The circular economy and trade policy

The transition to a circular economy will only succeed if the change is supported by trade policy. We investigated how the EU can promote the circular economy through its trade policy, especially within the framework of free-trade agreements.

What was it about?

In a networked world, the transition to a circular economy can only take place if all countries participate in it. International trade links all economies together – which is why we must manage to make trade follow the rules of the circular economy.

The global rules of trade are decided by the World Trade Organization (WTO). As an important trading power, the European Union can promote a circular economy within the framework of the WTO and its own trade agreements.

The EU has concluded free-trade agreements with almost 80 countries. The agreements open up new market opportunities, serve as pillars of economic co‑operation and include commitments to sustainable development.

However, the EU’s free-trade agreements do not currently support the transition to a circular economy. But the situation could be different. Knowledge of how to promote a circular economy in trade policy and the tools for it are required now that the global economy is rising out of the recession caused by the coronavirus pandemic and the EU is beginning to implement its programme on green development (EU Green Deal).

What was achieved?

In the first phase of the project, a background report was drawn up which examined the effects of the coronavirus pandemic on global trade from the point of view of the circular economy. The background report also outlined methods that would enable the circular economy to be integrated into the EU’s free-trade agreements.

In the project, co‑operation was conducted with four trade partners of the EU and dialogue held with the representatives of selected partners on topics such as the business models of the circular economy and the standardisation of product policy.

A case study summarising the challenges and opportunities of the circular economy and free-trade agreements in each country or market area was produced on each trade partner. Based on the case studies, a final report was drawn up, which includes recommendations for integrating circularity into free-trade agreements and trade policy.

During the project, an international co-operation network was also built in which experts on the circular economy and trade experts can share lessons learned and best practices.

Who participated?

The project was implemented by the Institute for European Environmental Policy (IEEP). Sitra was the principal sponsor of the project. During the project, discussions were held with different parties in the EU and with companies, organisations and public administrations in countries that are trade partners of the EU.

In addition to Sitra, the project’s steering group featured representatives from the Foreign Ministry, the Confederation of Finnish Industries, the OECD, the Ellen MacArthur Foundation, UNCTAD, IISD, the Tear Fund and Chatham House.

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