Trade for an inclusive circular economy

Unsustainable use of the earth’s resources is a primary driver of the triple threat of pollution, biodiversity loss and climate change. The 100 billion tonnes of natural resources extracted and processed every year contribute to half of all carbon emissions and 90 per cent of all terrestrial biodiversity loss.1 The current linear model of production and consumption is also a significant driver of social injustice, with the majority of resource consumption and wealth accumulation occurring in the Global North, but the highest levels of environmental impact and threats to human health being experienced in the Global South. There is an urgent need to move away from an extractive, polluting and unjust production–consumption system to one that decouples social and environmental prosperity from unsustainable resource use.The circular economy offers a value-chain approach to tackling this problem. Rather than the current linear flow of materials through the global economy, in which they are extracted, processed, manufactured, used, and finally disposed of as waste, a circular economy uses a systemic approach to decouple economic prosperity from material use by maintaining a circular flow of resources through regenerating, retaining or adding to their value, while contributing to sustainable development. The circular economy not only encourages sustainable production and consumption, but could also contribute to tackling the 45 per cent of global emissions that cannot easily be mitigated through the shift to renewable energy and energy-efficiency measures,2 and help halt and reverse land degradation and biodiversity loss.No country can achieve a circular economy on its own. Rather, all are dependent on international trade to secure affordable and reliable access to a wide range of different materials, goods and services. This includes the trade in circularity-enabling goods (such as remanufacturing and recycling equipment), services (circular design skills, leasing or rental services, and repair services), relevant intellectual property rights, affordable second-hand goods, secondary raw materials3 and non-hazardous waste and scrap that can be recovered for use in primary production, and food and biomass (regeneratively produced, diverse or upcycled). The combination of all of these types of trade flows can be considered as ‘circular trade’.Circular trade has grown strongly in value over the past two decades. For example, the value of trade in second-hand goods, secondary raw materials and waste for recovery rose by more than 230 per cent (from $94 billion to $313 billion) between 2000 and 2019, with the global export value of trade in goods rising by around 195 per cent over the same period.4 The value of trade in maintenance and repair services increased from $74 billion to $108 billion between 2015 and 2019.5Although circular trade is a key enabler of a global circular economy, a range of regulatory and technical challenges are inhibiting its advancement. These include a lack of mutually recognized definitions, classifications, interoperable standards, regulations and conformity procedures concerning circular economic activities or goods. Furthermore, as an emerging area of activity, the circular economy has itself only been embedded to a limited degree in bilateral, regional and plurilateral trade and economic cooperation agreements. This restricts the scope and potential for collaboration around transboundary issues such as illegal waste, supply-chain transparency and traceability, investment or the issues pertaining to mutual recognition, technical barriers to trade, and trade facilitation.Global inequities in power relations, digital trade capabilities, trade infrastructure, access to circular finance, and industrial and innovation capabilities mean that countries in the Global North are better positioned than those in the Global South to reap the benefits of circular trade. If an explicit goal to reduce inequality is not built into the global circular economy transition, then it is highly likely that these inequities will create a ‘circularity trade divide’, in which the gains accrued from circular trade are highly unevenly distributed between developed and least developed countries.6This divide in circular trade is already evident in that around 45 per cent of the total global value of trade in secondary goods and materials, waste and scrap occurs solely between high-income countries, compared with only about 1 per cent between low-income countries and middle- to high-income countries.7 Additionally, countries in the Global South are often the final destination for internationally traded low-value or illegal waste. The lack of capacity in these countries to properly manage and treat such waste has led to greater environmental risks and social burdens.8 The circular trade divide, should it persist, will act as a significant barrier to a globally inclusive transition to a circular economy, and impede progress on the UN’s 2030 Agenda for Sustainable Development and Sustainable Development Goals (SDGs).An alternative pathway for the circular transition should be pursued in which circular trade serves as an enabler of fair, inclusive and circular societies. Rather than the current fragmented and largely unilateral approach to transitioning to the circular economy, overcoming the barriers to circular trade requires a coordinated and collaborative global response to ensure that all countries and territories, in particular developing economies, benefit equally from the transition.This paper sets out a framework for inclusive circular trade, intended to enable a more inclusive pathway for the circular economy transition. The framework was developed through the work of an alliance of organizations spanning Africa, Southeast Asia, Latin America and the Caribbean, and Europe.