US Seeks EU Due Diligence Carveout for American Firms and Their Suppliers

Washington's five-page submission to the European Commission, published through the U.S. Mission to the EU, asks Brussels to carve American companies and their upstream suppliers out of large portions of the Corporate Sustainability Due Diligence Directive and Corporate Sustainability Reporting Directive. The filing warns the EU it will take "any actions necessary" if those concerns go unaddressed.

The demands

The EU already narrowed both directives substantially through its Omnibus I simplification package. CSDDD now applies directly to non-EU companies only when they generate more than 1.5 billion euros in net turnover inside the EU; the threshold for EU companies sits above 5,000 employees and 1.5 billion euros in net worldwide turnover. CSRD applies to EU companies with more than 1,000 employees and annual turnover above 450 million euros. For non-EU groups, reporting applies when the parent exceeds 450 million euros in the bloc and its EU subsidiary or branch tops 200 million euros in turnover. The Commission cut mandatory data points by more than 60 percent and estimated reporting costs would fall more than 30 percent per company. Washington acknowledged the reforms and asked for more.

The U.S. wants fines capped at EU-generated revenue rather than the current ceiling of 3 percent of worldwide net turnover. It also wants the EU to designate the U.S. a "negligible risk" jurisdiction, establishing presumed compliance for American companies. For apparel supply chains, the most consequential request is that producers and farmers sitting beyond the first tier of production be excluded from audits and information requests when their goods are not sold in the European market. Cotton growers, spinners, textile mills, and chemical manufacturers rarely hold direct contracts with the brands covered by CSDDD, and those tiers are where labor and environmental risks have historically been hardest to trace.

Joseph Wilde-Ramsing, advocacy director at the Centre for Research on Multinational Corporations (SOMO), told Sourcing Journal that over 90 percent of human rights and labor abuses occur beyond the first tier, and that limiting the law's reach there would "severely hamper" its effectiveness. Daniel Schönfelder, a partner at Blue Marble Legal and lead European legal advisor to the Responsible Contracting Project, said restricting audits to direct suppliers would "focus attention on where risks are often small, wasting corporate resources without creating impact." On the equivalence argument, Schönfelder said the U.S. has a specific forced-labor import ban, but "there is currently no equivalent due diligence framework in the U.S."

What to watch

The U.S. and EU agreed in their August 2025 trade framework to work toward ensuring the directives would not create "undue restrictions on transatlantic trade." U.S. Ambassador to the EU Andrew Puzder wrote last week: "Now it's time for the EU to deliver." The European Commission confirmed it received the comments through the open consultation on CSDDD guidelines but drew a firm line: "neither our rules framework nor our regulatory autonomy are up for negotiation." Several of Washington's requests, including removing the provisions placing non-EU companies directly within CSDDD's scope, would require amending the directive rather than issuing guidance, Schönfelder said. Companies are expected to comply with the updated due diligence requirements beginning in July 2029.

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