The EU’s Carbon Border Adjustment Mechanism (CBAM): A Legal And Economic Analysis Of Its Compatibility With WTO Free Trade Principles

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Krutha Janani M, School of Law, SASTRA University

Abhinav Viswanath, Assistant Professor, School of Law, SASTRA University

ABSTRACT

The European Union's Carbon Border Adjustment Mechanism (CBAM) aims to tackle carbon leakage by imposing carbon tariffs on imported goods from regions with weaker environmental regulations. This policy aligns with the EU's Emissions Trading System (ETS) and seeks to maintain industrial competitiveness while promoting climate action. However, CBAM has sparked controversy due to concerns over its compatibility with World Trade Organization (WTO) rules, particularly in relation to the Most-Favoured- Nation (MFN) principle, National Treatment, and non-discrimination. This paper examines the legal implications of CBAM under WTO law, analyzing the potential conflicts with the General Agreement on Tariffs and Trade (GATT) provisions, especially Article XX (Environmental Exceptions), which permits trade restrictions for environmental protection purposes. Case studies from previous WTO disputes, including US-Shrimp/Turtle, EC- Asbestos, and Brazil-Tyres, are used to assess the viability of CBAM’s legal standing. Additionally, this paper explores the economic and political repercussions of CBAM, particularly its impact on developing countries and the potential for trade retaliation from major trading partners like the US, China, and India. The paper concludes with policy recommendations to ensure CBAM's compliance with WTO rules while fostering global climate cooperation.

THE EU’S CARBON BORDER ADJUSTMENT MECHANISM (CBAM)- A LEGAL AND ECONOMIC ANALYSIS OF ITS C.

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