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A European Union directive approved last year would have a devastating financial effect on manufacturing in the U.S. if allowed to go into effect as written, the NAM and four allied groups joined forces to tell the Trump administration last week.

What’s going on: “Under the current [Corporate Sustainability Due Diligence Directive] framework … American businesses will be held legally liable under EU standards for environmental and human rights obligations across their entire global supply chains,” the NAM, the U.S. Chamber of Commerce, the American Council for Capital Formation, the Small Business and Entrepreneurship Council and the International Franchise Association told leadership at the departments of Treasury, Energy and Commerce; the White House National Economic Council; and the U.S. Trade Representative. 

• The CSDDD, approved last year, directs EU member states to adopt national laws by 2027 requiring companies to identify and mitigate potential social and environmental risks at every stage of product creation.
• The latest version of the law would apply to non-EU firms with over 1.5 billion euros in net annual EU turnover.

Why it’s a problem: “The CSDDD’s compliance requirements will extend deep into supplier—even franchise—networks, triggering potential compliance and administrative burdens across U.S. small and medium-sized enterprises that have no direct relationship or interaction with European regulators,” the groups continued.

• The mandates—which will apply to even American companies that have only indirect EU ties, such as through suppliers—are likely to cost the U.S. over $1 trillion in measurable costs “and quite likely much more in immeasurable costs,” the NAM and its allies said.

Recent developments: On Oct. 13, a committee of the European Parliament approved a compromise proposal that would reduce the number of companies directly regulated by the directive, but larger U.S. firms and their suppliers still would be subject to CSDDD.

• A parliament vote is now scheduled for Nov. 12, after which the law’s final text will be negotiated with the Council of the European Union and the European Commission—making now “a critical moment to emphasize the expressed concerns with CSDDD,” the groups said.

At risk: If the directive proceeds “with extraterritorial subjugation intact, American businesses could be forced to respond to protect their interests,” the organizations went on, adding that companies may reconsider their EU investments, which would result in slowed economic growth, bottlenecked supply chains and worsened EU–U.S. relations.

What should be done: The administration should “continue to engage with Brussels and EU member-state governments to underscore that the current proposals to revise the CSDDD address neither concerns raised by the U.S. business community nor the U.S. government, and that the United States will take measures to protect American companies,” the groups concluded. 

Learn more: For more information, please visit www.nam.org/csddd.