UNILATERAL TRADE-RELATED CLIMATE MITIGATION MEASURES AND WTO LAW: A SYSTEMIC PERSPECTIVE

Climate change is one of the most challenging and urgent crises affecting our world. Already in the 1980s, States qualified the phenomenon as a ‘global concern of humankind’ requiring timely action and cooperation. Since then, States have repeatedly asserted that climate change mitigation, and thus the reduction of greenhouse gas (GHG) emissions, is a matter of ‘global significance,’ necessitating multilateral action. Within this context, States adopted three significant multilateral agreements addressing climate change: the 1992 United Nations Framework Convention on Climate Change (UNFCCC), the 1997 Kyoto Protocol, and the 2015 Paris Agreement on Climate Change (PA). While these agreements reflect a shared recognition of the need for international cooperation to achieve climate mitigation objectives, States pursued an individualized and diverse approach to their implementation, facilitated by the considerable flexibility embedded within these instruments. For example, under the PA, States are granted the authority to resort to the measures they consider most appropriate for achieving the long-term, non-binding temperature goals outlined in the agreement. Furthermore, States are afforded discretion in setting their respective short-term temperature targets through their Nationally Determined Contributions (NDCs). In the pursuit of their mitigation objectives, States can resort to a range of different instruments, including trade-related measures. These latter have indeed demonstrated efficacy in reducing GHG emissions and the adoption of these measures by the Members of the World Trade Organization (WTO) has seen a notable increase in recent years. However, due to their trade-distortive/trade-restrictive effects, some of these measures have proven to be problematic to implement under WTO law and to create issues under international law. In consideration of the aforementioned premises, the research examines the legitimacy of these unilateral trade-related climate mitigation (UTrCM) measures from two distinct perspectives. The first perspective provides an ‘internal’ examination of these measures under WTO agreements. This is achieved by means of a legal assessment of three particular case studies, which reflect the most prevalent type of controversial UTrCM measures adopted. The second approach is more ‘systemic’ and entails an ‘external’ evaluation of select legal issues under international law that emerge from the interaction between the two regimes, namely, the WTO system and the climate change regime. This approach is founded upon the findings of the initial assessment, which underscores the existence of an interplay between these regimes. In the first analytical section, a comparative analysis is conducted on the type of UTrCM measures adopted by four of the world’s largest economies: the European Union (EU), the United States (U.S.), India, and China. Subsequently, the study provides a legal assessment of three of the most contentious UTrCM measures, as outlined in their relevant WTO Agreements. These are the EU Carbon Border Adjustment Mechanism (CBAM), the EU Regulation on Deforestation-free Products (EUDR), and the U.S. Inflation Reduction Act (IRA), which are assessed respectively under the 1994 General Agreement on Tariff and Trade (GATT), the Agreement on Technical Barriers to Trade, and the Agreement on Subsidies and Countervailing Measures. This preliminary phase has yielded two key findings. Firstly, in the absence of ad hoc regulation, to justify the implementation of UTrCM measures the environmental exceptions stipulated in WTO Agreements should be interpreted in the context of the fundamental principles of climate change law. This approach is indeed essential for ensuring the mutual supportiveness of both regimes, as well as for verifying that the measures are genuinely adopted for the purpose of climate mitigation. Secondly, in instances where such exceptions are not provided by the agreements, legal intervention is necessary not only for climate change purposes but also to ensure the coherence of WTO law. The analysis’s relevance is twofold. Primarily, it has served to underscore a conspicuous absence of adequate regulation within the purview of the WTO Agreements concerning the regulation of UTrCM measures. Furthermore, it has facilitated the identification of ‘systemic’ tensions between the international trade and climate change regimes and the legal issues inherent in the adoption of UTrCM measures, as they pertain to the framework of international law. Indeed, the second substantial part of the study undertakes a rigorous examination of the question of whether a conflict of norms arises between the provisions of the WTO Agreements and those of climate change law. Furthermore, it explores whether the ‘extraterritorial’ economic negative effects and ‘unilateral’ implementation of these measures that may have a negative impact on third countries can be justified in light of the urgency to address climate change and achieve climate mitigation goals. As a result of the analysis of the EU CBAM, EUDR and IRA, the second part of the study demonstrates that at the ‘systemic’ level, two distinct forms of interaction between the two regimes can take place: a positive interaction and a negative interaction. A positive interaction emerges when WTO Agreements provide for environmental exceptions – conditional right to adopt UTrCM measures – while concurrently, climate change law equally allows the adoption of trade measures to achieve climate mitigation objectives under certain conditions, thus establishing another conditional right. These are the cases of the EU CBAM and EUDR. In such instances, a ‘potential’ conflict of norms may arise when a UTrCM measure respects the conditions stipulated within the WTO Agreements while concurrently breaching the terms outlined in climate change provisions. However, by resorting to systemic interpretation – Article 31.3(c) VCLT – to interpret WTO rules in light of the fundamental principles of the PA, this potential conflict can be circumvented, thus classifying as an ‘apparent’ conflict. Conversely, a negative interaction occurs when WTO Agreements prohibit the use of a specific trade measure that is instead generally allowed under the climate change regime. In such a scenario, the situation would be analogous to the case study of the IRA, and the adoption of the prohibited measure would trigger a ‘genuine’ conflict of norms. This would necessitate the application of conflict resolution rules and more likely, lex specialis. Given the specialty of WTO provisions concerning trade measures, the prevailing authority of WTO law would take precedence over that of climate change law. In the absence of legal intervention to incorporate environmental exceptions, this would result in the prohibition of certain UTrCM measures – such as prohibited subsidies – that may, however, be effective in mitigating climate change. In addressing the extraterritorial and unilateral character of the measures in question, the analysis employs a dual approach, examining them through the lens of WTO law and international law. The study indicates that these questionable characteristics are overall legitimate due to the relevance of the negative impact of climate change and the urgency to reduce GHG emissions. In other words, given their significant contribution to climate mitigation, their ‘negative’ effects on third countries are counterbalanced by their positive effects upon global GHG emissions reduction. The examination further indicates that these issues are taken into consideration in the chapeau of Article XX GATT and that, if implemented with due care, these characteristics may play a relevant role in fostering cooperation in climate change mitigation. Finally, the present study explores the available tools to respond to the inadequacy of the regulation to govern the phenomenon of UTrCM measures. In this context, systemic interpretation can be employed as a provisional remedy. Indeed, this approach is not without its drawbacks, as it is not accompanied by the requisite legal certainty that is fundamental to trade relations. Furthermore, its application is not applicable to both positive and negative ‘systemic’ interactions. Following a thorough examination of the available options within the framework of WTO law, including the establishment of novel regulations, the revision of existing ones, the authorization of a climate waiver, or the incorporation of a peace clause, the study concludes that the multilateral approach appears to be unfeasible, at least in the imminent future. This is due to the current impasse at the multilateral level with regard to negotiations, as well as the inherent challenges faced by the WTO, a Member-driven and consensus-based organization reflecting the geopolitical landscape. Conversely, bilateral and plurilateral solutions, such as those facilitated by Trade and Sustainability provisions incorporated into Free Trade Agreements, as well as climate clubs, appear to be the most viable option in the short term. If implemented prudently, these latter have the potential to surmount the challenges posed by unilateral action and the multilateral impasse, thereby fostering an environment conducive to concrete steps towards effective cooperation. In conclusion, UTrCM measures are legitimate to the extent that they are consistent with WTO law as interpreted in light of the core principles of climate change, and to the extent that they can stimulate bilateral and plurilateral solutions that can provide the necessary ‘coordination’ to prepare for future multilateral cooperation.