Trade, technology and a just circular transition
Jack Barrie and Patrick Schröder
The circular economy (CE) redefines the economy around principles of designing out waste and pollution by keeping products and materials in use for as long as possible. The primary focus to date has been on the role businesses and national governments play in driving this transition, yet it is becoming increasingly clear that no single country (or business) can go it alone. All countries, to varying degrees, are dependent on the trade of goods and materials through complex, globally integrated value chains which cannot be produced or sourced domestically. Multilateral solutions and international cooperation will be key for a successful global transition.
As an enabler of the circular economy, global trade facilitates access to the technologies and services countries (and businesses) need to engage in circular activities (repair, re-manufacturing or recycling) and to implement circular business models. Global trade enables economies of scale, which are essential if circular activities are to be economically viable, and allow the flow and aggregation of second-hand and end-of-life goods, secondary materials and waste to countries that have the necessary expertise to efficiently manage waste. That is, the global trading system is crucial for realizing a global circular economy.
Despite its decisive role in the transition to the circular economy, the global trading system has evolved in favour of the linear extract-make-throwaway economy, resulting in lock-ins and challenges that have made circular trade particularly difficult. For example, there is no global standard definition on what a ‘circular good or service’ is, which makes it nearly impossible to develop shared trade rules and customs duties. Moreover, the current trading system inhibits a circular transition because it is cumbersome and outdated, with poor supply chain transparency and complex red tape surrounding trade in secondary goods, materials and services.
This has ramifications for least developed countries (LDCs). LDCs often rely on low-cost imports of high-quality second-hand goods (such as cars and electronic goods) for reuse in their domestic market. According to UN Comtrade, the share of global trade in secondary raw materials and used goods to sub-Saharan Africa between 2000–2019 rose from 1 per cent to 16 per cent. Trade in such goods creates a significant competitive advantage for labour-intensive circular economy activities such as disassembly of products to reuse their components and parts their repair and recycling. Just like China is considered the manufacturing hub of the world, low-income regions could become the repair, re-manufacturing and recycling hubs of the world.
Given the inequalities Least Developed Countries (LDCs) face in terms of participation in global trade and their urgent need for social and economic development, the question should not necessarily be how to redesign the global trading system to accelerate circularity, but rather how it can be redesigned to accelerate a just circular transition – one that aims to ‘reduce waste and stimulate product innovation, while at the same time contributing positively to sustainable human development’.1
Technological trends that influence circular economy trade
The global trading system needs to be overhauled to realize a just circular transition. In addition to a revision of trade rules and regulations, a new generation of technologies must be harnessed. Three specific technological trends are set to have an impact on the role of trade in a just circular transition, namely: increasing supply chain transparency and product life cycle information; localized material sourcing and manufacturing; and enhanced product repair and secondary material recovery. If harnessed appropriately, each trend offers significant potential to re-wire global trade in line with just circular principles.
Trade and technologies to enhance supply chain transparency
The development and scaling up of digital and physical tracking technologies can help solve supply chain transparency problems by enabling real-time identification and tracking of products across their entire life cycle. Examples include digital watermarks, product passports enabled by computer vision, Internet of Things (IoT), radio frequency identification (RFID) tags and other advanced sensors. Product identification and tracking is supported by the development of data storage and retrieval systems via distributed ledgers on the blockchain, cloud computing and 5G.
The provenance of any product (and its components) can now be traced all the way across the supply chain. The current barriers to trade in CE material trade streams can thereby be overcome, as a clear differentiation and classification between secondary materials for reuse, goods for repair and materials for recycling can be made. This also increases barriers to illegal waste dumping in LDCs. It furthermore opens the opportunity for more equitable approaches to resource trade, such as raw material leasing, whereby an LDC can lease its raw materials to developed countries and track the flow of these materials throughout their lifetime.
Despite these advantages, there is a risk that these technologies remain confined to use in advanced countries (similar to the history of internet access), which have the necessary funds, institutional structures and skill base to deploy them. The competitive advantage of developed countries over LDCs will consequently grow, thus exacerbating trade inequalities.
Advanced CE material production and manufacturing technologies
The second observable trend is the development of advanced CE material production and manufacturing processes (including material science, AI design software, 3D printing and industrial biotechnologies).
These technologies offer LDCs a number of opportunities. LDCs typically rely on imports of high quality but affordable second-hand goods (such as cars, white goods, medical equipment and electronics) because they lack the domestic industrial base to produce them. One of the common problems LDCs face is that such imported second-hand goods often require either immediate repair or refurbishment or are increasingly becoming obsolete as the supply of spare parts to maintain them dries up. The combination of using locally available materials and advanced 3D printing could help create a flourishing local repair and re-manufacturing industry, and reduce LDCs’ costs in dealing with waste from imported obsolete or defective goods.
Demand for certain raw materials (as well as intermediary goods) exported from LDCs may also decrease as developed countries turn to sourcing local materials. Additionally, limited access to these technologies due to trade restrictions (export tariffs) or non-trade barriers, such as strict control of intellectual property, may prevent LDCs from reaping the benefits these technologies could potentially offer.
Repair and secondary material recovery technologies
The third trend is the development of technologies that facilitate repair, refurbishment, re-manufacturing and recycling activities. Many disassembly and recycling technologies offer promise, for example, Apple developed Daisy, the robot, which can dismantle over 200 iPhones per hour. iPhone components can be reused and the materials recycled. Other examples include chemical and enzymatic recycling technologies for textiles and plastics, ultrasonic waves for the recycling of electric vehicle batteries or computer vision equipment, enabling high precision sorting of mixed recycled materials.
Tariff-free trade of these technologies would allow LDCs to recycle end-of-life goods more efficiently and to capture critical materials for use in domestic industry or for export. In addition, advancements in real-time condition-monitoring sensors and the IoT open up opportunities for LDCs to export specialized condition-monitoring services to developed countries. This trend is already being observed in developed countries, which are increasingly outsourcing complex support services in addition to more traditional ones, such as call centres.
What needs to happen to harness technological innovation for a just circular transition?
If these technology trends are used to reinforce the global economy’s current power structure, they could serve to lock in and even accelerate the divide between the haves and the have nots. Just like the growing digital divide, we may witness the emergence of a circularity divide, with industrialized countries developing and using advanced technologies to gain a competitive advantage in supply chain resilience, productivity and trade efficiency, whilst leaving LDCs behind, trapped in an inefficient, uncompetitive and polluting linear economy. Concerted efforts are necessary to ensure a level playing field.
An increase in targeted investments in capacity-building in LDCs is necessary, both in terms of infrastructure and skills. Financing and technical support for the construction of infrastructure are needed to facilitate the establishment of a domestic circular economy (repair, re-manufacturing and recycling plants and waste collection systems) and to foster circular trade (including ports and digital trade systems). This requires stronger multilateral collaboration to embed the scaling up finance mechanisms for green trade development (one example being the G7 Build Back Better World initiative) as well as embedding circularity within the Aid for Trade (AfT) programme.
Environmental goods agreement (EGA) negotiations need to be revived to adopt a clear definition of environmental goods and services and to ensure tariff-free trade. This would help accelerate the transfer and uptake of CE technologies in LDCs. EGAs should be complemented with a redrafting of bilateral and plurilateral free trade agreements (FTAs) with LDCs to promote trade in these technologies with a particular focus on reducing intellectual property and technology transfer barriers.