US threatens retaliation over EU sustainability rules despite Brussels concessions

The United States has escalated its confrontation with the European Union over corporate sustainability legislation, threatening unspecified action unless Brussels further weakens rules that Washington says place unreasonable burdens on American companies. The intervention, delivered on Friday by the US ambassador to the EU and backed by the White House, marks a sharp deterioration in the transatlantic regulatory relationship barely a year after the Turnberry trade agreement was supposed to have eased such frictions.

Washington escalates pressure on Brussels over sustainability rules

Andrew Puzder, the US ambassador to the European Union, used the social media platform X to declare that "now it's time for the EU to deliver" on commitments made under the Turnberry deal. His public statement followed a formal USTR communication acknowledging that Brussels had made "some positive reforms" but insisting the EU had "failed to fully address U.S. concerns". The language, promising that Washington "will take any actions necessary to address unreasonable burdens on U.S. commerce", leaves the door open to retaliatory tariffs, investment restrictions, or a formal dispute at the World Trade Organization.

The dispute centres on two pillars of the EU's corporate sustainability rulebook. The Corporate Sustainability Reporting Directive (CSRD) requires large companies and listed SMEs to disclose detailed sustainability-related information across environmental, social and governance metrics. The Corporate Sustainability Due Diligence Directive (CSDDD) goes further, obliging large companies to identify, prevent and mitigate human rights and environmental harms in their own operations and across their value chains. Both directives apply to non-EU companies meeting turnover thresholds in the European market, which is precisely what has drawn Washington's ire.

The Turnberry deal and its unfulfilled promises

The Turnberry agreement, signed in mid-2025, was billed as a reset for transatlantic economic relations after years of tariff spats over steel, aluminium and digital services taxes. Among its provisions was a commitment to regulatory cooperation intended to prevent new rules from becoming de facto trade barriers. US negotiators understood that the EU would carve out exemptions or simplified compliance paths for American firms already subject to equivalent domestic regimes. Brussels, for its part, interpreted the text as a pledge to engage in good-faith dialogue, not to rewrite legislation that had already passed the co-legislative process.

That ambiguity is now the battlefield. Washington points to the absence of a "safe harbour" for US companies that comply with American law but fall short of the EU's more granular requirements. The EU counters that the directives are non-discriminatory, they apply equally to European and foreign firms, and that the Turnberry text never promised regulatory alignment, only cooperation. The Commission's spokesperson said Brussels had made "considerable efforts" to explain its rules and highlighted "its willingness to cooperate with the US to increase trade where possible", but drew a line at changing its regulatory regime in response to pressure.

Two directives at the centre of the dispute

The CSRD entered into force in January 2023 and is being phased in, with the first reports due from large public-interest entities over financial year 2024. The CSDDD, adopted in mid-2024, gives member states until 2026 to transpose it into national law. Both have already been trimmed under the Commission's "omnibus" simplification package unveiled in early 2026, which narrowed the scope of companies covered, extended deadlines and reduced the number of data points required. The Commission estimates the package cuts administrative costs by roughly €6.3 billion annually across the bloc.

Those concessions have not satisfied Washington. US business groups, particularly the Chamber of Commerce and the National Association of Manufacturers, argue that the due diligence directive's value-chain obligations effectively export European legal standards to American soil, exposing US firms to litigation in EU courts for harms they neither control nor can easily monitor. They also contend that the reporting directive's double materiality concept, requiring disclosure of both how sustainability affects the company and how the company affects sustainability, has no equivalent in US securities law and creates duplicative compliance burdens.

Brussels pushes back on regulatory autonomy

The Commission's refusal to negotiate its regulatory framework reflects a deeper strategic calculation. Since the von der Leyen Commission took office in 2019, the EU has positioned itself as the global standard-setter for sustainable finance and corporate accountability. The taxonomy regulation, the sustainable finance disclosure regulation, the CSRD and the CSDDD form a coherent architecture that the EU believes gives it first-mover advantage in defining the rules of the green transition. Yielding to US demands for exemptions would, in Brussels' view, undermine the credibility of that architecture and invite similar demands from other trading partners.

There is also a domestic political dimension. The European Parliament's centre-left and green groups, whose support the Commission needs for its broader agenda, would treat any carve-out for US firms as a betrayal of the legislative mandate they delivered. Member states such as France and Germany, which championed the due diligence directive as a tool to level the playing field for their own companies, would resist diluting it under external pressure. The Commission's line, that regulatory autonomy is not up for negotiation, is therefore as much about holding the EU's internal coalition together as it is about transatlantic diplomacy.

Carbon border mechanism adds another front

The sustainability directives are not the only irritant. Last week, Puzder attacked the EU's Carbon Border Adjustment Mechanism (CBAM) as a tariff on US exporters. CBAM, which entered its transitional phase in October 2023 and begins full financial liability in 2026, requires importers of steel, aluminium, cement, electricity, fertiliser and hydrogen to report embedded emissions and, from 2026, purchase certificates mirroring the EU emissions trading system price. The US has no federal carbon price, leaving American producers exposed to the full CBAM cost while European competitors receive free allowances under the ETS.

The Commission maintains that CBAM is a climate measure, not a trade instrument, and that it is WTO-compatible. It has offered to recognise explicit carbon pricing in partner countries, but the US lacks one at federal level, and state-level schemes in California and Washington cover only a fraction of the economy. The result is a structural mismatch that no amount of regulatory cooperation can easily resolve without either a US carbon price or an EU willingness to accept alternative equivalence criteria.

Chinese rerouting allegations widen the breach

On Thursday, the White House broadened the offensive, accusing the EU and more than 40 other countries of enabling Chinese goods to skirt US tariffs by rerouting them through their markets. The allegation, while not new, signals that the Biden administration, or its successor, is preparing a wider trade enforcement push that treats the EU as a conduit for Chinese overcapacity rather than a partner in addressing it. European officials privately bristle at the charge, noting that the EU has its own trade defence instruments and has imposed dozens of anti-dumping and anti-subsidy measures on Chinese steel, electric vehicles and solar panels.

The convergence of these disputes, sustainability reporting, due diligence, carbon borders, and Chinese rerouting, suggests a systemic breakdown in the trust that the Turnberry deal was meant to rebuild. Each side now views the other's regulatory choices as strategic economic weapons rather than legitimate domestic policy. That perception makes compromise exponentially harder, because any concession is framed domestically as a surrender.

Why this matters

How we got here

What happens next