What is the difference between a US regulation and a EU directive or regulation

With regulations and directives at play, the US and the EU regulatory frameworks differ, affecting companies on both sides of the Atlantic. Are you up to speed?

by Beatriz Garcia Fernandez-Viagas

The European Union and the United States have the largest trade and investment relationship in the world according to the European Commission and the US Trade Representative. With more and more businesses expanding their operations on both continents, companies are exposed to new sets of rules they are not always familiar with. With differences in legal structure and implementation, companies would be well served by understanding the basic structure of US and EU regulation. Let us give you some explanatory guidance.

US vs EU – different political structures with common ground

The US is a federal system comprised of 50 states, the District of Columbia and select US territories. By contrast, the EU is a unique economic and political union between 27 European countries. While the EU is not a federation, it has many features of a federal model as the power is divided between the central government (the 3 governing EU institutions) and Member States’ governments. Unlike the US, the EU lacks a formal constitution. However, the EU Treaties function in practice as a constitution since they define the allocation of powers between the different levels of governance and establish how legislation is adopted.

EU countries remain responsible for more policy areas than US states. For instance, the power to determine health policies lies with Member States (with some EU coordination), whereas it is the joint responsibility of the federal and state governments in the US. This makes sense, given that EU Member States are independent countries.

Why is this good to know? By contrast, environmental policy is shared between the central and national levels in the EU. In the US, the concept of cooperative federalism is a guiding principle. The federal government sets a baseline and the states are required to enact laws/regulations that are at least as stringent as the federal counterparts.

Laws/statutes/acts in the US, legal acts in the EU and regulations in both places – how do they differ?

Terms of art in both the US and the EU can be confusing. Here are some points of clarification.

US federal laws and regulations are similar in that they both seek to regulate behavior. Yet the procedure to adopt them is different: federal laws/statutes/acts are bills passed by Congress (through a legislative process), while federal regulations are made by executive departments and agencies through a rulemaking process.

Federal laws establish requirements or prohibitions that apply thought the US, whereas federal regulations clarify how an agency understands, implements and enforces existing laws. Regulatory violations can lead to the establishment of penalties.

EU regulations and directives are both legal acts adopted by the EU institutions following either the ordinary or special legislative procedure. Yet the way they are implemented is different.

EU regulations apply automatically and simultaneously in all Member States since they enter into force and do not require prior national transposition. Although they are immediately enforceable, Member States must still adopt certain administrative measures (for instance, to designate the authorities responsible for implementation or to set out penalties for non-compliance).

By contrast, directives need to be transposed into national law to become applicable, but Member States are free to choose the ways to reach the goals set out at EU level. In that regard, directives are more flexible than regulations since they are only binding as to the results to be achieved, while regulations are binding in their entirety.

Most of the EU environmental legislation has taken the form of directives, although regulations are gradually becoming more and more prevalent in those areas where a unified system is needed, such as chemicals and product safety.

US vs EU regulations: there’s a major difference in how far states can go vs member states

Despite their common name and legally binding character, EU and US regulations are actually quite different.

As explained above, EU regulations are adopted by legislative EU institutions (namely the European Parliament and the Council of the EU) through the legislative procedure, whereas US regulations are issued by the Executive by means of the rulemaking process.

In addition, US regulations follow the adoption of laws: they further develop how laws will be implemented, fill any existing gaps and interpret their provisions. On the contrary, EU regulations are more comprehensive pieces of legislation which can nevertheless be supplemented and detailed by Commission delegated and implementing acts, and further implemented by national administrative rules.

Regarding environmental policy, federal laws and regulations serve as a minimum standard but the US states can go beyond that baseline and adopt more stringent statutes and rules.

But in the EU, things are slightly different. Even if EU countries are often encouraged to adopt higher national environmental standards than those set by EU directives (as it is the case for air and water emission limits), such stricter rules cannot jeopardize the functioning of the Single Market. This means that they cannot lead to arbitrary restrictions or discriminations against the goods or services of other EU countries.

In addition, EU Member States are less likely to pass stricter requirements on those areas fully regulated by EU regulations (such as chemicals’ authorizations and waste shipments, to name a few) since these seek to set unified standards across the EU.

How does the difference between US and EU regulations impact your company?

Given the above, the following can be concluded:

  • EU regulations apply to all EU countries in a more uniform and consistent manner compared to federal regulations. Thus, if you operate in several EU Member States and there is an EU regulation, that regulation will be uniform in all member states.
  • If you operate in the US, you need to be aware of both the federal and state regulations applicable to your company and, sometimes, state regulations will be more stringent than federal regulations.
  • If you operate in several EU Member States and there is an EU directive that applies, you should be aware that Member States can reach the goal of the directive in different ways.

Therefore, understanding the difference between the various types of rules and legal acts is vital for companies as they continue operating internationally.

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