From News Desk
The US and EU have announced that they have agreed on a Framework on an Agreement on Reciprocal, Fair and Balanced Trade. The Framework Agreement expands upon earlier official statements on the US-EU trade deal and is intended as a first step in a process to improve market access and increase the US-EU trade and investment relationship.
Although not the principal focus of the Framework Agreement, 4 of its 19 key terms relate specifically to EU ESG/CSR-related compliance requirements. This post discusses these key terms and how they may impact EU compliance requirements of US-based multinationals.
The US-EU trade deal was first announced last month. However, the July announcements by both the US and EU were thin on some of the details relating to reducing non-tariff trade barriers, especially relating to the Framework Agreement terms discussed in this post.
According to the Framework Agreement, the US and EU will promptly document the Agreement on Reciprocal, Fair and Balanced Trade to implement the Framework Agreement, in line with their relevant internal procedures. Therefore, more details are still to come.
EU Deforestation Regulation
The EU Deforestation Regulation (EUDR) covers cattle, cocoa, coffee, oil palm, rubber, soy(a) and wood, as well as many derived products. Timber and timber products have been a particular concern of the US. The Regulation currently is scheduled to apply beginning at year-end.
EUDR compliance already has been delayed by a year. In addition, in April, updated guidance and FAQs were published by the European Commission that simplified some aspects of EUDR compliance. According to the Commission, these measures will in the aggregate result in an estimated 30% reduction in administrative costs and burden for companies.
Carbon Border Adjustment Mechanism
In June, the EU announced that a provisional agreement to simplify its carbon border adjustment mechanism had been reached. The overall aim is to reduce the regulatory and administrative burden, as well as compliance costs, for EU companies, especially small and medium-sized enterprises. A more expansive de- minimise exemption was agreed to, encompassing covered importers not exceeding a single mass-based threshold of 50 tons per year. According to the European Commission’s calculations, this will reduce the number of CBAM declarants by 91%. Simplification changes also are being made to the CBAM authorization procedure, data collection processes, calculation of embedded emissions, emission verification rules and calculation of authorized CBAM declarants’ financial liability. According to the Council, adoption of the changes is expected by September 2025.
Corporate Sustainability Reporting and Due Diligence Directives
This summer, the European Council approved its negotiating position on the Commission’s omnibus proposal. In many respects, the Council is aligned or largely aligned with the Commission, although there are important differences. The European Parliament is expected to finalise its negotiating position in October. Once the Parliament finalizes its negotiating position, the Council presidency and Parliament will enter into negotiations to come to a final text.
Areas in play include the following, among others. Some of these are noted in the Framework Agreement –
- Compliance thresholds (CSRD and CSDDD);
- Timing (CSDDD);
- Value chain reporting (CSRD);
- Due diligence (CSDDD);
- Climate transition plan requirements (CSDDD); and
- Liability for violations (CSDDD).
US efforts to water down the CSDDD and CSRD are said to have been ongoing for some time, dating back to the Biden Administration.
Forced Labour
Paragraph 16: “The European Union and the United States commit to work together to ensure strong protection of internationally recognized labour rights, including with regard to the elimination of forced labour in supply chains.”
The EU’s forced labour Regulation was adopted in December 2024. The Regulation will prohibit products made with forced labour from being imported into or exported from the EU or otherwise made available on the EU market. The Regulation will apply starting in December 2027.
Regulation of imports involving forced labor is an area where the US is ahead of the EU. Section 307 of the US Tariff Act, which was adopted in 1930, prohibits importing into the US goods that are produced wholly or in part by forced labor. After decades of minimal enforcement, Section 307 was reinvigorated in 2016 with the repeal of the “consumptive demand exception” to that section.
In 2021, the Uyghur Forced Labour Prevention Act (UFLPA) was adopted. The UFLPA created a presumption for purposes of Section 307 of the Tariff Act that goods produced in whole or in part in the Xinjiang Uyghur Autonomous Region of China, or by entities specified by the US government, are produced using forced labour.
What Does the US-EU Trade Agreement Mean for ESG/CSR Compliance?
At this early juncture, it is not clear what all of this will mean in practice. The EU already is on its own initiative scaling back the EUDR, CBAM, CSRD and CSDDD, as part of its drive to enhance the competitiveness of the EU bloc. Therefore, it remains to be seen what additional changes the US will seek.
In the coming weeks and months, there will be more visibility on the parties’ specific, more granular negotiating positions. In the meantime, the Framework Agreement is likely to be used as an additional justification by the pro-simplification camp within the EU for trimming ESG/CSR-related compliance requirements.
Disclaimer – The details expressed in this post are from the companies responsible for sending this post for publication. This website doesn’t endorse the details published here. Readers are urged to use their own discretion while making a decision about using this information in any way. There has been no monetary benefit to the Publisher/Editor/Website Owner for publishing this post and the Website Owner takes no responsibility for the impacts of using this information in any way.
Global Perspectives... 