UK-EU dynamic alignment is the requirement for the UK to continually update its domestic laws and regulations to mirror evolving EU standards to maintain market access
The UK and EU have targeted dynamic alignment in three core areas:
• Energy: Full participation in the EU’s internal electricity market.
• Agrifoods: Sanitary and phytosanitary (SPS) agreements to significantly reduce border checks.
• Emissions: Linking the UK and EU Emissions Trading Systems (ETS) to avoid carbon border taxes.
Our colleagues from the British Chamber in Germany, have commented as follows:
• Reduced Friction: German British business groups—including the British Chamber of Commerce in Germany (BCCG)—have strongly advocated for regulatory alignment to ease supply chain delays.
• Customs Union Advocacy: German stakeholders have often pushed for deeper economic integration, with the German ambassador expressing openness to the UK joining an EU customs union to streamline cross-border trade.
• Bilateral Cooperation: Alignment is closely monitored by chambers of commerce because bilateral trade remains critical to both economies. This is bolstered by the UK-Germany Friendship Treaty, which encourages joint economic frameworks.
EMMISIONS TRADING SCHEME
In May 2025, the UK and EU committed to linking their respective emissions trading schemes, which levy tariffs on carbon emissions in industrial sectors. Unless these systems become ‘linked’, the two sides face the prospect of new taxes and administrative costs on trade in industrial goods once their respective Carbon Border Adjustment Mechanisms (CBAMs) take effect from 2026 (EU) and 2027 (UK).
As with all UK-EU negotiations, there could be differences of opinion on key points of detail, such as the sectoral scope of linkage, the extent of UK dynamic alignment with EU law, and whether the UK can get a temporary exemption from the EU CBAM.
The agreement will require UK ‘dynamic alignment’ with EU law, but there could be disagreement over the extent of alignment necessary to make linkage work, and the influence which the UK has over future EU law which applies to it.
The biggest benefit of linkage is that the UK and EU would be exempted from each other’s Carbon Border Adjustment Mechanisms (CBAMs), which take full effect from 2026 (EU) and 2027 (UK). These levy tariffs on imports of ETS-covered goods, to ensure they pay the same price for their embedded carbon emissions as if they had been produced domestically. This is designed to stop imports, which are not subject to the costs of ETS-style regulation, from undercutting domestic goods.
Further updates on this subject are anticipated by the time of the leaders’ summit in July.
MADE IN EUROPE AGENDA
The EU’s “Made in Europe” agenda is a major industrial strategy designed to boost domestic manufacturing, reduce reliance on imports for critical technologies, and condition public funding or subsidies on local production.
The British Chambers of Commerce has warned the UK could be sleepwalking into a legislative nightmare, which could upend the EU Reset, unless urgent action is taken.
The EU is currently pursuing a Made in Europe agenda which aims to protect its industries from unfair international competition due to subsidies and tariffs. The EU’s Anti-Coercion Instrument, it’s so called ‘trade bazooka’ is one aspect of this.
But among new proposals it is considering are content rules that mean up to 70% of the components in the goods it makes must be of EU origin. It is also looking at new rules on sustainability, capping foreign direct investment and procurement.
As the UK is now a third country supplier this could squeeze British firms out of supply chains, as well as increasing costs and bureaucracy.
The concern over the EU’s plans is particularly acute in the automotive sector where legislation has already been tabled to increase EU only content and subsidies for EU made vehicles.
