On 19 May 2025, the Russian Federation (Russia) requested consultations with the EU pursuant to the World Trade Organisation’s (WTO) Dispute Settlement Understanding (DSU). Russia’s request for consultations is available here.
First, Russia’s claims concern the EU’s Carbon Border Adjustment Mechanism (CBAM) and related measures. Russia collectively refers to the measures as the “CBAM Package”.
Aspects of the “CBAM Package” challenged by Russia include:
- The transitional reporting obligations
- The methodology to calculate embedded emissions
- The use of default values
- The certification and verification requirements
- The gradual phase-out of free allowances under the EU ETS
- The general structure of CBAM under the ordinary and transitional regimes
Russia’s identification of what constitutes the “CBAM Package” is open-ended. Annex 2 to the request for consultations provides a list of “legal instruments and other document” through, which Russia consider that “the CBAM Package is established and implemented”. Nevertheless, Russia also includes “any amendments, supplements or extensions […] replacements, renewals, implementing and delegated legal instruments and other documents related to the CBAM Package” within the “instruments […] through which the CBAM Package is established and implemented”.
In addition, Russia’s request for consultations also includes claims concerning the allocation of free allowances in sectors deemed to be at risk of carbon leakage under the EU’s ETS. Russia deems it to constitute an export subsidy.
Legal Arguments
Russia claims that the “CBAM Package” is inter alia inconsistent with the EU’s most-favoured-nation treatment (MFN), national treatment and transparency obligations under the General Agreement on Tariffs and Trade of 1994 (GATT), as well as its schedule of concessions and the general elimination of quantitative restrictions to trade. Russia also submits that the “CBAM Package” is inconsistent with aspects of the WTO Agreement on Import Licensing Procedures.
Furthermore, Russia submits that the “CBAM Package” is inconsistent with provisions of the protocols of accession to the WTO (and related documents) of Bulgaria, Croatia, Estonia, Latvia and Lithuania.
Russia also considers that the allocation of free allowances under the EU ETS constitutes a prohibited subsidy contingent upon export performance within the meaning of the WTO Subsidies and Countervailing Measures Agreement (SCM Agreement). It also claims that the EU is acting inconsistently with GATT provisions concerning subsidies.
Some of the legal claims made by Russia echo earlier concerns expressed by other WTO members, including:
- Insufficient consideration of national climate measures – Russia alleges that CBAM fails to properly account for mitigation efforts undertaken by third countries.
- Use of default values and EU-determined methodologies – Russia challenges the EU’s use of default emissions values and calculation methods that allegedly do not respect third countries’ own measurement, reporting and verification systems.
- Discrimination based on country of origin – Russia claims that CBAM, by relying on EU-established methodologies and emissions factors, effectively discriminates against products based on their origin.
Possible Next Steps in an Evolving EU Political Context
Should the dispute initiated by Russia lead to the establishment of a WTO dispute settlement panel, the scope of concerned measures could evolve. The EU has yet to adopt critical secondary legislation, notably the rules that will establish the CBAM benchmark used to calculate the number of certificates importers must purchase. This benchmark will integrate the impact of the free allowances granted under the EU ETS to domestic industries, effectively discounting the CBAM obligations to reflect the free quota allocations EU producers receive. This adjustment aims to prevent a competitive disadvantage for EU industries benefiting from free allowances compared to foreign producers.
Furthermore, secondary legislation on the recognition of foreign carbon prices and methodologies is also anticipated by the end of 2025. Under the commission’s CBAM Simplification Proposal, the regulation would allow third countries to propose an annual default carbon price based on domestic carbon pricing mechanisms.
In this context, the European Commission is expected to adopt implementing acts to convert this into an effective carbon price per tonne of embedded emissions.
Should Russia wish to challenge any upcoming CBAM-related legislation before a possible WTO dispute settlement panel, it may be able to do so. While Russia has listed several measures it deems to be part of the “CBAM Package”, measures concerned by a possible future request for the establishment of a panel need not have been set out in the request for consultations. Considering WTO Appellate Body reports in disputes US – Upland Cotton, Brazil – Aircraft and US – Shrimp (Thailand), Russia may be able to expand the scope of the dispute in the request for the establishment of a panel, “as long as [it] does not expand the scope of the dispute”. It is “the essence” of the challenged measures that cannot change, which is determined by WTO panels on a case-by-case basis.
Concerning the EU ETS, Russia claims that the EU allocated a greater number of emission allowances free of charge to sectors and subsectors deemed to be at risk of carbon leakage. It submits that this results in the allocation of additional allowances free of charge being dependent on the value of exports in sectors and subsectors at risk of carbon leakage. Russia deems this to be a public financial contribution conferring a benefit to sectors at risk of carbon leakage, and a prohibited subsidy contingent upon export performance. Annex 3 to the request for consultations provides a statement of available evidence by Russia indicating the legal instruments through which it considers this export subsidy is instituted and implemented.
Procedural Outlook
Under WTO rules, the consultation phase allows the parties to seek a mutually agreed solution. If no agreement is reached within 60 days, Russia may request the establishment of a WTO panel to adjudicate the dispute. Nevertheless, a panel report could take years. Furthermore, any appeals would be highly unlikely to be heard, as the WTO Appellate Body is inoperative and should remain so for the foreseeable future.
Implications for Stakeholders
- Businesses – Companies exporting to the EU should monitor the evolution of CBAM implementing rules, especially on emissions methodologies and recognition of foreign carbon pricing. Stakeholder engagement with national authorities may be critical to ensure that domestic carbon pricing schemes are adequately represented in discussions with the EU.
- Governments – Third countries may consider using the opportunity provided by the upcoming secondary legislation to propose recognition of their carbon pricing systems or emissions accounting rules, in line with the EU’s simplification proposal.
- Legal and policy advisors – The WTO dispute may provide interpretive guidance on the compatibility of border carbon adjustments with international trade rules. However, outcomes are unlikely before key CBAM secondary legislation is finalised in 2025, meaning regulatory uncertainty will persist in the near term.
Challenges From Around the World
- Brazil has not brought a WTO dispute settlement claim against the EU over CBAM yet. However, it has repeatedly submitted before the WTO’s Trade in Goods Council that CBAM is not fully consistent with the EU’s international obligations. Brazil submits that CBAM disregards the Paris Agreement’s principle of Common but Differentiated Responsibilities, shifting the costs faced by developed nations in meeting their nationally determined contributions onto developing countries.
- China has also refrained from bringing a claim in WTO dispute settlement against the EU over CBAM. Nevertheless, it has also submitted that CBAM may violate the basic principles of the Common but Differentiated Responsibilities and Respective Capabilities of the United Nations Framework Convention on Climate Change (UNFCCC), the Paris Agreement and the non-discrimination principle of the WTO rules. China has urged the EU improve the transparency of its CBAM in the implementation process and ensure its WTO consistency.
- India has also emerged as a prominent critic of the EU’s CBAM. While it has not brought a claim under the WTO dispute settlement system yet, there are reports that it has considered doing so. India repeatedly expresses its concerns before the WTO’s Trade in Goods Committee, claiming that well-established principles and rules of both international trade law and international environment law should have been followed in designing the CBAM, including not ignoring the principle of Common but Differentiated Responsibilities and Respective Capabilities. India also considers that CBAM constitutes an arbitrary or disguised restriction and unjustifiable discrimination to trade.
- Indonesia has also repeatedly expressed before the WTO’s Trade in Goods Council that CBAM constitutes a discriminatory policy that violates the GATT’s MFN and national treatment provisions, albeit also without bringing a dispute settlement claim.
- Other WTO Members having expressed their scepticism concerning the WTO consistency of CBAM before the Trade in Goods Council, without bringing dispute claims yet, include Japan, Korea, Paraguay, South Korea, Taiwan and Türkiye.
Key Takeaways for Businesses
- The EU has not notified or communicated any intention to modify CBAM’s operation following Russia’s WTO dispute settlement claim. As such, CBAM remains and continues to be applied as it was.
- The outcome of the WTO dispute settlement system procedure initiated by Russia is unlikely to have any practical consequences. As the WTO’s Appellate Body is inoperative and will remain so for the foreseeable future, the EU or Russia will be able to appeal “into the void” the panel report once it is published. As a result, the panel report will be inapplicable.
- Severe criticism expressed by countries that the EU enjoys close trade relations and is currently engaged in trade negotiations with (such as India) means that the EU may in the future be convinced to adapt the CBAM framework voluntarily, to preserve its economic relations with those countries and conclude trade agreements. India is a prominent example of this.
