The aim of this essay was to analyse the compatibility of the proposed CBAM with the disciplines imposed under the WTO legal framework, in particular under the GATT 1994 and the TBT Agreement. It aimed at answering the question of: ‘to what extent can a carbon border adjustment mechanism (CBAM) introduced as part of the EU Green Deal be considered compatible with relevant WTO provisions?’
The present thesis contributes to the literature on the CBAM by discussing not only the relevant non-discrimination provisions and justification grounds in the GATT 1994 but extending the analysis on the potential applicability of the TBT Agreement and the substantive provisions enshrined in the latter.
In order to provide a comprehensive overview of the relationship between the CBAM and the rationale behind its implementation, section II and III provided contextual information on the European Green Deal, the EU Emission Trading System and the risk of carbon leakage arising from the latter domestic environmental policy. The importance of this section resided in emphasizing the environmental concerns which constituted the momentum behind the proposal for the CBAM. The focus then shifted to the characteristics of the proposed CBAM, analysed in section IV.
Additionally, section V provided a thorough explanation on the interrelationship between the norms enshrined in the GATT Agreement and the different options through which the CBAM can be introduced. It was found that, depending on the qualification of the EU ETS under WTO law, the applicability of the national treatment principle and the MFN norms could be triggered.
Accordingly, the analysis conducted showed that allowing importers to demonstrate the actual
148 Ibid, p. 273.
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emission contents of their products, establishing a multi-tiered approach for emission calculations and allowing flexibility in considerations to foreign carbon policies will be crucial for establishing compatibility of the CBAM with both the national treatment and the MFN principles.
Furthermore, it was demonstrated that the EU could resort to the justifications grounds enshrined in Article XX(b) and (g) for justifying the measure if found in breach of the abovementioned non-discrimination principles, although this would depend on the strength and persuasiveness of the arguments put forward by the European Union, as well as on the specific design and practical application of the CBAM.
The paper then proceeded with the potential application of the TBT Agreement. In this context, it was found that certain components of the CBAM could be based on relevant international standards, such as the ISO standard for the quantification and reporting of carbon footprint.
Accordingly, product-based standards for the inclusion of certain sector, for the delineation of thresholds and for the calculation of carbon emissions might fall under the TBT Agreements.
Nevertheless, it was found that the qualification of the CBAM as a (binding) technical regulation is far from certain, as relevant WTO case law in the context of the inclusion of non-product related PPMs as technical regulations has not established clear precedents.
Furthermore – in relation to the substantive obligations under the TBT Agreement – it was demonstrated that the necessity requirement is more likely to be fulfilled if the CBAM is based on international standards and that the consideration of equivalence would require the EU to take into account relevant foreign environmental policies in the application of the CBAM.
In conclusion, although the CBAM can become a catalyst for change in relation to environmental policies worldwide, its status under the legal framework of the WTO is still uncertain. Its legality will ultimately depend on the design, architecture, form, coverage and adjustment base.
As the release of the European Commission’s proposal for the CBAM is only the first step in the legislative procedure and the its adoption could take years, it is advised for the EU to engage in deliberations with trading partners and to adjusts the specific design and application of the CBAM in order to ensure its compatibility with the non-discrimination principles contained in both the GATT 1994 and the TBT Agreement. Furthermore, it is recommended to base the calculation of carbon emissions and the reporting of carbon footprints on international standards, in order to increase the likelihood of the CBAM being considered as a technical regulation.
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Ultimately, in the event of a dispute on the basis of which the CBAM is challenged before the WTO, the complaining state may want to base its claims on the TBT Agreement, since the latter imposes stricter requirements than the GATT and extends the requirement of ‘necessity’
to all measures falling under its scope. On the contrary, the EU would endeavour to have recourse to the GATT, which grants more regulatory freedom and allows for the invocation of justifications enshrined in Article XX.
Nevertheless, as the course of actions in possible claims before the WTO is unpredictable, it is advisable for the EU to adopt a CBAM whose structure complies with the substantive requirements included in both Agreements, in order to prevent WTO disputes from arising.
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