A study conducted by de Lange, Sheeran and Walsh (2018) concluded that a Canada-UK trade agreement could successfully encourage the transition towards a Circular Economy (CE). A Canada-UK Circular Economy Trade (CET) agreement could be the first of its kind to apply CE concepts within international trade policy, potentially establishing a competitive and progressive advantage for both economies. Policies implying a transition towards a CE are currently in place at a national level in China, Finland, France and the Netherlands but its concepts are yet to be successfully integrated into a trade agreement (McCarthy et al., 2018). The Ellen MacArthur Foundation (2013) estimated material savings of 340 to 380 USD billion per year in Europe with an early CE transition in effect, with similar benefits expected to be realized in the Canadian & UK economies.
Circular Economy Trade
The term “Circular Economy Trade” (CET) refers to international trade within sustainable global value chains which are fundamental to a transition towards a global Circular Economy (CE). It implies that products and services are designed with cross-border recovery capabilities, produced along with CE principles and traded through sustainable CE transport methods. CET also refers to the equalization of material quality standards, development of demand driven second-hand good industries and removal of unnecessary trade barriers (Yamaguchi, 2018).
Often, once a product’s property rights are transferred from the supplier to the buyer, it is up to the consumer to realize its life-time use and proper disposal, providing producers no incentive to consider the design impact on the after-life of their products. A solution to this within a trade agreement could be setting a standard on the design of products and services to ensure they can be recovered economically within and outside of the producing country. Collaboration and cooperation on CE initiatives between the producers and buyers across borders and industries could support the global transition. Similarly, trade in products that do not align with CE principles could be regulated by introducing tariffs and penalties towards them. To accelerate the CE transition, penalties addressed in a trade agreement could be based on the recovery level of the product. For example, if 95% of a car is recyclable, the non-recoverable 5% would be subject to an additional tariff or penalty. A solution to calculating and accounting for the recovery rate of each individual good could be the assignment of classes towards specific goods based on their recovery rates.
Since a large portion of export flow from Canada to the UK is in natural resources such as gold and diamonds, a CET agreement could acknowledge the sustainability repercussions of natural resource mining in Canada and include improved regulation to minimize the impacts. Next, trade between Canada and the UK could undertake the principles of Circular Economy Supply Chain Management (CESCM) to take advantage of new arising opportunities from more sustainable, green logistics chains. A CET agreement could provide incentives for shipping companies to use fewer polluting fuels such as LNG, SVO and biodiesel (Gilbert et al, 2018). Likewise, a CET agreement could enforce standards on the percentage of shipping fuels sourced from renewable fuels used for trade between Canada and the UK.
Service Economy and Digital Trade
As a result of a transition toward servitised business models (BM) and a change in goods composition, international trade in services is growing 60% faster than in goods (Lund et al, 2018). By investigating the changing dynamics of global value chains, The McKinsey Institute found that products are becoming increasingly bundled with service while more diluted borders allow for increased market access and fewer information asymmetries (Lund et al, 2018). Similarly, a transition towards a CE often implies the development of “product as a service” business models. With the global shift from product to service trade, a CET agreement could further provide present incentives for companies to operate cross-border servitised business models. Since servitised models rely more-so on digital technologies and cross-border data flows, it is important that a CET agreement integrates new policies towards digital trade that complies with security standards within both countries while continuing to facilitate a CE transition.
Carbon Taxation
With Canada’s planned increase in CO2 pricing, a tonne of C02 emission will reach approximately equivalent bevels as the UK by 2020, ($30 CAN equating to about £16), if the UK does not increase the price of carbon. To avoid providing one partner with the competitive advantage of producing carbon intensive goods in the future, the importance of equalization of carbon pricing within a CET agreement could be discussed. Although the addressed variation across Canada would present challenges in integrating such propositions, a trade agreement negotiated with active participation of all provinces could expose a province-customized alternative. With evidence pointing to the lack of effective environmental policies in the aviation industry, a CET agreement could include a section on aviation taxation or additional environmental incentives for airlines to lessen their environmental impacts. An example of this could be biofuel quota obligations. Such policy currently exists in Norway, where by 2020, at least 0.5% of the fuels used for aviation must come from advanced biofuels. The goal is to reach 30% by 2030 (Norwegian Ministry of Climate and Environment, 2018). A similar goal may be outlined with a Canada UK CET, with further consideration of the impacts of increased biofuel production, making sure to avoid the rebound effect with any goals as such in place.
Waste Management
Contrary to the current realities of the recycling industries in Canada and the UK, the CE models operates on a basis where recycling, upcycling and refurbishment present opportunity for profitable business models. It is becoming increasingly important to have collaboration and knowledge sharing to foster the development of material recovery technologies that provide for more economically attractive means of goods transformation. If a CET agreement were to be enforced, recycling and waste processing industries could see significant growth, resulting in new job opportunities and more competitive means of processing. As these industries develop, we could observe a shift from trade in finished, first time use products towards more trade in secondary goods. To encourage such development, a trade agreement could support mutual technology advancement and cross-border collaboration towards more effective waste management solutions (de Lange, Sheeran & Walsh, 2018). Since policies pertaining to landfill fees are established by regional, municipal or private authorities in Canada, participation and collaboration amongst all stakeholders is essential for the effective integration of waste management pertaining to Canada-UK trade. This could be reflected by an additional import fee for products made up of less than (for example) 50% of recyclable materials, paid directly to the provincial and municipal authorities for bearing of additional waste management costs. This could help in decreasing the inflow of waste to landfills and provide incentives for companies engaging in Canada-UK trade to design more recyclable and reusable products.
Conclusions
For any type of business or government to integrate CE strategies, there must be incentive and proof of financial profitability post-adoption. If CE principles increase cost without creating a direct benefit, stakeholders will be resistant to employing these strategies (Lieder & Rashid, 2016). Likewise, trading goods & services between Canada and the UK within a CET agreement should present economic advantages. Although the engagement of businesses and the general public is a significant part of the CE transition, governments have the greater power to create favorable trends to shape global and national market conditions, meaning that encouraging and instilling change is primarily in the hands of policy makers (Lacy, Keeble & McNamera, 2015). To ensure effective application of these CE trade policies, there should be participation and collaboration and interest towards a CET agreement amongst all stakeholders at provincial and national levels. Within a CET agreement, this could be done through the harmonization of material standards and design collaboration across borders and industries to provide incentives for products and services part of Canada UK trade flows to be designed with minimal waste and regenerative properties. Alternatively, a CET provides the opportunity to filter through goods that do not comply with CE principles through imposed regulations and restrictions or to apply penalties based on product recovery levels. Altogether, integrating CE principles into a trade agreement between Canada and the UK presents a unique opportunity to comply with the specific goals established under the commitments of the Paris Climate Agreement and establish a CET to be the first of its kind.
julianitz.com 
Leave a comment