The CBAM Regulation and the US BCA proposals – between the GATT non-discrimination obligations and the CBDR-RC principle

Ms. Rachele Magnaghi is a doctoral candidate in international law at the University of Milan, Italy. She is currently a visiting researcher at the World Trade Institute in Bern, Switzerland. Ms. Magnaghi’s research interests include analyzing unilateral trade measures in the context of climate change mitigation strategies, as well as the interplay between climate change policies and international trade law. She holds a law degree from the University of Milan and a certificate in transnational law from the University of Geneva. In 2022, Ms. Magnaghi completed an internship in the Trade Aid Unit, Development Division at the World Trade Organization. Prior to that,  Ms. Magnaghi had also interned for the Permanent Mission of Italy to International Organizations in Geneva.

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The latest reports from the Intergovernmental Panel on Climate Change emphasize that there is no ‘silver bullet’ to tackle the issue of global warming. Against this backdrop, many Members of the WTO are adopting policy tools to internalize the costs of GHG emissions. Yet, when adopting these policies, Members may face concerns regarding carbon leakage and competitiveness. In response to these issues, in May 2023, the EU adopted Regulation 2023/956 on the EU CBAM. Other Members, including the U.S., have tabled different proposals for a national BCA. However, BCAs like the one adopted by the EU and the ones proposed by the U.S. appear to be problematic, in particular, due to technical challenges that may lead to discrimination under WTO law and non-compliance with the CBDR-RC principle operationalized throughout the Paris Agreement.

In this context, the main question is whether unilateral BCAs are really adopted to achieve climate goals or simply reflect national needs to protect economic interests.

To answer this question, the contribution aims to discuss, compare, and assess the main implementation challenges of the EU CBAM and the four proposed bills on BCAs tabled by the U.S., under GATT Article XX chapeau as interpreted in light of the CBDR-RC principle.

A substantial part of the doctrine has addressed the compatibility of BCAs with the substantive obligations set forth in WTO agreements. In contrast, this research aims to examine the interaction between the chapeau of Article XX GATT and the principle of CBDR-RC. The significance of this research lies in examining the potential impact of some BCAs, as designed to date, on developing countries from a CBDR-RC-oriented standpoint, and how this may affect their prospects for WTO compatibility.

The paper also briefly reflects on the potential convergence between the EU’s and the U.S.’s unilateral measures. The alignment of the two largest free market BCAs, designed in a CBDR-RC and WTO-compliant manner, can initiate a ‘coalition of BCAs’ and have a significant impact on global standards and production practices, ultimately supporting the reduction of GHG emissions.