Tim Hiscock, Strong & Herd LLP
Sustainability is something of a dilemma for the world of international trade. On the one hand, trade enables knowledge and technology to be shared, which is vital in combating climate change. On the other hand, trade itself, it has to be said, is a significant producer of pollutants such as sulphur dioxide and carbon dioxide. Long-distance supply chains are one of the focal points of attention for achieving net-zero targets.
Businesses adopting sustainability goals naturally look at their supply lines and many seek to adopt near-sourcing policies by identifying alternative suppliers closer to their production line. The industry is adopting greener measures, for example, by reducing the size and composition of packaging and products. The maritime sector is introducing changes to reduce ocean vessel emissions by 50% by 2050.
Trade agreements, which aim to make trade easier, also recognise governments’ responsibility to make trade greener. The recent Free Trade Agreement between the United Kingdom and Australia has several specific commitments on sustainability.
These include facilitating trade in low-carbon exports such as wind turbines and electric vehicles, cooperation on climate change issues and a mutual commitment to upholding obligations under the Paris Agreement. Other environmental commitments include:
- combating illegal logging and related trade
- co-operating on the transition towards a circular economy, including encouraging reuse, repair, re-manufactures and resource-efficient design
- controlling trade in ozone-depleting substances and cooperating on environmentally friendly alternatives
- preventing pollution from shipping and cooperating on addressing marine litter, including plastics and microplastics
- promoting conservation (including of sharks, turtles, seabirds)
- tackling subsidies that contribute to overfishing and enforcement to deter illegal fishing
- conserving biodiversity and to tackle illegal trade in wild flora and fauna
Including sustainability goals is not a new departure in free trade agreements, but there is a real commitment to enforcing them by making them essential conditions for both parties.
For example, within the EU’s Fit for 55 Green Deal, to help the EU reach their goal of carbon neutrality by 2050, they have implemented The Carbon Border Adjustment Mechanism CBAM, an EU initiative to mitigate climate change and prevent the risk of carbon leakage.
CBAM has several objectives and potential benefits:
Climate Goals: It helps to reduce carbon emissions associated with imported goods, contributing to the host country’s climate goals and reducing the risk of carbon leakage (i.e., companies moving production to regions with laxer environmental regulations).
Level Playing Field: It creates a level playing field for domestic industries subject to stringent climate regulations. This prevents the competitive disadvantage of domestic producers who must comply with stricter environmental standards.
Economic Incentives: CBAM can incentivise foreign producers to adopt cleaner and more sustainable production processes to avoid or reduce carbon tariffs.
It is important to note that this will affect EU and non-EU companies caught in the scope of CBAM, including exporters, importers and EU Customs representatives. CBAM entered into operation on the 1st of October, 2023.
The world of international trade is recognising its responsibility to reduce waste and promote sustainability. But it’s also going further. Trade and cooperation in green and low-carbon technologies is a crucial aspect of efforts to prevent climate change, the solution is not less trade but more responsible and sustainable trade.
