Priorities for Developing Countries
Research paper
Published 22 May 2019
Updated 11 December 2020
ISBN: 978 1 78413 338 2
Developing economies will struggle to grow sustainably without significant investment in recycling, reusing and repairing used raw materials and products. This paper looks at opportunities to coordinate regional trade policies and investment programmes to rapidly scale up the circular economy in the developing world.
National strategies to support the transition to a CE have the potential to deliver industrial growth that mitigates negative environmental externalities. But without parallel investment in regional and global circular value chains, and in the sharing of knowledge and innovation, it is unlikely that the CE will reach meaningful scale. A transformation is needed not only at the level of domestic industry but across international resource and material supply chains; for this, collaboration will be key.
Optimizing the impact of CE investments will depend on ensuring that activities are aligned with existing sustainable development programmes and investments, and that the potential trade-offs associated with CE approaches (for example, reconciling environmental sustainability and inclusive growth) are carefully managed. Here, government-to-government collaboration will play a critical role, through bilateral investments, cross-border partnerships to encourage the emergence of regional and international circular value chains, and cooperation in agreeing common terms for the global trade in secondary materials and CE-related services.
The Paris Agreement and adoption of the SDGs in 2015 set in motion global efforts to promote sustainable and resilient growth that tackles poverty and inequities while safeguarding finite natural resources and biodiversity. Central to both agendas is the tenet of sustainable resource production and consumption. Goal 12 of the 17 SDGs consists of ensuring responsible production and consumption patterns. Ongoing dialogues at the G7 and G20 have acknowledged that, with roughly 70 per cent of global resource extraction ultimately ending up in the atmosphere as greenhouse gas emissions,228 the transformative changes envisaged by the Paris Agreement can only be achieved alongside a decoupling of economic growth from natural resource use and environmental degradation.229
Various studies have identified linkages through which the CE can support delivery on the SDGs, and vice versa.230 According to the International Resource Panel (IRP), 12 of the 17 SDGs rely directly on society-wide changes in the management of resources;231 another analysis identified 10 SDGs that depend on the CE.232 One detailed analysis233 identifies particularly close links between CE practices and the following SDGs:
In many cases, success in delivering on the SDGs will facilitate the transition to a CE. Targets under SDG 9 – industry, innovation and infrastructure – to increase access to financial services and value-chain integration (target 9.3) among SMEs should also, for example, support their participation in innovative practice and value chains, while investment in domestic technology development, research and innovation in developing countries (target. 9.B) can drive the emergence of digital platforms for CE practices such as asset sharing.
Several analyses have highlighted the CE as a framework for identifying additional mitigation opportunities not currently included in NDCs.234 A report by Material Economics suggests that a more circular economy can cut emissions from heavy industry in the EU by 56 per cent by 2050.235 The European Commission, in developing its strategic long-term vision for 2050, considered the role of a highly circular economy in generating consumer demand for less carbon-intensive goods, as well as in maximizing opportunities to sequester carbon in the land and reduce the need for negative emissions technologies in meeting commitments under the Paris Agreement.236
To advance understanding of the synergies between the CE and the SDGs, CE strategies could be incorporated into existing multi-stakeholder discussions on pathways to sustainable consumption and production (SCP), such as those instigated in early 2019 in the Republic of the Maldives by the country’s Ministry of Environment and supported by the EU SWITCH-Asia Sustainable Consumption and Production Facility. Bringing together policymakers, civil society organizations and practitioners to explore challenges to the implementation of SCP and set national priorities, such dialogues provide a means to gather a range of perspectives on the opportunities and risks associated with the transition to a CE.
Further opportunities for mainstreaming the CE into the global sustainable development agenda will come in 2019 and 2020, with a number of key moments set to occur in global climate and biodiversity negotiations: at the UNFCCC’s 25th Conference of the Parties (COP 25) in November 2019, countries will be expected to demonstrate a ratcheting up of ambition in their NDCs; while at the Convention on Biodiversity, also in November 2019, a post-2020 global biodiversity framework is expected to be agreed. In 2020, a number of CE-relevant SDG targets are also expected to be met. These include target 11.b – to ‘substantially increase the number of cities and human settlements adopting and implementing integrated policies and plans towards inclusion, resource efficiency, mitigation and adaptation to climate change, resilience to disasters’;237 and target 12.4 – to ‘achieve the environmentally sound management of chemicals and all wastes throughout their life cycle, in accordance with agreed international frameworks, and significantly reduce their release to air, water and soil in order to minimize their adverse impacts on human health and the environment’.238
The next two years therefore offer a moment of opportunity for development actors to align efforts on the Paris Agreement, the SDGs and global biodiversity targets with those of the CE, and to galvanize political and financial support for ambitious policies that deliver on multiple global commitments at once.
For international financial institutions seeking to support the implementation of the SDGs and the Paris Agreement, investments in CE innovations or value chains could be used to reinforce and accelerate existing programmes of sustainable development. Many multilateral development banks (MDBs) are scaling up their activities in the CE space through activities that build on existing funds targeted in these areas, and are also setting aside specific funding pots for CE approaches. Some examples of MDB activity include the following:
Given the challenges for multilateral donors in investing in CE solutions outlined in Section 2.1, increasing the flow of investment from MDBs into the CE may depend on a collaborative approach that unifies CE-related strategies across the banks. Cooperative financing arrangements in which multiple MDBs or donor agencies pool their resources to support CE investments would create a lower-risk environment in which to expand engagement in the CE.245 An equally important approach might be to reorient investment strategies and revise eligibility criteria to allow CE projects to benefit from existing schemes,246 such as the Global Environment Facility (GEF). The GEF’s seventh framework programme has the CE as one of its Impact Programmes. The facility has helped to foster collaborations involving the AfDB, the World Economic Forum, and the World Bank in Rwanda and Nigeria; 247 in January 2019, the Nigerian government announced a $2 million (£1.53 million) initiative, supported by the GEF and UN Environment, to kickstart the recycling of waste electric and electronic equipment.248
For many developed countries, the more labour-intensive components of the CE, including reverse logistics, are unlikely to be economically viable in domestic contexts until such time as they become automated. The development of resilient international circular value chains will be an important enabler for the scaling up of domestic remanufacturing and recycling commitments, while at the same time supporting delivery on commitments to global sustainable development frameworks. The CE may offer opportunities for bilateral investments and partnerships which simultaneously contribute to the CE at home and overseas.
The EU, China and Japan have been proactive in seeking out cross-border opportunities for partnership on the CE. The EU has dispatched CE missions to Chile, China, India and South Africa.249 The focus of these missions is to communicate the opportunities from transitioning to a CE, as well as to support European businesses in expanding their activities in these countries. In June 2018, the EU and India signed a joint declaration of intent to foster resource-efficient practices in India and support recommendations made in the Strategy on Resource Efficiency.250 A number of joint initiatives will be undertaken, including support for an eco-labelling scheme for secondary products; assistance in developing recycling standards for e-waste, plastics, and construction and demolition waste; promotion of R&D in resource efficiency; and development of a ‘Waste Exchange Platform’, a marketplace for by-products and industrial waste.
President Xi Jinping has stipulated that the Belt and Road Initiative should promote a ‘green, low-carbon, circular and sustainable’ form of development.
In China, President Xi Jinping has stipulated that the Belt and Road Initiative (BRI) – an ambitious set of foreign and economic policies centred on infrastructure building to connect China’s less developed border regions with Southeast Asia, Central Asia and Europe251 – should promote a ‘green, low-carbon, circular and sustainable’ form of development.252 While the specific activities remain to be determined, China’s recycling industry is preparing to expand its activities abroad.253 Many of China’s partner or prospective partner countries for BRI projects are still in the early stages of developing modern recycling and waste management, and some of the infrastructure investment planned under the BRI is focused on that sector.254 At the same time, China is seeking to capitalize on its experience in industrial symbiosis and the use of eco-industrial parks to pilot new business models and activities. One example is the planned construction of a China-African Circular Economy Industrial Park in South Africa, led by GEM Co. Ltd, a Shenzhen-based company specializing in resource recycling.255
Japan, meanwhile, has demonstrated regional leadership in the CE through its inauguration of the Regional 3R Forum in Asia and the Pacific. This cooperative platform enables governments from 39 countries in the region256 to promote policy coordination; network building; research cooperation; the piloting of CE projects; and knowledge-sharing with international organizations, the private sector and civil society stakeholders.257 As G20 chair in 2019, Japan has an opportunity to take its domestic and regional experience on to the international stage, building on the work started by Germany two years ago, and to promote policy alignment and knowledge exchange on resource efficiency and the CE among G20 countries and developing-country partners.258
Several other donors are discussing the CE as a potential new focus area for development assistance. Few detailed strategies have yet emerged, but early examples include Denmark’s DKK 900,000 ($136,000) strategic sector cooperation agreement with Indonesia on ‘circular economy and waste management’; a similar agreement with Kenya on ‘circular economy, cleaner manufacturing, regulation and enforcement’;259 and the Norwegian international development minister’s highlighting in April 2018 of the CE as a priority in Norway’s international development policy, with a focus on cooperation with developing countries to establish profitable value chains for waste.260 Commitments to supporting CE initiatives in the developing world have also emerged in other countries, in response to a surge in public awareness of the global waste challenge (see Box 8).
The Memorandum of Understanding on Circular Economy Cooperation between the EU and China, signed in July 2018, could provide a vehicle through which to broaden CE cooperation and leadership. Under the MoU, the EU and China agree to cooperate on ‘dialogue on the design, planning and implementation of strategies, legislation, policies, and research’, ‘strategic exchanges on management systems and policy tools such as eco-design, eco-labelling, extended producer responsibility and green supply chains’, ‘strategic exchanges on best practices of circular economy’, and ‘exchanges on investments in and financing of circular economy’.261 Such modes of cooperation could, in theory, be extended to third countries, including in sub-Saharan Africa where both the EU and China have significant investment interests and existing donor programmes.
Initiatives that marry donor funds with multilateral expertise may be used to encourage donor or private investments in novel areas of research and innovation, mitigating the risk of the unknown by capitalizing on sectoral expertise and existing knowledge-sharing networks.
Cooperation between donors and multilateral agencies can provide a further avenue through which to advance CE activities and strategies. The UK’s Department for International Development (DFID), for example, has partnered with the UN Conference on Trade and Development (UNCTAD) to develop the Sustainable Manufacturing and Environmental Pollution (SMEP) programme.262 SMEP will fund research and technical solutions that focus on mitigating the environmental pollution and degradation associated with certain industrial and manufacturing processes in sub-Saharan Africa and South Asia. Similar initiatives that marry donor funds with multilateral expertise may be used to encourage donor or private investments in novel areas of research and innovation, mitigating the risk of the unknown by capitalizing on sectoral expertise and existing knowledge-sharing networks.
In late 2017 and early 2018, plastic pollution in oceans rocketed to the top of political and media agendas in countries around the world. Partly spurred by media attention around the BBC’s Blue Planet II television series in the UK and by China’s ban on 24 types of solid waste, a plethora of commitments by multinational organizations, governments and companies have emerged. The EU committed to making all plastic packaging on the European market recyclable by 2030, the UK committed to eliminating all avoidable plastic waste by 2042, and 193 countries passed the United Nations Clean Seas agreement at the UN Environment Assembly in December 2018. Many of these commitments have made a specific link to the CE as a fundamental way to tackle marine plastic pollution, recognizing that one of the best ways to do so is to prevent plastic waste from entering the ocean in the first place.263 The European Commission’s plastics-management strategy is titled ‘A European Strategy for Plastics in A Circular Economy. The New Plastics Economy Global Commitment’. Signed by over 250 businesses, governments and other organizations, it commits signatories to eliminate unnecessary plastic items; innovate to ensure plastics can be composted, recycled or reused; and circulate plastic items to prevent their damaging the environment.264
A number of governments have paired domestic commitments with development finance to tackle the issue in developing countries. The UK has directed roughly £8 million in aid to help developing nations reduce plastic waste.265 The German Ministry for Economic Cooperation and Development (BMZ) has expanded its cooperation with partner countries on integrated waste management as part of its marine litter action plan.266
While consumers can lobby for change and governments are able to mandate compliance, it is evident that major corporations possess the financial, technical and logistical resources that can speed up the transition to a global CE.267 The incentives for doing so include business growth, competitive advantage, reduced energy consumption and increased supply chain security (see Table 5).268 Numerous companies, the most notable being member firms of the CE100 grouping, have committed to implementing CE practices.269 That said, with some companies it is often difficult to distinguish sustainability rhetoric from genuine CE implementation.270
Companies that have adopted more circular business models and practices have recorded significant reductions in waste and emissions. For example, at end-2017, the US retailer Walmart had diverted to recycling or reuse 81 per cent of its packaging, waste materials and unsold products that would otherwise have been destined for landfill in the US.271 In 2015, Samsung Electronics recycled 79,950 tons of products and 7,040 tons of packaging in South Korea alone.272
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Potential benefits for MNCs from implementing and supporting CE activities in developing countries |
Challenges for MNCs in implementing and supporting CE activities in developing countries |
Possible MNC actions to implement and support CE activities in developing countries |
|---|---|---|
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These companies nevertheless remain, for the moment, in a minority. A 2016 survey of 1,700 respondents from global corporates found that fewer than 20 per cent of those companies were actively identifying sustainability challenges along their global supply chains.273 In a report based on interviews with 14 global companies in 2017, low commodity prices were noted as a factor in there being minimal impetus to replace raw materials with recycled materials.274 There is also concern that, among other CE issues, the secondary market for plastics is underdeveloped.275
The obstacles to corporate action on CE can be even more pronounced in developing countries (see Table 5). Companies may face more limited infrastructure, less awareness of the CE among suppliers and consumers, and, depending on the country, potentially much less political support in the form of regulations, policies and price incentives. The processes for collecting and analysing much-needed data on SMEs and local suppliers, to identify potential partners in CE activities, may be absent.
Nonetheless, companies in a number of different sectors are committing to ambitious CE targets and taking actions to enable CE practices along their supply chains, including in developing countries (see Table 6). Clothing retailer H&M, for example, is aiming to use 100 per cent recycled or other sustainability sourced materials by 2030.276 With manufacturing and processing plants in Bangladesh, Cambodia, Ethiopia, India, Indonesia, Kenya, Myanmar, Pakistan, Rwanda, Sri Lanka and Vietnam, among other countries,277 achieving this goal requires new processes and training in lowering the environmental and resource impacts of production across these settings. Similarly, Renault’s action plan on the CE278 has seen the French carmaker introduce a range of CE practices – from reuse and recycling to industrial symbiosis – across a number of plants in different countries.
Corporate action on the agenda in developing countries is likely to grow. The opportunities for CE activities cover a wide range of sectors, from food and consumer goods to ICT and consumer electronics, and there are signs of increasing action and commitment to ambitious CE targets, which would have implications for supply chains in developing countries. Fast-food retailer McDonald’s has announced that 100 per cent of its packaging will come from renewable, recycled or certified sustainable sources by 2025.279 Adidas is planning to use only recycled polyester in all its shoes and clothing by 2024 to help increase the sustainability of its supply chain.280 Another clothing retailer, Levi Strauss and Co., is targeting a 40 per cent reduction in greenhouse gas emissions in its supply chain by 2025.281 A growing number of companies based in China and India are also starting to adopt the language of the CE and put its principles into practice. Alibaba, for example, currently generates a huge amount of packaging waste, but the Chinese e-commerce firm is partnering with carton manufacturers to recycle packaging in several key cities throughout the country.282 In India, Tata Motors has been running a resale, refurbishment and reuse service for its cars since 2009.283
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Sector |
Actions MNCs can take in developing countries |
Specific challenges for sector in developing countries |
Example of MNC activity |
|---|---|---|---|
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Food manufacturing and consumer goods |
Tackling packaging waste, e.g. innovative packaging, public awareness campaigns, investment in waste management infrastructure, providing incentives for recovery and recycling. Tackling food waste, e.g. investment in cold-chain infrastructure, public awareness campaigns, food-sharing networks. Adopting CE standards in procurement from local food suppliers, e.g. emphasis on organic fertilizer, reuse of farm by-products. Helping to promote local CE value chains, e.g. through facilitating trade among local suppliers across multiple sectors in by-products and agricultural waste to be turned into energy and fertilizer. |
Moving away from plastic in food and drink packaging can be more challenging in developing countries where water and food safety is not always assured. Moving away from sachets in food, drink and consumer goods packaging can make these goods too expensive for poorer communities. Demand for recycled plastics may be limited owing to low commodity prices. When oil prices are low, virgin plastic may be cheaper than recycled plastic. |
Unilever is a member of Project MainStream, a multi-industry, CEO-led global initiative to accelerate business-driven innovation and help scale the CE,284 and has formed a Global Partnership with EMF.285 The company has set out its waste strategy commitments in its Sustainable Living Plan.286 Unilever initiatives in developing countries include the Community Waste Bank Programme in Indonesia287 and a project to establish a pilot plant in the Philippines to recycle plastic sachets.288 |
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Textiles and garment manufacturing |
Lowering impacts in production, e.g. procurement and specification of lower-impact fibres from local suppliers, adopting CE principles on dyeing, working with supply chain partners to increase resource efficiency. Extending the life cycle of clothes, e.g. designing clothes to prolong their useful life, providing consumer information on use, reuse and recycling. Encouraging the recycling of clothes, e.g. establishment of take-back schemes for textiles and garments. |
Textile and garment supply chains generally face higher risks in terms of labour rights violations in developing countries. Any changes to supply chain management to promote CE practices must take into account impacts on workers’ health, safety and income. |
H&M is an EMF Global Partner289 and a signatory of the New Plastics Economy Global Commitment.290 The company has made a commitment to be 100 per cent circular and renewable by 2030.291 H&M initiatives in developing countries include a hazardous-substances training pilot scheme for supply chain partners in Bangladesh, China, India, Indonesia and Turkey.292 H&M has also developed a tool to assess performance in chemical usage by suppliers, which it has subsequently tested in Bangladesh, China, India, Indonesia, Pakistan and Turkey.293 The firm has partnered with the food company Danone and an Indonesian textile supplier to recycle plastic bottles into clothes.294 |
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Building construction and design |
Adopting CE principles in sourcing raw materials, e.g. emphasizing reuse of construction and design waste where possible, incorporating waste sources from other sectors where possible. Facilitating the repurposing of waste materials, e.g. investing in delivery-and-return logistics to recover construction and design waste and materials. Building local CE capacity, e.g. training local construction workers and providing them with tools to improve resource efficiency on site, establishing and promoting best practice for minimizing wastage, training local construction workers and teams in deconstruction and disassembly methods to preserve materials for reuse. Encouraging more durable construction and design, e.g. working with local architects and engineers to mainstream concepts such as designing for durability, modularity, deconstruction and disassembly. |
Developing countries will tend to have lower in-use building stocks, meaning that MNCs may have limited access to building components for reuse. Weak enforcement of standards for buildings and materials could raise safety concerns in reusing and recycling older materials. |
Royal BAM Group – a Netherlands-based construction company – is a member of EMF’s CE100, a network of companies engaged in the CE agenda. BAM has hosted workshops in collaboration with the Supply Chain Sustainability School to mainstream CE thinking in the built-environment sector.295 BAM initiatives in developing countries include the introduction of waste management targets at an Indonesian hotel construction site to sort, reuse and recycle waste dug up during excavation works.296 |
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Automotive |
Reducing primary resource use, e.g. working with suppliers to integrate CE principles into procurement of raw material inputs into vehicle manufacturing. Facilitating regional CE value chains, e.g. establishing remanufacturing hubs for vehicles and engine parts, training supply chain partners, assemblers and first-tier suppliers to disassemble, sort and use second-hand parts. Encouraging second-life use, e.g. establishing take-back and return schemes for electric batteries from vehicles, trading with other sectors for reuse, establishing a platform for trading and sourcing end-of-life vehicles. Increasing recycling of raw materials in production, with the goal of keeping as much material as possible in the local industry. Piloting vehicle-as-a-service schemes. |
An automotive remanufacturing skills base is lacking in many countries. The complexity of remanufacturing processes and logistics may prove challenging, especially for SMEs in developing countries. Supply chains for recycled materials are poorly developed, and the lack of a reliable and secure stream of secondary materials may create difficulties in planning manufacturing operations. |
Renault is an EMF Global Partner. It has an action plan on the CE and has signed the French government’s Roadmap for the Circular Economy, which has set the goal of moving towards a 100 per cent plastic recycling rate in France by 2025.297 Renault initiatives in developing countries include a collaboration in Colombia with a local manufacturer and supply chain partner, Sofasa, to recycle paint solvents at a vehicle manufacturing plant.298 Renault also collects, sorts and reuses packaging at one plant in Brazil.299 At another, in Morocco, it collects and recycles ashes from biomass heating systems for use as biofertilizers in organic farming.300 |
|
ICT and consumer electronics |
Facilitating reuse and recycling among consumers, e.g. developing a global take-back programme and providing consumers with information regarding repair and recycling options. Encouraging remanufacturing and reuse hubs for consumer electronics, e.g. designing products so that they can be easily disassembled and repaired, and tapping into repair and refurbishment skills bases in developing countries. Establishing a digital materials and parts marketplace to help local suppliers sources the parts and materials they need. |
It may be difficult to protect data and intellectual property for consumer electronics if disassembly and repair are conducted by third parties. Sourcing enough secondary material feedstock and goods may be a challenge if informal secondary markets for these products are already in place. |
Computer retailer Dell is a member of the CE100 and received the inaugural Accenture Award for CE pioneers in 2015.301 Dell initiatives in developing countries include a global take-back programme for monitors, desktop computers and notebook computers, which spans 78 countries including India, Malaysia and Vietnam.302 |
Trade will be a powerful tool for fostering engagement from both the public and private sectors in regional and global circular value chains. Trade-focused CE discussions have the potential to open up new perspectives on opportunities for mutual gain, and to shape a global and inclusive vision that goes beyond the zero-sum world implied by some CE strategies today. While the CE may offer some protection in a turbulent world in which tensions over trade are rising, it will only reach meaningful scale through international coordination and alignment. At the global level, this will be critical to expanding the markets for circular goods and services, pooling innovation knowledge bases, optimizing circular value chains, attracting cross-border investment and providing entrepreneurs with access to data while delivering an inclusive approach.
Increased demand for services related to the sharing economy and provided by so-called ‘collaborative sectors’ could bring new opportunities for trade in services.303 Countries with a large, young and digitally literate workforce may look to export software services, for example, while countries with abundant manual labour may see new market opportunities in providing remanufacturing services for imported used goods. By the same token, architects overseeing the construction of new building stock in developing countries may, for example, elect to employ lighting services from overseas lighting companies rather than take ownership of the lighting equipment itself and assume responsibility for its maintenance and refurbishment.304 Trade opportunities and new trade flows could also emerge in various environmental services related to recycling, waste management and waste-to-energy generation.
The adoption of CE policies and measures will also likely encourage trade in secondary goods, including materials and waste for recycling and energy recovery, secondary raw materials, second-hand goods, and goods for refurbishment and remanufacturing (see Figure 9).305 Products that reach the end of their operational life can be exported to other countries as secondary goods for further consumption, as secondary materials for production feedstock, or as materials and waste for further processing. For example, $37 billion worth of iron and steel scrap was traded globally in 2017, accounting for 7 per cent of all global iron and steel trade in that year.306
There remains much uncertainty regarding how the rules and frameworks that govern international trade will be applied in practice to goods and services in the CE.307 The application of trade measures based on processes and production methods rather than on product criteria is a controversial and contested topic. Developing countries in particular often see such measures as a potential form of protectionism, through which developed countries impose their environmental standards (which are assumed to be higher and costlier) on poorer countries’ exports. More broadly, the definition of ‘like products’ in the context of CE policies, and the WTO treatment of trade measures based on them, is a largely untested topic. The extent to which countries may seek to use trade policies in their pursuit of the CE – for example, to restrict all imports of new cars or virgin plastic packaging and allow the import only of remanufactured cars and recycled plastic, with similar conditions imposed on domestic manufacturers – is itself unclear. The WTO treatment of trade measures such as these is similarly ambiguous; there may be no clear answer until a trade dispute actually happens.
The application of trade measures based on processes and production methods rather than on product criteria is a controversial and contested topic.
A degree of regulatory alignment and, at a minimum, greater as well as better coordination and cooperation among countries will be required to manage the risk of market disruptions resulting from protectionist or distortive trade measures (see Box 9). To ensure that any trade policies or agreements intended to support the CE are in line with international trade rules, it will be important that countries can agree on the terms and standards for trade; in general, the WTO dispute system favours attempts to reach multilateral solutions rather than the imposition of unilateral measures. Digital and blockchain technologies may enable better traceability of materials (including information on the type of embedded materials and manufacturing processes), and aid identification and classification. Until then, standards and related labelling measures to identify and distinguish many types of secondary materials based on quality, performance, safety, health or environmental impacts will be necessary.
Characterized by a complex web of value chains with products and services crossing borders multiple times, the international trade system is susceptible to interruption when one or several countries imposes restrictive trade measures. Products sold in the developed world often rely on raw materials, components and final products imported from developing countries, with a reverse flow of waste streams occurring as materials are subsequently sent back to those countries (in particular China) for reprocessing. Following China’s de facto ban on imports of solid waste, countries in Southeast Asia to which waste intended for Chinese facilities has been diverted have been overwhelmed and are considering imposing their own bans: in October 2018, Malaysia issued a permanent ban on plastics imports. China’s import ban has served as a wake-up call, underlining the need to rethink policies and significantly reconfigure value chains to ensure that international trade truly supports the shift towards a CE.
Domestic trade policies, if improperly designed or enforced, can have unintended and negative consequences. A notable example is the decision by the Rwandan government to raise import duties on used clothing as a means of safeguarding the domestic textile industry. The move has been criticized for having adverse impacts on Rwandans working in the used-clothing sector, who have been unable to access an affordable supply to match demand.308 Moreover, given limited domestic production capacity, the rise in duties has simply prompted growth in imports of new but cheaper Chinese clothing.309
Subsidies are another important policy tool used by governments worldwide to develop specific sectors, regions and industries. As CE policies become mainstream, it is not difficult to envisage that many countries, including developing countries, might wish to develop CE-based industries such as product refurbishment and remanufacturing centres. However, the provision of subsidies conditional on exports or the use of domestic goods (i.e. via ‘local content’ requirements) is automatically prohibited under the WTO’s Agreement on Subsidies and Countervailing Measures (SCM Agreement). Such measures are actionable under WTO law if proven to cause ‘adverse trade impacts’ and injury to trading partners.
A globally accepted approach to identifying and classifying CE-related activity will be critical for enabling the gathering of precise data on important variables such as the proportion of trade flows affected by the CE and the contribution of CE-related sectors to GDP, imports, exports, wages and jobs. This will require adopting harmonized approaches to data gathering at the national level, as well as international efforts through the World Customs Organization (WCO) to agree on Harmonized System (HS) customs codes classifications310 that more accurately capture secondary goods (such as recycled material) and identify waste types.
Currently, the definition and classification of waste, scrap and secondary materials differ from country to country; the distinction between end-of-life products, non-hazardous waste and secondary raw materials is often not the same across different jurisdictions.311 HS product descriptions are to a large extent based on physical product attributes that are easily verifiable by customs officials, while environmental regulatory frameworks and environmental inspectors focus on the ‘intention to discard’ in order to identify waste.312 This makes it difficult to distinguish primary products from secondary products, to assign separate HS codes on the basis of how products have been manufactured (e.g. using recycled aluminium), or to determine that certain products are remanufactured. Amendments proposed by the Basel Convention Secretariat to the WCO also raise a number of issues, such as the difficulties in distinguishing and separating hazardous waste from non-hazardous waste, or waste from second-hand goods.313
Restrictions on the export of hazardous waste are provided for under the Basel Convention, a multilateral environmental agreement adopted in 1989. But in the absence of any measure for differentiating between e-waste and functional used electrical and electronics equipment (UEEE) under the Basel framework,314 there are limits to implementing genuine CE-related trade for waste recovery and recycling while ensuring that adequate standards, regulations, technology and management practices are met.
Agreed standards for product classification will be central to facilitating trade in secondary materials, but the standards will need to be carefully designed and implemented to avoid infringing trade rules. The WTO’s Agreement on Technical Barriers to Trade (TBT Agreement) requires that any technical regulations must use, as their basis, relevant international standards where they exist. While there is scope within the TBT Agreement to clarify the treatment of ‘private standards’ and standardization activity by local governments and non-governmental bodies, the reference to ‘international standards if they exist’ is significant. From a CE perspective, it may constrain governments from applying mandatory CE-related standards that are higher than internationally agreed standards (such as those mandated by international standard-setting bodies such as the International Standards Organization or the International Electro-technical Commission).
With negotiations on multilateral liberalization agreements on trade in environmental goods and services having stalled, interest in regional trade initiatives has been growing. A number of agreements have been successfully completed. Countries may wish to build upon or replicate these agreements and include CE-based elements in order to address barriers not only to trade in primary environmental goods and services, but also to trade in secondary materials.
A plurilateral agreement similar to the WTO’s information technology agreement, whereby like-minded countries could agree to reduce or remove all duties on specific types of secondary materials on a most-favoured-nation (MFN) basis,315 could offer a promising avenue for collaboration. Alternatively, governments could negotiate bilateral or regional trade agreements through which concessions are made available only to participants in the agreement (a permitted exception to WTO non-discrimination rules). In either case, countries could be given the option to select the particular secondary material category (e.g. specific types of plastic waste or remanufactured goods) for which they would be ready to lower import duties.
Such an agreement could establish minimum thresholds for health, safety and environmental standards. Alternatively, governments could be given flexibility to specify their own minimum domestic standards if no international standards are set. Any such plurilateral agreement could borrow from CE-relevant provisions in existing trade agreements as well. An instructive model is the EU–Vietnam free-trade agreement, signed in 2015 but not yet ratified, which stipulates that remanufactured goods shall receive the same treatment as provided to new like products and which also allows specific labelling. Until now, the Vietnamese authorities have considered these remanufactured goods be ‘used’ goods, the import of which into Vietnam is prohibited.316
Mutual recognition agreements (MRAs) on CE-related standards and conformity assessment offer another form of possible coordination at bilateral or regional level. Such MRAs could build on existing regional trade agreements. They could include ‘WTO plus’ provisions on mutual recognition, and conformity assessment agreements on standards and certification procedures related to the CE, as well as technical and financial assistance packages. The reduction or elimination of tariffs and non-tariff measures on environmental goods and services and secondary materials relevant to the CE – such as equipment to sort and process e-waste, recycling equipment, and equipment for extracting secondary raw materials from products in a safe manner – could significantly boost access to CE activities.
CE-specific technical and financial assistance packages may also be negotiated as an integral part of future trade agreements. They could include provisions for assistance in creating special CE zones (on the model of low-carbon zones proposed by experts317) in developing countries, for example. Such zones could serve as ‘laboratories’: showcasing best practices in CE standards, technology and management, and focusing on CE-relevant exports (for example, via repair or remanufacturing centres) that could generate export revenue as well as jobs.
