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The Nexus between International Trade and Circular Economy

The global material use is assumed to nearly double from 89 to 167 gigatons, due to an increase in world population and economic growth. This will increase the demand for natural resources leading to serious environmental consequences caused by extraction, consumption and end-of-life management of the materials leading to climate change, ecosystem degradation and local water and air pollution.

The greenhouse gas emissions related to materials management from the combustion of fossil fuels for various activities is expected to double in 2060 reaching 50Gt CO2 equivalent emissions. Iron, aluminium, copper, zinc, lead, nickel, and manganese are projected to account for 12% of GHG emissions and so is cement production.

Figure 1. Projected global material use in 2060 (OECD, 2019)

In many countries, improved resource management by transiting to a circular economy and adoption of similar policies is seen as a safe and reliable solution for a sustainable future.

Importance of trade for circular economy

Transition to a circular economy requires large and efficient markets both, upstream where circular innovation, design and production is encouraged and downstream, which encourages recovery and recirculation of products after their first use. Coherent trade policies play a pivotal role in strengthening these upstream and downstream circular economy solutions thus, facilitating the creation and expansion of markets for the economy to be circular.

A proposed framework (see figure 2) showing interlinkages between international trade and the circular economy focuses on the need for policies that are required on achieving circularity of materials at the domestic level which intersects with international trade at various levels of a product value chain such as, trade-in recycling/secondary raw materials, second-hand goods, goods for refurbishment and remanufacturing.

Figure 2. Linkages between international trade and circular economy (OECD, 2021)

Since the transition to a circular economy will bring structural changes to the economy – trade demand for primary and secondary materials and waste may decline in certain economies, and this shall bring in more opportunities for trade in services.

It is crucial to ensure that the circular economy policies and trade policies are supportive of each other. To facilitate the circular economy transition, certain domestic policy changes are required such as, Extended Producer Responsibility (EPR) schemes; standards for recycled materials and products; requirements for eco-design; and to phase out hazardous substances from products. However, due to the import and export of various products, the domestic policies should be considerate of the fact that these products should meet the standards of the global value chain as well.

Trade within supply chains and end-of-life products can heavily influence the circularity of an economy. The emergence of global value chains with cross-border trade in raw materials, intermediate goods, and final products enables associated environmental impacts to occur in places different from where final consumption takes place. Thus, the supply chains need to be environmentally sustainable for a country to achieve circularity. For the end-of-life product chain, products reaching their end-of-life can be collected and exported under different forms such as trade-in waste and scrap, trade-in secondary raw materials, trade in goods for refurbishment and remanufacturing, and trade in second-hand goods.

Lastly, a circular economy transition generally has a higher degree of service sector involvement including maintenance, repair, and product-service systems, and may bring about new opportunities for services trade. Services have become increasingly crucial for the manufacturing sector which often taken place via three channels:

· Services are used as intermediate inputs for production by the manufacturing firms.

·With manufacturing, new job opportunities in R&D, marketing, logistics, after-sale services, IT and management are created.

· Manufacturing firms use “services” as an incentive for the sale of their goods.

Smart Government and non-government policies, and business commitments can influence circularity to a great extent. While the transition to a global circular economy is gaining political attention, the aim is to promote synergies along with other countries to achieve material circularity, ultimately leading to the decoupling resource of natural resource use from economic growth at a macro level.

References: OECD (2018). International trade and the transition to a circular economy.

OECD (2019). Global Material Resources Outlook to 2060: Economic Drivers and Environmental Consequences, OECD Publishing, Paris.

Tamminen,S., Sell, m., Forslund, T., Tipping,A., Soprana,M., Bellmann, C. (2020). Trading Services for a Circular Economy. IISD Publishing.

Valles, G. (2016). The Circular Economy in International Trade. UNCTAD.

Yamaguchi, S. (2021). International trade and circular economy - Policy alignment, OECD Trade and Environment Working Papers, No. 2021/02, OECD Publishing, Paris.

About the Author

Nehmat Singh (LinkedIn) is a geographer and urbanist with interest areas in an urban environment, ecosystem services and sustainability. She pursued her master's in urban management and development from IHS, Erasmus University Rotterdam. Along with being an urban enthusiast, she is constantly trying to improve her baking skills.

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