The circular economy – What’s trade got to do with it?

14 September 2018
  • Our current resource use is unsustainable – the circular economy provides a solution through its focus on behavioural change, resource and energy efficiency, and the closing of material loops.
  • The focus of the circular economy is on the full life cycle of products. In today’s globalised world, raw materials, technologies, products, components, waste, and services are produced and consumed in a web that spans the whole planet, frequently crossing borders.
  • Trade and trade rules inevitable affect and are affected by the transition to a circular economy. It is important to ensure that the rules support this transition. 

 

Over the last few years, a marked shift has been taking place in thinking around what constitutes a truly sustainable economy. A linear focus on producing, using, and discarding products is slowly being replaced. Instead, under a circular economy model societies are looking at solutions that maximise resource efficiency and minimise waste across product life cycles and the economy as a whole. The sharing economy – based on digital platforms – is part of this transition.

The circular economy embeds many familiar concepts, such as low-carbon, energy-, and resource-efficiency and goes to the heart of how we produce and consume. There is a spike in services content and jobs through processes such as servicing, reuse, and remanufacturing of goods to extend product life. Many countries, such as China, Finland, France, India, and the Netherlands, have adopted national circular economy roadmaps and implementation plans. 

However, the circular economy neither starts nor ends at national borders or company walls. This is where trade comes into the picture. We may have national circular economy strategies, but they exist in the context of a global economy and international value chains, as well as within our sole earth with its limited resources and planetary boundaries.

As the circular economy becomes more mainstream, what it actually means – and what it means for trade – needs to be clarified. Circularity is not just about recycling glass bottles and avoiding unnecessary plastic bags. It is about material cycles and systemic change, and as such needs to be analysed at the global level, including the flow of natural resources, products, and services, and the energy that fuels our economies. The second World Circular Economy Forum (WCEF) in Yokohama, Japan, will bring together circular economy thinkers and doers, and will include a session on trade.

The product life cycle in a circular economy

Over the last year, China’s import bans on waste have raised questions and focused attention on the circular economy and trade rules. However, waste is only a consequence of how we use natural resources through the whole life cycle of products. When targeting the reduction of waste, we have to start from the beginning of the cycle.

Material development, product design, and industrial processes play a key role when targeting a transition to a circular economy. To diminish waste of materials and natural resources we also need to change our habits, shifting from the acquisition and consumption of goods to services.

With wise waste policy, waste can be turned into a valuable resource – whether used domestically or exported as a secondary raw material.

One driver behind the circular economy concept is the long-term supply of and access to dwindling natural resources. Once security of supply is at stake, this will focus attention on both circular economy solutions and related trade elements. The risk of export restrictions increases. At the same time, extracting secondary materials becomes more viable and interesting, driving new technological developments.

Technology and technical standards

Improved industrial processes, product design, and recyclability of materials are important elements of a circular economy. Eco-design is growing in importance. Here too, a life-cycle approach provides the keys to success. For example, the interface with chemicals management and regulation becomes a central consideration. For products that contain toxic elements to be recycled further down the line, safe recyclability needs to be considered from the outset. This applies not least to renewable and green energy technologies.

For globally traded components and products alike, developing international standards and mutual recognition schemes will be important. Working cooperatively will guard against the risk of new technical barriers to trade. In the services area, digital solutions for optimising resource use and minimising waste – often at the industrial plant level – should be able to flow freely across borders.

Circular economy technologies and their associated services should be included when future negotiations towards an environmental goods agreement (EGA) resume, allowing tariff free access globally. Such technologies enable a resource efficient circular economy that seeks to drastically reduce the problem of waste and turn it into valuable resources. Technology is continually developing, allowing for the use of lower-grade wastes. Just like scrap metals and basic commodities, waste is a globally traded good and the line between wastes and resources is blurring.

Trade in secondary raw materials, goods, and waste

In the raw materials sector, there are already well-functioning global markets that include secondary raw materials – such as scrap steel and aluminium. These markets are global, and in some cases affected by export restrictions. Just as sustainability and traceability in primary raw material sourcing is important, the same holds true for secondary raw materials. How, where, and under what conditions has recycling taken place?  

Important questions are arising as to the definition and categorisation of wastes and secondary materials. Hazardous and non-hazardous wastes and materials are handled differently, with restrictions or strict requirements on toxic materials under the chemicals conventions (Basel, Rotterdam, and Stockholm conventions).  

There have been restrictions on the import side of secondary goods trade as well, affecting products such as used cars or clothes. Every sector has its own specific features. There have also been problems with goods imported or exported for remanufacturing, as they are difficult to categorise within the customs system.

Non-hazardous waste for recovery usually consists of metals, paper, and plastic. However, the trade landscape is highly diverse. At this point, the plastics segment is more complicated for recycling and reuse and trade tends to be in the form of traditional waste rather than as a potential raw material.

Bringing the private sector on board

The challenge in the transition towards a circular economy faced by the world’s economies is to find ways to integrate the paths of environmental sustainability and economic growth with the profitably of companies.

The life cycle of a product is not closed nor is it a circle. Currently only part of the residues or components in the end-of-life phase are used/recycled back into the same process, with the rest ending up in other processes, going to storage, or in the worst case finishing up in a landfill. Cooperation between companies through the value chain has an important role to play when talking about the circular economy as a profitable business.

Finnish Innovation Fund Sitra has listed  the most interesting companies in the circular economy to showcase Finland’s most inspiring examples. The aim of the list is to challenge companies to meet the changing needs of the world. Examples include companies specialising in a diverse set of economic activities that include sharing platforms for equipment or cars,  bioplastics production from agricultural waste, processing recycled products from the side streams of the metal and mining industries or construction sites, and lighting and energy efficiency solutions as a service.

In a nutshell, there is a need to consider the circular economy transition from the perspective of global value chains and trade rules. To arrive at truly sustainable solutions benefitting all, we need cooperation within the framework of a rules-based international system.

 

Finland is organising a session in partnership with Costa Rica on the circular economy and trade at the WTO Public Forum in Geneva in October 2018.

Malena Sell is trade and environment specialist at the Finnish Ministry for Foreign Affairs. Nani Pajunen is leading specialist on the circular economy at the Finnish Innovation Fund Sitra.