On 21 August 2025, the European Union and the United States issued a joint statement, announcing they had agreed a framework for an agreement on reciprocal, fair and balanced trade.
While the focus of the joint statement is on tariffs and trade rules, the announcement also demonstrates how EU sustainability rules are high on the agenda as potential non-tariff barriers to trade.
The EU / US joint statement explained
The EU / US joint statement issued on 21 August builds on political agreement reached between President von der Leyen and President Trump on 27 July at Turnberry in Scotland. The deal follows months of negotiations and averted the introduction of 30% US tariffs on EU goods. Instead, the US has agreed to a tariff ceiling of 15% for almost all EU goods (save for those subject to a higher most favoured nation rate) and the EU has agreed to remove tariffs for all US industrial goods and to improve market access for certain US goods. Exclusions from tariffs have been agreed for aircraft and aircraft parts, generic pharmaceuticals and their ingredients and chemical precursors. The EU is pushing to further extend this list of excluded goods.
EU sustainability rules: non-tariff barriers to trade
In addition to tariffs and trade arrangements, the EU’s sustainability rules feature heavily in the joint statement, as the US seeks to reduce non-tariff barriers to trade:
The Corporate Sustainability Reporting Directive (“CSRD”) and Corporate Sustainability Due Diligence Directive (“CS3D”)
CSRD is the EU’s new sustainability reporting regime, which will require in-scope companies to report extensive sustainability-related information in their annual reports. CS3D will require affected companies to, among other things: (i) integrate due diligence into their policies and risk management systems; (ii) prevent, mitigate and remediate adverse human rights and environmental impacts; and (iii) take certain steps regarding transition plans for climate change mitigation.
In the EU / US joint statement, the EU announced that it will undertake efforts to ensure that the CS3D and the CSRD do not pose undue restrictions on transatlantic trade. For the CS3D, the EU’s commitments include undertaking efforts to reduce the administrative burden on businesses (including SMEs) and to propose changes to the requirement for a harmonised civil liability regime for due diligence failures and climate transition-related obligations. In particular, the EU announced its commitment to work to address US concerns regarding the imposition of due diligence obligations on companies from countries outside of the EU that have high-quality regulations of their own.
However, the Commission’s Q&As on the joint statement state that what it has agreed to regarding the CS3D is merely to “exchange views” with the US on CS3D related issues. The Commission emphasises that the discussions with the US on CS3D focus on avoiding unnecessary administrative burdens. The agreement will not, however, lead to changes to EU domestic rules or more favourable treatment for US companies under the CS3D (or any other EU regulation).
The EU’s Carbon Border Adjustment Mechanism (“CBAM”)
CBAM seeks to prevent ‘carbon leakage’ and to encourage cleaner industrial production systems in non-EU countries, by introducing a levy on products imported into the EU which are carbon-intensive. The levy would apply to iron, steel, aluminium, cement, electricity, fertilisers and hydrogen, that are produced outside the EU, following a transition period where importers are not subject to financial levies but instead have to make quarterly reports to an EU register.
In the EU / US joint statement, the EU says that it will “take note” of US concerns relating to the treatment of US SMEs under the CBAM regime. The EU says that, in addition to an already agreed de minimis exception, the EU commits to provide additional flexibilities in the implementation of CBAM. In its Q&As on the joint statement, the Commission confirmed that it has not committed to change CBAM in any specific way nor to provide more favourable treatment for US companies. The Commission says that it is already introducing “flexibilities” as part of the EU’s simplification agenda.
The EU’s Deforestation Regulation (“EUDR”)
EUDR prohibits importing certain products and commodities unless (among other things) they are “deforestation-free” and have been subject to applicable due diligence processes and assessments.
In the EU / US joint statement, the Commission recognises that production of relevant commodities within the EU poses a negligible risk to global deforestation and commits to work to address concerns of US producers and exporters, with a view to avoiding undue impact on US-EU trade. In the Q&As, the Commission confirms that the EU has agreed to “exchange views” with the US on the EUDR and that the US has been classified as a low-risk country and a reliable partner from which EU importers can source products deforestation-free. The Commission points out that having a platform with the US for discussing the implementation of the EUDR is in line with the Commission’s commitment to implement in a spirit of partnership, transparency, communication and open dialogue with all partner countries.
The EU’s Forced Labour Regulation (“FLR”)
FLR prohibits products made with forced labour from being placed on or made available in the EU market or exported. In the EU / US joint statement, the EU and US commit to work together to ensure strong protection of internationally recognised labour rights, including with regard to the elimination of forced labour in supply chains.
Growing US opposition to EU sustainability rules
Tying the EU’s sustainability rules into the negotiations on trade is not unexpected. US political concern with the EU’s rules has been growing over the past 12 months, with much of the focus being on the extraterritorial application of EU’s rules to US businesses. The EU’s position is that some level of extraterritorial application is necessary, to provide for an even playing field between EU businesses that have to comply with the EU’s regimes and non-EU companies that do business in the EU.
In particular:
In September 2024, republican senators and members of congress wrote to Janet Yellen, President Biden’s Secretary of the Treasury, warning that the CS3D’s “extraterritorial scope amounts to a serious breach of U.S. sovereignty and a direct threat to the global competitiveness of American companies” and calling on the Biden administration to respond.
Similarly, in response to questions raised by republican lawmakers in January 2025 (prior to his appointment), US Secretary of Commerce Howard Lutnick described the CS3D as a “serious concern for American industry and the American economy”, committing to consider using “all available trade tools” to respond.
In March 2025, US Senator Bill Hegerty introduced the “Prevent Regulatory Overreach from Turning Essential Companies into Targets (PROTECT USA)” Bill, which would prohibit certain US companies from complying with foreign sustainability due diligence laws. Senator Hegerty said: “American companies should be governed by U.S. laws, not unaccountable lawmakers in foreign capitals… The European Union’s ideologically motivated regulatory overreach is an affront to U.S. sovereignty.”
In parallel, the EU has been taking steps to scale-back some of its more onerous ESG-related legislation. On 26 February 2025, the European Commission announced the first ‘omnibus simplification package’, which would ‘simplify’ ESG laws, including the CSRD, the CS3D and CBAM (see our updates here and here). On 22 July 2025, the Commission announced a call for evidence on efforts to simplify EU environmental legislation and reduce administrative burdens. This call for evidence is expected to lay the groundwork for further reforms to EU environmental legislation.
The impact of EU / US trade negotiations on sustainability rules: key takeaways
While on the face of it, the EU / US joint statement suggests that EU sustainability rules may be watered down to facilitate EU / US trade, the joint statement is light on detail on what this may look like in practice. In its Q&As on the joint statement in particular, the Commission suggests that its commitment on several sustainability rules extends only to agreeing to an “exchange of views” with the US on relevant topics. The balance of the commitments that the joint statement includes largely relate to reducing administrative burdens, which the Commission is already committed to as a feature of domestic policy, as part of a drive to encourage EU competitiveness. It is unclear what additional changes (if any) the Commission may have in mind for the EU’s sustainability rules in light of the trade talks and this likely will depend on how forcefully the US presses the point during the negotiations.
We will continue to monitor developments in the EU-US negotiations and provide updates on any concrete proposals for regulatory modifications. We continue to recommend that our clients carefully monitor the EU legislative landscape for changes.