The circular economy aims to decouple economic growth from the consumption of finite resources by reducing waste and scrap, in part by reinserting them into production processes. International trade can play a key role in this process. Advancing the global circular economy agenda requires an understanding of its linkages with other dimensions of the global production system. International trade can play a central role in speeding up this transition, especially in terms of fostering economies of scale, leveraging foreign direct investment (FDI) and promoting innovation and technological development.
Various trade flows can be directly linked to different circularity strategies. These include trade in secondary raw materials, in waste and scrap for recovery, in goods for refurbishment and remanufacturing, in second-hand goods and in services.1 Circular economy-related trade can help diversify a country’s export basket while at the same time creating economies of scale, making such trade a more viable option.2 Urban mining initiatives, for example, improve e-waste management while creating value from the recovered metals. Likewise, agricultural-based economies can utilize organic waste and by-products to produce biofertilizers or biostimulants, thereby closing biological loops and simultaneously generating new income streams.
Furthermore, the blurring of boundaries between the physical and digital world strengthens the linkages between the circular economy and international trade. In this context, trade in services assumes an increasingly important role,3 not only in services that traditionally fall within the scope of the circular economy, such as eco-design, research and development and repair maintenance, but also in those services arising from innovative circular business models enabled by the Fourth Industrial Revolution. Industry 4.0 technologies promote product dematerialization and new ways of conceiving ownership, such as product-as-a-service schemes and product-sharing platforms, with the ultimate aim of achieving more sustainable consumption and production patterns, which lies at the heart of Sustainable Development Goal-12.
Trade flows in waste can serve as valuable resources for production
International trade in industrial waste has grown faster than total trade (8.8 per cent vs 7.0 per cent, respectively, per year on average between 2002 and 2019). Within a linear production system, growing trade in non-valuable scrap and waste exacerbates environmental damage and may represent unfair trade practices, such as dumping of textile and clothing from developed to developing regions which often have weaker regulations. However, increased trade flows of industrial waste may present an opportunity for the circular economy to the extent that these materials can be a valuable input for production processes in other countries. The dynamics of trade in scrap and waste reveal an urgent need to transform these flows into valuable resources for production through the adoption of circularity practices, technology, economies of scale and regulations.
The European Union (EU) and North America are the world’s main waste exporters (first figure below), while the EU and Asia are the biggest importers (second figure below). Not all waste moves from developed to developing regions “in a linear way”, as waste trade clusters depend on “commercial routes, reverse logistics, geographic proximity or trade agreements.”4 Regions that heavily rely on primary resource exports, such as Latin America and the Caribbean, could benefit from the creation of regional hubs or circuits for material valorization, strengthening the resilience of their value chains.5
Minerals and metals represented 78 per cent of globally traded waste, with other types of waste accounting for the rest (figure below). This concentration reflects the high recycling rates and value capture of these products compared with other waste types.
Global trade in all types of waste exhibited positive growth from 2002 to 2019 (figure below), evidencing that there is a market for these products.
Some industries have greater potential for circularity than others, implying that secondary materials cannot replace primary production on a one-to-one basis.6 The production and consumption of goods with a low recyclability potential should therefore be disincentivized. Moreover, some circular economy-related trade flows cannot be accurately accounted for in trade statistics due to a lack of tariff lines for “refurbished”, “remanufactured” or “used” goods. The magnitude of circular economy-related trade flows is therefore underestimated.
Trade policies need to include circularity principles and objectives
From 2009 to 2017, the WTO identified 370 trade measures related to circular economy objectives, focused primarily on recycling.7 Overall, trade policies and national circular economy agendas intersect on environmental improvements. Implemented and proposed strategies by WTO member countries depend on their level of development. Many developed countries are promoting shifts to green and circular models, while developing countries have adopted defensive measures that mainly focus on imports, such as waste trade bans.8 Some developed regions’ actions, such as the EU’s “Farm to Fork” strategy, may pose challenges and trade barriers for the Global South. Developing regions should therefore be forward-looking and implement proactive policies that facilitate access to demanding markets while increasing value added and the competitiveness of local industries.
Trade should be mainstreamed across different circular economy-related instruments, hence making trade policies play a pivotal role in boosting the circularity agenda. This would enhance sustainable trade strategies in line with countries’ export profiles and the trading partners’ environmental demands. Successful transition towards the circular economy requires coherent policies that cover areas such as trade, manufacturing and innovation.
The scope for trade in circular goods depends in part on trade-offs between incentives and disincentives
Several factors are holding back the potential contribution of international trade towards the circular economy. These include a lack of agreed definitions, common standards and vague trade classifications. Moreover, technical barriers and regulations limit the marketability and valorization of certain circular economy-related goods. In this context, specific trade instruments, such as dynamic pricing (based on carbon footprint), or certifications and standards that incorporate circularity principles could boost the potential of the circular economy and trade nexus.
Relevant research areas on the intersection of trade and circular economy include trade in waste and scrap; the role of different regions in secondary raw material markets; best governance practices and the role of trade in facilitating the transition towards the circular economy.
The scope for trade in circular goods partly depends on trade-offs between incentives (economies of scale, comparative advantage, technology) and disincentives (carbon footprint, missed opportunities for local industries). In this context, new governance models, international cooperation schemes and Fourth Industrial Revolution technologies could contribute to increasing traceability and transparency in trade in waste and as such promote an SDG-oriented circular transition.
Disclaimer: The views expressed in this article are those of the authors based on their experience and on prior research and do not necessarily reflect the views of UNIDO (read more).
- Yamaguchi, Shunta. (2018) International Trade and the Transition to a more resource efficient and circular economy: A Concept paper. OECD: Paris.
- Mulder, Nanno; Albaladejo, Manuel; Mo, Macarena; Olmos, Macarena; Dante, Patricia and Mirazo, Paula. (2021) International Trade and the Circular Economy in Latin America and the Caribbean. Inclusive and Sustainable Industrial Development Working Paper Series 3/2021. ECLAC-UNIDO: Vienna.
- Tamminen, Saara; Sell, Malena; Forslund, Tim; Tipping, Alice; Soprana, Marta and Christophe Bellmann. (2020) Trading Services for a Circular Economy. International Institute for Sustainable Development: Winnipeg.
- Pacini Henrique and Ni Yeoh Tze. (2021) Success of circular economy hinges on better governance of 'waste trade'. UNCTAD.
- Mulder, Nanno; Albaladejo, Manuel; Mo, Macarena; Olmos, Ximena; Macarena; Dante, Patricia and Mirazo, Paula. (2021) International Trade and the Circular Economy in Latin America and the Caribbean. Inclusive and Sustainable Industrial Development Working Paper Series 3/2021. ECLAC-UNIDO: Vienna.
- Zink Trevor and Geyer Roland. (2017) Circular Economy Rebound Effect. Journal of Industrial Ecology, 21:3, 593-602.
- Steinfatt Karsten. (2020) Trade Policies for a Circular Economy: What can we learn from WTO experience? WTO Staff Working Paper, No. ERSD-2020-10. World Trade Organization.
- WTO. (2020) Communication on trade in plastics, sustainability and development by the United Nations Conference on Trade and Development (UNCTAD). JOB/TE/63. Geneva: WTO Committee on Trade and Environment.