Final Instance: World Trade Organization - Unilateral Trade Measures in EU Climate Change Legislation

Can the European Union (EU) introduce trade restrictive border measures under the auspices of environmental protection, whose purpose is at least inter alia to ‘level the competitive playing field’ for the European carbon-intensive industries? Should the World Trade Organization (WTO) dispute settlement bodies be the final instance for deciding the legality of European climate change legislation measures? Europe is tightening its climate change policy, which inevitably increases costs for European producers. Global deviation in greenhouse gas emission reduction efforts has raised concerns about carbon leakage and deterioration in the competitiveness of European industries. To cope with these threats, the introduction of trade measures linked to the content of other countries’ environmental policy has been suggested. The revised Directive 2009/29/EC on the EU Emissions Trading Scheme (ETS) accordingly lead the way forward with regard to implementing special provisions such as free allocation of allowances or a “carbon equalization system”. Constituting a restriction of free trade, the announced measures are bound to clash with the multilateral trading rules of the WTO. This article checks the conformity of the anticipated trade measures in EU climate change legislation with the international obligations of the Community under the WTO, namely their compatibility with the General Agreement of Tariffs and Trade (GATT) 1994.