Introduction

One often comes across terms like “regulations”, “directives”, “EU law”, and “national law” –  but many struggle to grasp what they actually mean and how they affect you in practice. With all the emerging and oftentimes confusing rules, uncertainties around who is responsible for compliance and how the laws will be enforced can be expected. With new legislation continuously emerging to prioritise sustainability and the circular economy under the European Green Deal, it is more crucial than ever for businesses to have a clear understanding of these distinctions.

Why is an understanding of legal terminology important? The frameworks discussed in this article have a major impact on how business should operate both internally and externally. Different types of laws govern crucial areas such as compliance, consumer protection, sustainability, traceability, product safety, and data privacy. As laws can be enacted at various levels, misunderstandings can lead to delayed compliance, unexpected costs or fines, production delays, and lost business opportunities. 

This article bridges the gap between theory and practice, breaking down different types of law and how to comply with them. Following that, we will examine the Ecodesign for Sustainable Products Regulation (ESPR) to show how these legal frameworks operate in practice, including their enforcement mechanisms. By the end of this article, you’ll have a better understanding of how different legislations work together, which ones are binding for you, and who is responsible for ensuring compliance.

What is the difference between hard law and soft law?

The distinction between hard and soft law essentially clarifies what is legally binding and enforceable versus what is non-binding and encouraged, but not compulsory. Hard law must be followed and can lead to penalties if violated, while soft law serves as guidance, offering recommendations without legal consequences for non-compliance. Breaching hard law could also have additional soft law consequences. 

Hard law definition and examples

Hard law refers to legal instruments that are fully binding and enforceable. This means that compliance is mandatory, and failure to adhere to these laws can result in legal consequences such as fines, penalties, or other forms of enforcement by authorities. 

With hard law, individuals, businesses, and governments must adhere to every detail. Examples include: 

• National laws passed by governments
• EU regulations
• Certain international treaties that countries have formally agreed to follow. 

The enforcement of hard law depends on the level it is enacted – national, regional, or international. 

At the national level, it is typically courts and government authorities like the police, regulatory bodies, or public agencies that are responsible for enforcement. 

At the regional level – such as the European Union – hard law is enforced by its institutions, but the practical responsibility falls on national authorities to enforce the rules within their own States. Enforcement can be more complex with international treaties because the enforcement takes place through individual Member States that have signed the treaty, but international courts will rule on the cases.

There are legal consequences for not complying with hard law, although they differ in severity. This can range from fines and product recalls to business shutdowns, or even criminal charges such as prison time in the most severe cases. There are also harmful non-material consequences to a business, such as reputational damage and diplomatic pressures.

Soft law definition and examples

Soft law refers to legal tools that are not binding, meaning they are voluntary to comply with and serve more as a positive influence to promote standards and values. Examples of soft law include:

• International agreements that are not legally binding (texts from summit meetings or international conferences) such as the UN General Assembly resolutions
• Recommendations by international organisations, such as the OECD (Organisation for Economic Co-operation and Development)
• Codes of conduct and guidelines
• Recommendations and opinions issued by the European Commission
• Scholarly publications
• Court rulings – this is only for the individual/business/country not involved in the proceedings. If you are involved in the proceedings, they are considered hard law

While lacking the legal force of hard law, soft law often impacts decision-making and the development of future binding laws. Legislations in the area of sustainability often start as soft laws before being formally adopted as hard law legislation. We will explore this progression in further detail in our Ecodesign for Sustainable Products Regulation (ESPR) case study example. Although not enforceable, compliance is still encouraged due to reputational benefits and the high likelihood that soft law may evolve into hard law in future.

What is the difference between national, regional, and international law?

Businesses must adhere to various levels of jurisdiction based on their location, beginning with national laws, followed by internationally binding laws, and potentially regional laws, depending on the specific country in which they operate. Navigating this legal landscape and understanding which laws should be prioritised can be challenging. Here is a breakdown of national, international, and regional laws and their interactions to help clarify any confusion.

National law definition and examples

National laws are typically what comes to mind when discussing “law”. National legislation comprises rules that apply exclusively within a specific country, affecting its residents (both nationals and non-nationals), businesses, and government operating within its borders.

Examples of national law range from foundational documents, like the constitution, to specific legal areas, including criminal law, civil law, contract law, employment law, and much more. Countries may have comprehensive Codes, such as the Criminal Code in the US, or the Civil Code in France; and Acts like the Supply Chain Act in Germany. These country-specific laws govern their respective areas but apply exclusively within the country’s borders to those residing or operating there. 

For a business registered in a particular country, the laws of that country must be followed. For instance, a company registered in the Netherlands must abide by Dutch regulations, even if the owners are from another country. 

National laws are enforced by the country's government through its authorities and agencies, such as the police, courts and regulatory bodies. Depending on the country’s system of governance, enforcement responsibilities may be shared among different levels of government, such as federal, state, and local authorities.

Breaking national laws has varied consequences depending on the specific law violated. In cases of business misconduct, the penalties typically range from fines, loss of licenses, injunctions (which require stopping certain activities), or lawsuits, where the losing party may be required to pay monetary damages.

International law definitions and examples

International law comprises a collection of rules and agreements that apply globally, designed to govern relations between countries, promoting cooperation and peace. These laws address a range of international issues, including human rights, warfare, trade, and environmental protection. Depending on the rule and agreement, it can be considered hard or soft law.

In both cases, participation –  whether through signing an agreement or joining a convention – is voluntary; however, once the law is adopted as a hard law, it becomes binding for all participating countries. Countries participate by signing international treaties or joining international organisations such as the United Nations (UN) or the World Trade Organisation, where all hard law rules established by those organisations are binding on its member states. 

Notable examples of binding international law instruments include The United Nations Charter, which must be followed by the members of the UN, and the Paris Agreement, which has to be followed by the countries that have signed the agreement. 

On the other hand, some international laws serve as soft law instruments to guide and advise. An example is the International Guidelines on Corporate Social Responsibility (ICSR). It is common for international organisations to publish guidelines on business conduct to encourage businesses to promote ethics and sustainability, for example, the European Sustainability Reporting Standards (ESRS) as part of the CSRD requirements.

Hard law instruments can indeed be enforced due to their serious nature, and violations typically result in significant consequences. There are special international organisations that enforce legally binding international laws, such as the International Court of Justice (ICJ), the International Criminal Court (ICC), and the bodies of the UN. However, enforcing international law is often more challenging than enforcing national laws due to the varying factors involved, including the willingness of different countries to participate.

Regional law definitions and examples

When a group of countries in a specific region jointly creates legal rules governing the territory they cover, that legal system is referred to as regional law, typically established to foster cooperation among countries for purposes such as trade and promoting shared goals and values. Regional law legislation affects everyone within the territories of participating states, from individuals, businesses, and other member states themselves, who must incorporate the laws made at the regional level into their national legal systems.

The best-known example of a regional legal system is the European Union (EU). All member states, along with the businesses operating in their territories, are required to adhere to EU law. 

Explaining the EU legal landscape: A case study on ESPR 

EU regional law can be confusing, even for those who work with it regularly. It incorporates elements of national and international law, making it unique and complex. Navigating the EU legal landscape is necessary for anyone conducting business in any EU Member State. To illustrate this, we will explore the legal characteristics of the Ecodesign for Sustainable Products Regulation (ESPR). Apart from being a good example of how the EU law applies in practice, the ESPR is also highly relevant for businesses of all sizes.

Regulations vs Directives

When referring to EU law, there are essentially two binding types of legislation being made at the EU level: regulations and directives. 

A regulation is a hard law instrument which is binding in its entirety and applies directly across all EU Member States. A regulation passed by the EU parliament is a document which serves as a direct piece of legislation applicable all over the EU. Once enforced, it becomes effective immediately in every Member State. The Ecodesign for Sustainable Products Regulation (ESPR) is binding for all businesses operating within the EU from 19 July 2024, regardless of where they are based. 

A directive is a hard law instrument with some soft law characteristics, making it more flexible than a regulation.  A directive sets binding goals that must be achieved by EU Member States but gives flexibility in how it is incorporated into their legal systems. Unlike regulations, which are immediately applicable, directives typically come with a deadline for achieving the specified goals. 

The initial push addressing the ecodesign of products included soft law tools such as the Integrated Product Policy (IPP). Although its rules are not binding, it laid the groundwork for subsequent ecodesign regulations, which led to the adoption of the hard law Ecodesign Directive, the predecessor of ESPR. The directive had a smaller scope, outlining a framework for eco-friendly requirements for energy-related products. However, as the urgency of having ecodesign requirements for more products was identified, it was adopted into a Regulation with stricter requirements.

EU law in an international context

Regional law, such as EU law,  often has international implications, despite it only concerning a certain territory. While regulations like the ESPR and CSRD are only active in the EU Member States, their rules can still impact businesses worldwide. Why is this so?

When examining the value chain of a business, it is common to see that it spans multiple countries and even continents. For instance, raw materials might be sourced from South America, manufactured in another country in Asia, and then sold on the European market, amongst others. As long as one component of the value chain operates within the EU, the entire value chain is subject to its regulations. This holds even for large corporations that merely own a storage facility in an EU country. Thus, EU law has a significant international reach, applying to businesses as long as they have any involvement with its territory.

From soft law to hard law: Digital product passports (DPP)

While the urgency of becoming more sustainable increases, it is obvious that supply chain traceability is a necessary element. Many new rules within the ESPR that were previously standards are now legally binding in force as part of the Regulation, such as the digital product passport (DPP). 

Previously referred to as environmental data passports (EDPs), they were recommended as a non-binding initiative to provide transparency about the environmental impact and sustainability of products. While there were no repercussions for non-adoption, various voluntary consortiums arose due to increasing demand for transparency and more sustainable practices. The growing concern in the EU for sustainability matters later resulted in DPPs being introduced as part of the ESPR with specific data requirements companies are obliged to include. 

Now, a digital product passport is a key element to ensure traceability, transparency and compliance with sustainability and circular economy rules and goals. What was once voluntary is now a legally binding requirement. This shift ensures that all products sold in the EU or with part of its value chain taking part in the EU now must have a digital product passport - a legally enforceable rule across the EU. 

Example of what ESPR compliance looks like for a multinational corporation

Imagine Company X, a multinational corporation registered in the US that manufactures smartphones. Although it sources raw materials and operates production facilities in several non-EU countries, its smartphone products are stored and sold in various EU Member States, making it subject to the EU laws governing products sold in the EU. 

Therefore, this means that Company X must comply with EU regulations such as ESPR, CSRD, and CS3D. Given that these regulations focus on corporate reporting, due diligence, and sustainability, Company X must ensure that its entire value chain –  ranging from raw materials and manufacturing to retailing in the EU – follows EU compliance standards. 

Since the value chain spans multiple countries, it is the responsibility of Company X to implement the EU rules in each country involved in the product’s lifecycle, including the country it is incorporated. Supply chain traceability is crucial to this process, ensuring that every step, from sourcing to distribution, adheres to the required standards and allows for transparency and accountability across borders.

Conclusion

It is clear that the EU regulatory landscape has global implications, so businesses must understand the distinctions between different types of laws that apply to them. This way, companies can manage their compliance more effectively and avoid unintended consequences such as fines, halts in production and sales, or damage to their reputation.

The increasing emphasis on sustainability and due diligence highlights the importance for businesses to monitor not only binding hard laws but also soft laws and guidelines that could eventually become hard laws in the future – as we have seen with the Ecodesign for Sustainable Products Regulation. Staying ahead of these developments can give businesses a competitive edge and ensure compliance in the ever-changing legal landscape. 

Establishing supply chain traceability is crucial as it will provide the transparency and accountability required for sustainability efforts. By knowing the origins and processes behind their products, companies can better comply with regulations and meet consumer expectations for responsible practices. Ultimately, a clear understanding of how different legal frameworks operate and interact with each other is crucial for long-term success in today’s global marketplace.