Introduction: The opportunity to reset the UK trade agenda

The UK government has set itself a more ambitious trade agenda than any other country in recent history. As a result of Brexit, it needs to determine its own trade policy and negotiate trade deals with other countries for the first time in more than 45 years. In the coming months the UK will revise its general tariff schedules, undertake significant preparations so that it can become a fully independent member of the World Trade Organization (WTO), and embark on trade negotiations with the European Union and United States, its largest trading partners, as well as Australia, New Zealand and Japan.[1]

There is a lot at stake. Trade is the lifeblood of the UK economy and it matters for everyday life. Trade allows us to be one of the biggest nations of tea drinkers and to export Minis around the world. The rules and regulations we negotiate in trade agreements fundamentally affect our ability to maintain high environmental, labour, human rights and animal welfare standards, and to meet our international commitments on climate, the environment and sustainable development. The decisions that this government makes on trade will shape the UK economy and determine our ability to meet social and environmental goals for the foreseeable future and have an impact that stretches far beyond the government’s five-year term.

The UK enters the trade world with an independent voice at a critical time in global trade policy. There is growing tension between the US and China, and friction between the US and the EU, including over the taxation of digital companies. The WTO, which should be the focal point for resolving such differences, is in deep crisis, not least because the US has retreated from multilateralism and a rules-based system in favour of ad hoc trade measures. Citizens in many industrialised countries are disillusioned with globalisation and deeply concerned about the impact of trade on jobs, economic inequality, public services and the environment.

The UK government has an opportunity to do things differently, ensuring that trade works for people in all parts of the UK, and is aligned with sustainable development, climate and environmental goals. In this essay we make four proposals on how the UK government can make that happen.

Proposal 1: Align trade policy with wider societal goals

People around the world are raising concerns that the trade system is not working for them. Part of the problem is that governments typically set very narrow economic objectives for their trade policy, looking to maximise trade flows and economic efficiency gains, and overlooking citizens’ concerns about job losses and economic inequality. Trade, by its nature, creates winners and losers, strengthening some sectors and contributing to the decline of others. In many Western countries there have been gains at the national level from trade and automation, but there have also been significant disruption and job losses. These have been concentrated geographically and have contributed to rising regional inequalities.[2] The UK has the highest regional inequalities of any industrialised country and the government has promised to ensure ‘all parts of the UK benefit from any deal’.[3] This will require a new regional approach to UK trade policy that is carefully designed to increase productivity and support tradable sectors in each region.[4]

UK citizens are also concerned about other implications of trade policy, including the impact on the quality and type of food we eat, the future of public services like the National Health Service (NHS), and the impact on biodiversity and carbon emissions.[5] They also care about the links between trade and development. The UK is one of the largest markets in the world for fair trade products – 82 per cent of UK consumers are reported to care about Fairtrade – and the UK government has long been a champion of making trade work for development.[6]

The UK has an historic opportunity to make inclusion, equity and sustainability the hallmarks of UK trade policy. Enshrining these over-arching objectives in legislation, together with a commitment to conducting sustainability impact assessments ahead of every UK trade negotiation and major trade policy decision, would help to ensure these objectives are pursued. In drafting such legislation, the UK government can draw inspiration from the WTO’s founding document, where governments recognised that trade was a means to an end, not an end in itself.[7]

Proposal 2: Showcase transparent and inclusive decision-making

Citizens in the US, UK and many other countries have lost faith in globalisation. They believe the rules are rigged in favour of the powerful and have low trust in governments.[8] Decisions over trade policy are often taken behind closed doors, and the texts of trade agreements can run to thousands of pages in a legal language that is difficult for non-specialists to engage with. The opacity of trade negotiations and lack of trust in their outcomes have contributed to the failure of major trade negotiations, including the US-EU trade deal (TTIP).[9]

The UK government has committed to ensuring that trade policymaking is transparent and inclusive. It has promised that Parliament, the devolved administrations, the devolved legislatures, local government, business, trade unions, civil society and the public from every part of the UK will have the opportunity to engage with and contribute to trade policy.[10]

So far, UK decision-making is far from fulfilling these goals. As things stand, the UK Parliament has very little scrutiny over trade negotiations, and far fewer powers in this area than the US Congress or European Parliament.[11]

Concerns about weak parliamentary oversight have been raised by business, civil society, academics and five separate parliamentary committees.[12] The government has promised to publish negotiating objectives and allow specific committees a scrutiny role, but this would still leave the UK lagging behind its main trading partners.[13] There is an urgent need for the government to put in place a framework for democratic scrutiny and transparency that includes giving Parliament meaningful input into negotiating mandates, oversight of negotiating texts and a final confirmatory vote. In addition, there are many steps that the government can take to strengthen public, business and other stakeholder consultation, including through early publication of draft negotiating mandates which are thoroughly discussed with stakeholders, greatly improving the advisory group structure, and reducing the use of non-disclosure agreements which hinder effective participation.[14]

There is broad consensus across UK stakeholders that the UK should be playing a leading role in developing robust mechanisms to make trade policymaking inclusive. In the words of John Denton, Secretary General of the International Chambers of Commerce, ‘efforts to drive the transition to a more inclusive world economy must begin with a trade governance model that is itself inclusive. We are here to demonstrate our capacity and eagerness to help governments chart a new course for global trade policy-making that places inclusion at its heart.’[15] The UK could be the government that leads the way.

Proposal 3: Pioneer new ways of aligning trade and environmental policies

One of the biggest questions facing trade policymakers globally is how to align trade and environmental goals, and this is an area in which the UK could play a leading role. Since the late 1990s, the UK has been a world leader on climate change, through its domestic policies and its support for international climate negotiations. UK citizens are increasingly concerned about the environment, ranking it the fourth most important issue facing the UK when surveyed in late 2019.[16] Yet, in the UK, as in other countries, there has been a disconnect between trade and environment policies.

There is now little dispute that trade rules can increase emissions, lock in fossil fuel infrastructure and make it harder to share green technology and build local green industries. For example, Quebec significantly reduced its renewable energy programme following a WTO challenge, and Germany lowered environmental standards in the Elbe River in response to an investment challenge.[17]

Several governments are starting to rethink. New Zealand is leading a five-country initiative to bring trade, climate change and sustainability together, advocating in particular for new trade restrictions on fossil fuel subsidies.[18] There have been negotiations to reduce tariffs on environmental goods, and the EU is proposing to introduce a carbon tax on imports. However, most trade policymakers are far from embracing the idea that trade needs to be aligned with environmental goals.

2020 provides a significant opportunity for the UK government to bring the trade and environmental policy worlds into conversation and to galvanise action. In June 2020 the UK will attend its first WTO ministerial meeting as an independent member, and in November 2020 the UK will host COP26, the most important international climate negotiations since Paris in 2015.

In the lead-up to the WTO ministerial conference, the UK should actively support the efforts of like-minded WTO Members to issue a Ministerial Statement on environmental sustainability and trade, and join the Friends of Fossil Fuel Subsidy Reform group. This should include reaching out to key trading partners in the Commonwealth and other developing countries to ensure the agenda is inclusive and earns their support.[19] The UK should lead the way by taking clear domestic action on climate change and fossil fuel subsidy reform. It should review all trade provisions in its trade agreements to ‘stress test’ them against climate goals, in particular measures that impact on industrial strategy, investment protection, intellectual property and regulatory cooperation chapters; promotion of climate-friendly technologies, goods, services and transport; and trade finance and capacity-building for countries suffering trade shocks and challenges related to climate change.

A further area in which the UK should align its environmental and trade policies relates to plastic pollution. The UK should step up and help lead the growing group of WTO Members keen to explore options for reducing trade in certain types of plastic, promoting trade in substitutes and harnessing trade policy to spur a more circular plastics economy.[20]

At a national level, the UK can pioneer new ways to put sustainability at the heart of its trade agenda. The government has an ambitious ‘Clean Growth Strategy’ where it seeks to make the UK the global leader in a range of industries from electric cars to offshore wind, energy efficiency technologies, and low-carbon financial and professional services.[21] Making this vision a reality could be a central objective of UK trade policy. Agriculture is an important and politically sensitive part of all trade negotiations, and the UK could focus its agricultural commitments on promoting sustainable agriculture and biodiversity. Even more ambitiously, the UK could look to re-orient trade policy frameworks in favour of a more circular economy, and all elements of UK trade policy could be assessed against, for example, their contribution to phasing out fossil fuels, helping to reverse ecological damage and support for sustainable agriculture.

Proposal 4: Revitalising the trade and sustainable development agenda

Trade plays an important role in sustainable development. During the past two decades, the UK government has built up a reputation for championing sustainable development in international trade policy circles. In the face of substantial resistance, and with some success, the UK urged the EU and other advanced countries to open their markets to exports from developing countries. The EU’s ‘Everything but Arms’ (EBA) scheme provides duty-free-quota-free access into the EU market for the least developed countries. The UK has been a major supporter of ‘aid for trade’, using development finance to address the competitiveness constraints and infrastructure gaps that make it hard for firms and farmers in developing countries to trade.

But it has not all gone smoothly. Negotiations between the EU (with the UK as a member) and most African and Pacific countries were acrimonious and are regularly referred to in policy circles as a ‘well-intentioned diplomatic disaster’. They are still a major source of tension and the UN’s Economic Commission for Africa argues that they will deliver uneven outcomes with limited gains for African countries and more generalised gains for the EU.[22]

The UK now has the opportunity to revitalise its trade relations with developing countries, especially with African countries.[23] A first task is to minimise any trade disruption caused by Brexit. The government plans to replicate the EU’s preference schemes for developing countries, a move that has been widely welcomed, and it is working to roll over existing trade agreements involving developing countries. The UK could be more ambitious, designing a scheme of preferences that addresses some of the complexities and shortcomings of the EU scheme. A frustration of many African countries is that EU trade agreements pose constraints on regional integration. The UK has an opportunity work with African governments to design a new continent-wide preference scheme that would increase exports of goods and services from African countries and support regional integration.[24] Where it looks to negotiate free trade agreements with developing countries, the UK could work to align each chapter with sustainable development objectives, including robust carve-outs for public services and strong and meaningful commitments on technology transfer.

As it revises its trade policies, it is important that the UK government considers knock-on effects for developing countries at every stage. Changes to the UK’s general tariff regime and lowering of UK most-favoured-nation (MFN) tariffs could lead to substantial export losses in some developing countries as the value of their tariff preferences is eroded. For instance, reductions in MFN tariffs on garments and footwear would be damaging for Bangladesh, Cambodia, India, Indonesia, Mauritius and Pakistan, while reductions on processed fish would harm exporting firms in Ecuador, Ghana, Mauritius, the Philippines and Vietnam.[25] The UK government can design its tariffs to maintain preferences where they are particularly valuable for developing countries. As the UK looks to diverge from EU trade regulations, businesses in developing countries will need to adapt to a myriad of new UK customs documents and product standards, which could be an expensive process. The UK government should work closely with exporters from developing countries, designing new UK customs rules and product standards with developing countries in mind, and supporting their firms to adapt to new UK requirements.

Next steps

At the time of writing it is unclear what the government’s vision for trade is and how it will use trade policy to deliver for the UK economy or ensure it is responsive to wider concerns about economic inequalities and job losses, protecting the environment, and supporting sustainable development. These are pressing questions, not only in the UK, but internationally.

The UK government has indicated that it wants its trade agenda to work for all parts of the UK and align with its commitments under the Sustainable Development Goals and Multilateral Environmental Agreements. However, in practice, much government discourse around post-Brexit trade is focused on how the UK can best secure leverage with its trade partners to maximise regulatory autonomy and shore up narrow commercial interests.

The UK government has an historic opportunity to show that trade policy can be made to work for all citizens and for the environment. Now is the time for a step change in the UK government approach, towards one that places inclusion, equity, sustainable development, the climate and environmental stewardship at the heart of its trade policy.

 

Authors:

Ruth Bergan is a Senior Advisor at the Trade Justice Movement, the UK national network engaged in policy and advocacy work towards socially and environmentally sustainable global trade. Ruth has led the organisation for the past ten years, providing policy expertise on a breadth of trade policy issues, including the EU’s Economic Partnership Agreement negotiations with developing countries, the UK’s investment protection provisions, and new work on the interactions between trade and climate change

Dr Emily Jones is an Associate Professor at the Blavatnik School of Government, University of Oxford and a Fellow of University College. Emily directs the Global Economic Governance Programme, which fosters research and debate on how to make the global economy inclusive and sustainable. She previously worked in Ghana’s Ministry of Trade and Industry, for Oxfam GB and for the UK Department for International Development.

[1] WTO, Member Information: United Kingdom and the WTO, https://www.wto.org/english/thewto_e/countries_e/united_kingdom_e.htm

[2] Elena Rusticelli et al., Going Local: A Regional Perspective on How Trade Affects Labour Markets and Inequality. Economics Department Working Papers No. 1530, Organisation for Economic Co-operation and Development, December 2018, http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=ECO/WKP(2018)78&docLanguage=En

[3] UK2070 Commission, Fairer and Stronger – Rebalancing the UK Economy, May 2019, http://uk2070.org.uk/2019/05/30/first-report-of-the-uk2070-commission-to-be-published-on-thursday-30th-may-2019/; Robert Zymek and Ben Jones, UK Regional Productivity Differences: An Evidence Review, Industrial Strategy Council, February 2020, https://industrialstrategycouncil.org/sites/default/files/attachments/UK%20Regional%20Productivity%20Differences%20-%20An%20Evidence%20Review_0.pdf; Elizabeth Truss, Free Trade Agreements with the Rest of the World: Written Statement – HCWS96, UK Parliament, February 6, 2020, https://www.parliament.uk/business/publications/written-questions-answers-statements/written-statement/Commons/2020-02-06/HCWS96/

[4] OECD, Productivity and Jobs in a Globalised World: (How) Can All Regions Benefit?, Paris: OECD Publishing, April 2018, https://www.oecd-ilibrary.org/employment/productivity-and-jobs-in-a-globalised-world_9789264293137-en;jsessionid=_LOwE16C3yZnt4iJX-_u-4hQ.ip-10-240-5-31

[5] Sofia Vasilopoulou, Daniel Keith and Liisa Talving, What the British public thinks about post-Brexit trade deals, The Conversation, January 2020, https://theconversation.com/what-the-british-public-thinks-about-post-brexit-trade-deals-128484; Marley Morris, Public attitudes to Brexit: the referendum was more a vote for re-regulation than for de-regulation, LSE blog, April 2018, https://blogs.lse.ac.uk/politicsandpolicy/the-referendum-was-more-a-vote-for-re-regulation-than-for-de-regulation/

[6] Katy O’Brien, 25 Facts About Fairtrade, Fairtrade Foundation, October 2019, https://www.fairtrade.org.uk/Media-Centre/Blog/2019/October/25-Facts-about-Fairtrade

[7] WTO members agreed that they would conduct trade negotiations ‘with a view to raising standards of living, ensuring full employment’ and to ‘allowing for the optimal use of the world’s resources in accordance with the objective of sustainable development, seeking both to protect and preserve the environment’. See Uruguay Round Agreement, Marrakesh Agreement Establishing the World Trade Organization, https://www.wto.org/english/docs_e/legal_e/04-wto_e.htm

[8] Hannah Fingerhut, Most Americans say US economic system is unfair, but high-income Republicans disagree, Pew Research Center, February 2016, https://www.pewresearch.org/fact-tank/2016/02/10/most-americans-say-u-s-economic-system-is-unfair-but-high-income-republicans-disagree/; Ipsos MORI, Majority worldwide say their society is broken – an increasing feeling among Britons, September 2019, https://www.ipsos.com/ipsos-mori/en-uk/global-study-nativist-populist-broken-society-britain;

[9] Katja Kipping, What I Didn’t Read In The TTIP Reading Room, War on Want, February 2016, https://www.waronwant.org/media/what-i-didn%E2%80%99t-read-ttip-reading-room; Bernd Lange, TTIP debate suffering from lack of transparency, The Parliament Magazine, October 2014, https://www.theparliamentmagazine.eu/articles/opinion/ttip-debate-suffering-lack-transparency

[10] Department for International Trade and Prime Minister’s Office, Trade White Paper: our future UK trade policy, October 2017, https://www.gov.uk/government/publications/preparing-for-our-future-uk-trade-policy/preparing-for-our-future-uk-trade-policy

[11] Under current legislation (the 2016 Constitutional Reform and Governance Act (CRAGA)) the UK government is not required to consult Parliament over the choice of negotiating partner or the negotiating mandate, and Members of Parliament (MPs) have no right to see negotiating texts. Texts are only made public once they are concluded, at which point they are ‘laid before’ Parliament for a minimum of 21 sitting days. Parliament can ask to make time to consider the deal and vote on it, but this is challenging given that there are only 20 days per session when the opposition can set the Parliamentary agenda.

[12] ICC UK, A Trade Governance Model That Works for Everyone, https://iccwbo.uk/collections/free-resources/products/trade-governance-model

[13] Department for International Trade, Process for making free trade agreements once the UK has left the EU, February 2019, https://www.gov.uk/government/publications/processes-for-making-free-trade-agreements-once-the-uk-has-left-the-eu

[14] CBI, Building A World-Leading UK Trade Policy, https://www.cbi.org.uk/media/3897/building-a-world-leading-uk-trade-policy-002.pdf

[15] ICC International, The onus is on business to drive more inclusive trade, May 2018, https://iccwbo.org/media-wall/news-speeches/icc-secretary-general-denton-onus-business-drive-inclusive-trade/

[16] Sarah Prescott-Smith, Which issues will decide the general election?, YouGov, November 2019, https://yougov.co.uk/topics/politics/articles-reports/2019/11/07/which-issues-will-decide-general-election

[17] WTO DS426: Canada – Measures Relating to the Feed-in Tariff Program; Vattenfall AB and others vs. Federal Republic of Germany, ICSID, ARB/09/6

[18] New Zealand Foreign Affairs & Trade, Agreement on Climate Change, Trade and Sustainability (ACCTS) negotiations, https://www.mfat.govt.nz/en/trade/free-trade-agreements/climate/agreement-on-climate-change-trade-and-sustainability-accts-negotiations/

[19] Carolyn Deere Birkbeck, Environment and Trade 2.0, Hoffmann Centre for Sustainable Resource Economy, October 2019, https://hoffmanncentre.chathamhouse.org/article/environment-and-trade-20/

[20] Carolyn Deere Birkbeck, Here’s How the WTO Can Help Address Plastic Pollution, World Economic Forum, January 2020, https://www.weforum.org/agenda/2020/01/wto-address-plastic-pollution/

[21] UK Government, Clean Growth Strategy, October 2017, https://www.gov.uk/government/publications/clean-growth-strategy

[22] UNECA and ATPC, Economic Partnership Agreements and the African Continental Free Trade Area, Policy Brief, UNECA, July 2016, https://www.uneca.org/sites/default/files/PublicationFiles/policy-brief_epas-and-cfta_final.pdf

[23] Dr Emily Jones and Conrad Copeland, Making UK Trade Work for Development Post-Brexit: Workshop Report, Global Economic Governance Programme, University of Oxford, June 2017, https://www.geg.ox.ac.uk/sites/geg.bsg.ox.ac.uk/files/Making%20UK%20trade%20work%20for%20development%20post-brexit.pdf

[24] Maximiliano Mendez-Parra, Designing a new UK preferences regime post-Brexit: How Africa can benefit, ODI, September 2017, https://www.odi.org/sites/odi.org.uk/files/resource-documents/11757.pdf

[25] Dirk Willem te Velde and Maximiliano Mendez-Parra, Brexit and global development, ODI, April 2019, https://www.odi.org/blogs/10741-brexit-and-global-development

Photo credit: Image by Alexander Kliem from Pixabay