The UK government is to launch a review of the Internal Market Act.
The legislation was passed in the wake of Brexit with the aim of avoiding trade barriers across the UK.
The Scottish government has long opposed it, arguing it cuts across devolution.
Labour Trade Policy Minister Douglas Alexander said he would engage directly with the devolved administrations in a “good faith process”.
He said he had brought the review forward six months before a statutory deadline.
“The UK internal market is essential for the UK economy, allowing people and business to buy and sell goods, provide services and work across the four nations of the UK,” Alexander said.
“It’s crucial we protect that market whilst respecting policy divergence which comes with devolution.
“This UK government is committed to engaging with the devolved governments, and we recognise frustration with how the UK Internal Market Act has operated in the past, particularly the lack of clarity in terms of how it operates.”
The Internal Market Act was passed by the then Conservative UK government in 2020. It set out new rules on the trading relationships between the four nations of the UK following Brexit.
The Scottish government branded it a Westminster “power grab”, while the UK government described it as “the biggest transfer of powers in the history of devolution”.
The argument stemmed from whether Holyrood or Westminster should take control of powers being returned to the UK from the EU – such as rules over food and air quality and animal welfare.
The Scottish government argued any powers not specifically reserved to the UK government should automatically come to Holyrood.
Conservative ministers argued they had to take control of certain powers to ensure the “internal market” set a level playing field for companies across the UK – allowing Welsh farmers to sell their lamb in Belfast, and Scottish whisky distilleries to buy barley from English farmers.
They said without such a system there would be “serious problems” for trade across the UK.
Perhaps the most notable impact of the Internal Market Act came in the collapse of the Scottish government’s bottle return recycling scheme.
The plans required an exemption from the act to proceed. But UK ministers refused to provide one without glass being dropped from the scheme.
Former Green minister Lorna Slater said she had no choice but to delay the plans, accusing Conservative ministers at Westminster of sabotage.
