The CBAM Regulation and US BCA proposals: an analysis across the GATT non-discrimination obligations and the CBDR-RC principle

Abstract Recent Intergovernmental Panel on Climate Change reports emphasize that there is no ‘silver bullet’ to tackle the global climate crisis. In response, several Members of the World Trade Orgnization (WTO) are adopting policy instruments to internalize the environmental costs of greenhouse gas emissions. Yet, when adopting these policy tools, Members may face concerns about the risk of carbon leakage and the resulting loss of competitiveness. In May 2023, the European Union (EU) adopted Regulation 2023/956, establishing the Carbon Border Adjustment Mechanism (CBAM). Shortly thereafter, other WTO Members, including the USA, tabled proposals for national border carbon adjustment (BCA) mechanisms. While BCAs hold potential to advance climate mitigation and incentivize global decarbonization, they also pose complex legal and systemic challenges under the General Agreement on Tariffs and Trade (GATT). If not designed and implemented with sensitivity to global disparities, BCAs may impose disproportionate burdens on developing and least-developed countries, potentially undermining their consistency with GATT non-discrimination obligations and the chapeau of Article XX. To ensure that BCAs are genuinely directed towards climate objectives, interpretations of Article XX chapeau must be informed by the Common but Differentiated Responsibilities and Respective Capabilities (CBDR-RC) principle, which must guide States’ climate mitigation efforts. Against this backdrop, this contribution critically examines and compares the core implementation challenges of the EU CBAM and four BCA proposals introduced in the 118th US Congress in 2023. With the EU CBAM nearing full implementation and growing momentum for BCAs in other jurisdictions, including the USA, addressing legal and distributive concerns is imperative to avoid adverse impacts on vulnerable economies. This is particularly pressing also in light of the potential emergence of a ‘BCA coalition’ among politically and economically aligned states. While BCAs can foster international cooperation and make meaningful contributions to climate change mitigation, their legitimacy depends on consistency with the CBDR-RC principle and compliance with the GATT.