Impact of Political Changes on Multilateral Institutions
The change in US political leadership has led to significant challenges for multilateral institutions, notably the World Trade Organization (WTO). This is particularly troubling for developing countries that rely on these institutions to protect against environmental regulations such as the Carbon Border Adjustment Mechanism (CBAM).
WTO and Environmental Agreements
- The WTO lacks specific environmental agreements, but Article XX of the General Agreement on Tariffs and Trade (GATT) provides exceptions with safeguards.
- The EU claims CBAM is compliant with WTO rules, referencing non-violation of the most-favoured nation (MFN) and national treatment (NT) clauses.
- Critics argue CBAM violates key GATT provisions such as:
- Article I: MFN treatment
- Article II: Tariff schedule
- Article III: NT
Challenges and Criticisms of CBAM
Critics highlight several issues with CBAM:
- Exemptions for certain countries and carbon price allowances are seen as discriminatory.
- Tradability of EU Emissions Trading System permits versus non-tradable CBAM certificates.
- Potential violation of NT clause if free allowances continue beyond CBAM implementation.
Global Impact and Recommendations
The CBAM could significantly impact countries exporting to the EU, including China, Turkey, the UK, India, and others, with approximately $68 billion in exports affected in 2023.
- Exemptions for Least Developed Countries (LDCs) and special treatment for developing countries are recommended under the WTO’s Enabling Clause.
- Paragraphs 2(a) and 2(b) facilitate preferential tariff treatment and address non-tariff barriers.
Strategic Responses and Negotiations
Developing countries should adopt a unified stance and engage the EU in negotiations to address CBAM challenges:
- Negotiate capacity development, technology sharing, and pathways to overcome non-tariff measures.
- Consider differentiated CBAM rates and phase-in periods for LDCs and developing countries.
India-EU Free Trade Agreement
The resumption of India-EU free-trade agreement negotiations presents an opportunity for India to secure favorable terms, leveraging geopolitical dynamics and internal EU challenges surrounding CBAM.
