The Circular Economy and International Trade: Options for the World Trade Organization

The transition from a linear, extractive, produce-use-discard model to a more circular approach promoting resource efficiency and the decoupling of economic outputs from material inputs implies a significant change in business models. In today’s highly integrated world economy, international trade is likely to play a critical role in facilitating this transition, by exploiting existing comparative advantages and allowing economies of scale. However, several governments have used a variety of trade restrictive measures in their pursuit of enhanced circularity as illustrated by recent import bans on plastic waste, and this report suggests three possible approaches to be explored under the WTO structured discussion on trade and environmental sustainability (TESSD).

This report explores the interface between trade and a transition to a more circular economy. In today’s highly integrated economy, international trade plays a critical role in facilitating this transition, by exploiting existing comparative advantages and allowing economies of scale. Goods and services already cross borders at virtually all stages of the circular value chain, from upstream design services to remanufactured goods and secondary raw materials. Yet trade policies are not always aligned with circularity objectives. Similarly, policies aimed at fostering a circular economy can have detrimental effects on trade even if unintended. As the role of trade and trade policy attracts more attention, understanding how it can effectively support a circular economy transition becomes critical for policy makers.

As a contribution to this emerging field of research, this report reviews the main findings of existing literature and supplements it with qualitative insights from interviews with trade policy makers; researchers in non-government organisations; private sector firms operating in different segments of circular economy value chains; and international organisations focused on different aspects of the circular economy. It starts with a short description of the circular economy as a concept, before reviewing the role of international trade in facilitating a transition to a more circular economy. In doing so it explores in particular the role of multilateral institutions and trade policy frameworks, such as the World Trade Organization (WTO), and provides specific recommendations for action.

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