Submission: Transform Trade to the UK International Development White Paper consultation, September 2023

Question 1.

How do partnerships need to change to restore the credibility of international development and the multilateral system and regain the trust of Global South?

What role should the UK play in this and what specifically should we do differently?

What should we do to ensure we are listening better to those most in need?

Transform Trade welcomes UK recognition that trade has an important role in supporting the delivery of commitments such as the Sustainable Development Goals and the Paris Climate Agreement.[1] Building on this, the UK has a unique opportunity to provide global leadership by developing best practice in its bilateral trade relations with Global South (GS) countries and in championing international development and climate goals at the World Trade Organisation (WTO).

This will require coupling meaningful dialogue with GS countries to understand their priorities with the delivery of concrete outcomes.  

Governments and communities from the GS have already identified the areas below as priorities. To show that it is serious about rebuilding trust, the UK should:

1.       Deliver against GS countries’ priorities at the WTO including: finding a permanent solution to the Public Stockholding for Food Security agreement, improving the Special Safeguard Mechanism, addressing market access and capacity issues for the Cotton 4 countries and a permanent TRIPS waiver for LDCs. WTO climate measures must be designed in a way that is supportive of GS priorities and development goals.

Dissolve or renegotiate Economic Partnership Agreements (EPAs). GS countries have repeatedly stressed that these are neither priorities nor the right models for them, most recently both Kenya and Ghana had hoped the UK would use its exit from the EU as an opportunity to cancel their EPAs and develop a new relationship. GS countries’ concerns include the speed of liberalisation,  negative impact on regional integration, a key driver of economic development, through arbitrary and unhelpful geographic groupings, restrictive rules of origin clauses and ‘sunset clauses’ that could force negotiations on issues that GS countries are not ready to include. Further, non-LDCs had to agree EPAs without their neighbours or risk losing preferential tariff access across key product lines, which risks undermining regional customs unions by increasing border checks and increasing tensions and fragmentation.[2]

Longer term, the Government should develop unilateral regional preference schemes for all countries within regions with high concentrations of LDCs, until countries in these regions are ready to negotiate regional trade agreements, this would for example support trade between Kenya and Cote d’Ivoire  with their neighbours.

Remove Investor-to-State Dispute Settlement (ISDS) from all bilateral agreements and seek side letters with CPTPP partners to remove the provisions.  There is a significant amount of research that shows ISDS cases disproportionately affect countries in the GS: three quarters of cases filed were against developing or transition economies.[3] GS countries can ill-afford the significant costs of defending ISDS cases or paying awards. The evidence as to whether ISDS stimulates foreign investment is inconclusive, while the termination of ISDS has not negatively impacted countries’ FDI inflows.[4],[5] Ending UK support for ISDS would signal to GS countries that the UK is ready to change its approach and remove the threat of financial penalties for sovereign policymaking decisions. 

Question 2.

What are the specific innovative proposals that can accelerate progress in international development?

What initiatives, policies, partnerships, or technologies could result in accelerated progress?

Are there big ideas on which the UK is particularly well placed to play a role?

Getting trade and investment relationships right will be critical to achieving international development goals. In terms of value, trade in goods and services is more significant than UK overseas development aid (ODA). Between 2017-2022 UK exports to non-developed countries were worth over £90bn[6], with UK imports from countries in the Generalised Scheme of Preference being worth over £21bn each year.[7],[8] This is compared to the estimated £3bn the UK spent in 2022 on direct bilateral ODA for developing countries, or the £8bn spend on multi-nation institutions for overseas development efforts.[9] At the same time, trade agreements are both binding and enforceable, whilst the SDGs and climate agreements are for the most part neither of these things, making it even more important that commitments are fully aligned.

Voluntary standards have not delivered results at the scale or pace that is needed if the UK is serious about delivering on its commitments.[10] The UK should therefore demonstrate its willingness to get its own house in order by:

1.       Committing to a new Business, Human Rights and Environment Act. The 2022 Law Commission Corporate Criminal Liability report recognised that the UK’s legal framework is currently not fit for purpose in holding large companies with complex governance structures to account.[11] It proposed that a new “failure to prevent human rights” offence should be established, which would mirror the successful approach taken under the Criminal Finances Act 2017.

2.      Introducing a new Garment Trading Adjudicator to lead the way in redressing power imbalances in garment supply chains. Like in the food supply chain, retailers in the garments supply chain often have significantly more power than their suppliers. There has been evidence, over a number of decades, of the garment industry subjecting suppliers to unfair purchasing practices, with the trade impacts of Covid compounding the impacts of brand/retailer’s purchasing practices on suppliers and workers. We recommend the introduction of a Garment Trading Adjudicator to ensure large clothing retailers/brands abide by a Statutory Code which would include a Principle of Fair Dealing, similar to the Groceries Code Adjudicator.[12]

3.      Extending the remit of the Groceries Code Adjudicator (GCA) to have a more direct impact on the lives of smallholders in the Global South. The GCA was established to ensure that the largest food retailers can’t offload risk onto their suppliers, and should have its scope extended beyond Tier 1 (direct) suppliers, to all parts of the supply chain, including farmers, to stop unfair trading practices.

 

Question 3.

What new ideas for development cooperation would make the biggest impact in, or for, low income countries?

What are the best ideas to accelerate progress for middle income countries which still have large numbers of poor people?

There needs to be a holistic approach to development, to address the systems which entrench inequality and poverty. That means focussing on policies which have the biggest impact on development such as trade & investment. As outlined above, the sums involved in trade with countries in the GS dwarf the amounts involved in aid spending. The UK Government must therefore ensure that there is coherence between its approach to development, trade and climate change and find ways to support improvements in business practices. As part of this, it should support civil society in the global south with on the ground experience and expertise in their field, who are also advocating for certain freedoms or better access to human rights, better working conditions or accessible healthcare.

Whilst the Integrated Review gave a sense of the overall direction of travel and major issues facing the UK internationally, it fell short of a clear strategy that set out how the UK will align its trade, development and climate policies. The UK should develop a strategy which would, for example, help it to prevent the ongoing findings that its trade agreements are not in alignment with its climate ambitions because they not only do not contribute to emissions reductions but are predicted to lead to increases.

Question 4.

How can Official Development Assistance (ODA) be most effectively targeted and built upon?

How can non-ODA financing be mobilised to ensure ambitious, innovative, and transformational international development?
 

Although ODA and development finance cannot in and of themselves tackle inequality and combat climate change globally, there are ways in which the UK could improve its ODA targeting and development financing, including (but not limited to):

1.       UK Aid for Trade (AfT) should be more effectively targeted to the most vulnerable in low and middle income countries. The recent Independent Commission for Aid Impact (ICAI) review of UK AfT found that ‘while many objectives are being met, there is not enough focus on ensuring aid for trade  benefits the poor’. To improve AfT, the UK should implement the recommendations of the ICAI review.[13]

2.      Financing mechanisms should be developed which underpin trade justice. For example, the Danish International Development Agency has an established challenge fund, ‘Danida Green Business Partnerships’. Unlike British International Investment, Danida is a grant making fund which resources ‘market-driven green transition and inclusive economic growth in developing countries’ in line with their development cooperation strategy. It is crucial for this type of work to be driven by the private sector with meaningful civil society involvement (both international and local) for impact and accountability. The UK is well-placed to resource market-driven solutions particularly with key trading partners and in major import areas where there are large numbers of people experiencing injustices in trade (such as clothing, food and drink, and precious metals).

An additional example is the Belgian Development Agency’s Beyond Chocolate Partnership. This is a co-financing fund for projects in Belgium's cocoa supply chains to improve living standards and incomes of smallholder cocoa farmers, as well as tackle environmental degradation. Partners make commitments to sustainability in their supply chains, and include chocolate sector companies, retailers, investors, certification programmes, trade unions, academia, and civil society. Partners can access grant funding to partially fund projects to achieve these aims. FCDO could work with the private sector and trade-focused civil society to identify supply chains key to the UK market and develop a financing mechanism to fund/co-fund projects which deliver social and environmental outcomes through trade.

Question 5.

How should scientific and technological expertise, private finance and the private sector, trade and investment, civil society networks and diplomacy be engaged to support global development action and accelerate progress towards the SDGs?
 

The Government should introduce a comprehensive and cross-departmental (FCDO, DBT, Treasury, DESNZ at minimum) UK trade strategy that is fully aligned with the UK’s commitments on human rights, the Sustainable Development Goals (SDGs) and climate - at present they are often in conflict. Each of these policy areas is integral to advancing fairer and climate-resilient systems globally.

We recommend that a UK Trade Strategy should:

1.       Set clear parameters, with set objectives articulating how trade policy, including investment policy and trade agreements, will support SDGs, climate ambitions and internationally recognised human rights.

o   Commit to only passing trade agreements which respect GS governments’ needs to make domestic policy changes to achieve their climate goals, safeguard their citizens’ human rights, health, social security, food security and livelihoods.

o   Conduct thorough, independent risk assessments of all trade agreements and trade and development-related policies, in a timely fashion so that the assessments shape policy decisions and negotiations, to curtail any negative consequences of trading relationships.

o   Recognising that developing countries are the most vulnerable to climate change, commit to phasing out fossil fuels and create a red line for agreements that would increase emissions.[14] Deliver on its commitments to technology transfer under the Paris Agreement by designing Intellectual Property Provisions to support this ambition. The UK should seek to replicate provisions in the UK-EU TCA and the UK-New Zealand FTA that make climate an essential element and commit partners to ending unabated coal-fired electricity generation.

2.      Commit to greater scrutiny of trade deals and trade policy, through increased parliamentary and civil society engagement. The UK’s current provisions have been identified by five separate parliamentary committees as being wholly inadequate. The UK in this instance is modelling poor practice where it could be providing leadership. If the UK wants to be taken seriously in international conversations about governance, it must make urgent changes in this area.  

3.      Promote fair and equitable value chains: UK trade relations with developing countries can and do impact the lives of the poorest. There is evidence of UK companies can engage in unfair purchasing practices which put pressure on supply chains, making it impossible for suppliers (and other types of business partners), to offer decent working conditions and income for workers.

Question 6.

How can progress on tackling ending poverty, economic growth, and the challenges of climate change be best brought together, in the context of Agenda 2030 (including building resilience, adaptation, and sustainable growth)?

How can the opportunities be maximised? How can the limits and trade-offs be managed?

1.       The UK should end its support for fossil fuels through domestic policy, trade agreements, and international investments. Efforts made by Government to curb climate change will have positive knock-on impacts on developing countries, by reducing the risk of further catastrophic climate-related disasters. Care must be taken that measures such as Carbon Border Adjustment Mechanisms are not designed in a way that penalises developing countries. Instead, the UK should support and incentivise sustainable transitions in energy, farming and other sectors, while focussing its efforts on cutting emissions caused by UK economic activity.

2.      Despite some progress, these efforts are undermined by the new FTAs signed after the UK left the EU. The UK’s own impact assessments routinely show an increase in emissions as a result of its proposed trade agreements. For example, the UK-Australia FTA could contribute to greenhouse gas emissions, at around 0.1 and 0.3 MtCO2e each year’. It has been suggested that this is not a significant increase, however it is not in line with the signficant decrease that is required to meet climate goals. In addition the methodology does not include significant sources of emissions, including livestock, setting a concerning precedent for UK FTAs.

3.      The UK should leave the Energy Charter Treaty (ECT). It contains in it an ISDS mechanism, which allows fossil fuel companies to sue governments for policies which reduce fossil fuel use. The IPCC highlighted the ECT as an impediment to progress on climate.[15] Several of the UK’s allies, including Germany and France have recently announced that they are leaving.[16] The UK should also cancel all its bilateral/international agreements which contain an ISDS clause.
 

4.      The principles of ‘Common but Differentiated Responsibilities’ (CBDR) and ‘Special and Differential Treatment’ (SDT) are integral to international climate and trade agreements.       The UK Government should therefore consider carefully its climate-related trade policies to ensure they don’t have unintended consequences:

The UK should develop meaningful exemptions for GS countries from any proposed Carbon Border Adjustment Mechanism, including criteria such as overall level of development and emissions, as it could undermine their development objectives as well as UK relations with those countries.

Research forecasts that the EU CBAM could cost Africa the equivalent pf $25bn at 2021 GDP levels, a significant amount in comparison to the $100bn of finance for the Global Climate Fund.[17] In the case of Mozambique, the EU CBAM will impact workers in the aluminium sector, and could undermine the country’s ability to decarbonize due to a loss of revenue. Mozambique has also received low levels of international climate finance, despite being one of the most climate vulnerable countries[18], and struggling with crippling levels of debt.[19]

Estimates suggest a global average of 2.5 tons per capita is needed to keep warming to 1.5 degrees.[20] By this measure, African countries, at around 1 ton per capita, have not only met their commitments, they have room to grow to support development ambitions. It would go against CBDR to penalise a country based on relatively higher emissions in a single sector.[21]

Question 7.

What are the top priorities for strengthening multilateral effectiveness in international development?

What are the issues and challenges most suited to bilateral cooperation (considering all levers)?

The design of future and present FTAs and EPAs should be strengthened to support development in a more meaningful way. They should aim to:

·        Support efforts to promote regional trade for developing countries, particularly in vital goods and services, such as agricultural commodities to support resilience against global price shocks.

·        Include flexibilities and waivers for developing countries, including for intellectual property requirements for pharmaceutical and environmental technology.

·        Ensure that GS countries ensuring developing countries are able to engage in the more lucrative processes in supply chains, rather than being locked in lower-value production.

·        Include a commitment to monitoring the impact of the FTA on GS countries, including their preferential access to parties’ markets, and thresholds and steps for action if impacts are observed.

·        Include a commitment to increase the voice of developing countries in all trade negotiations, including at the WTO.

Question 8.

Are there any other points that you would like to highlight for this White Paper?

Through its trade policy, we recommend that the Government supports development through:

1.       Accountability: at present protections for investors and businesses participating in global value chains are prioritised over protections afforded to citizens. This needs to change. For instance, Investor State Dispute Mechanisms (ISDS) allow companies to sue governments if their profits are hindered by domestic law.

Mechanisms which hold businesses operating in the global South to account are vital to ensure that power imbalances are redressed. This could be in the context of purchasing practices between businesses in the global North and global South, or it could also apply to company practices which result in the abuse of human rights or environmental harm. Two concrete steps the Government can take are:

·        Introducing a Fashion Watchdog to improve the purchasing practices of fashion and textile businesses.

·        Introducing a Business, Human Rights and Environment Act to introduce accountability and due diligence along global supply chains.

1.     Enabling:  GS countries should be afforded the policy space to allow their economies to flourish, without having to pursue free trade at all costs. The UK Government could play a key role in enabling low and middle income countries to do this, through a range of measures:

·        Renegotiate or wind down Economic Partnership Agreements with these countries, to allow for regional trade to flourish.

·        Support the reform of multilateral institutions so that:

o   Low- and middle-income countries can’t be trapped in a perpetual cycle of debt.

o   Vital goods and services such as food, healthcare, water and energy aren’t compromised by commercial interests to the detriment of citizens.

2.      Greening: the UK Government can play more of a leadership role in tackling climate change, and helping to facilitate climate adaptation in low and middle income countries. In trade and investment policy terms, this means:

·        Ensuring that any current or future UK trade and investment agreements are aligned with climate commitments and do not contribute further to climate change.

·        Pursuing trade policies which incentivise decarbonisation in the global South, rather than penalising them. This includes exempting low income countries from any future Carbon Border Adjustment Mechanism.

[1] https://www.gov.uk/government/collections/the-integrated-review-2021

[2] The UK Government further chose not to replicate the EU’s Market Access Regulations (MAR) that allowed continued access for non-LDCs yet to ratify an EPA, with the loss of preferences for Ghana before the agreeing of its EPA costing banana exporters hundreds of thousands of pounds. Banana Link, ‘Ghana signs post-Brexit trade deal with UK’, 2021

[3] Transform+Trade+People+Centred+Trade+research+report.pdf (squarespace.com)

[4] Brada, J.C.; Drabek, Z.; Iwasaki I., “Does Investor Protection Increase Foreign Direct Investment? A Meta-Analysis”, Wiley Online Library (2020).

[5] Mehranvar, L.; Sadmal, S., “The role of investment Treaties and Investor-State Dispute Settlement in Renewable Energy Investments”, Columbia Center on Sustainable Investment (2022); See also, Di Salvatore, L., Bernasconi-Osterwalder, N., Schaugg, L., “Despite consensus on the ECT’s incompatibility with the global climate agenda, claims that are well-suited for the clean energy transition persist”, Investment Treaty News 3(12), IISD (2021), p. 19

[6] Rough calculation based on data from the Office of National Statistics 2023: UK trade - Office for National Statistics (ons.gov.uk). ‘Non-developed countries’ classified using UN Country Classifications 2022 World Economic Situation and Prospects 2022 (un.org)

[7] The UK government’s strategy for international development - GOV.UK (www.gov.uk)

[8] Excludes countries with developing country status in the WTO which are not part of the Generalise Scheme of Preference.

[9] UK foreign aid being spent in Britain passes £4bn mark, experts say - BBC News

[10] Social Audit Reforms and the Labor Rights Ruse | Human Rights Watch (hrw.org)

[11] Law Commission sets out options to Government for reforming how companies are convicted of criminal offences  - Law Commission

[12] https://www.gov.uk/government/publications/groceries-supply-code-of-practice/groceries-supply-code-of-practice

[13] UK aid for trade - ICAI (independent.gov.uk)

[14] Sub-Saharan Africa under threat from multiple humanitarian crises | UN News

[15] https://www.ipcc.ch/report/sixth-assessment-report-working-group-3/

[16] GJN_EnergyCharterTreaty-parliamentaryBriefing_June2023.pdf (globaljustice.org.uk)

[17] AFC-and-LSE-Report-Implications-for-Africa-of-a-CBAM-in-the-EU.pdf

[18] https://www.germanwatch.org/en/19777

[19] https://debtjustice.org.uk/blog/the-mozambique-debt-scandal-the-storm-before-the-storm

[20] https://www.sgr.org.uk/projects/living-targets-additional#:~:text=On%20average%2C%20everyone%20in%20the,1.5%C2%B0C%20temperature%20goal.

[21] https://www.statista.com/statistics/205966/world-carbon-dioxide-emissions-by-region/