Chapter 10 focuses on the EU’s Carbon Border Adjustment Mechanism (CBAM), introducing carbon pricing on imported products from certain sectors, in an attempt to address carbon leakage and, intentionally or not, ensuring a level playing field between domestic and imported products. The chapter presents the mechanism, its aims, and its consistency with EU’s international environmental and trade commitments. Accordingly, the chapter analyses the question of CBAM’s compatibility with the international principle of common but differentiated responsibility (CBDR) as it treats developing and least developed countries on an equal footing with the developed ones. Then it considers the question of the mechanism’s compliance with WTO rules, in particular WTO non-discrimination rules and prohibition on quantitative restrictions. It pays special attention to potential justifications of possible breaches and whether they could accommodate also a CBAM in line with the CBDR principle, thereby addressing the convoluted question of the relationship between international trade and climate regimes.

Chapter 7 focuses on the enforcement of the FTA Trade and Sustainable Development (TSD) chapters and EU’s plan to strengthen it. It introduces the reader to the EU’s former cooperative approach and the long-lasting debate on the use of sanctions. It follows with an analysis of the newly found robustness of EU’s approach towards TSD enforcement, by assessing the recent EU–Korea FTA labour dispute and presenting the EU’s new TSD enforcement approach, which extends the coverage of general dispute settlement compliance stage to TSD chapters and adds the possibility to impose sanctions in case of certain TSD breaches. It continues with an analysis of the available tools in case of non-compliance even in case of an express FTA legal basis for sanctions. In particular, it explores whether the EU could make use of international customary rules enshrined in the ILC Draft Articles on State Responsibility, Vienna Convention on the Law of Treaties, or the ’Essential Elements’ Clauses from EU FTAs and Framework Agreements. Finally, the chapter presents other pertinent political considerations and evaluates the latest developments in strengthening the enforcement of EU’s FTA TSD chapters.

In this introductory chapter to Part III, we examine the context of EU international investment regulation. We will analyse the objectives of EU trade and investment strategy, and shifts between multilateralism, bilateralism and unilateralism, effectively endorsing pragmatic-lateralism. First, EU values, objectives and principles are briefly introduced, to the extent to which they shape and define the EU’s international action. This is followed by the examination of EU strategy for its integration with the wider world through trade and investment agreements, and the consideration of circumstances which led to the EU’s international investment policy reform. The aim of this chapter is to provide the political background of EU international investment regulatory framework, which is analysed in Chapters 8 and 9.