Exempting Least Developed Countries from Border Carbon Adjustments: Simple Economically but Complex Legally

Abstract

Abstract The EU has introduced a Carbon Border Adjustment Mechanism (CBAM), which extends its carbon prices to imported products in some sectors. Increasingly considered by other countries, such border carbon adjustments (BCAs) are facing a global backlash against the lack of consideration of the adverse impacts on developing countries and particularly, least developed countries (LDCs). This article first argues that small overall import volumes support the conclusion that exempting or lessening BCA requirements from LDCs would not undermine developed countries' climate-related objectives in practical terms. An economic analysis of EU and UK trade in relation to a CBAM supports this assertion. However, legally, such an exemption or development-based preferential treatment is difficult under existing multilateral trade rules and jurisprudence, owing to the legal characterization and objectives of BCAs; their interaction with existing special and differential treatment (SDT) provisions; and complexity of available policy options. We thus highlight the gap between normative aims of SDT provisions to support development, and current WTO law and jurisprudence which expose WTO members providing preferential treatment to allegations of discrimination. With increasing unilateral climate action, an inability to integrate SDT more meaningfully into WTO non-discrimination frameworks risks further weakening of international cooperation on climate and trade.