Washington tells Brussels that narrowing its corporate sustainability directives was not enough, and warns it will “take any actions necessary” if the trade framework’s non-tariff promises go unmet
WASHINGTON, Aug. 21, 2026
The United States has told the European Union that the concessions Brussels has already made on its corporate sustainability laws fall short of what Washington believes it was promised when the two sides settled their tariff war a year ago, escalating a dispute over non-tariff barriers that now sits at the center of the transatlantic trade relationship.
In a formal comment letter submitted to the European Commission and published on Aug. 14, Andrew Puzder, the U.S. ambassador to the European Union, wrote that the December 2025 Sustainability Omnibus package, which sharply narrowed the reach of the bloc’s two flagship disclosure and due diligence laws, did not resolve the American objections that led to the commitments in the first place. The letter, which addresses the Commission’s draft guidelines for the Corporate Sustainability Due Diligence Directive, was reported on Aug. 20 by ESG Dive and Supply Chain Dive, both Informa TechTarget publications, and analyzed in a client note published earlier in the week by the law firm Ropes and Gray.
“While the United States acknowledges some positive reforms in the December 2025 Sustainability Omnibus, those reforms failed to fully address U.S. concerns regarding these directives,” Puzder wrote, according to the letter text published by the U.S. Mission to the European Union.
The intervention matters because of where it sits in the architecture of the current transatlantic settlement. The framework agreement the two sides reached in the summer of 2025 capped U.S. tariffs on most European goods at 15 percent, well below the 30 percent rate that had been threatened, and established zero-for-zero treatment for aerospace equipment and a list of raw materials. In exchange, the European side made commitments that went beyond tariff lines. Brussels agreed to reduce the administrative burden that the Corporate Sustainability Due Diligence Directive, known as the CSDDD, imposes on U.S.-based businesses, and it agreed that the Corporate Sustainability Reporting Directive, or CSRD, would not create undue restrictions on transatlantic trade.
Those two sentences, buried in a framework document mostly concerned with duty rates, have become the most consequential non-tariff commitments of the deal. They are also the ones the United States now says have not been honored in substance.
What the letter asks for
The Puzder letter does not confine itself to broad complaint. It sets out specific structural changes to how the two directives should apply to American companies, and it frames each as a matter of trade access rather than a matter of environmental or governance policy.
The most far-reaching request concerns territorial scope. The letter asks the European Union to limit the application of the CSDDD to the activities of the EU subsidiaries of U.S. businesses, or to the EU business partners of those businesses, and to apply the law only to goods produced in, or services supplied from, the European Union. Under that formulation, a U.S. manufacturer with a European distribution arm would face due diligence obligations tied to that arm and to its European counterparties, but not to its domestic supply chain in Texas or Iowa.
A second request goes to enforcement. The letter asks that the European Union not impose any penalty on a U.S. business, or on the EU subsidiary of a U.S. business, that is calculated on revenue derived from activities outside the European Union. Under the current framework, penalties can be scaled to global turnover, which means a modest European footprint can generate exposure sized to a company’s worldwide business. Trade lawyers have described that asymmetry as the single largest driver of American corporate anxiety about the directives.
A third line of attack targets the double materiality standard that underpins both laws. Double materiality requires a company to report not only how sustainability issues affect its financial position, but also how its own operations affect the environment and the communities in which it works. The letter argues that this second limb “would significantly expand the reporting burden for non-EU companies with minimal links to the EU market,” and it questions the directives’ references to net zero commitments, their compliance obligations, and their enforcement and litigation procedures.
Reporting on the letter also indicates that the United States has asked for a presumed compliance mechanism, under which companies domiciled in jurisdictions the U.S. characterizes as having high quality regulatory regimes, including the United States itself, would be treated as satisfying the directives’ requirements without separate European filings. That concept, if accepted, would amount to a mutual recognition regime for corporate sustainability regulation, something the European Union has not previously conceded in any trade context.
The letter closes with the sentence that trade practitioners have seized on. “The United States therefore requests that the EU address remaining U.S. concerns with the obligations CSDDD and CSRD impose on U.S. businesses domiciled outside of the EU, so that U.S. companies, producers, and farmers are not unduly burdened by these directives,” Puzder wrote. “The United States will take any actions necessary to address unreasonable burdens on U.S. commerce absent a solution that addresses these concerns.”
How far Brussels has already moved
The European position is that it has moved a considerable distance already, and the record supports that reading on the arithmetic if not on the principle.
In December 2025, EU legislators reached a political agreement on an omnibus simplification package that raised the compliance thresholds for both directives. Under that agreement, the CSRD applies to EU-based companies with more than 1,000 employees and more than 450 million euros in revenue, roughly 521 million dollars, and to non-EU entities generating more than that revenue figure inside the bloc. The CSDDD threshold was set higher still, capturing EU companies with more than 5,000 employees and 1.5 billion euros in revenue, about 1.7 billion dollars, and non-EU entities generating more than that amount within the European market.
The practical effect was dramatic. Analysts estimated the revised thresholds would lift roughly 90 percent of previously covered companies out of the CSRD’s scope and roughly 70 percent out of the CSDDD’s remit. The European Parliament subsequently passed the agreement and the European Council adopted it.
The Commission did not stop there. In July 2026 it adopted revised sustainability reporting standards for companies that remain within the CSRD’s scope, cutting the number of mandatory data points by 60 percent and the total number of data points by 70 percent. It also adopted a voluntary standard for companies outside the law’s scope and, critically for supply chain managers, provided that covered companies may not demand more information from their supply chain partners than the voluntary standard contains. That provision was designed precisely to stop large European buyers from pushing full CSRD-grade questionnaires down to small suppliers, including American ones.
Brussels has also loosened adjacent measures that Washington and other trading partners had complained about, including the deforestation regulation and rules on methane emissions.
None of that has satisfied the American side, and the reason is structural rather than numerical. The European reforms reduced the number of companies caught. The American request is that the directives stop reaching outside European territory at all. Those are different arguments, and raising a threshold does not resolve the second one.
Stakeholder reactions
Lawyers advising multinational clients read the letter as a signal that the non-tariff file has been elevated to the same status as the tariff file.
“As an overarching comment, the U.S. Government is asking the EU and its Member States to significantly limit CSDDD and CSRD reporting and due diligence requirements on US businesses,” wrote Michael Littenberg, a partner at Ropes and Gray, and Samantha Elliott, an associate at the firm, in a note published this week reviewing the submission. The firm’s lawyers characterized the 2025 framework agreement as a first step in deepening the trade and investment relationship, and noted that the U.S. government has raised objections to the extraterritorial reach of both laws since they were still at the proposal stage.
That history is worth emphasizing. American criticism of the directives did not begin with the tariff negotiation. The chair of the House Financial Services Committee described the CSDDD as a non-tariff barrier for U.S. companies well before the framework agreement was signed, and the chair of the Securities and Exchange Commission has publicly voiced concerns about what he called prescriptive European sustainability rules. The trade framework gave a long-standing regulatory complaint a treaty-adjacent hook.
Reaction on the European side has been more muted, in part because the Commission’s guidelines process is still open and in part because the bloc has already absorbed significant political cost in simplifying the directives. European civil society organizations have argued for more than a year that the omnibus package hollowed out laws that took the better part of a decade to negotiate. A further round of concessions aimed specifically at American companies would raise an awkward question inside the single market, namely whether European firms would face obligations that their U.S. competitors selling into the same market do not.
That asymmetry concern cuts both ways, and it is the crux of the dispute. Washington argues that applying European due diligence law to activity in Ohio distorts competition against American producers. Brussels can argue with equal internal logic that exempting a U.S. company’s non-European operations from rules that bind a European company’s non-European operations distorts competition against European producers. Both positions are coherent. Neither is obviously reconcilable with the other inside the current text of the directives.
Business groups on both sides of the Atlantic have generally welcomed simplification while warning about the cost of continued uncertainty. Compliance teams have been building CSRD reporting capability for three years against a moving target: an original directive, a December 2025 rescoping, a July 2026 standards revision, and now an open question about whether a further carve-out for non-EU parents is coming. Every revision that reduces the eventual burden also strands the investment made to meet the prior version.
The economics of a non-tariff fight
It is tempting to treat a dispute over disclosure rules as a second-order matter next to a 15 percent tariff. The numbers argue otherwise.
Compliance cost estimates for the original CSRD ran from the low hundreds of thousands of dollars annually for mid-sized filers to the tens of millions for the largest groups with complex supply chains. The December 2025 rescoping removed most of that population from the law entirely, which is why the aggregate figure fell so sharply. What remains, however, is concentrated in exactly the companies that dominate transatlantic trade flows: large industrial groups, agricultural traders, chemical producers, and consumer goods manufacturers with both European sales and long international supplier networks.
For those firms the cost is not primarily the reporting itself. It is the due diligence obligation, which requires mapping and, where necessary, remediating adverse impacts across a chain of business relationships. That work reaches suppliers who are not themselves regulated, cannot be automated cheaply, and often sits in jurisdictions where the data does not exist in usable form. The letter’s reference to U.S. producers and farmers is a signal about where the pressure is being felt. Agricultural supply chains are long, fragmented, and poorly documented relative to manufacturing, which makes them the hardest place to satisfy a due diligence standard designed in Brussels.
There is also a litigation dimension that has drawn less attention than the reporting burden. The CSDDD contemplates civil liability and, in some member state implementations, standing for affected parties to bring claims. American general counsels have flagged that as an open-ended exposure that is difficult to reserve against, particularly when penalties can be scaled to global revenue. The letter’s request that penalties be limited to EU-derived revenue is, in effect, an attempt to convert an unbounded liability into a quantifiable one.
Against that, the macroeconomic backdrop of the transatlantic relationship has stabilized somewhat since the Supreme Court’s February decision striking down tariffs imposed under the International Emergency Economic Powers Act. The 15 percent framework rate on most EU goods has held, sectoral measures under Section 232 have continued to expand, and the Section 301 forced labor tariffs that took effect on July 24 apply to roughly 60 economies at rates of 10 or 12.5 percent. European exporters are operating in a U.S. market where the headline rate is known but the sectoral overlay keeps shifting. Adding a regulatory retaliation threat to that mix increases the variance that European boards must plan against.
What “any actions necessary” could mean
The letter’s closing warning is deliberately unspecific, and trade practitioners have spent the week working through the plausible instruments.
The most obvious is Section 301 of the Trade Act of 1974, which the administration has already used aggressively in 2026, including for the forced labor action against 60 economies and for country-specific measures. Section 301 is designed for exactly this fact pattern: a determination that a foreign government’s acts, policies, or practices are unreasonable or discriminatory and burden U.S. commerce, followed by retaliatory duties. A non-tariff regulatory barrier is a textbook Section 301 target, and the statute does not require that the practice be a tariff.
A second route is the framework agreement’s own consultation machinery. Reporting indicates that a joint statement addressing non-tariff issues could be released as early as this autumn. A negotiated outcome embedded in that statement, rather than a unilateral action, remains the more likely path in the near term simply because both sides have an interest in keeping the 15 percent settlement intact.
A third possibility, and the one that would concern European exporters most, is linkage. Nothing in the framework prevents the United States from treating the sustainability commitments as a condition of continued preferential treatment on tariff lines that are currently at zero, such as aerospace equipment and the listed raw materials. Linkage of that kind has been a recurring feature of the administration’s approach, and the polysilicon proclamation issued on Aug. 6 showed the same instinct in a different form, offering to alter tariff treatment for trading partners that adopt equivalent minimum import prices.
For now, the immediate procedural question is narrower. The Commission’s CSDDD guidelines are still in draft, and the U.S. submission is a comment in that process. Guidelines cannot rewrite a directive. They can, however, shape how national authorities interpret scope, how they assess the adequacy of a company’s due diligence, and how aggressively they pursue enforcement against non-EU parents. That is where the American submission is aimed, and it is where a partial accommodation is technically feasible without reopening the legislative text.
Implications for importers, exporters, and U.S. businesses
For U.S. companies with European operations, the practical guidance has not changed as much as the headlines suggest, and the risk of over-reacting is real.
Companies above the revised thresholds remain in scope of both directives today. A comment letter, however forceful, does not suspend a legal obligation, and national transposition deadlines continue to run. Compliance teams that pause their CSRD build on the expectation of an American-negotiated carve-out are taking a regulatory bet with no confirmed payoff date. The prudent posture is to continue building toward the July 2026 revised standards, which are the operative requirement, while documenting which elements of the program exist solely because of extraterritorial reach. If a carve-out does arrive, that documentation becomes the map for what can be switched off.
Companies below the thresholds face a subtler problem. They are out of scope as filers but remain inside the supply chains of covered European buyers. The Commission’s July provision limiting information requests to the voluntary standard is the most important protection they have, and it is worth invoking explicitly in contract negotiations. Suppliers presented with full-scope questionnaires by European customers should ask which standard the request is grounded in.
Importers on the U.S. side should be watching a different risk. If Washington does proceed to a Section 301 action or to linkage against European goods, the immediate cost lands on American importers of record, not on European exporters. That is the consistent lesson of the past 18 months of tariff policy, and it has been reinforced by the refund litigation now working through the courts. Any importer with significant European sourcing should be modeling the landed cost effect of an incremental duty layered on top of the existing 15 percent framework rate and any applicable Section 232 sectoral measure, and should be confirming whether foreign trade zone admissions and drawback eligibility would survive a new action. Recent proclamations have restricted both.
Exporters selling into Europe have the opposite exposure profile. Their risk is not duty but market access friction: due diligence questionnaires from customers, contractual representations about supply chain conduct, and the possibility of being dropped by a covered buyer that finds the documentation burden of a non-European supplier too high. That is the barrier the U.S. letter is trying to dismantle, and it is the one that will persist regardless of how the tariff question resolves.
Contract drafting deserves attention on both sides. Sustainability representations, audit rights, termination triggers tied to due diligence findings, and indemnities for regulatory penalties are all live terms in transatlantic supply agreements now. Companies signing multi-year contracts this quarter are allocating a risk whose legal contours may change within the year. Change in law provisions and the right to renegotiate specific compliance covenants are worth more in this environment than they were a year ago.
The wider pattern
The dispute fits a pattern that has defined U.S. trade policy through 2026. Tariff rates have become, if not stable, at least legible. The frontier has moved to the measures that sit behind the border: disclosure mandates, due diligence obligations, forced labor enforcement, minimum import prices, onshoring conditionality, and certification regimes. Each of these is harder to quantify than a duty rate and harder to negotiate away, because each is grounded in a domestic policy objective that the enacting jurisdiction believes is legitimate.
The European directives were not designed as trade barriers. They were designed to internalize environmental and human rights costs across corporate value chains. That intent does not settle the trade question, because a measure’s effect on commerce is independent of its motivation, and the framework agreement gave the United States a contractual hook that does not require it to argue about motivation at all. Brussels promised to reduce the burden. Washington says the burden has not been reduced enough.
How that gap closes will say a good deal about whether the 2025 framework functions as a durable settlement or as a truce that has to be renegotiated every time a non-tariff commitment comes due. For companies on both sides of the Atlantic, the answer arrives in the form of the joint statement expected this autumn, and in whatever the Commission does with the guidelines now sitting in front of it.