People & Planet: how do we boost trade sustainably?

Transitioning to the net-zero economy is one of the great policy challenges of the coming years, with inevitable interplay with trade. Openness should facilitate the spread of technologies to help tackle climate change, yet it could also encourage the offshoring of emissions to avoid regulations. Meanwhile, demands for domestic production associated with net-zero are leading to rising fears of a damaging subsidy race sparked by the US Inflation Reduction Act, with the UK struggling to compete.

There are many other issues of fairness and sustainability that must be considered in a country’s trade policy. These include the labour or environmental conditions attached to preferential trade, the extent to which imports are expected to meet the same conditions as domestic agricultural production, and the generosity of unilateral tariff removal for developing countries. Other emerging issues include carbon pricing and due diligence such as on products related to deforestation, both as proposed by the EU.

Experience from other countries suggests that to place UK trade policy on a firm footing, it needs to find the right balance on each of these issues. Broad stakeholder experience is that this hasn’t happened to date, and is needed not just for a better domestic outcome, but also to help shape global debates.

Questions for discussion

What is the balance of trade and sustainability that best meets the broadest UK policy objectives?

How should the different sustainability challenges be prioritised?

Should trade unions be consulted during trade negotiations?

Policy Options

Trade Unlocked 2023’s policy partner, the UK Trade and Business Commission, has recently published a comprehensive report containing policy recommendations to the UK Government.

The volume of UK Trade and Business Commission recommendations on trade union involvement in trade deals and sustainability demonstrate the importance of the topic, and envisage a new balance being found between trade and sustainability. This uses the EU as a marker, but with the possibility of going further where appropriate. There is also a strong emphasis on cooperation, which should strengthen the likelihood of policy success.

The UK Trade and Business Commission recommends creating a new UK Board of Trade - an independent agency, modelled on the highly regarded Swedish Board of Trade, which will be accountable to the Secretary of State for Business and Trade. It recommends that membership of the board should include ‘representatives from major UK business organisations, trade unions, devolved governments, SMEs, and senior experts in trade and regulation’. Furthermore, the report recommends:

• ‘The UK should aim to match or exceed the labour and employment protections provided by EU law.‘

• ‘The UK should maintain its commitments under new and existing international trade agreements, such as the Trade and Cooperation Agreement (TCA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), by avoiding the reduction of labour standards in order to gain trade advantages.’

• ‘The UK should seek to match commitments made on labour, environment, and human rights under the newest EU equivalent trade agreement when negotiating new Free Trade Agreements.‘

On sustainable development, the report recommends:

• ‘The UK Government should seek to ensure that all imported food products meet minimum regulatory standards, including environmental requirements, equivalent to those applied to domestically produced food.’

• ‘When negotiating new trade agreements, the UK Government should ensure minimum standards of food safety, animal welfare, and environmental protections of future imports are met and at least in-line with EU standards or UK standards where these are higher.’

• ‘The UK Government should design and implement a UK Carbon Border Adjustment Mechanism (CBAM) that aligns with the EU CBAM scheme, ensuring consistency in the treatment of imported goods with embedded carbon emissions and reducing the reporting requirements needed to cooperate with the EU effectively.’

• ‘The UK Government should implement efficient reporting and monitoring systems for the UK CBAM and periodically review and update the UK CBAM in line with the EU scheme to reflect developments in carbon pricing, international trade, and climate policy.’

• ‘The UK should therefore engage in ongoing dialogue and cooperation with the EU and other international partners to monitor the effectiveness of carbon border adjustments and address any emerging challenges or opportunities.’

• ‘The UK Government should collaborate with the EU on the development and implementation of shared energy objectives, such as enhancing energy security, promoting renewable energy, and reducing greenhouse gas emissions.’

• ‘The UK Government should enhance cooperation with the EU in the pursuit of shared net zero targets, focusing on joint initiatives, research, and investment in low-carbon technologies and energy infrastructure. This should include identifying areas of alignment, such as EU deforestation and corporate reporting requirements, and developing joint strategies to address these issues.’

• ‘The UK Government should ensure that UK measures related to corporate action on trade, such as deforestation and sustainability requirements, are consistent with those required by EU law.’

• ‘The UK Government should establish a sustainable trade dialogue with the EU and other affected countries to seek to minimise the impact of trade-related measures on UK businesses and consumers. Dialogue should focus on identifying areas of alignment between the UK's and the EU's sustainability and trade policies, as well as promoting cooperation and the exchange of best practices in the areas of sustainability and trade.’

• ‘The UK should seek to match commitments made on labour, environment, and human rights under the newest EU equivalent trade agreement when negotiating new Free Trade Agreements.’

• ‘The UK Board of Trade should conduct impact assessments of trade agreements to ensure they are consistent with domestic policy objectives and do not have unintended consequences. Such assessments should be evidence-based, considering the potential social, economic, and environmental impacts of the proposed trade agreements.’

• ‘The UK should maintain its generous trading scheme for developing countries and consider allowing full cumulation between countries in the African Continental Free Trade Agreement.’