Between trade rules and climate responsibilities: CBAM and its impact on developing countries

Abstract

The European Union’s (EU) carbon border adjustment mechanism (CBAM) has emerged as a pivotal instrument at the intersection of trade regulation and climate policy, yet its compatibility with both World Trade Organization (WTO) law and the principle of common but differentiated responsibilities (CBDR) remains contested. This study aims to examine whether CBAM is consistent with WTO non-discrimination principles, assess its alignment with CBDR under the Paris Agreement and analyze the normative and practical tensions arising when trade-based climate measures interact with the development needs and differentiated capacities of developing countries. This study conducts a legal and normative analysis of CBAM under WTO disciplines, particularly GATT Article I (Most Favored Nation), Article III (National Treatment) and Article XX (General Exceptions), alongside international climate law instruments including the UNFCCC, Kyoto Protocol and Paris Agreement. A cross-comparative approach is used to evaluate CBAM against other climate-related trade measures such as the EU Deforestation Regulation and US green subsidies. The study also draws on WTO case law (e.g. India-Solar Cells, US-Shrimp/Turtle), comparative tables on CBDR operationalization across regimes and illustrative evidence from Indonesia to ground the analysis in concrete developing-country experiences. Inductive analysis of policy documents, scholarly commentary and institutional reports further informs the assessment of CBAM’s strategic rationale and legal positioning. CBAM applies a largely uniform carbon standard to imported goods without substantive differentiation based on historical emissions or developmental capacity, creating a direct normative conflict with CBDR as articulated within the international climate regime. While CBAM may be prima facie compatible with the formal non-discrimination requirements of WTO law, its uniform application results in de facto disproportionate burdens on developing countries, risks veering into green protectionism and undermines distributive equity. The study identifies a structural imbalance in which WTO trade rules operate as enforceable hard law while CBDR functions as a guiding principle, leaving climate policy legally subordinate to trade stability. Existing differentiation within CBAM primarily transitional and procedural does not amount to meaningful alignment with CBDR. Without integrating CBDR through mechanisms such as revenue allocation, exemptions for least developed countries or strengthened special and differential treatment, CBAM risks weakening rather than advancing equitable global climate action. Existing literature on CBAM predominantly focuses on WTO compliance or economic impact, often without systematically integrating CBDR as an operative legal standard. This study fills that gap by providing a structured normative and institutional analysis of CBAM through the lens of climate justice, moving beyond formal trade compliance to examine distributive equity and the de facto hierarchy between trade and climate regimes. It offers concrete pathways for reconciling CBAM with CBDR, arguing that such integration is not merely an equity demand but a functional prerequisite for effective global climate governance. The study also contributes a comparative operationalization of CBDR across international instruments and jurisprudence, enhancing understanding of how climate principles may or may not be incorporated into trade policy.