WTO Compliance and Development Impacts of the EU Carbon Border Adjustment Mechanism

This chapter examines the World Trade Organization (WTO) compatibility of the European Union’s Carbon Border Adjustment Mechanism (CBAM) and its implications for developing economies. It evaluates whether the CBAM complies with WTO non-discrimination principles and considers its potential impact on trade, industrialisation, and sustainable development in developing countries. Although designed to prevent carbon leakage and ensure fair competition between EU and non-EU producers, the CBAM’s structure raises important concerns about fairness, equity, and consistency with international trade and climate regimes. Developing countries reliant on carbon-intensive exports, such as aluminium, steel, cement, and fertilisers, are likely to experience competitiveness losses and export declines. The chapter argues that the EU should adopt development-sensitive implementation measures, including transitional periods, de minimis thresholds, or exemptions for Least Developed Countries (LDCs), consistent with the WTO’s special and differential treatment (SDT) provisions and the Common but Differentiated Responsibilities and Respective Capabilities (CBDR-RC) principle. It concludes by identifying cooperative policy options to balance the CBAM’s climate goals with global trade equity and sustainable development..