EU is not a sovereign entity or a state but it needs to be and this is one step in that direction. EU eurocrats worked with the people affected of this and put together a proposal and the elected officials of each member state will vote on this.

Anyway, I don't know about the exact wiring of this but an alternative can be to create a virtual country with its own law, sign a trade agreement with the country to give it full access to the EU market and even some special rights and achieve the same effect of getting rid of the regulations and bureaucracy. These arrangements can be very interesting, like the City of London which is like a country inside London that is actually a corporation. Very weird things are possible.