Legal Analysis: CBAM and WTO-consistent export adjustment: debunking the myths and designing WTO-consistent measures
AEGIS Europe is an industry alliance that brings together more than 20 European manufacturing associations committed to the principles of free and fair international trade and an effective international level-playing field. Our members account for more than €500 billion in annual turnover and millions of jobs across the EU.
As the transition period of the Carbon Border Adjustment Mechanism (“CBAM”) is ongoing, there are still unresolved matters to ensure the effectiveness of the measures ahead of the definitive implementation period. One of them is the question of exports, particularly within the framework of the review under the EU Emissions Trading System (ETS) legislation.
The discussions and negotiations surrounding export provisions within the CBAM have been very complex. While the European Parliament proposed continued free allocation for export-related leakage and a report on WTO-compatible solutions, the Council's position initially lacked any provisions for exports.
The final version of the CBAM adopted in May 2023 does not include any solution for exports: it instead mandates that the Commission reports on the application of CBAM, including its impact on carbon leakage concerning exports, before 1 January 2026, and every two years thereafter. Where appropriate, the Commission should present a legislative proposal compatible with WTO rules. Thus, the CBAM Regulation fails to address the need to implement a measure to prevent Union exports from causing leakage1 that would undermine EU and global climate change objectives as defined by the Paris Agreement, posing a considerable risk to the industries concerned. European industries heavily rely on exports: for AEGIS Europe members, direct exports amount to over 300 billion euros annually. European producers already face several challenges in export markets, including high production costs (especially energy costs), global overcapacities, and aggressive industrial and trade policies by third country competitors. A recent report3 stressed that failing to adequately address the export issue could lead to diminished competitiveness, suboptimal capacity utilization, reduced profitability, and eventual plant closures, further exacerbating the financial pressure within the sectors concerned and impacting substantial investment decisions in the near future.