonise the rules and, to some extent, address the fragmentation that has arisen due member states’ national regulations. The EU has also enacted new and amended existing legislation to enable products to be part of a circular economy. Still, countries outside the EU also regulate in this area and companies that operate in the global market may need to adapt their products to a host of different regulations.

The various national rules thus create barriers to trade in these goods, making it more expensive and difficult to trade across borders both within the EU and globally.

Common solutions are needed

While the companies we have been in contact with have expressed willingness to be part of the circular economy, the lack of common solutions and consistent rules creates problems for them. We have therefore investigated how this fragmentation can be reduced. Fundamentally, it is a matter of promoting regulatory cooperation and common requirements. At EU level, this means that common EU rules are drawn up instead of national rules (harmonisation).

To discover where harmonisation is needed, the EU needs to monitor which issues are regulated by member states, where legislative processes are usually faster and new product regulation most advanced. By monitoring proposals for new national rules, the EU can identify the areas in which harmonised EU rules are needed.

When new legislation is drawn up, it is important to do a thorough job of examining the likely consequences. This also applies to rules for the circular economy. We believe that member states must investigate how their national rules affect the free movement of goods and services within the EU. It is also vital that an impact assessment is performed whenever new rules are proposed at EU level, including how the new rules are likely to affect international trade and companies from countries outside the EU. There is clearly a risk that companies from developing countries will be hit harder when new and complex requirements are introduced than companies from other markets. We therefore believe that the EU should be as transparent as possible when adopting new rules and obtain comments and views from a wide range of trading partners at an early stage.

Common rules, standards and definitions are important factors for improving global trade. We therefore propose that the EU examines more closely the opportunities for using international regulatory cooperation to reduce the fragmentation of the global market.

The better the regulations that the EU develops, the greater the chances that other countries and regions will choose to adopt similar rules when they regulate the same issues. Here, the EU has an opportunity to take the lead and show that it is possible to combine the interests of trade with the transition to a circular economy.

What is the National Board of Trade Sweden?

The National Board of Trade is the Swedish government agency for international trade, the EU internal market and trade policy. Our mission is to facilitate free and open trade with transparent rules as well as free movement in the EU internal market. We provide the Swedish Government with independent analyses, reports and policy recommendations and take into account the views of businesses of all sizes in international trade policy-related matters.