Understanding the Future of Canada-UK Trade Relationships in a Circular Economy Context

Background: The UK will develop new trading relationships after separating from the European Union (EU). Although the Comprehensive Economic and Trade Agreement (CETA) between Canada and the EU will remain in effect with the UK over a transition period post-Brexit, a new Canada-UK trade agreement could eventually replace it. Furthermore, any new international trade agreements are an opportunity for developing a worldwide circular economy, eliminating waste while supporting social justice. Thus, the new trade agreement between Canada and the UK could be precedent-setting in regards to engendering a worldwide circular economy. Objectives and Methodology: Through a literature review focusing on academic journal articles, this report investigates existing trade theory and trade agreements regarding circular economy principles to inform the design and implementation of future trade agreements between Canada and the UK, post-Brexit. This report identifies gaps in that knowledge base and recommends future research that may facilitate Canada-UK circular economy trade. A recent OECD report lays out a framework conceptualizing the potential usefulness of circular economy trade and calls for more research on the subject (Yamaguchi, 2018). The report proposes various linkages or interfaces along international value chains where circular economy dynamics could be facilitated by international trade. This coincidence of similar thought between the OECD and the researchers of this report implies the importance and relevance of research into the role trade may have as part of a global circular economy. By primarily reviewing existing academic literature, we provide an overview of five themes consequential for the design and implementation of circular economy trade agreements including: 1) inputs to trade agreement design such as the experience with CETA, design elements of circular economy trade agreements in respect of, 2) governance, 3) and tariffs and non-tariff barriers, and some outputs of circular economy trade as related to, 4) technology and cross-border trade also leading to, 5) sustainability and prosperity. A conceptual framework pictorially shows the linkages among this report’s themes. A literature review was conducted from both Canadian and UK perspectives. As well, researchers from both countries found experts across government, academia, and industry to validate and provide feedback on a draft version of the review. These experts, acknowledged in a list in an appendix, were asked to read self-selected sections based on their expertise. In some cases, the interviewees voluntarily read the entire draft. Their helpful and voluntary anonymous feedback has either been incorporated into the report as changes to the draft document or included as combined and summarized bullet point comments in an appendix. After finalizing the report as the main output of this endeavor, the researchers created a list of the key takeaways and gaps in literature important for moving ahead with UK-Canada circular economy trade post-Brexit. Some highlighted takeaways are mentioned in this executive summary and in the conclusions section. Because this work is extensive, the appendix holds a more comprehensive list of takeaways and research questions. Results and Key Messages: In regards to identifying key takeaways and gaps in the literature for the eventual development of a post-Brexit U.K.-Canada trade agreement that includes circular economy principles, this summary highlights key messages and suggestions for future research. Overall, we found recognition in the literature and in interviewee responses that a future UK-Canada trade agreement could support circular economy trade. Sustainable aspects of the Canada-Europe trade agreement (CETA) could represent a foundation. However, the CETA chapters regarding sustainability do not explicitly refer to the circular economy and any future trade agreement might review and revise sections to include circularity. In a future bilateral trade agreement, additional consideration for resource and waste management, as well as design collaboration is required. Science-based case research could clarify the full cost environmental impact of activities such as resource and waste management in the context of trade. An evidence-based understanding of such activities in a global circular economy trade context is not readily available. Moreover, evidence for the gains from circular trade could be addressed in future research. This same research could first establish a baseline with an investigation of the existing dynamics between Canada, the U.K., and other countries and then investigate how a circular economy approach could be motivated. Another suggested area of study is the examination of negotiating conditions for circular economy trade. For example, the structure of the working groups involved in the negotiations could facilitate or hinder increasingly complex negotiations. Also, stakeholder interests and representation in negotiations is an important area of consideration. This issue has arisen in the past as related to difficulties in the adoption of terms governed by subnational levels when they have not been satisfactorily represented in negotiations. Moreover, research could clarify which industries are most prepared to engage in circular economy trade to increase the likelihood of implementation. How the negotiations could best include industry representatives could be incorporated into stakeholder research. For example, advanced manufacturing may be of strategic interest to both nations and this industry influenced by ISO standards may embrace waste reduction and increased efficiencies and cost savings in processes. Negotiations should also focus on the clarity of the agreement and enforcement mechanisms. Terminology and transparency are crucial elements in future international trade agreements between the UK and Canada. For example, a common understanding of circularity must be consistently communicated and applied across industries and between countries. In addition, negotiations should take into account both a formal trade agreement and complementary non-trade treaties. Also, negotiators should be cognizant that well-structured trade agreements can lead to reduced trade volatility through tighter integration of the respective economies. Furthermore, the complexity of issue linkage in trade agreements would likely increase when incorporating circularity across industry sectors and countries so this needs consideration. The clarity of the agreement and the ability to enforce it is also in tension with complex issue linkages. Ultimately, both sides will want to develop scenarios for how negotiation strategies could lead to gains from trade and foreign direct investment across sectors. Finally, a common view discovered through the interviews is that countries do not typically add new terms to trade agreements unrelated to existing national agendas and activities. Thus, a circular economy trade agreement is unlikely unless all parties to the agreement are already on a path to waste reduction and sustainability. Such agreements may formally reinforce and normalize a global circular economy.