International Trade Policy is a Vital Part of Our Fight Against Climate Change



Lloyd Russell-Moyle | Labour List

One of Joe Biden’s key achievements has been his success in getting the Inflation Reduction Act through Congress. This provides a $369 billion boost to renewable energy and other green sectors of the US economy, involving subsidies and incentives to firms already in the USA or moving resources there.

There are two ways of responding to this. One is to complain that this represents a very unfair deviation from the principles of ‘free trade’. The other is to join in the race to decarbonise economies, matching US incentives with similar policies of your own.

The EU has taken the approach of joining the race, introducing its own programme of incentives and allowing for exemptions to its rules on ‘state aid’. The UK response has been to put more emphasis on complaining, refusing to match US and EU policies, and missing out on opportunities both for British business and employment, and for contributing to the greening of the world economy.

The government worries that joining in the green economy race would cost money at a time when many Tory backbenchers are pressing for spending cuts. That is all the more reason for finding other ways of encouraging green economic sectors, such as ensuring continuing alignment with EU product standards, something the Tories’ current Retained EU Law Bill is designed to obstruct.

At the same time it is right to seek fair arrangements in the international trade system, and it may be that the new moves from the US and EU, combined with complaints from countries including the UK, will provide the catalyst for some renegotiation of rules in the World Trade Organisation and elsewhere.

Among the many changes required is the need to put an end to the ISDS system: Investor-State Dispute Settlement. This uses provisions in trade agreements enabling firms losing out from changes in legislation or regulation to sue a government making those changes. The assessment of these cases is not carried out through the ordinary courts but made by a separate private corporate system of tribunals. For example, the UK oil and gas company Rockhopper in September last year won compensation of £210m from the Italian Government because of a ban on oil drilling within 12 miles of the coast.

ISDS is included in the Energy Charter Treaty (ECT), signed up to by 50 countries including the UK. Germany, France, Spain, Poland, and the Netherlands have all announced their withdrawal, on the grounds that allowing compensation through ISDS gets in the way of taking action on climate change, and makes it more expensive. The UK still remains a member.

ISDS also features in the Comprehensive & Progressive Trans-Pacific Partnership (CPTPP), the Pacific trade bloc which the US withdrew from trying to join, but which the UK government is currently negotiating to take part in, as part of a policy of replacing European close trading links with so-called “Global Britain”. The House of Lords International Agreements Committee has warned of the dangers CPTPP membership would pose to British agriculture and the NHS.

Another area of trade ripe for change is the need to agree on the use of Carbon Border Adjustment Mechanism (CBAM) systems. The idea here is that countries shouldn’t get an unfair advantage for their exports through failing to tax the carbon emissions from their production. The adjustments compensate for this ability to undercut by imposing a tariff on importing these products. A CBAM system is being introduced gradually by the EU. The UK government has announced a consultationin spring this year on the possibility of bringing in a similar scheme here.

CBAM is a mechanism for addressing the problem of ‘carbon leakage’, whereby countries get their own carbon emission figures to look good by simply getting carbon intensive goods manufactured elsewhere and then imported, rather than being produced at home where they are being consumed. Year after year, this has been used by the UK Government to give a wholly misleading impression of success in cutting emissions, on top of taking advantage of the convention of excluding from the official figures any emissions resulting from international aviation and shipping.

The latest cabinet reshuffle and restructuring of departments includes the disappearance of the Department for International Trade. This may in turn mean the abolition of the commons international trade select committee, of which I am currently a member. Trade is crucially important, including for post-Brexit Britain and for international environmental issues. I hope our parliamentary scrutiny work can continue in whatever new arrangements are set up.

Lloyd Russell-Moyle is MP for Brighton Kemptown and chair of the all-party parliamentary group for rental reform.

To read the full comment, please click here.