Clean growth should be the cornerstone of post-Brexit trade strategy
This post was first published by Business Green.
The government may be wavering about the Brexit negotiations but it has, at least, been clear about its vision for Britain’s role after Brexit. Theresa May wants “us to be a truly Global Britain, best friend and neighbour to our European partners, but a country that reaches beyond the borders of Europe too.” And, under trade minister Liam Fox, the Department of International Trade sees the country’s new role as a global beacon of free trade.
But, to achieve this, the UK will have to capitalise on expertise in the low carbon goods and services sector which contributed over £42 billion to the UK economy in 2015 and which, according to recent ONS figures, is growing three times faster than the rest of the economy. As demand for low carbon transport, offshore wind and other energy services is expected to grow worldwide over the coming decade, there are great export opportunities not to be missed.
A global standard setter
To make the most of these opportunities, the UK will have to consider carefully how it negotiates free trade agreements with the EU and the rest of the world.
In a recent published Green Alliance report, we recommend a trade strategy that allows the UK to maintain high standards using the ambitions set out in the clean growth and industrial strategies as the basis for future trade deals.
In his recent speech, Boris Johnson suggested the UK “should be thinking not of EU standards but of global standards”. But, given the EU’s economic might as a driver of global standards, we can’t afford not to think about them. In fact, Britain should be participating actively in EU standard setting and pushing for the adoption of its own higher standards at EU level.
Conceding to lower standards might make it easier to close deals quickly with countries like the US, China and India, but this would scupper a significant economic opportunity for the long term, which was readily acknowledged in last week’s speech by Labour leader Jeremy Corbyn. And, in her speech on Friday, Theresa May committed to ensuring that British standards remain as high as the EU’s to prevent loss of economic opportunity and the environmental consequences of a race to the bottom.
Staying on good terms
Despite ambitions to do deals with far-flung countries, a close relationship with our European neighbours would help to keep UK clean growth on track. Not least, because over half of our existing low carbon trade is with the EU.
What would a close relationship with the EU on low carbon trade look like post-Brexit? Industry and investors would have greater certainty in making their plans if, for instance, we continued to participate fully in the internal energy market and its rule making bodies, and if we retained membership of the EU emissions trading scheme.
We should also continue to access cheap finance from European sources, like the European Investment Bank, for domestic energy infrastructure during the transition period. The period of status quo offered by a transition period will also allow us more time to negotiate an agreement on, amongst other things, EU market access for British low carbon goods and services and decide whether to continue participating in the internal energy market and other bodies.
Harmony is cheaper
Harmonisation with EU regulations would keep bureaucracy and business costs down in the years after the transition period. Trade in electricity is an obvious area where this applies, as EU member states and countries in the European Economic Area are the UK’s only possible trading partners. But, for other areas, complete harmonisation will not always be necessary, because the same goals can be achieved in different ways.
To avoid trade barriers, we recommend a framework that allows for regulatory divergence, with appropriate monitoring, compliance and dispute resolution mechanisms. Regulatory equivalence in areas like state aid, industrial emissions and green finance are critical for effective cross border trading. Under such an arrangement, both parties would agree to accept each other’s standards and regulations as long as they achieve similar goals.
If we want to be a leader in free trade, and achieve our domestic and international clean growth ambitions, the aspirations for both will have to be aligned. Harmonising our regulations with the EU in areas where the EU is a global leader, and agreeing on regulatory equivalence in other areas, will give us the flexibility to look beyond Europe for trade deals and ensure that UK businesses will still have access to their biggest market.