The Circular Economy, Trade, and Development: Addressing Spillovers and Leveraging Opportunities

Abstract

As a result of global value chains, a transition to a circular economy will impact on international trade flows. While the transition to a circular economy agenda is predominantly driven by national policies, there is increased awareness that it will have associated impact on international supply chains that will extend beyond national borders. Specifically, several global trends can be expected, including: reduced trade in primary raw materials; increased trade in secondary raw materials; increased trade in recyclable waste; increased trade in second-hand products; and increased trade in services.

These anticipated shifts in international trade flows will be especially significant for developing economies–creating both challenges and opportunities. For instance, it could potentially reduce export earnings of commodity-dependent developing economies, undermine industrial development, increase import of waste exceeding a country’s recycling capacity, and create a shift in trade towards products that meet circular economy standards. However, these shifts also present new opportunities for job creation and development, especially in emerging services industries like recycling, repurposing and re-use of materials. It could also lead to new opportuni.es for the commodities-dependent countries, offering an alternative strategy to the traditional manufacturing-led export model for industrial development.

There are different ways in which a developing economy can buffer potentially negative spillovers associated with a transition to a circular economy while leveraging any opportunities – with a role for proactive domestic policies, regional trade agreements (RTAs), and the World Trade Organization (WTO). On the domestic level, developing economies must undertake a study to identify any sections that could be vulnerable to job loss over the long run, map opportunities in new sectors, with an emphasis on emerging services, and create a roadmap that enables a country to be proactive as opposed to reactive to the transition to a circular economy.

International trade agreements could play a role in (i) defining key product categories for new tradeable products associated to the circular economy; (ii) developing and harmonizing quality standards for circular economy products; (iii) opening markets for trade in goods and services relevant to the circular economy; and (iv) providing technical assistance for developing countries. In addition, the WTO could play a role in advancing an inclusive transition to a circular economy by: (i) including the circular economy as a priority area in the multilateral agenda; (ii) strengthening the role of the Committee on Trade and Environment; (iii) facilitating specific initiatives related to the circular economy; and (iv) strengthening the link between Aid for Trade and circular economy objectives.

Keywords: Circular economy, trade, developing countries, industrial policy, green growth