Overview
International trade is the buying and selling of goods between countries through imports and exports. Historically, this process began with geographical discoveries and continued with the establishment of important trade routes, economically connecting countries. Factors such as insufficient domestic production, price differences between countries, and the emergence of specialization and division of labor in the global economy have economically linked countries, in other words, steered them towards international trade. In this context, the need to regulate the exchange of goods and services between countries led to the emergence of international trade law. In its broadest sense, international trade law can be defined as a set of rules consisting of national and international regulations, customary law, and general principles of law that affect commercial transactions and contracts.[i]
The historical development of international trade law can be examined in three stages: the Middle Ages, the 18th and 19th centuries, and the post-World War II period. International trade law in the Middle Ages is also called lex mercatoria.
Lex mercatoria is a type of customary law based on common practices and established commercial habits that developed among itinerant merchants of the period in different trade centers. Its international nature, its main source being commercial customs, its application by merchants rather than judges, the resolution of disputes primarily based on the principle of equity, and its notary function are among the main features of lex mercatoria.
The 18th and 19th centuries correspond to the period when most societies, especially France, Germany, and England, transitioned from feudal structures to nation-state structures, and it is characterized as a transitional period in which international trade was regulated by domestic law rules under the influence of nationalism. In the post-World War II period, a new global economic structure and a parallel international trade system and law began to emerge. Particularly, public barriers to international trade, such as customs duties, were observed to be removed.
With environmental problems beginning to be felt globally in the 1960s, legal regulations for environmental protection gained importance, and environmental law took its place in legal literature as a separate discipline. This process led to the reflection of environmental concerns in trade law and paved the way for the emergence of the concept of green trade. Green trade is an approach that reframes trade policies and practices to minimize environmental impacts and promote sustainable production and consumption. The deepening climate crisis, sustainable development goals, increasing consumer awareness, the rise of green technology and innovation, the European Union’s Green Deal announced in 2019, and the Carbon Border Adjustment Mechanism (CBAM) are factors that make green trade an important concept today.
This article will examine the green trade approach, which constitutes the legal appearance of environment-oriented trade policies, and the effects of the Carbon Border Adjustment Mechanism (CBAM), implemented by the European Union, on international trade law. Furthermore, the question of whether the Carbon Border Adjustment Mechanism (CBAM), which will be fully applied to carbon-intensive product imports to the EU starting from January 1, 2026, and will also cover Turkey, is an environmentally friendly policy or a trade barrier, will be addressed.
Green Trade: Its Legal Framework, Economic and Environmental Objectives
Today, global environmental problems such as environmental degradation, climate change, and ecosystem destruction lead to radical transformations not only in environmental policies but also in economic and commercial regulations. As a result of these developments, the concept of “green trade,” which centres environmental sustainability principles, has begun to gain importance in international law and economic literature. The United Nations Environment Programme (UNEP) defines green trade as a set of trade practices that promote the trade of environmentally friendly products, services, and technologies, aiming to harmonize economic growth with environmental objectives.[ii]
Green trade is not merely an environmental policy choice; it is also a normative shift in understanding that redefines the direction of trade in line with sustainable development goals. In this context, the integration of environmental protection obligations into international trade law and the direct impact of environmental standards on foreign trade point to the multidimensional nature of green trade. The integration of green trade into the international trade system has largely gained momentum with the globalization of environmental problems. The United Nations Conference on Environment and Development (Rio Summit) held in 1992, became one of the turning points where the relationship between environment and trade was brought to the international agenda. During this process, organizations such as the World Trade Organization (WTO) and the Organisation for Economic Co-operation and Development (OECD) published various reports and proposed regulations for the development of environmentally sensitive trade practices.
The European Green Deal announced by the European Union in 2019 and the Carbon Border Adjustment Mechanism (CBAM) developed in connection with it, have shown that environmental targets are no longer limited to domestic legal policies but directly shape foreign trade relations.[iii] In this context, green trade should be evaluated both from the perspective of developed countries as part of global environmental responsibility and from the perspective of developing countries in terms of the risk of facing new trade barriers.
The main goal of green trade is to strike a balance between economic development and environmental sustainability. In this regard, it aims to support economic growth by increasing trade volume while minimizing environmental damage and ensuring the efficient use of natural resources. Promoting environmentally friendly production processes, reducing carbon footprints, expanding the use of renewable energy sources, and prioritizing the trade of goods and services compliant with environmental standards are among the concrete reflections of these goals. Furthermore, green trade is expected to achieve sustainable development goals, ensure global cooperation in combating climate change, and build an environmentally conscious economic system. In this context, green trade is considered not just a trade strategy but also a development approach shaped by environmental responsibility.
Carbon Border Adjustment Mechanism (CBAM)
The European Green Deal, announced by the European Union in 2019, set out the Union’s goal of becoming a carbon-neutral economy by 2050; industrial policies were envisioned to be reshaped in line with this goal. The Carbon Border Adjustment Mechanism (CBAM), developed within the framework of this transformation, aims to prevent the risk of carbon leakage and ensure competitive equality in terms of carbon costs between EU producers and third-country producers.[iv]
Essentially, CBAM is a regulation targeting certain carbon-intensive product groups imported from outside the EU, requiring importers to pay a cost corresponding to the amount of carbon emitted during the production of these products. This aims to prevent high-carbon emission production methods from shifting outside the EU and to encourage more environmentally friendly production methods globally. The Carbon Border Adjustment Mechanism (CBAM) was implemented within the scope of the transition period that began in 2023 and is set to enter into full force as of January 1, 2026.[v]
The EU’s implementation of CBAM has had significant repercussions not only within its own borders but also in the global trading system. In the initial phase, the mechanism, covering carbon-intensive sectors such as cement, iron and steel, aluminium, fertilizers, electricity, and hydrogen, mandates carbon cost alignment for imports from these sectors.[vi] For countries with high trade volumes with the EU, such as Turkey, CBAM has become a critical issue not only for compliance with environmental standards but also for competitiveness.
Similar implementations are observed to be on the agenda outside the EU.[vii] Countries such as Canada, the UK, and the USA are working on various mechanisms or developing policy proposals similar to carbon border adjustments. These developments indicate that CBAM could create a normative effect not only regionally but also globally.
The Carbon Border Adjustment Mechanism (CBAM), implemented by the European Union, is not merely a tool serving environmental policies but also directly affects international trade law.[viii] The carbon-based financial obligations imposed on imported products under CBAM could potentially conflict with GATT 1947 Articles I and III, which prohibit discrimination.[ix] Furthermore, the calculation methods and reporting obligations of the regulation are open to discussion in the context of transparency and predictability principles under GATT Article X.[x] Indeed, the WTO’s Shrimp–Turtle decision also emphasized that measures taken for environmental reasons, if applied discriminatorily, could constitute a violation of law.[xi]
As the scope of CBAM expands, serious discussions have arisen regarding the mechanism’s compatibility with international trade law, particularly with World Trade Organization (WTO) rules. One of the main criticisms of the mechanism is its potential to constitute a technical barrier to trade by applying a carbon-based cost burden to third-country producers. This situation is especially evaluated in terms of the WTO’s prohibition of discrimination and most-favored-nation principles; it is argued that CBAM, despite aiming for environmental protection, could lead to unfair competition in trade. However, the purpose of environmental protection is not absolute under WTO rules but can be considered a limited exception if certain conditions are met under GATT Article XX. In this context, it is observed that the EU, when designing the CBAM implementation, emphasized environmental justifications to establish a legal legitimacy.
Whether CBAM is fully compatible with World Trade Organization (WTO) principles remains a contentious area at the international legal level. It can be argued that the mechanism may violate the ‘most-favored-nation’ principle in GATT 1947 Article I and the ‘national treatment’ principle in Article III. This is because carbon-based financial obligations imposed on imported products could create a discriminatory effect in favor of EU domestic producers. Furthermore, the complexity of reporting and verification processes under CBAM could lead to claims of violation concerning the transparency obligation under GATT Article X.[xii] For these reasons, it is likely that the CBAM implementation will be brought before the WTO dispute settlement mechanism and become subject to inter-state lawsuits in the future.[xiii]
CBAM and its Impacts on International Trade
With the entry into force of CBAM, structural changes in trade flows are expected for countries exporting to the EU. Especially exporting countries operating in carbon-intensive sectors will face higher costs in accessing the EU market; this could negatively affect the competitiveness of some countries. As stated in the literature, for countries with high economic integration with the European Union, such as Turkey, CBAM is not limited to causing an increase in foreign trade costs; it also necessitates the adaptation of production processes to environmental norms in a way that reduces carbon intensity.[xiv] In this context, CBAM is considered a structural regulation that, beyond being merely a trade policy tool, encourages environmental transformation through an external pressure mechanism.
The effects of CBAM on developing countries are much more striking. These countries often have limited resources for accessing environmental technologies, making it highly probable that they will struggle to cover carbon costs. In contrast, developed countries have previously implemented carbon reduction policies and transitioned to low-carbon technologies. This difference creates a basis that could lead to competitive imbalances in international trade. Indeed, criticisms are increasing that CBAM constitutes a form of indirect trade barrier for developing countries; the necessity of establishing fair transition and capacity-building mechanisms is particularly brought up at United Nations Climate Change Conferences (COPs) and World Trade Organization meetings.
The implementation of CBAM has also created a new legal discussion area for multilateral and bilateral trade agreements. Particularly, the issue of compliance with World Trade Organization (WTO) rules can lead to potential disputes between countries. Questions such as whether CBAM constitutes a violation of the prohibition of discrimination and whether it violates the principle of equal treatment in trade could form the basis for future lawsuits against the EU. In this context, it can be stated that CBAM is a regulation that redefines the boundaries of international trade law at both normative and practical levels.
When the effects of CBAM are evaluated at the sectoral level, the most affected areas are seen to be energy-intensive and high-carbon emission sectors such as steel, cement, aluminium, and fertilizers. Companies operating in these sectors will either have to reduce carbon emissions in their production processes to export to the European Union or bear the additional costs arising from carbon pricing and CBAM implemented to offset the environmental impact of carbon emissions. This situation could directly affect production costs in these sectors, triggering restructuring processes in global trade. Furthermore, producers with low-carbon technologies are expected to gain a competitive advantage, while carbon-intensive producers may face market share loss. In this context, CBAM is accepted as a multi-dimensional regulation that shapes not only trade policies but also industrial strategies, a common assessment among academics, international organizations, and sector analyses.
Reflections of Green Trade and CBAM on International Trade Law
The impact of environmental concerns on international trade law has been increasingly felt since the last quarter of the 20th century. Ensuring the balance between the principle of free trade and environmental protection has become one of the fundamental issues of legal regulations at the global level. In this context, how environmentally conscious trade policies will integrate with the normative structure of international trade law reintroduces the boundaries between states’ sovereign authority and the multilateral trade regime.
The green trade approach necessitates the reinterpretation of not only environmental law but also international trade law, especially in line with the principle of sustainability found within the 1992 Rio Declaration, the United Nations Sustainable Development Goals (SDGs), and GATT 1947 Article XX. Environment-based trade measures, as in the case of CBAM, are evaluated by some actors as “new generation trade restrictions”; it is argued that these regulations mask protectionist tendencies. On the other hand, actors like the European Union defend CBAM as a legitimate climate policy tool within the framework of environmental responsibility and state that it is compatible with WTO principles. This dichotomy is a current reflection of the ongoing tension between the legitimacy of measures taken for environmental protection and the freedom of trade. At this point, the direction of legal interpretation is definitively and bindingly shaped within the evaluations of whether the regulation is a “hidden trade restriction” or a “legitimate environmental measure.”
The increase in regulations that limit carbon emissions and have cross-border effects within the scope of combating climate change also brings about the formation of new norms in international law. The international acceptance of carbon-neutral targets with the 2015 Paris Agreement of the United Nations Framework Convention on Climate Change shows that environmental obligations can have legally binding qualities in inter-state relations. In this regard, regulations like CBAM are evaluated not only as trade policy tools but also as the product of a hybrid legal area where the climate regime and trade law intersect. These developments redefine the environment-trade relationship in international legal literature; they reinforce the effort to place the principle of sustainable development on a compatible ground with states’ freedom to formulate trade policy.
Impact of Green Trade and CBAM on the Future of International Trade
The green trade approach, and CBAM as one of its most current examples, demonstrate that global trade is being shaped not only by economic but also by environmental priorities. Factors such as reducing the carbon footprint, adopting sustainable production models, and internalizing environmental externalities are now among the basic parameters of international trade. With the implementation of CBAM, not only the European Union but also other major economic blocs are expected to adopt similar environmental regulations, signalling that trade will evolve in a manner consistent with international and regional environmental standards such as the United Nations Framework Convention on Climate Change, the Paris Agreement, and the European Union Green Deal. This transformation is causing commercial activities to shift from being based solely on price competition to being redefined by environmental criteria such as carbon content and sustainability metrics. Therefore, green trade and mechanisms like CBAM will play a decisive role in reshaping international trade law in the coming period; in this context, they will create a multifaceted normative framework that intertwines legal, economic, and environmental dimensions.
USA – Shrimp/Turtle Case
The issue of the compatibility of trade measures taken for environmental protection with WTO law has previously been on the international legal agenda; one of the most cited examples in this context has been the USA – Shrimp/Turtle case. The United States prohibited the import of shrimp caught without certain technical equipment to protect sea turtles. Although this measure was taken for environmental concerns, the WTO Panel and Appellate Body ruled that this practice was discriminatory and violated GATT rules due to insufficient technical assistance and flexibility. This decision demonstrated that even though environmental protection is accepted as a legitimate trade exception, the measures taken must be consistent with the principles of proportionality and non-discrimination. In this respect, the decision serves as a fundamental reference for evaluating the legality of carbon emission-based regulations like CBAM under WTO law; because such measures must also be proportionate, non-discriminatory, and transparent. Therefore, the Shrimp-Turtle case maintains its importance as a precedent-setting dispute that defines the legal framework when evaluating the legal basis of CBAM.
Conclusion
The Carbon Border Adjustment Mechanism (CBAM) is a critical regulation that reshapes the normative structure and implementation framework of global trade law in line with environmental sustainability goals. However, the extent to which the cross-border transfer of carbon costs is compatible with World Trade Organization (WTO) principles—especially the prohibition of discrimination and equal treatment principles—is debatable. Although the European Union (EU) defends CBAM as an environmental protection measure, its causing competitive inequality and cost increases in developing countries makes its global acceptance difficult. Therefore, CBAM should cease to be a unilateral measure and be supported by multilateral cooperation and fair transition mechanisms. A portion of carbon revenues should be transferred to developing countries, in line with the fair transition principles within the United Nations Framework Convention on Climate Change and the Paris Agreement. International funds and technological support mechanisms also ensure the process is transparent and legitimate.
Before CBAM, producers within the EU were subject to carbon costs, while products from outside were exempt from these obligations; this led to carbon leakage and unfair competition. With CBAM, the carbon content of imported products is also priced, forcing external producers to participate in environmental costs. During the transition period that began on October 1, 2023, companies are required to report, and carbon costs will start to be actually collected from 2026. Initially, carbon-intensive sectors such as iron and steel, aluminium, cement, fertilizers, electricity, and hydrogen are covered, and other sectors are expected to be added in the coming years.
This process requires fundamental changes in production and supply chains. Carbon-intensive producers are forced to invest in cleaner and more efficient technologies due to cost pressures, while emission measurement, reporting, and verification have become standard for companies. This transformation is an important paradigm shift in terms of both environmental policy and trade and competition.
For Turkey, the impacts of CBAM are significant. The EU is Turkey’s largest export market, and there is intensive trade particularly in the iron and steel, cement, and aluminum sectors. Therefore, Turkish companies must establish carbon measurement systems, switch to green energy, and create reporting infrastructure compliant with EU legislation; otherwise, their competitiveness will decrease, and market loss may occur.
For companies exporting to the EU, accurately calculating and recording the carbon footprint of products is critically important. Starting from October 1, 2023, companies must declare their carbon emissions quarterly and also request and document this data from their suppliers. Declared data must be verified by independent verifiers, and production processes must be converted to more efficient and environmentally friendly technologies. At the corporate level, internal teams must be established for CBAM compliance, and customs, export, environmental, and production units must work in an integrated manner. Since EU importers will request carbon footprint data, timely and accurate submission of information is essential for the sustainability of commercial relations.
CBAM has initiated a new era not only for environmental policy but also for trade sustainability. For companies operating in countries with strong trade relations with the EU, such as Turkey, this is an opportunity to increase competitiveness. Companies that prepare properly and report transparently will benefit from this transformation.
From a legal perspective, companies must closely follow the EU’s CBAM Regulation (EU) 2023/956 and act in accordance with new regulations. Reporting processes must be complete and accurate; otherwise, penal sanctions may be imposed. Commercial contracts should be revised to clarify the obligation to provide carbon data and the sharing of carbon costs. Furthermore, compliance with Turkey’s KVKK (Personal Data Protection Law) and the EU’s GDPR regulations must be ensured during the processing and storage of carbon emission data. Incorrect data management can create both legal and financial risks. Therefore, legal firms should be consulted for legislative advice, contract revisions, preparation of data protection policies, and legal oversight of reporting processes. In case of possible sanctions and disputes, legal representation is important.[xv]
In conclusion, CBAM requires comprehensive preparation from both a technical and legal standpoint. Companies acting in compliance with legal obligations are protected from penal risks and secure their sustainable commercial relations with the EU. Therefore, exporting companies should seek comprehensive legal support in addition to engineering and environmental consulting.
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Elfin Selen ERMİŞ
Uçar Law & Consultancy Office
Editor: Baver UÇAR (Attorney at Law)
References
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[vii] CRU Group. (2024). European prices will rise as CBAM starts to bite. https://www.crugroup.com/…/european-prices-will-rise-as-cbam-starts-to-bite/
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