Republican Lawmakers Question ‘Legitimacy’ of EU Regulation for US Businesses

A group of Republican lawmakers is urging the Trump administration to support calls by France and others to indefinitely postpone the implementation of a supply chain due-diligence law that is already being kneecapped by efforts across the Atlantic to ease regulatory burdens on European Union businesses.

Leading the charge is French Hill, a Republican congressman from Arkansas and chairman of the House Financial Services Committee who previously told the American Council for Capital Formation in a webinar that he saw the corporate sustainability due diligence directive, or CSDDD, as a non-tariff barrier to trade that will not only reduce “already anemic growth rates” in Europe but also “disproportionately hurt” American businesses.

A letter to Treasury Secretary Scott Bessent and National Economic Council director Kevin Hassett dated Feb. 27—the day after the European Commission unveiled its so-called “omnibus package” to “cut red tape” and “simplify EU rules for citizens and business”—reiterated Hill’s claim that the CSDDD posed extensive risks to the competitiveness of the United States through its extraterritorial reach.

It was co-signed by South Carolina senator Tim Scott, chairman of the Senate Committee on Banking, Housing and Urban Affairs; Missouri representative Ann Wagner, chairwoman of the House Subcommittee on Capital Markets; Tennessee senator Bill Hagerty, chairman of the Senate Subcommittee on National Security and International Trade and Finance; and Kentucky representative Andy Barr, chairman of the House Subcommittee on Financial Institutions.

The letter cited SOMO, also known as the Centre for Research on Multinational Corporations, which estimated that at least 300 U.S. companies publicly listed on the S&P 1500 stock market index will fulfill the CSDDD’s requirements for coverage because they rake in more than 450 million euros ($478 million) in net profits within the EU. It said that while the directive, which was signed into law last May, imposes “stringent” due diligence requirements on in-scope companies to identify, mitigate and eliminate human rights and environmental abuses in their supply chains, it follows United Nations and Organisation for Economic Cooperation and Development principles that have not been ratified by Congress, raising “concerns about the legitimacy of EU enforcement against U.S. companies.”

“Additionally, small businesses that supply larger companies will also be affected, even if their operations are solely within the U.S. Compliance efforts will require significant resource allocation, diverting funds away from critical areas such as research and development, talent acquisition and investment,” the Republicans wrote. “Furthermore, U.S. firms will face increased litigation risks and potential enforcement actions from EU member states, with penalties under the directive reaching up to 5 percent of a company’s global turnover.”

Some of these concerns might still be rendered moot. If passed, the omnibus version of the CSDDD would require companies to carry out in-depth due diligence assessments on first-tier suppliers (as opposed to their entire value chain) once every five years (versus annually) unless credible evidence suggests that harm has taken place in their indirect operations. It would also whisk away the civil liability regime, leaving the pursuit of penalties up to member states’ discretion and, according to experts, make it more difficult for rights holders to seek reparations or otherwise hold corporations culpable for any wrongdoing.

“In the broadest sense, the weaker the law and the weaker its implementation, the less useful it will be to workers, the less accountability it will provide for brands and retailers,” said Scott Nova, executive director at the Worker Rights Consortium, a labor rights group in Washington, D.C. “It’s discouraging because there were positive signs in recent years, both in the U.S. and Europe, that national governments were moving toward composing some genuine regulation on corporations that sell goods in the north and make them in the south, with the beginnings of the enforcement the Tariff Act, with the Uyghur Forced Labor Prevention Act and with what’s been happening in Europe. This is a serious setback that absolutely raises the question of whether things really are moving in the direction that people thought they were.”

In their letter, Hill and his colleagues said that the CSDDD fundamentally undermines U.S. jurisdictional sovereignty by requiring in-scope firms to disclose information “beyond what is relevant to U.S. investors.” They brought up the Securities and Exchange Commission’s recent unraveling of rules intended to improve and standardize climate-related disclosures by public companies and in public offerings, saying that it reinforces the “misalignment” of the CSDDD with U.S. legal principles. By mandating that U.S. companies incorporate European stakeholder perspectives on human rights and environmental risks into their business planning process, the letter added, the CSDDD could also violate American directors’ fiduciary duty to act in the best interest of their shareholders and expose them to litigation risks and enforcement actions in the United States.

Rachel Kibbe, CEO of American Circular Textiles, a trade group that lobbies on behalf of circularity-focused companies such as H&M Group, The RealReal, ThredUp and Vestiaire Collective, said that she understands how overregulation can complicate and even hobble sustainability efforts for both small and large businesses. The mere threat of increased state-level environmental regulation alone, she noted, is often enough to cause blowback. 

“It’s important to recognize that U.S. businesses aren’t just those relying on imports—they also include companies working to rebuild domestic production and circular supply chains,” she said. “Unfortunately, many of the U.S. businesses being defended here have long abandoned domestic manufacturing, even as the U.S. upholds some of the world’s most stringent environmental standards.”

Kibbe said that if the country “truly wants to protect American businesses,” it needs to invest in policies that support domestic production and circularity. This, she added, will ensure that industry doesn’t “just push back on foreign regulations but lead in sustainable innovation and manufacturing at home.”

But the Republican lawmakers say that the CSDDD’s extraterritorial application is “untenable and detrimental to global productivity.” They suggested that European firms listing in the U.S. could face similar regulatory exposure, which might discourage transatlantic economic cooperation. Europe, they added, is free to create a hostile business climate for companies in their own jurisdiction, but American companies need to be protected from the civil liabilities leveled by the bloc.

Throwing into relief the current White House’s anti-environmental stance, the letter said that since the United States has “shifted its stance on climate commitments,” its businesses should not be bound by the net-zero transition plans required in the original version of the CSDDD but which the omnibus proposal would waive. Trump, who has repeatedly called climate change a hoax, withdrew the United States from the Paris climate agreement when he reassumed office as part of his “America First” agenda. Sparring with the EU—on this and over would-be tariffs—appears to be more of the same.

“Recently, President Trump, in a speech before the World Economic Forum in Davos, Switzerland, identified ‘non-economic’ trade barriers that impede market access to Europe. CSDDD exemplifies such a barrier, imposing extensive regulatory burdens on U.S. companies operating globally,” it added. “We strongly urge immediate diplomatic engagement to challenge and halt its implementation.”