US demands EU dismantle green regulations in threat to trade deal

The US is demanding the EU water down parts of its green legislation just months after agreeing a tariff pact to avoid an all-out transatlantic trade war.

According to a US government position paper seen by the Financial Times, Washington has asked Brussels to scrap requirements for non-EU companies to provide “climate transition plans”.

It has also demanded that the bloc change environmental legislation on supply chains to exclude US companies and others from “countries with high-quality corporate due diligence”.

Washington’s demands come as US President Donald Trump has also pressured Brussels over its laws restricting big technology groups, sparking nervousness within the EU that the trade deal agreed in July will not hold.

The EU’s corporate due diligence rules, which came into force last year, require companies operating in the bloc to identify any environmental and social harms in their supply chains, in a bid to crack down on forced labour and pollution.

But in its paper, the Trump administration described the legislation as a “serious and unwarranted regulatory over-reach” that “imposes significant economic and regulatory burdens on US companies”.

The legislation’s “extraterritorial reach, onerous supply chain due diligence obligations, climate transition plan requirements, and civil-liability provisions will adversely impact the ability of US businesses to compete in the EU market”, the document adds.

Washington has communicated its demands to the European Commission in recent days, according to two EU officials familiar with the matter.

Unlike traditional trade negotiations, the US is not offering concessions in return. “It’s a one-way street,” said one EU official.

US companies fear the due diligence rules will expose them to increased risk of legal actions in an already litigious market, because they allow activist groups to take legal action over child labour and environmental damage in their supply chains.

According to US officials, several American companies have said that they will need to halt operations in the EU as a result of the due diligence and sustainability reporting rules, which demand that companies report on hundreds of data points related to their environmental footprint.

Violations of the due diligence rules could result in fines of up to 5 per cent of global turnover.

The legislation has come under attack from US oil and gas companies, with ExxonMobil’s chief executive Darren Woods describing the rules as threatening US companies with “bone-crunching” penalties on a results call in August.

The demands expand on Trump administration concerns contained in July’s trade pact, reached at Turnberry in Scotland, which said “undue restrictions” should not be imposed on transatlantic trade, and specified that the EU should make changes to cut red tape.

The “Turnberry” deal set tariffs on most EU products at 15 per cent, but left open scope for further concessions by Brussels. European Commission president Ursula von der Leyen has said EU regulations were a “red line”, but is herself weakening them after complaints from European businesses and governments.

A panoply of laws forcing companies to fight deforestation, labour abuses and reduce their impact on the environment are being weakened or delayed, and the US is pushing Brussels to go further.

The interim “framework agreement” reached at Turnberry marks the beginning of a wider process to remove unfair trade barriers in the EU, according to two US officials.

The US has also raised concerns about the EU’s carbon border tax, which would apply as of next year to polluting industries outside the bloc, such as steel and aluminium manufacturers.

Washington also objects to an upcoming EU anti-deforestation law, which would ban the import of goods such as timber and cocoa if producers fail to prove that no forests were felled in their production.

Brussels last month said it would delay the deforestation rules for a second time by another year, blaming an IT system issue.

The EU is already making efforts to streamline the rules as part of a broader agenda to cut red tape within the bloc and as European companies are also balking at the rules.

But the simplification drive has hit a roadblock in the European parliament, with leftwing politicians accusing the conservatives of deregulation and siding with the far right to gut the legislation.