The United Earth Government rules Earth. The Federation Council rules the Federation. Both have their administrative headquarters on Earth, but Humans can't give up their rights to be self ruled any more freely than all the other member worlds which doesn't have the Federation seat in residence. Federation membership supposedly helps their member worlds be themselves, it doesn't annex or assimilate so blatantly.
Does the Mayor of Washington DC, the Governor of Colorado (is that right?)and the President of the USA get into jurisdictional pissing contests about control?