CMS | EU/ International Trade Outlook 2026-How to Best Navigate Increasingly Choppy Waters?

Introduction

International trade developments have now been hitting the headlines for many months, amid ongoing global trade agreements, trade arguments, and increased protectionism, all of which have become gradually more commonplace across the globe. Some of these carry the risk of major tariffs and duty increases, which can be high and abrupt, and can significantly interrupt supply chains and add material costs. These are also in addition to numerous emerging and rigorous frameworks affecting global trading conditions, including not-least those related to sustainability and de-carbonisation, for which early planning and compliance are essential for effective cross-border trading.

This CMS EU/International Trade Outlook sets out key trade developments which have taken place or are being set in motion this year from the perspective of the EU, as of March 2026. It concludes with a practical summary of how to best protect supply chains and achieve regulatory compliance, in view of the various onerous risks and demands facing companies in the current trade climate.

Highlights: this outlook explores the following recent EU trade topics, proposals, measures and frameworks

• EU Trade Agreements and Tariffs, including the EU-US and EU-India deals
• The EU’s Trade Defence Toolbox, including EU Trade Defence Instruments developments, in addition to the Foreign Subsidies Regulation and others
• Key EU Regulatory Frameworks such as the Carbon Border Adjustment Mechanism and the Industrial Accelerator Act
• Supply chain protection, mitigation, and regulatory compliance

EU Trade Agreements, and Tariffs

The EU has been engaged in negotiating several material trade agreements in the last year, which can potentially give rise to major tariff exemptions and other beneficial measures. Some of the EU deals have been hailed a major success, while others have not been viewed in the same light, depending on the relevant parties’ perspectives. This has meant that while certain tariffs have been suspended, some reliefs have not necessarily come to light, and/or other threats continue to linger.

At the time of publishing this outlook in March, EU and US officials are said to be hastily trying to avert a return to any EU-US transatlantic trade war, following increased frustration by the US over the EU’s failure to implement the EU-US trade deal agreed in Scotland last Summer. The EU itself had prepared a 93 billion EUR retaliatory trade package against the US back in 2025 during its negotiations with the US, which it agreed to suspend for a further 6 months this January. The EU has not yet implemented the US deal, which saw the EU agreeing to a 15% tariff on most exports to the US, while in return removing all tariffs on EU imports of US industrial goods. Given recent developments in the US Courts over-ruling the widespread global unilateral tariffs imposed by the Trump administration, some argue that moving forward with the deal now may help avoid any further retaliation and bring stability to EU businesses. However, it has already been announced that the US has also launched major trade investigations across the globe, including the EU and the UK, over forced labour in supply chains – which could also lead to further tariff risks.

The EU also agreed its Free Trade Agreement (FTA) with India in January, which the EU Commission (EC) described as the largest FTA either side has concluded to date. Once implemented, this is intended to reduce bilateral trade tariffs and administrative burdens, and to simplify certain customs procedures. Based on the EC’s published estimates, tariff cuts would cover over 96% of EU goods exports to India by value, and save around EUR 4 billion per year in duties. However, as has been reflected in the later provisionally published texts of the deal, the EU did not manage to secure provisions it had sought on access to public procurement, nor did India secure any exemption from the EU’s Carbon Border Adjustment Mechanism (CBAM). For the latter, the text instead includes an annex on CBAM which makes reference to the parties’ use of the Rapid Reaction Mechanism designed to trigger emergency meetings and resolutions in the case of measures that ‘create a significant disruption or impediment to trade’.

Other notable trade agreement developments include the EU-Mercosur deal, an agreement (with the South American trading bloc and customs union spanning Argentina, Brazil, Paraguay and Uruguay) which has taken over two decades to achieve. The EC has announced the provisional implementation of the deal, which take effect in May and removes tariffs from more than 90% of European exports. However, the deal is currently in the process of a concurrent appeal to the EU Courts on procedural disagreements between the EU Institutions, and so once implemented, the interim agreement is expected to stay in place until the EU Courts make their determination.

The EU’s Trade Defence Toolbox

The use of the more traditional Trade Defence Instruments (TDIs) such as anti-dumping, anti-subsidy and safeguard measures tend to increase in times of global trade turbulence. The EU’s TDIs are designed to help it to deter and combat unfair trade practices from foreign companies and foreign public authorities, shield EU industries and jobs from these practices, and restore a level playing field for EU companies in the internal market.

The EU has recently initiated a record number of TDI investigations, in comparison with previous years. Most of these involve anti-dumping (which involve goods ‘dumped’ in Europe by companies from defined non-EU countries), with a handful of anti-subsidy (which involve goods ‘subsidised’ by defined non-EU governments) and safeguards (which involve a sudden increase in imports more widely in Europe, are rarer and have stricter conditions).

TDI remedies are generally imposed in the form of additional import duties to neutralise the material threat or injury of such to the EU industry. In terms of geographies, most EU TDI investigations involved Asian countries, with China being the focus point, and affected a variety of sectors including chemicals and metals. Some recent decisions have seen duties imposed of over 100%, with phosphorus acid from China receiving duties of 122.8% in March. A major development occurred in the ongoing Battery Electric Vehicles (BEVs) from China anti-subsidy case at the start of the year – in which the EU issued guidelines on how exporters may propose compliant minimum prices in order to avoid the currently applicable duties.

In addition to applying the TDIs themselves, the EC has dedicated more of its attention to anti-circumvention investigations. This involves combating third countries’ attempts to circumvent EU trade duties by changing trading patterns etc, and serves as useful reminder of the strict anti-circumvention provisions attached to EU TDIs .

The EU has also been a target of TDIs by third countries, with large numbers applied by the US, Turkey and China. In some cases, such application of TDIs has been seen as a retaliatory measure in response to EU TDI actions, with third countries failing to appropriately substantiate their own allegations with sufficient evidence. One example of this involves China’s duties on EU brandy, pork and dairy, which coincided with the EU probe and imposition of duties on BEVs from China.

In addition to the TDIs, the EU also applies autonomous trade instruments in line with the EU’s 2021 Trade Policy Review. Among others, these include the Foreign Subsidies Regulation (FSR), and the soon to be replaced Foreign Direct Investment Screening Regulation (FIR). While commonly viewed as part of the EU’s competition law arsenal, these form a material and important section of the EU’s trade defence, which can significantly affect deals and investments:

• The FSR was adopted and became applicable in 2023 to fill regulatory gaps to allow for investigations into distortions in the EU internal market caused by foreign subsidies and redress these distortions. It applies to M&A transactions and public procurement bids which meet certain criteria, and has been met with significant controversy from third countries, particularly in relation to the ‘call-in’ mechanism which allows the EC to conduct a review even on deals falling below the thresholds. Since its implementation, the EU has been very active in its application, with two high-profile M&A cases requiring remedies (out of 200 notifications), and four in-depth public procurement probes (out of 3,500 submissions) three of which were closed following withdrawal of the bids. The Commission has published its FSR Guidelines in January, and its FSR Review Report is expected in July.
• The FIR was adopted in 2019 to establish a framework for the screening of foreign investments into the EU. A new FIR proposal was agreed by the EU Institutions in February, which proposes a number of wide-ranging changes including:
  • Clarifying and broadening the term ‘foreign investments’ to include investments by EU based companies which are controlled by non-EU investors;
  • Member States are now required to have a mandatory pre-closing screening regime, two distinct and aligned review phases, and below thresholds call-in powers; and
  • Mandatory screening in core sectors such as strategic raw materials, and key transport and energy infrastructure.

Key EU Regulatory Frameworks – the Carbon Border Adjustment Mechanism and the Industrial Accelerator Act and others

A number of other emerging and rigorous EU frameworks are also essential to factor in to global supply chain plans – a number of which, while linked to sustainability and de-carbonisation, are widely regarded as trade measures, and for which early planning and compliance will be key.

The EU’sCarbon Border Adjustment Mechanism (CBAM) introduces a charge on in-scope carbon intensive products imported into the EU, to level the playing field with the relevant internal EU Emissions Trading System (ETS), and prevent carbon leakage (i.e. EU manufacturers moving production outside the EU to avoid ETS). Goods primarily in the sectors of cement, iron and steel, aluminium, fertilisers, electricity, and hydrogen are currently affected. CBAM applies to both raw materials and certain downstream, semi-finished and finished products, identified by a product’s specific international ‘import’ code.

In December 2025, the EC published a series of implementing acts providing significant details on CBAM operations. It also proposed amendments to the original CBAM scope and to close loopholes/prevent circumvention. Key proposals include expanding the scope of CBAM to include downstream steel and aluminium intensive products from 1 January 2028; enhancing reporting requirements for better traceability of CBAM goods and addressing emission intensity misdeclarations; and providing the EC with powers to tackle evidence-based abuses circumventing CBAM related financial responsibilities.

Following a two-year transitional phase, the CBAM definitive period started on 1 January 2026. Only authorised CBAM declarants are permitted to bring in-scope goods into the EU. Declarants must report the amount of carbon emitted during production of the imported goods, maintain records and purchase CBAM certificates corresponding to the embedded emissions. In March the EC announced the timetable for publication of the quarterly price of CBAM certificates, with the first to be published in April.

It is clear that relying on combined default values from the EC for third party exporters will add significant extra CBAM costs to products imported into the EU, in comparison to the use of fully verified CBAM data, and so early planning and thorough audits up the supply chain are key. Non-compliance can also result in financial penalties and limitations imposed on importation activities, which poses the most significant risk in terms of supply chain disruption (notwithstanding the CBAM costs which will directly apply).

Another recent major proposal which has attracted widespread reaction in terms of its potential effects on global trade is the Industrial Accelerator Act Regulation (IAA). The IAA EC proposal aims to accelerate the EU’s industrial decarbonisation investments through low-carbon and ‘Made in EU’ provisions (including countries with EU origin equivalence) in defined segments of public procurement, auctions and support schemes. The Made in Europe aspect of the proposal has attracted significant criticism in its draft and current forms, with a watered-down version published in March. It now requires minimum local content and low-carbon in public procurement procedures for products from energy intensive industries and electric vehicles (EVs).

The IAA proposal also includes sector-specific approval for foreign investments in batteries, EVs, solar PV, and critical raw materials. Investments caught by the proposed IAA will require prior review and include: foreign investments for a majority shareholding, above €100 million, and by companies from countries that hold more than 40% of global production capacities in these emerging strategic manufacturing sectors. This would work in parallel with FIR requirements. How the ultimate scope of the IAA will be defined will depend on its journey through the EU legislative process. It will now be examined by both the European Council (Council) and Parliament (EP) which can propose amendments ahead of the trilogue negotiations between the EC, Council and EP to reach a common position on the final text.

Other developments in key regulatory frameworks that businesses should be aware of include:

The EU Deforestation Regulation (EUDR) which entered into force in 2023 and ensures that products sold in the EU are deforestation-free /fully traceable in terms of use of commodities in the supply chain including palm oil, beef and coffee. Key recent changes agreed by the EU Institutions in December include postponing the EUDR application to 30 December 2026 for large and medium entities and 2027 for other undertakings; downstream operators now having obligations aligned with traders; and strengthened penalties with fines of at least 4% of EU-wide turnover. The US has recently warned EU trade counterparts that the EUDR will generally put US producers off exporting to the EU market which could account for $9 billion of US trade to the EU annually.

The Critical Raw Materials Act (CRMA) which entered into force in 2024 and establishes a framework to secure a sustainable, diversified and stable supply of critical minerals for the green and digital transitions. Important changes have been proposed by the Council in March (following proposals from the EC) which will affect businesses operating in CRM value chains. These include changes transferring responsibility to identify large companies using strategic raw materials from Member States to the EU; once identified such companies would have six-months to conduct a supply-chain risk assessment; and would have 60 days to respond to EC compliance requests. Corporate diversification obligations are also proposed to be tightened where significant supply chain vulnerabilities are identified. As above, the ultimate changes will depend on the outcome of the EU legislative process, with the next step being joint negotiations with the EP, when it adopts its respective position.

Supply chain protection, mitigation, and regulatory compliance

In light of the above – and in this era of unexpected and reactionary trade measures arising – it is essential for companies dependant on cross-border trade, and international supply chains, to examine existing supply contracts, and strategically plan going forward for the allocation of potentially unforeseen tariffs and duties. Businesses are advised to clearly identify the relevant responsible party for paying tariffs, taxes or duties, in existing supply chain set-ups and/or when negotiating new contracts, in order to mitigate supply chain risks and to determine appropriate allocation between the parties. Other common contractual clauses can be useful to review when faced with unexpected increases as a result of trade law-related developments, such as pricing clauses which can allow for periodic price revisions when cost factors change drastically, and changes in law clauses which can also enable renegotiations.

Other supply chain costs such as those related to CBAM are best approached by adopting a proactive attitude to compliance, and planned with thorough audits up the relevant supply chains. Ultimately, taking early action to understand and comply with compulsory frameworks like CBAM going forward will lower associated costs imposed in the long run. Where EU importers/third party exporters have not yet prepared for CBAM, there is still time to catch up before the initial deadlines apply, and make relevant preparations to permit application of the most efficient CBAM rates.

Compliments of CMS – a member of the EACCNY