Trade and circular economy - Romain Pardo

The presentation explores the links between circular economy and trade and the potential effects of the transition of the circular economy in Europe on third countries

1. How can trade contribute to make the world economy more circular? Romain Pardo, Policy Analyst, IEEP WTO Public Forum, October 3rd, 2018

2. Is the circular economy a local affair? The circular economy aims to close product and material loops through reuse, recycling and repair processes and minimise waste generation. According to circular economy principles, the greater the geographical proximity between production, consumption and waste management operations, the greater the resource efficiency (and climate) benefits. Therefore, the best geographical scale to successfully implement the circular economy should be the local level. Yet , this approach does not reflect the interdependencies of the global economy and the existing trade flows of materials, products, waste and recyclables.

3. The global dimension of the circular economy The international context : geographical dispersion of materials and components and of production, consumption and recycling, remanufacturing and waste management processes. Countries that have developed circular economy/resource efficiency strategies include Brazil, China, India, Kenya, Lao, Morocco, South Africa, Japan, Turkey, Uruguay and Vietnam. The EU is a frontrunner in this field. Developing countries have a long experience in sorting and reusing waste and might have more of a circular economy mind set than developed countries. There are a number of ongoing international and regional initiatives : African Alliance on circular economy, G7 Alliance on resource efficiency, G20 ‘resource partnership ’. The African Development Bank is exploring how to incorporate the CE in its industrial development pillar.

4. Existing trade flows and the development of circular economy strategies worldwide should provide a fertile ground to use trade to achieve circular objectives at national and international level, including by enabling the circulation of secondary raw materials and remanufactured parts across borders. However , a number of voluntary and involuntary trade barriers exist. Trade restrictions can affect the location of remanufacturing and recycling facilities as well as the demand for remanufactured and recycled products.

5. Trade barriers Trade bans : China’s decision to ban imports of waste, countries in East Africa ban imports of used textiles, Brazil has an import ban on retreated tires as well as restrictions on importing remanufacturing goods. Reasons why countries have bans and import restrictions on second-hand goods include concerns that they will lead to more waste, are of substandard quality or to protect domestic industries. Export restrictions : China and Nigeria have export restrictions on metal waste and scrap. Russia, Argentina, India, have export taxes on metal waste and scrap. An export restriction may be imposed to prevent a shortage of goods in the domestic market because it is more profitable to export . Trade restrictions on second hand goods may apply to remanufactured goods. Most countries do not make the distinction between remanufactured and second hand goods. Lack of clear definition of waste VS recyclable or of end of waste criteria . Basel Convention adopted “the technical guidelines on transboundary movements of electrical and electronic waste and used electrical and electronic equipment, in particular regarding the distinction between waste and non-waste under the Basel Convention” in 2015. The guidelines state that used equipment is not considered as waste, if the equipment is destined for failure analysis, for repair and refurbishment, with the intention or extended reuse . But the guideline also states that parties are able not to allow the import or export of used equipment destined for failure analysis, repair or failure analysis.

6. A circular economy transition in the EU with international impacts: The EU is the world's largest exporter of non-hazardous waste destined for recovery (recycling), exporting more of such waste than both the US and China. In 2014, the EU accounted for 34.0% of global exports of non-hazardous waste destined for recovery (China: 30.7%, India: 11.5%, US: 6.6%). As for materials, waste and scrap of iron or steel accounted for 32% of the share of EU non-hazardous waste exports to non-OECD countries while copper waste and scrap accounted for 20 %. For Europe, the transition towards a circular economy is also an opportunity to reduce its dependency on imports of raw materials and create jobs throughout the lifecycle of a product. This could be done by ensuring that recycling and remanufacturing processes are located within the continent and by scaling up industrial symbiosis models. In this context, the transition towards a circular economy in Europe and the development of circular economy related legislation in the EU may have consequences on international trade flows and third countries.

7. EU legislation that could have consequences on trade flows: The Circular Economy Action Plan (CEAP) , was adopted by the Commission on December 2nd 2015, and provides the core of the EU’s circular economy agenda. It outlines a series of measures and actions which aim to “stimulate Europe's transition towards a circular economy which will boost global competitiveness, foster sustainable economic growth and generate new jobs”. Ecodesign legislation and standards: The Ecodesign Working Plan 2016-2019 takes into account circular economy aspects in future product requirements such as durability (minimum lifetime of a product or critical components), reparability (availability of spare parts and repair manuals, design for repair), design for disassembly (easy removal of components). The aim is to develop standards to extend product lifetime, reuse components or recycle materials from products at end of life, reuse components and /or recycled materials in products. The EU aims to be a frontrunner in waste management and recycling . The following targets have been set: - Recycling 65% of municipal waste by 2035 - Recycling 70% of packaging waste by 2030 - Reduce landfilling to a maximum of 10% of municipal waste by 2035. The Plastics strategy aims to recycle more than half of the plastic generated in the EU by 2030. The strategy includes actions relating to international trade: - Promote a circular plastics economy in non EU countries through policy dialogues on trade. - Support the development of international industry standards on sorted plastic waste and recycled plastics. - Support the development of a certification scheme for recycling plants in the EU and third countries. The EU will review its Waste Shipment Regulation by 31 st of December 2020 and look at how to make it more consistent with the circular economy agenda. Explore the extent to which it helps to enhance the efficient use of resources and establish a well functioning single market for waste treatment services and recovered materials within a European circular economy.

8. Circular economy related issues in the EU’s Free trade Agreements and external policies: China and the EU signed a Memorandum of Understanding on Circular Economy Cooperation at the 20th EU-China Summit in Beijing on 16th July The EU–Vietnam Free Trade Agreement , introduces the concept of remanufactured goods and opens the way for trade in remanufactured goods that have a similar performance, working conditions and life expectancy when compared with the original new goods. The Sustainable Development chapter of the EU-Japan FTA states that the FTA will strive to facilitate and promote trade and investment in environmental goods and services. The European Commission is considering to include the circular economy in the Sustainable Development chapters in its Free Trade Agreements . Circular Economy Missions are organised by DG Environment of the European Commission in countries such as Japan, India and Indonesia. They consist of a series of high-level political and business meetings to communicate and promote sustainable and resource-efficient policies. The policies to be discussed during the missions gravitate around circular economy, resource efficiency and sustainable use of natural resources.

9. Questions for further reflection and research: What are the benefits of trade liberalisation for the implementation of the circular economy worldwide and within countries? What are the effects of trade barriers? Can they also incentivise countries to make more efforts to close the loop locally instead of shipping waste to third countries? ( eg : how is the EU dealing with the Chinese ban?) How would the worldwide implementation of the circular economy change trade flows ( eg : less raw materials, more secondary raw materials)? What are the potential consequences of the transition of the circular economy in Europe and the Circular Economy Action Plan on international trade? How can circular economy related trade be equitable, provide benefits for the poorest population in developing countries, and contribute to the achievement of SDGs worldwide? What are some of the potential trade offs? What is the EU’s role in lifting trade barriers? How can it better integrate the circular economy in its bilateral FTAs and the multilateral trading system? What should the EU do to ensure that its circular economy framework delivers sustainability both internally and externally?

10. Contacts at IEEP: Romain Pardo, Policy A nalyst: [email protected] Marianne Kettunen, Principal Policy Analyst and Lead of Global Challenges and SDGs: [email protected] Emma Watkins, Senior Policy Analyst: [email protected]