The EU's Carbon Border Adjustment Mechanism (CBAM) And The Erosion Of Multilateral Trade Principles: A Legal Analysis Of WTO Compatibility And Developmental Equity
- IJLLR Journal
- Oct 13, 2025
- 1 min read
Urshita Sharma, D.M. Harish School of Law
ABSTRACT
The European Union’s Carbon Border Adjustment Mechanism (CBAM), operational during its transitional phase until 2025, represents a seminal clash between multilateral trade law and unilateral climate ambition. CBAM aims to prevent ‘carbon leakage’ by imposing a carbon levy on imports equivalent to the EU’s domestic Emissions Trading System (ETS) price. This article analyses the mechanism’s compatibility with the foundational principles of the General Agreement on Tariffs and Trade 1994 (GATT). The article argues that CBAM is prima facie inconsistent with GATT Article III (National Treatment) due to the temporary, yet significant, structural advantage provided to domestic EU producers through the gradual phase-out of free ETS allowances. Furthermore, even if the EU successfully asserts a defence under GATT Article XX (environmental exceptions), the mechanism's systemic failure to incorporate Special and Differential Treatment (SDT) for developing countries means it is unlikely to satisfy the stringent non-discrimination requirements of the Article XX chapeau. CBAM thus risks setting a precedent for 'green protectionism', undermining developmental equity, and exacerbating the trend of weaponizing trade tools for domestic policy objectives.
Keywords: CBAM, WTO, GATT Article III, GATT Article XX, Carbon Leakage, Developmental Equity, Green Protectionism.
