44 percent. 110 percent. Below 1 percent. That is the real regulatory arithmetic facing Europe.
Human rights and environmental due diligence typically cost companies a fraction of a percentage point of turnover. Intra-EU regulatory fragmentation, by contrast, acts like an underestimated 44 per cent tariff in goods and 110 per cent in services.
Yet Brussels and Member State governments call the former a burden – and treat the latter as untouchable.
The Real Cost Problem
Europe’s competitiveness and simplification debate is stuck in the wrong place.
Whenever growth falters, Brussels promises “simplification”. Whenever regulation becomes politically inconvenient, it is trimmed at the edges and repackaged as reform. The recent watering down of the Corporate Sustainability Due Diligence Directive was presented as such a simplification.
This was not simplification. It was misdiagnosis.
Europe does not suffer from too much commitment to human rights. It suffers from too much internal legal fragmentation.
The continent has confused regulatory quantity with regulatory purpose.
Consider the scale of Europe’s internal barriers.
The IMF estimates that remaining intra-EU trade frictions are equivalent to tariffs of roughly 44 per cent in goods and 110 per cent in services. These are not customs duties. They are regulatory differences, legal duplication and national policy silos.
And even these figures understate the problem. They capture measurable trade frictions. They do not fully account for the deterrent effect of regulatory uncertainty, compliance risk, linguistic complexity or the fixed costs from horizontal regulations that discourage firms – especially smaller ones – from entering neighbouring markets in the first place. Much cross-border trade within the EU is not merely costly. It is often avoided altogether.
Europe has abolished tariffs. It has not completed a Single Market.
Beyond zero tariffs and the principle of mutual recognition for goods – itself born more from judicial evolution in the late 1970s than from grand political design – integration remains shallow. In services, digital markets, taxation, labour mobility and corporate law, national regimes still dominate.
27 tax base calculations.
27 labour law regimes.
27 contract law traditions.
27 consumer and data protection variations.
Layered on top of 24 official languages.
For a multinational corporation, this is irritating.
For an SME, it is frequently prohibitive.
Europe speaks of strategic autonomy and industrial sovereignty. Yet it maintains a system that fragments its own market and prevents firms from scaling across borders with the ease enjoyed by competitors operating within truly unified jurisdictions.
This is not a failure of markets.
It is a failure of coherence.
The False Trade-Off
The political narrative suggests that Europe must choose: protect human rights or protect competitiveness.
This is a false trade-off.
Human rights due diligence is not an arbitrary bureaucratic exercise. It requires companies to identify risks, prevent harm, monitor impacts and report transparently. These are structured governance processes. They are increasingly digitised. Compliance systems are becoming cheaper, not more expensive.
The European Commission’s own study on supply-chain due diligence estimated that even a mandatory regime would impose costs that are modest relative to company revenues – particularly for large firms already operating sophisticated compliance systems.
In many cases, additional due diligence costs amount to a small fraction of turnover, often well below one per cent, and frequently much lower.
Set against this, the IMF estimates that intra-EU regulatory fragmentation is equivalent to tariffs of roughly 44 per cent in goods and 110 per cent in services.
The contrast is striking. Striking!
Europe debates compliance burdens measured in fractions of a percentage point.
It tolerates internal trade frictions measured in dozens – even hundreds – of percentage points.
Moreover, due diligence obligations primarily affect large firms with complex global value chains – precisely those actors most capable of internalising social and environmental costs. By design, proportionality mechanisms and risk-based approaches allow flexibility.
Internal fragmentation, by contrast, falls most heavily on smaller firms attempting to scale across borders. It does not protect workers in Bangladesh. It does not reduce emissions in Indonesia. It does not prevent illegal mining in the Congo. It merely multiplies legal duplication inside the Union.
If Brussels is serious about relieving burdens, it should begin where the burden is greatest.
The real competitiveness problem is not human rights compliance.
It is a Single Market that remains single in name.
The Grand Deal
Europe needs a regulatory reset built on a simple bargain:
Stronger global human rights standards in exchange for deeper internal harmonisation.
On one side of the ledger:
- Maintain and strengthen due diligence obligations.
- Engage constructively with the emerging UN treaty framework.
- Align standards internationally rather than dilute them domestically.
- Promote digital tools to reduce compliance costs and increase transparency.
On the other side:
- Harmonise tax base definitions across Member States.
- Align core labour market laws.
- Establish unified business and contract laws.
- Expand optional 28th regimes for firms that wish to operate under a single European rulebook.
- Replace regulatory duplication with mutual recognition or full legal harmonisation where feasible.
Europe does not need 27 variations of procedural detail. It needs a Single Market that truly functions as one. This should draw inspiration from ECIPE’s work on the need for “Competitive Harmonisation” – aligning rules where legal fragmentation imposes clear economic costs while preserving national discretion where genuine differences matter. Where consensus among all Member States proves elusive, coalitions of willing countries should be prepared to move ahead, overcoming an outdated integration architecture that too often allows the lowest common denominator to prevail.
Regulatory Prioritisation
The European model was never about minimal government. It was about high standards combined with openness. That model remains defensible – but only if standards serve purpose rather than perpetuate complexity.
The current “simplification” agenda – whether packaged as a digital omnibus or a non-digital omnibus – trims visible initiatives while leaving untouched the dense thicket of national divergence that truly undermines scale and innovation. It is largely window dressing. Nothing in it meaningfully improves how businesses operate across borders. The core of the problem – entrenched national policies, often treated as politically untouchable – remains intact.
If Europe can legislate supply-chain transparency across continents, it can harmonise contract law across its own territory.
If it can monitor environmental risks in distant jurisdictions, it can standardise tax base calculation at home.
The choice is not between regulation and deregulation.
It is between fragmentation and coherence.
Europe’s Integration Test – A Moment for Coherence
Europe’s productivity gap is linked to its limited effective market size. Its firms are innovative but too small. Its start-ups are ambitious but struggle to scale. Legal fragmentation compounds these weaknesses.
A Grand European Deal for Human Rights – and Against Bureaucracy would recognise that moral leadership abroad and legal coherence at home are not competing ambitions. They are complementary – and entirely consistent with European values.
Europe needs fewer duplicative laws.
It needs stronger enforcement of human rights and environmental standards.
And radically simpler internal rules for domestic commerce and intra-EU trade.
That is how Europe becomes both competitive and credible – and exercises genuine leadership by example.