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1. Purpose and Structure of this Opinion

This legal opinion has been prepared by the Department of Trade, Industry and
Competition in reply to raised concerns by South Africa’s Ambassador to the World
Trade Organization (WTO). The European Union’s (EU) Carbon Border Adjustment
Mechanism (CBAM) has most recently entered its transitional phase, and
Ambassador has requested an assessment. The EU has framed the CBAM as an
environmental instrument aimed at reducing global carbon emissions. However, the
CBAM imposes binding financial and administrative obligations on imports of goods,
including iron, steel, aluminium, and cement, based on their embedded carbon
emissions. These obligations risk distorting competitive trade conditions and may
operate as trade barriers. The focus of the opinion will be on the impact on South
African exports and will provide both legal analysis and strategic options available to
South Africa.

The opinion is structured as follows:

 First, it will determine whether the CBAM qualifies as a WTO-contestable

measure.

 Secondly, it then assesses whether the mechanism breaches core GATT

obligations under Articles I, III, and XI.

 Thirdly, it considers the likelihood of the EU successfully invoking GATT

Article XX exceptions.

 Finally, the opinion details the remedies South Africa can access; taking into
account the WTO Appellate Body crisis, and proposes legal and diplomatic
strategies to ensure enforceability and protect South Africa’s trade interests.

2. Does the EU CBAM Constitute as a “Measure” Under WTO Law?

2
This section assesses whether the EU’s CBAM qualifies as a “measure” under WTO
law: a necessary threshold for any legal challenge under the WTO’s dispute
settlement framework.

2.1 Definition and Scope of a Measure

Under WTO law, a measure encompasses any law, regulation, procedure,

requirement and even non-binding administrative practice attributable to a Member
that influences or affects trade.1 As per the WTO Appellate Body Repertory of
Reports and Awards, measures can effectively span both formal legal instruments
and informal administrative actions, on condition that they influence trade
movements.2 This is exampled in US-Corrosion-Resistant Steel Sunset Review3
case, where the Appellate Body (AB) decided that measures determined to have a
trade-related impact can be challenged under WTO dispute settlement.

2.2 Application to the CBAM

The CBAM is a regulatory mechanism that imposes financial obligations on imports

based on their embedded carbon emissions.4 In practice, this means that in respect
of goods such as, iron, steel, and aluminium, importers are mandated to purchase
CBAM certificates which relate to the carbon emissions embedded in their
productions.5 This impetus or requirement has a direct effect on trade through
increased import costs and indirectly affecting market competitiveness. As a result, it
has created a de facto regulatory burden on foreign producers.6

We advise that the CBAM meets the legal definition of a ‘measure’ under WTO law
and as a result, can be contested under the WTO dispute settlement mechanism. 7
The CBAM’s status as a contestable measure is confirmed by its emphasis on

1
WTO Appellate Body Report, European Communities – Measures Affecting Asbestos and Asbestos-Containing Products
WT/DS135/AB/R (12 March 2001).
2
WTO, Appellate Body Annual Report 2007 WT/AB/9 (30 January 2008),
([Link]
3
WTO Appellate Body Report, United States – Sunset Review of Anti-Dumping Duties on Corrosion-Resistant Carbon Steel
Flat Products from Japan WT/DS244/10 (20 January 2004).
4
European Commission, Guidance Document on CBAM Implementation for Installation Operators Outside the EU, available at
[Link]
5
European Commission, CBAM Frequently Asked Questions – November 2023,
([Link]
%[Link]).
6
B Mercurio, The Regulation of Services and Intellectual Property, vol III (Routledge 2017)
([Link]
7
A Raina, ‘On the Legal Theory of Compliance with WTO Rulings and Mutually Agreed Solutions: Defensive Dispute
Settlement Experiences of the European Union and India’ (Centre for Global Governance Studies, KU Leuven).

3
imports under the WTO dispute settlement mechanism, given its clear influence on
trade flows.8

3. Potential Breaches of WTO principles Under GATT

3.1 Most Favoured Nation (MFN) Obligations and De Facto Discrimination

(GATT Article I)

Article I:1 of GATT, requires WTO Members to accord “immediately and

unconditionally” any advantage granted to the products of one Member to the “like
products” of all other Members. Article I:1 effectively prohibits WTO Members from
discriminating between “like products” which are sourced from other different
countries. This rule applies to both de jure discrimination and de facto measures
which appear to create unequal conditions.9

The CBAM links the cost of carbon to the exporting country’s climate policies rather
than the actual emissions of the product, which risks violating Article I:1. For
example, if South African steel produced 2 tons of Carbon dioxide (C02) per ton of
steel faces higher CBAM costs than Brazilian steel with identical emissions but
weaker climate policies, we advise that this may constitute de facto discrimination
under Article I:1 of the GATT. 10 This could result in unequal treatment as the
measure would effectively penalize South Africa for its national regulatory framework
rather than the product’s environmental impact which would constitute de facto
discrimination.

The Canada-Autos11 case clarified that measures that may appear neutral on the fact
of it, may still violate GATT Article I if they disproportionately affect certain Members.
In that dispute, Canada’s duty exemptions for automobiles imported from specific
countries were deemed discriminatory despite their origin-neutral phrasing. Similarly,
the CBAM‘s reliance on national carbon pricing systems-which vary widely between
developed and developing nations could create de facto disadvantage for countries

8
SAIIA, ‘The Impact of the CBAM on African Economies and the Role of the AfCFTA’ (2023), ([Link]
impact-of-the-cbam-on-african-economies-and-the-role-of-the-afcfta).
9
GATT 1994 art I:1.
10
WTO Appellate Body Report, Canada – Certain Measures Affecting the Automotive Industry WT/DS139/AB/R (31 May
2000).
11
Ibid.

4
like South Africa, which lacks the fiscal capacity to implement EU-equivalent carbon
taxes.12

Currently, the CBAM’s methodology to calculate carbon costs uses default values for
countries without transparent emissions reporting. This would disproportionately
affect developing nations that do not have access or cannot afford the mechanisms
required to monitor these systems. To meet its most-favoured-nation (MFN)
obligations, the EU is obligated to make adjustments to the CBAM, so that the focus
solely on product-specific emissions data, regardless of the exporting country’s
climate pledges.

3.2 National Treatment Obligation (GATT Article III)

GATT Article III:4, obliges WTO Members to ensure that imported products are
accorded treatment “no less favourable” than that granted to like domestic products.
The core aim is to prevent Members from shielding domestic industries through
disguised protectionism. In Japan-Alcoholic Beverages,13 the AB clarified that this
standard is not limited to formal equality but also extends to competitive conditions.
Measures modifying competition conditions to the detriment of imports may violate
national treatment, even if facially neutral- tax differentials between like products
were deemed discriminatory.

The transitional phase of the CBAM (2023–2026) will permit EU industries to retain
free carbon allowances under the ETS. 14 This implication which is that they are
effectively shielded from full carbon costs. For importers like South Africa, this would
mean that they are subject to the full burden of CBAM charges, resulting in
regulatory asymmetry. This results in less favourable treatment for imported “like”
products, which is contrary to Article III:4 of the GATT.

We advise that low-carbon and high-carbon steel are likely to qualify as ‘like
products’ under WTO law, and that the CBAM may thus violate Article III:4 of the
GATT. This outcome would resonate with the Appellate Body’s findings in the EC-

12
AL Baake, ‘The Carbon Border Adjustment Mechanism as an Alternative to Free Allocation of Certificates in the European
Emissions Trading System: An Analysis Based on the WTO Non-Discrimination Principle’ (Stellenbosch University 2023)
([Link]
13
WTO Appellate Body Report, Japan – Taxes on Alcoholic Beverages WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R (4
October 1996).
14
European Commission, Carbon Border Adjustment Mechanism (CBAM): Questions and Answers (2023),
([Link]

5
Asbestos15 case wherein, it was confirmed that physical characteristics, end uses,
consumer perceptions and tariff classification regulate likeness, and not production
processes. As a result, even if South African steel has a higher carbon footprint, it
would still be regarded “like” EU steel if it meets the same technical specifications.
The fact that they are produced using different carbon intensities does not affect their
likeness under WTO jurisprudence, which rejects production-process-based
distinctions unless they affect the product itself.

The CBAM’s focus on production emissions, rather than the product itself,
contravenes the national treatment obligation under Article III:4, by imposing a
regulatory burden that disadvantages imported “like” products relative to domestic
equivalents, that is imposing costs unrelated to the product’s inherent properties.

3.3 Prohibition on Quantitative Restrictions (GATT Article XI)

GATT Article XI does not permit quantitative restrictions on imports or exports,

including “measures other than duties” that effectively limit trade. While the CBAM
does not compel the charge of quotas; the resultant financial cost could in practice
result in a quantitative restriction by valuing South African exports out of the EU
market. In the India-Quantitative Restrictions16 the panel ruled that India’s balance-
of-payments restrictions acted as an import cap by creating unfair administrative
hurdles even though it was framed as a necessary fiscal measure. The effect of the
ruling meant that the scope of Article XI of the GATT was broadened to include
measures with the similar effect of quantitative restrictions.

In our view, the complexity of the CBAM’s, which requires importers to calculate
embedded emissions, purchase certificates and navigate EU bureaucracy is a strong
basis to characterize these demands as disguised quantitative restrictions and this
would potentially breach Article XI of the GATT. To prove the existence of a GATT
Article XI violation, South Africa would need to demonstrate the CBAM’s restrictive
impact.

4. Whether the EU May Justify the CBAM Under Article XX of the GATT

15
Supra note 1.
16
WTO Panel Report, India – Quantitative Restrictions on Imports of Agricultural, Textile and Industrial Products WT/DS90/R
(6 April 1999).

6
Assuming South Africa establishes a prima facie breach of GATT obligations, the EU
is likely to invoke Article XX. We advise on each potential ground below. The EU
may attempt to justify the breaches under Article XX of the GATT. This segment of
the legal opinion seeks to analyse different circumstances under which these
exceptions may be applied. An assessment of whether the CBAM can be legally
justified will be done, this assessment will rely on the framework established by the
Appellate Body of the WTO in interpreting Article XX.

4.1 Structure of Article XX and the Two-Tier Test

According to GATT Article XX, nothing in the GATT will stop measures from being
adopted or enforced, provided that they are not implemented in a way that amounts
to arbitrary or unjustifiable discrimination or a disguised restriction on International
trade:17 b) essential to safeguard the health or life of humans, animals, or plants; or
g) with regard to the preservation of finite natural resources, provided that such
actions are implemented in sync with limitations on domestic production or
consumption.

Firstly, the above paragraphs, b) and g) must be met. Secondly, the measure must
not be implemented in a way that amounts to arbitrary or unjustifiable discrimination
or a disguised restriction on international trade, as already mentioned above. This is
widely known as the two-tier test that must be satisfied by member states to
successfully invoke Article XX.18 This test was presented by the Appellate body in
US-Gasoline.19 The analysis of the two-tier test, firstly, provides a preliminary
justification based on the measure’s characterization under Article XX(g). Secondly,
it conducts a more thorough evaluation of the same measure under Article XX
introductory provisions.

4.2 Justification Under Article XX(b): Protection of Health and Life

The EU will likely argue CBAM is ‘necessary’ to protect human, animal or plant life
under Article XX(b). We advise that South Africa counter as follows: We anticipate
that the EU is likely to invoke Article XX(b) in its defence. We advise that South
Africa pre-emptively challenge the necessity of CBAM by highlighting less trade-
17
GATT 1994 art XX.
18
WTO, Analytical Index of the GATT 1994: Article XX,
([Link]
19
WTO Appellate Body Report, United States – Standards for Reformulated and Conventional Gasoline WT/DS2/AB/R (29
April 1996).

7
restrictive alternatives. The effect of climate change and global warming is a widely
known harmful phenomena, and in implementing CBAM the EU would be reducing
carbon emissions on a global scale.

With the objective of the EU being to protect lives and the environment against
climate change, the EU would need to prove that the implementation of CBAM is a
“necessary” measure to achieve this objective. In the WTO case Brazil-Retreaded
Tyres,20 the Appellate body stated that for a measure to be regarded as “necessary”,
and must be adopted in the absence to the objective on the table, also, and must be
adopted in the absence of reasonably, less trade-restrictive mechanisms. South
Africa should emphasize the availability of less trade-restrictive alternatives (e.g.,
mutually-recognised emission audits), which would fail the necessity element.

4.3 Justification Under Article XX(g): Conservation of Exhaustible Natural

Resources

Moving forward to the second leg of the two-tier test, this Article XX(g) of the GATT
focuses on conservation of exhaustible natural resources. The EU can potentially
rely on this Article, as long as it can be proven that the efforts behind CBAM are
made effective in conjunction with restrictions on domestic production or
consumption. The EU may assert that the global atmosphere is an ‘exhaustible
natural resource’. We advise highlighting that CBAM’s uniform charge ignores
differential capacities, undermining the ‘in conjunction with domestic restrictions’
requirement.

To satisfy the requirements of GATT Article XX(g), the EU should prove that the
implementation of CBAM is “related” to the conservation goal and used in tandem
with comparable domestic restrictions. The explanation of the term “related” has
been interpreted more loosely than “necessary”, requiring only a significant
connection between the measure and the conservation objective. 21 We acknowledge
that CBAM’s alignment with the EU ETS strengthens the EU’s claim under Article
XX(g). However, we advise that South Africa challenge the lack of differential
treatment for developing countries under the chapeau. For instance, the EU’s ETS
currently applies a carbon price to products produced domestically. 22 Comparing the

20
WTO Appellate Body Report, Brazil – Measures Affecting Imports of Retreaded Tyres WT/DS332/AB/R (3 December 2007).
21
Ibid.
22
Trading Economics, ‘EU Carbon Permits’,([Link]

8
ETS and the CBAM, there is alignment with the requirement of being in in
conjunction with domestic restrictions.

4.4 The Chapeau Requirement: Arbitrary or Unjustifiable Discrimination

If left unprotected, the general exceptions under Article XX would be susceptible to

abuse by the member states. The chapeau ensures the general exceptions are not
exploited. Even if the EU satisfies both Article XX(b) and Article XX(g), it will still
have to prove that the CBAM does not amount to arbitrary or unjustifiable
discrimination between countries where the same conditions prevail or a disguised
restriction on international trade.

In the case US-Shrimp,23 the Appellate Body upheld that the United States broke the
agreement by enforcing its environment policy in a unilateral and rigid manner
without giving other countries’ circumstances enough thought. Based on this
decision CBAM may face significant difficulty especially with regards to its consistent
implementation of the carbon price without taking into consideration the different
conditions and capabilities of particularly African Countries. The CBAM imposes a
unilateral and uniform approach to addressing climate change and this does not
reflect the different conditions and circumstances of the different exporting
countries.24 CBAM ignores the fact that African forests are the biggest carbon sinks. 25
This may support a claim that the CBAM disproportionately impacts developing
countries, which would constitute arbitrary discrimination.

In our opinion, even though the EU might have good reason to rely on Article XX of
the GATT on the justification of CBAM, the legality of such an argument would
ultimately depend and would have to be examined on a case-to-case basis. 26 The
implementation of CBAM and its goals, aligns with the already existing domestic
carbon pricing in the EU. This alignment falls within the scope of both Article XX(b)
and Article XX(g) and would ultimately boost its position. 27 However, meeting the

23
WTO Appellate Body Report, United States – Import Prohibition of Certain Shrimp and Shrimp Products WT/DS58/AB/R (12
October 1998).
24
S Nwangi, ‘Does a Legal Challenge to the CBAM Have Merit?’ (2024), ([Link]
challenge-to-the-cbam-have-merit/).
25
Ibid.
26
WTO, Appellate Body Annual Report for 2014 WT/AB/24 (3 July 2015)
([Link]
27
K Coetzee ‘How Has the Treatment of Marine-Based, Article XX Exception Trade Disputes Differed Between the GATT and
the WTO?’ (University of Cape Town 2009), ([Link]

9
requirements of the chapeau of article XX would be the EU’s most challenging legal
task.

5. Remedies Available to South Africa under WTO Law

If South Africa establishes a WTO violation, three forward-looking remedies are

available. We advise on each below. The focus then turns to the remedies available
under WTO law. The forward looking nature of the remedies is connected to the
Articles 3.7 and 19.1, of the WTO’s Dispute Settlement Understanding (DSU) which
does approve the resolution of disputes through the withdrawal of measures which
are regarded as inconsistent and also the rearrangement of negotiated
concessions.28 The purpose of this section is to expand on the three main remedies
available to South Africa: (1) modification or repeal of CBAM, (2) temporary
compensation, and (3) retaliatory suspension of concessions.29

5.1 Withdrawal or Modification of the Measure

As the primary remedy under the DSU is the withdrawal or modification of a measure
found to be inconsistent with WTO law,30 our advised approach would be to request
a recommendation that the EU either withdraw or meaningly amend CBAM within a
reasonable period.31 Under Article 19.1 of the DSU, if a panel or the Appellate Body
finds that a measure is inconsistent with a covered agreement, it “shall recommend
that the Member concerned bring the measure into conformity with that
agreement.”32 Even though panels may propose ways for a Member to implement a
ruling, such suggestions are non-binding; the Member retains full discretion over how
to comply.33

Article 21.1 of the DSU underscores that “prompt compliance” with DSB
recommendations are critical to resolving disputes effectively, though the term

28
WTO, Understanding on Rules and Procedures Governing the Settlement of Disputes, Marrakesh Agreement Establishing
the WTO, Annex 2, arts 3.7 and 19.1, ([Link]
29
J Chevry, ‘Convergence of International Trade and Investment Law in Practice: How Should Investor-State Arbitral Tribunals
Engage With Trade Norms?’ (European University Institute 2015)
([Link]
30
WTO, Understanding on Rules and Procedures Governing the Settlement of Disputes, Marrakesh Agreement Establishing
the WTO, Annex 2, 1869 UNTS 401, arts 3.7 and 19.1.
31
Ibid.
32
Ibid.
33
Supra note 30.

10
“promptly” is not defined with precision in the DSU or case law. 34 When immediate
compliance is not practical, Article 21.3 of the DSU allows a “reasonable period of
time” (RPT) to be established.35 This can occur through mutual agreement, DSB
approval, or, if no agreement is reached within 45 days, binding arbitration under
Article 21.3(c) of the DSU, to be concluded within 90 days. 36 The central aim of the
DSU’s compliance regime remains the timely, prospective correction of WTO-
inconsistent measures,37 reinforcing the rule-based structure of international trade
law.

5.2 Compliance Panel and Monitoring

Where South Africa contests the adequacy of measures adopted by the European
Union to comply with WTO rulings, it may trigger a compliance panel under Article
21.5 of the DSU.38 South Africa is not required to wait for a six-monthly status report
before launching such a challenge.39 In EC - Bananas III, the panel found that the
European Communities’ revised banana import regime did not fully comply with its
GATT and GATS requirements, thereby justifying the complainant’s recourse to
further dispute settlement procedures.40 We advise that South Africa, if dissatisfied
with post-ruling compliance, initiate proceedings under Article 21.5 of the DSU,
consistent with the WTO’s findings in Bananas III.41

If the EU introduces modified but still CBAM rules that remain inconsistent with the
WTO, South Africa may request a 21.5 panel to determine whether those changes
amount to genuine compliance or are merely repackaged breaches. The Appellate
Body has accepted that such measures fall within a “continuum of events” and may
still be subject to the scrutiny of DSU’s Article 21.5. A finding of non-compliance
would entitle South Africa to proceed under Article 22 of the DSC and seek the
“suspension of concessions”,42 reinforcing the principle that persistent non-
34
Ibid.
35
I I Soeparna, ‘Actors: To What Extent Is State Liability Accomplished?’ (Ghent University 2014).
36
C Furculiță, ‘The WTO and the New Generation EU FTA Dispute Settlement Mechanisms: Interacting in a Fragmented and
Changing International Trade Law Regime’ in European Yearbook of International Economic Law vol 19 (2021).
37
N J Udombana, ‘A Question of Justice: The WTO, Africa, and Countermeasures for Breaches of International Trade’ (2005)
38 John Marshall Law Review 1153, ([Link]
38
United Nations Conference on Trade and Development, Course on Dispute Settlement UNCTAD/EDM/Misc.232 (2003).
39
Ibid.
40
WTO, Analytical Index: DSU – Article 22 (DS Reports),
([Link]
41
P C Mavroidis, ‘Remedies in the WTO Legal System: Between a Rock and a Hard Place’ (2000) 11 European Journal of
International Law 763 at 777–78, ([Link]
42
Ibid.

11
compliance must ultimately trigger retaliatory rights rather than endless procedural
delay.43

5.3 Negotiated Compensation

In the event, the EU is unsuccessful in compelling CBAM to comply within RPT,

South Africa may engage in compensation negotiations as provided under Article
22.2 of the DSU. Compensation is a voluntary and temporary adjustment tool, not a
legal right, and may be offered by the non-compliant Member instead of immediate
full implementation.44 It is also prospective, intended to offset ongoing nullification or
impairment, not to redress past harm.45 In the event consensus is not reached within
20 days after RPT, South Africa may seek DSB authorization to retaliate. 46

5.4 Suspension of Concessions

Article 22 of the DSU, provides that in the event that full compliance or compensation
is not achieved within RPT, South Africa is entitled to appeal for approval to suspend
concessions. The DSU directives a structured approach whereby article 22.3
provides a hierarchy: retaliation must first be sought in the same sector in which the
original violation occurred; if that is not “practicable” or “effective”, 47 other sectors
under the same agreement may be targeted; and only where such alternatives are
inadequate, cross-agreement retaliation may be considered. 48 The aggrieved party
must prove that this escalation is both justified and adheres to the process,
particularly where cross-retaliation is requested.49

The arbitrator must determine whether the proposed retaliation is equivalent to the
injury sustained and whether Article 22.3 procedures were followed. Upon
confirmation, the DSB will grant retaliation approval unless opposed by consensus. 50
The Arbitrators ensure the level of suspension is equivalent to the nullification or
impairment suffered as per Article 22.4 of the DSU. Furthermore, the elected sector
must be informed by the economic value of the trade affected and the political and
43
Ibid.
44
Ibid.
45
C Olaki, The Feasibility of Retaliation as a Trade Remedy under the WTO Dispute Settlement (LAP Lambert 2007),
([Link]
46
Supra note 29.
47
Ibid.
48
Ibid.
49
Mavroidis, supra note 41.
50
Supra note 40.

12
strategic feasibility of retaliation, particularly in a context of asymmetrical trade
relations. We advise selecting retaliation targets with low domestic impact.

5.5 Practical Limitations on Remedies

Even though South Africa is entitled to retaliate under Article 22 of the DSU, there
remains blockages in the form of practical barriers which limit their remedy relief.
Foremost, there is the unspoken power asymmetry. The reality is that the EU’s GDP
and trade leverage far exceed South Africa’s. The case of US - Gambling51 is
evidence of the risk of being unable to exert meaningful pressure as the size of
Antigua and Barbuda’s smaller market weakened the position and affected the
implementation of countermeasures.52 The power disparity between South Africa and
the EU may lessen the economic impact of any retaliatory measures imposed by
South Africa.53 We caution that retaliation could adversely impact key South African
industries and therefore recommend a careful cost-benefit analysis before pursuing
DSU’s Article 22 authorization.54 For an import-dependent economy like South
Africa, retaliatory measures could increase production costs and cause harm to
critical industrial sectors.55

5.6 No Retroactive Damages

When dealing with past violations, the WTO dispute settlement system does not
authorize for retrospective financial compensation. Article 19.1 of the DSU
recommends prospective withdrawal of non-compliant measures, while retaliation
under Article 22 of the DSU is explicitly forward-looking. 56 In US-FSC57, the obligation
to comply persisted until the prohibited subsidy was fully withdrawn, not to rectify
past harm.58 According to Mavroidis, WTO panels have consistently interpreted

51
WTO Appellate Body Report, United States – Measures Affecting the Cross-Border Supply of Gambling and Betting
Services AB-2005-1, available at [Link]
52
H Nottage, Developing Countries in the WTO Dispute Settlement System, GEG Working Paper No 2009/47 (University of
Oxford), available at [Link]
53
US – Gambling (Recourse to DSU 22.6) WT/DS285/ARB para 4.55; see also E G Jensen, Public International Law:
International Trade Law, Introduction to the Laws of Kurdistan, Iraq – Working Paper Series (2016),
([Link]
54
Nottage, supra note 52.
55
Olaki, supra note 45.
56
Ibid.
57
WTO Appellate Body Report, United States – Tax Treatment for "Foreign Sales Corporations" WT/DS108/RW2 (30
September 2005), ([Link]
58
Ibid.

13
nullification and impairment as impairing future competitive opportunities, not as
grounds for past-damage claims.59

5.7 Summary of Remedies Advice

The WTO’s remedy system offers South Africa forward-looking tools, compliance
rulings, temporary compensation, and retaliatory suspension of concessions, but
their credibility depends on timely rulings and enforceability. 60 Without a functioning
Appellate Body, every remedy step loses legal certainty and finality. 61 South Africa
should combine litigation with strategic diplomacy. By re-building coalitions
(particularly, in the wake of our departure from the OACPS) with similarly situated
developing nations. It would be advised that South Africa spearheads the proposal
for developing nations to leverage political strength to seek a GATT Article XXV
waiver, which requires a three-fourths majority, and may provide an interim
safeguard.62 Historical experience suggests that a favourable ruling, combined with
sustained diplomatic pressure, often secures faster compliance than retaliation
alone, especially for developing countries with limited leverage. 63 South Africa should
prepare for litigation, but pursue political engagement throughout the process.

6. Implications of the WTO Appellate Body Crisis

Formerly, the Dispute Settlement Mechanism (“DSM”) of the WTO was championed
as one of the most active and successful international adjudicatory systems in the
world.64 However, in recent years it has proved undeserving of such recognition due
to a number of issues including its foremost challenge, the paralysis of the Appellate
Body (“AB”).65 The current state of the Appellate Body poses a potential obstacle for
South Africa in as far as its ability to obtain a binding and enforceable decision
through the DSM is concerned.
59
Mavroidis, supra note 41.
60
B Hoekman & P C Mavroidis, Preventing the Bad from Getting Worse: The End of the World (Trade Organization) as We
Know It? (2020) European University Institute, Global Governance Programme Working Paper No RSCAS 2020/06,
([Link]
61
Supra note 57.
62
GATT 1994 art XXV:5(b); see also JHB Pauwelyn, ‘The Role of Public International Law in the WTO: How Far Can We Go?’
(2001) 95 American Journal of International Law 535.
63
Mavroidis, supra note 41.
64
N S Umenze, ‘Is the WTO Appellate Body in Limbo? The Roots of the Crisis in the WTO Dispute Settlement Body and the
Available Routes Navigating the Quagmire’ (2021) 4 Potchefstroom Electronic Law Journal 24.
65
V G Rane, ‘Paralysis of WTO Appellate Body and the Way Forward’ (2021) 2 Indian Journal of Law and Legal Research 1–
7.

14
6.1 Origins and Consequences of the Crisis

The Appellate Body is established under Article 17(1) of the DSU which dictates that
it will hear appeals from panel cases from previous stages in the dispute settlement
process. It is composed of seven persons who serve a four-year term with each
person being eligible for reappointment once.66

According to Article 2(4) of the DSU, where the rules and procedures provide for the
Dispute Settlement Body (“DSB”) to take a decision, it shall do so by consensus.
Since 2016, the United States (“US”) has held strong to this provision, blocking the
reappointment of Appellate Body members and rejecting over a dozen proposals to
launch selection processes that could fill the remaining vacancies. 67 One of the
reasons for this is its disdain for Rule 15 of the Working Procedures for Appellate
Review (“WPAR”) which provides that a person who ceases to be a Member of the
Appellate Body may complete the disposition of any appeal to which that person was
assigned while a member.68

As the US continued to block appointments to the Appellate Body the seats

remained vacant and eventually a quorum could not be met, thereby immobilising it.
Many scholars have referred to this phenomenon as the Appellate Body being stuck
in a kind of limbo.69 The current state of the Appellate Body could prove to be
detrimental for South Africa in the event that they receive a panel report in their
favour as the EU may choose to appeal into the void thereby prolonging
enforcement. Additionally, if they receive an adverse panel report they have no
avenue for genuine recourse as the Appellate Body is currently paralysed.70

6.2 General Solutions Proposed

A number of solutions have been proposed, and in some cases implemented, in a

bid to solve the Appellate Body crisis. The first solution was the formation of the
Multi-Party Interim Appeal Arbitration Arrangement (“MPIA”). Shortly after the AB
became inoperable, a group of countries led by the EU met during the 2019 World

66
Supra note 28, art 17(2).
67
J Galbraith, ‘United States Continues to Block New Appellate Body Members for the World Trade Organization, Risking the
Collapse of the Appellate Process’ (2019) 113 American Journal of International Law 822.
68
Working Procedures for Appellate Review, Rule 15.
69
R Howse, ‘Unappealable but Not Unappealing: WTO Dispute Settlement Without the Appellate Body’,
([Link]
70
D Collins, Principles of World Trade Law, 1st ed, ([Link]

15
Trade Forum in Davos and proposed the creation of the MPIA. 71 The MPIA was
described as, “a parallel judicial process that would mirror the paralysed AB by
harnessing a practically unused arbitration provision, Article 25 of the DSU.” 72 Article
25 of the DSU permits expeditious arbitration within the WTO as an alternative
means of dispute settlement.

Pauwelyn identifies the MPIA's primary objective as preserving the initial system's
binding character and two levels of adjudication, a panel stage which remains
unchanged under the newly introduced alternative and an appellate stage, which
would be conducted through Article 25 arbitration instead of the old Appellate Body. 73
The MPIA is open to all WTO members and when MPIA parties are involved in a
dispute, they are expected to submit a joint notification to invoke the MPIA to resolve
the conflict at the appellate stage.74

The second solution can actually be found within the existing framework of the WTO.
It is the proposal that AB members are appointed through a majority vote at the
General Council, a mechanism already provided for under Article IX.1 of the WTO
Agreement.75 Article IX.1 provides an exception to the consensus rule by stipulating
that where a decision cannot be arrived at by consensus, the matter at issue shall be
decided by voting.76 It further elaborates that decisions of the General Council shall
be taken by a majority of the votes cast. 77 By having decisions determined by
majority the other members of the WTO can overpower the US’s block on AB
appointments thereby returning the AB to a functioning body.

The third solution pertains to addressing the concerns raised by the US. This would
include confronting issues such as those associated with Rule 15 of the WPAR and
also enforcing limitations on the AB’s legal interpretations, ensuring that it does not
continue to overstep its bounds. By reforming the WTO DSM in a manner that is

71
K Pelc, ‘Have WTO Members Successfully Circumvented the US Blockade of the Appellate Body? (and How Would We
Know?)’, ([Link]
how-would-we-know/).
72
Pelc, ‘Institutional Innovation in Response to Backlash: How Members Are Circumventing the WTO Impasse’,
([Link]
73
J Pauwelyn, ‘The WTO’s Multi-Party Interim Appeal Arbitration Arrangement (MPIA): What’s New?’ (2023) 22 World Trade
Review 693.
74
MS Adawi Ahmed & J Zhang, ‘MPIA as Solution to the WTO Appellate Body Dilemma: An Examination of the WTO
Innovative Dispute Settlement Mechanism’ (2024) 12 IJSRM 473.
75
H Gao, ‘Beyond the MPIA: A Rule-Based Solution to the Appellate Body Crisis’, ([Link]
76
WTO Agreement.
77
Ibid.

16
consistent with US views it is likely to discontinue its blocking spree of potential
Appellate Body members and the vacant seats can once more be filled. It is however
worth noting that despite clear efforts by other member states to resolve the
Appellate Body impasse the US has remained steadfast in its refusal to appoint
Appellate Body members.

6.3 Options Available to South Africa

The most obvious course of action available to South Africa is to join the MPIA. The
MPIA offers South Africa the opportunity to avoid the uncertainty associated with the
AB altogether by having the matter adjudicated by an entirely separate yet similar
system. While it may harbour some apprehension towards submitting to a body that
was founded by its opposition in the current dispute and subscribed to by only a
number of WTO members, it can take comfort in the fact that the MPIA operates
entirely under Article 25 of the DSU and therefore the proceedings conducted will
align with the WTO.

We advise that South Africa enter a procedural agreement with the EU not to appeal,
thereby ensuring legal finality in the absence of a functioning Appellate Body. Since
members may waive their procedural rights under the DSU, ad hoc agreements have
been used by WTO Members to avoid appeals when the AB is not operational at the
beginning of a dispute.78 Article 16.4 of the DSU specifically provides that panel
report shall be adopted at a DSB meeting within 60 days after the date of their
circulation unless a party to the dispute formally notifies the DSB of its decision to
appeal.79 This provision identifies the need for parties to explicitly notify the DSB of
the decision to appeal and highlights that panel reports can be adopted without going
through the appeal process. As the AB is currently on an indefinite hiatus South
Africa can circumvent any delays in receiving a binding decision by agreeing first-
hand with the EU not to appeal the panel report.

7. Concluding Recommendations

78
Adawi Ahmed & Zhang, supra note 74.
79
Supra note 28.

17
It is our legal position that the European Union’s CBAM, while presented as an
environmental instrument, meets the standard of a regulatory trade measure that is
contestable under the WTO dispute settlement system.

As we have demonstrated, the CBAM gives rise to prima facie breaches of key
obligations under the GATT. This would include breaches of: Article I, Article III:4,
and Article XI:1 where the burdensome requirements related to CBAM compliance
could potentially limit trade in such a manner functionally comparable to tariffs.

In anticipation of the EU justifying the CBAM under Article XX of the GATT,

particularly subparagraphs (b) and (g), we recommend that South Africa counter’s
this approach on the basis of the chapeau of Article XX. Should a violation be
confirmed, South Africa would have access to forward-looking remedies under the
DSU:

1. A recommendation for withdrawal or modification of the CBAM;

2. Compensatory arrangements, if voluntarily offered by the EU; or

3. Suspension of concessions, subject to economic and strategic feasibility.

We emphasize, however, that the continued paralysis of the Appellate Body

jeopardizes the finality of any ruling. In this context, we advise South Africa to:

1. Initiate WTO consultations to preserve rights under Article 4 of the DSU;

2. Pursue a procedural agreement or MPIA referral to ensure enforceability; and

3. Initiate discussions around forming a coalition of similarly affected developing

countries to amplify political leverage, and possibly pursue a waiver under
GATT Article XXV.

It is trite that the CBAM represents an economic threat to the viability of South
African exports. South Africa, will not however be without support, so, a combined
legal and diplomatic strategy is crucial to guard national trade interests. Urgent
intervention is required at both the WTO and EU levels. Therefore, South Africa
should be geared towards securing mutually agreeable transitional trade
arrangements or, if that is not successful, proceeding on a formal challenge through
the WTO dispute settlement framework.

18
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