Volatility of EU’s Carbon Border Adjustment Mechanism (CBAM) under WTO Agreements —The Significance of Leveling the Playing Field and Dispute Avoidance in Global Warming Measures

The EU’s Carbon Border Adjustment Mechanism (CBAM) regulation, which entered into force on 17 May 2023, establishes a system that requires the surrender of CBAM certificates corresponding to the amount of embedded CO₂ emissions of import goods produced outside the EU. The aim is to curb carbon leakage, which has become a concern with the abolition of free allocations in emissions trading within the EU region. As such a system has the effect of restricting trade, there is a need to ensure that it is consistent with World Trade Organization (WTO) agreements. On the other hand, if the WTO were to strongly deny such a system for violation of its agreements, it risks being perceived as sending out the wrong message that it is an organization that hinders proactive efforts to address global warming. Therefore, this paper analyzes how the CBAM is appraised under WTO agreements and explores how it should ideally be dealt with. The results of the analysis in this paper conclude that under the existing legal system, there is a possibility that CBAM regulation may be found to be in violation of WTO agreements. As such, it is necessary to consider resolving the issue by means other than referring it to the WTO’s dispute settlement procedures, and specifically, to consider the utilization of means such as WTO’s Committee on Trade and Environment (CTE).