FTI Consulting International Trade Bulletin – 22nd July
This Week In Trade
It has been a rather heated week for the EU with BRIC nations accusing the bloc of using climate change as an excuse to erect trade barriers in the form of carbon border taxes. The UK’s Board of Trade appears to have come to a similar conclusion and has called for the Government to champion free trade as one of best ways to tackle climate change and to challenge green protectionism. Cross-channel relations look likely to worsen with British ministers announcing a number of proposals to alter the Northern Ireland Protocol, which the European Commission has already rejected out of hand.
FTI’s Key Headlines
BRICS hit back against EU Carbon Border Tax
Last week the EU publicised its new climate policy proposals, Fit for 55, detailing its plans for a carbon border adjustment mechanism (CBAM) – the world’s first major climate import tariff. The proposals have provoked a number of hostile responses from trading partners across the globe who have accused the EU of introducing further protectionism under the garb of fighting climate change. China has characterised the move as the first shot in disguised economic warfare which aims to circumvent the WTO and exclude them from Western markets. President Xi responded to proposal by stating that “tackling climate change should not become an excuse for geopolitics, or for attacking other countries with trade barriers,” a sentiment seemingly shared by the rest of the BRICS quintet.
Russia, which has calculated that it stands to lose around $7.6bn from the scheme, has expressed similar reservations to the proposal. Dmitry Peskov, Vladimir Putin’s spokesman, has described the prospect as “extremely unpleasant” and claiming that discussions between Russia and the EU have “essentially collapsed”.
The proposals have also received little more than a lukewarm response from Washington, with the Biden administration more concerned with investing in clean technologies and developing regulations than in taxing carbon. The US climate chief John Kerry had previously pleaded with the EU not to press ahead with the border tax before November’s COP26 climate summit warning that a carbon import tax should be “a last resort, when you’ve exhausted the possibilities.” Kerry’s comments were based on fears that the plans would undermine months of careful diplomacy which has already led to net-zero commitments by countries making up 78% of total emissions.
Free trade to drive low carbon transition
Any hopes the EU had that their new climate policy proposals would be better received across the Channel were dashed this week with the publication of a new report from the Board of Trade which calls on the UK to challenge green protectionism. The second Green Trade report questions the narrative that free trade is an inherent threat to the environment and has emphasised the importance of markets in tackling climate change, enabling and ensuring the free flow of information and the proliferation of green technology.
The report was launched on Wednesday at a Board of Trade meeting at Trades Hall in Glasgow and advises that the UK leverages its trade agenda to speed up the global green transition. Key recommendations include promoting the UK’s green exports and technology overseas, attracting foreign investment to build up the UK’s green industrial base, and using the UK’s independent trade policy to reduce barriers to green trade and tackle environmentally damaging market distortions – such as industrial subsidies.
The fact the report was launched in Glasgow, where the UK will host COP26 in November, is no coincidence and the firm language used by the Board of Trade – which warned that environmental aims are often used as a cover to enact damaging protectionist policies, can be seen as a shot across the EU’s bow’s less than a week after the publication of its Fit for 55 proposals.
The past week also saw the UK government launch a consultation on a new framework for trading with developing countries, replacing a scheme rolled over from its membership of the EU. The proposed Developing Countries Trading Scheme includes the stated aim to grow trade with lower income nations, supporting jobs and growth across the globe and simplifying regulations – like rules of origin requirements – for developing nations.
Never-ending NI border dispute
UK-EU relations have taken another hit this week with British ministers announcing several proposals to change the Northern Ireland Protocol, which governs trade flows across the Irish border after Brexit. The move amounts to a major challenge to the European Commission which has flat-out refused to renegotiate the Protocol.
On Wednesday the UK government published a command paper outlining proposed changes to the Protocol including the removal of the European Court of Justice as the ultimate arbiter on any disputes, replacing it with an independent arbitration panel. Ministers also want to change the protocol so that British goods that are sold only to Northern Ireland are not considered imports into the EU single market and should therefore be spared custom checks. Such a move would be welcomed by retailers operating in the province with Marks & Spencer this week warning that customers in Northern Ireland will face gaps on shelves and even price increases due to “labyrinthine restrictions” related to post-Brexit customs checks.
Yet the proposals look to be dead on arrival with the European Commission rejecting the request within hours of it being announced and stating that the terms of the deal will not be renegotiated. The prospect of a further deterioration in UK-EU relations will be unwelcome for businesses who operate in Northern Ireland who are already facing the costs of both sides fudging the deal and kicking the tough questions surrounding the Irish border into the long grass.
As the UK Parliament heads into is Summer shut down this week the FTI Trade bulletin will switch from a weekly to a fortnightly basis until September. Our next edition will be published on Thursday 5th August.
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