Trade for a circular economy
Circular economy policies promote the maintenance, repair, reuse and recycling of materials and products as well as improving biological processes to maintain natural capital. In this article, we highlight how trade and trade policy can facilitate the transition to a circular economy.
A more resource efficient and circular economy is desirable to reduce the waste, emissions and pollution associated with the extraction, processing, production and disposal of materials. A more circular economy would also contribute to material security. International trade can improve efficiency through specialisation and economies of scale, for example in facilities that recycle and reprocess used materials.
Trade in services for a more effective circular economy
Services are of particular importance to a circular economy, for example recycling services and maintenance services help to reuse materials and extend product lifespans. International trade can spread knowledge, assist innovation, and leverage comparative advantages for circular business models in the services sector. Freer trade enables services exports and is thus a source of economic development. Furthermore, not all countries have the necessary knowhow or technology to process and transform waste into recycled (secondary) raw materials or products. Services imports can address these local skills gaps and enable circular economy initiatives.
Cross-border material flows for circular products
The connection to international trade is also apparent through international supply chains for goods. Rules on circular product design can for example specify how much recycled material must be used in products. This requires that companies track the materials used in the production of a good through their supply chains. This can create market access hurdles, for example for smaller enterprises or for companies in countries with less access to the IT equipment and skills necessary to meet requirements. Another connection is where barriers to trade in end-of-life products (waste) raise the costs of recycled or re-used goods. Trade barriers for waste are also problematic for schemes that encourage the return and collection of waste products.
Trade Policy
Trade policy can assist the transition to a circular economy through several channels:
Modernised rules for trade in waste materials
A National Board of Trade publication recommends simplifying trade procedures for waste batteries between trusted parties by amending or complementing the Basel Convention as well as increasing transparency and simplifying administrative procedures. Simplifying and harmonizing rules for transport of dangerous goods would also help encourage trade. Read more in our report Trade Rules for a Circular Economy – the case of used lithium-ion batteries
Easier trade in goods and services
Countries should aim to remove barriers to trade for goods and services of importance to circularity, for example leasing, maintenance, and repair services. This could be via multilateral or plurilateral initiatives in the WTO, through free trade agreements, or could be achieved by countries unilaterally removing barriers to services trade and removing tariffs on relevant goods. This report has more information: Trade and Climate Change – promoting climate goals with a WTO agreement
Common technical regulations
Regulatory convergence, the use of international standards, and harmonisation of technical regulations can reduce and prevent barriers to trade that emerge from national circular economy policies. There is potential to cooperate internationally on common definitions, quality standards, material content standards, product design, product passports and extended producer responsibility schemes. In the EU, several member states have introduced their own circular product labelling rules which can limit the ability of companies to sell the same product on different markets. The Commission and the member states should seek to align national and European labelling schemes with international standards. Read more in our analysis: Circular Economy Product Labels – will current EU harmonisation efforts reduce fragmentation on the Single Market?
Trade facilitation
A smooth flow of circular goods across borders can be promoted by introducing Authorized Economic Operator (AEO) schemes, using the WTO Trade Facilitation Agreement fast track procedures, and streamlining permitting systems. This could help reduce time consuming procedures for shipping end-of-life goods, transporting wastes, and help reduce delays for remanufacturing industries.