Opportunities for Building Resilience
Research paper
Published 17 September 2020
Updated 30 March 2021
ISBN: 978 1 78413 415 0
The circular economy model has gained high-level political attention and support in Latin America and the Caribbean (LAC) in recent years. This paper provides analysis of the current state of circular economy policies in LAC and identifies priority issues for governments, businesses, civil society and the research community.
The circular economy provides opportunities to improve the balance between local, regional and global trade, but it will take political will and potentially the renegotiation of free-trade agreements to achieve this.
The COVID-19 pandemic has severely impacted LAC supply chains and trade, in terms of both imports and exports. Imports of parts and components required in the electronics, automotive, textiles and pharmaceuticals sectors of Argentina, Brazil and Mexico have been negatively affected by diminished production in China and by disrupted global supply chains. On the other hand, reduced global demand has caused price shocks in key commodities produced by the region, including the sudden plummeting of prices for oil (60 per cent), copper (22 per cent), sugar (20 per cent) and coffee (18 per cent). Such developments have a proportionally greater economic impact for many LAC countries, which rely heavily on exports. The pandemic has also highlighted the key role that China plays as a consumer of LAC-produced commodities: Chinese demand for soya and copper has declined, but it used to absorb 79 per cent of Brazilian soya production and 60 per cent of Peruvian copper.205 Overall, it is expected that merchandise trade could decline by between 12 per cent and 31 per cent in 2020 for South and Central American countries, compared to 2019.206
It is unlikely that trade relations will bounce back to ‘normal’ in the post-COVID-19 economic recovery. In addition, value chains are expected to change further during the global transition to a circular economy, as new approaches to create more resilient production and consumption systems are developed. A circular economy perspective on trade can enable a better balance between local, regional and global trade, and boost resilience.
Many countries in the region rely on imported consumer goods produced by the manufacturing sectors of industrialized economies, in particular North America and Asia. After use and consumption, these goods end up in local waste streams, and are mostly landfilled or illegally dumped. Free-trade agreements (FTAs) between LAC states and their trading partners generally have not included clauses about EPR for local waste streams associated with imported goods. To enable more circularity of materials in trade agreements and reduce pressure on local waste management systems, there is a strong case for including EPR policies in existing and new FTAs. Exporting producer countries would be required to take responsibility for end-of-life products in the recipient country. In the case of Panama, studies show that up to 34.5 per cent of valued materials derived from goods imported through FTAs could be exported back to the country of origin, and the amount of waste discarded in landfills could be significantly reduced, if EPR clauses were part of existing FTAs.207
The national recycling markets in LAC countries focus mainly on the recovery and recycling of paper, cardboard, scrap metal (ferrous metals), some plastics and glass.
In addition, the LAC region is involved in the trade of various secondary materials, scrap and waste products. The national recycling markets in these countries focus mainly on the recovery and recycling of paper, cardboard, scrap metal (ferrous metals), some plastics (PET and high-density polyethylene – HDPE) and glass. LAC countries are also importers of paper, cardboard and scrap metal, mainly from the US. According to UNEP, in 2013, some 455,000 tonnes of scrap metal were imported from the US by Peru and Ecuador alone. Intra-regional trade in scrap metals was predominantly characterized by exports from Venezuela (which sold 86,000 tonnes to Colombia and Ecuador) and Costa Rica (which sold 25,000 tonnes to Ecuador and Panama). Trade in waste plastics was dominated in 2013 by exports from the region to China and the US. Together, Colombia, Ecuador, Panama and Peru exported 60,000 tonnes to those two major economies, with 41,000 tonnes exported to China from Ecuador and Peru alone, and 11,000 tonnes from Ecuador to the US.208
As noted above, the circular economy offers opportunities to increase the valorization of waste at the national level. In the case of e-waste, currently the region is focused on dismantling while sending the valuable fraction to Europe, the US and China for recovery of precious and rare metals including gold, lithium and cobalt. To do this domestically requires investment in new facilities and programmes for safe recovery of e-waste. The national regulations around hazardous waste would need to be harmonized and expanded to the regional level and allow the consolidation of e-waste in large enough quantities to supply the necessary input for recovery facilities.209
In its current state, the trade agreement between the EU and Mercosur – the customs union that includes Argentina, Brazil, Paraguay and Uruguay – does not contain any provisions to support the development of the circular economy. Instead, as it stands, the deal is expected to increase the amount of high-impact agricultural commodities, in particular animal products and biofuels.
The EU and Mercosur reached a political agreement in June 2019 for the forthcoming FTA, but it still awaits ratification. Should the trade deal be renegotiated, it will be important to include mechanisms for environmental protection, especially for deforestation. There is concern around the possible impacts of tariff reductions on deforestation, especially in Brazil. The agreement could increase demand for agricultural commodities, leading to the expansion of the land area used for agricultural production and the loss of natural forest, even if existing agricultural land is used more productively.210
Under the terms of the draft agreement, exports from Mercosur countries to the EU are expected to see increases across a number of products. Exports of beef, for example, are expected to increase by 50 per cent from the current volume of 194,000 tonnes per year. The beef quota, which is currently 200,000 tonnes, will increase to 299,000 tonnes per year. Exports of ethanol are expected to increase by 540 per cent. The EU currently imports 102,000 tonnes of ethanol per year: a new 650,000 tonne per year quota will allow massive expansion in ethanol trade. In return, the EU is expected to increase its cheese exports to Mercosur by 710 per cent (Mercosur currently imports 3,700 tonnes per year, whereas the new quota is 30,000 tonnes per year), while imports of skimmed milk powder from the EU to the four Mercosur member states will increase by as much as 1,200 per cent (Mercosur currently imports 771 tonnes per year: the new quota has been set at 10,000 tonnes per year). The EU–Mercosur FTA will be a powerful driver for the industrial food systems in both regions. As a result of the envisaged growth in trade of these commodities, associated greenhouse gas emissions will increase by about one-third, from 25.5 million tonnes of CO2 equivalent per year, to 34.2 million tonnes per year.211
Through renegotiation, there could be opportunities to include elements of cooperation to promote trade that is conducive to the circular economy transition in both regions. For example, the EU’s European Green Deal (announced in December 2019) and revised Circular Economy Action Plan (March 2020) provide for the development of product passports. Technical cooperation mechanisms to enable the EU and Mercosur member states to work together on product passports to improve transparency in supply chains could be negotiated into the FTA. EPR provisions to regulate trade of waste, and tariff reductions on secondary materials and remanufactured goods to support circular business models, could also be included.
