In May 2025, the geopolitical tensions between the European Union (EU) and Russia extended to the global trade space, with the World Trade Organisation (WTO) being used as the battlefield. This time around these two trade partners are clashing over the EU’s Carbon Border Adjustment Mechanism (CBAM), a policy used to level the playing field for EU producers by subjecting importers with weaker emission rules to carbon pricing.
The CBAM, adopted by the EU in Regulation (EU) 2023/956, applies a carbon price on certain imported goods like steel, cement, aluminium, and fertilisers. This policy aims to prevent carbon leakage by forcing the EU’s trade partners to be low-carbon efficient.
Russia submitted a formal complaint to the WTO on 12 May 2025 and according to Moscow, the CBAM is;
- Discriminatory while disguised as a climate action. This aligns with the WTO’s non-discrimination policies, such as the Most-Favoured-Nation (MFN) and National Treatment principles: Treating foreigners and locals equally states that Imported and locally-produced goods should be treated equally
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A form of export subsidy for EU producers, who receive free emissions allowances if they are at risk of carbon leakage.
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A tariff-like barrier, imposing complex and costly administrative obligations on importers and foreign producers.
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Inconsistent with multiple WTO rules, including the GATT 1994 and the Agreement on Subsidies and Countervailing Measures (SCM Agreement).
The EU responded to Russia’s grievance on 22 May 2025, stating that they are not willing to engage with Russia under the WTO’s Dispute Settlement Understanding (DSU) on the matter until Russia ceases fire in Ukraine. While reiterating its support for the multilateral trade system, the EU stated that any such consultations are not viable “as long as the Russian Federation continues to violate international law”.
This case raises profound questions: Can climate policies such as CBAM include trade-based penalties? Should geopolitical conflicts affect WTO processes? Is CBAM discriminatory against developing countries like South Africa, which exports a quarter of their total steel products to the EU?
While the EU has declined consultations for now, a formal WTO panel may still be requested. If it is, this case could become one of the most crucial disputes in the history of climate-linked trade law.
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