The world is facing climate change, biodiversity loss and the depletion of natural resources, exacerbated by our production and consumption patterns. Transforming from the current linear economic model to a circular economy is vital to solving the sustainability crisis.
The textiles and apparel industry has a high environmental footprint, and the current production and distribution system is almost completely linear. Fast fashion – speed and volume – has become the norm over the last couple of decades. Moreover, textile production and consumption are expected to triple by 2050.
The need for change is acute and increasingly acknowledged by both consumers and regulators. The circular economy opens up entirely new opportunities in the textiles sector, ranging from the design and production of long-lasting, repairable clothes to new service models such as clothing rental. Exciting technological innovations are ushering in secondary fibres of premium quality, while production itself is becoming more resource-efficient and sustainable.
Many big brands, driven by consumer pressure, are leading the way in rethinking their operations. While they are setting new trends, circularity needs to become mainstream to provide the necessary scale and impact across the globe.
In this regard, the EU is a pioneer when it comes to regulation. Under its Circular Economy Action Plan (CEAP), circular products – including textiles – are set to become the norm on the European market, something that will have a bearing on all international markets. While regulatory development is at a very early stage, textiles is one of the sectors for which the EU is starting to work out new norms and practices under the CEAP.
Value chains in the textiles sector are notably international. The EU and other developed countries are major consumers and importers, while a significant part of the large-scale production takes place in developing countries. In fact, the EU imports just over half its textiles and apparel. The successful uptake of new circularity requirements in producer countries will be key to ensuring both global and local environmental benefits as well as opening up valuable new markets and creating jobs. This will not happen by default, however, but requires strategic planning and policy coherence.
Therefore, the Finnish Innovation Fund Sitra asked Colette van der Ven, a trade lawyer and sustainability specialist, to look into the specific and practical details of how circularity could be implemented in the textiles sector under current trade regimes, drawing on three different case studies: Bangladesh, Sri Lanka and Vietnam. This report provides her groundbreaking analysis and vision for how trade arrangements with the EU could be leveraged to support the transition, offering producer countries targeted technical support and investment while minimising the risk of new trade barriers. Producer-country governments, as well as the private sector, will also play key roles.
We hope that this study will raise awareness of the opportunities the circular economy offers for the textiles sector, and we hope to see policymakers and different organisations utilising the results.
In March 2022, the European Commission submitted a proposal for a regulation for Eco-Design for Sustainable Products (ESPR) (European Commission, 2022d). The proposal establishes a framework for ecodesign requirements that can be applied to specific product groups to enhance their durability and sustainability. These requirements, which will apply to most products produced and consumed in the EU, will have important economic implications for developing countries that rely on the EU as a key import market. On the one hand, they can incentivise trading partners to improve circularity in their production. On the other hand, they can become non-tariff barriers for developing countries that are unable to comply with the requirements of the ESPR, implicating preferential market access many developing countries enjoy as part of the Generalised System of Preference (GSP) scheme when exporting to the EU.
To better understand both the implications of the ESPR on developing countries and the associated challenges and opportunities, this paper zooms in on textile and apparel exporting countries – an industry that has been a critical part of many developing countries’ industrialisation trajectories and comprises a significant percentage of developing country exports to the EU. Specifically, based on three case studies that focus on Bangladesh, Sri Lanka, and Vietnam, this study has sought to better understand the following:
- ongoing circular economy initiatives in the textiles and apparel industry, and the challenges and untapped opportunities in the countries studied
- the alignment / misalignment between the situation in case studies and the ESPR requirements
- ways in which regional trade agreements (RTAs) and unilateral preference schemes can be leveraged to address identified challenges and tap into the identified opportunities.
Circular economy initiatives, challenges and opportunities in textile and apparel in Bangladesh, Vietnam and Sri Lanka
A number of high-level observations can be drawn based on the three case studies.
Private vs public sector: Most of the circular textile and apparel initiatives in the three countries studied are spearheaded by the private sector, often supported by donor-led initiatives. In each of the three countries studied, voluntary sustainability standards play an important role. This is, in part, because many companies in the countries studied are foreign owned, with brands pushing for their operations to become more environmentally sustainable. There is, however, a notable absence of government involvement in establishing textile waste recycling incentives.
Cotton vs synthetic: Countries’ circular economy initiatives differ depending on the industry characteristics. For example, in Bangladesh, cotton recycling presents a large untapped opportunity due to the prevalence of 100% cotton waste which is easy to recycle. By contrast, both Sri Lanka and Vietnam rely on a mixture of cotton and synthetic, as well as blended materials. These blends require significant efforts in sorting and separating and typically contain many chemicals or accessories. This makes it much more difficult to recycle. In these countries, circular efforts should focus on improved product design that would facilitate recyclability, as well as on adopting incentives to attract investments in adequate recycling machinery and technology.
Process vs product: Another interesting observation is that circular economy initiatives adopted in the countries studied focus on enhancing circularity in the production process itself, either through waste management or reducing resource inputs in the production process. These initiatives seek to reduce the environmental footprint of the product. They do not, however, focus on making the product itself more circular, through enhancing reusability and recyclability in the way the product is designed. This is important for three key reasons:
- Most of the value added will take place in upstream design activities – not waste management activities
- 80 per cent of the environmental impacts of a product are determined at the design phase
- The ESPR focuses on the circular characteristics of the product itself, not the production process.
Alignment / misalignment with the ESPR
Various gaps exist between circular textile and apparel initiatives adopted in the countries studied and the ESPR requirements. To begin, most circular textile and apparel initiatives analysed are in their infancy and often spearheaded by the private sector. This means that examples of circular production tend to be the exception and not the norm. Moreover, while most developing countries’ circular textiles and apparel initiatives focus on production processes, the ESPR predominantly focuses on product characteristics. This suggests a mismatch: even if a product has been produced with fewer water inputs, or even if post-industrial waste has been recycled, it does not per se render the product itself more circular in accordance with what would be required by the ESPR. Another important gap concerns material traceability: the ESPR envisages the introduction of a digital product passport that would contain information about the product’s content, including the percentage of recyclable material. Product traceability in the countries studied is very poor, especially with regard to post-industrial waste tracking given that this is often in the hands of the informal sector.
Ensuring that imported textile and apparel products comply with the ESPR will require great levels of commitment, including from the EU, developing countries’ governments, the private sector and donor organisations. Certain priority areas have been identified to enhance the link between developing countries’ circularity initiatives and the ESPR.
- Develop a strategic approach to develop a circular textiles and apparel industry /adopt appropriate regulatory framework.
- Ensure circular initiatives are not limited to waste management, but also focus on product design and developing alternative and recycled fibres.
- Promote and facilitate circular investments and investments of relevance to circular textiles and apparel.
- Increase access to critical technologies necessary to advance the transition to a circular textile industry; including in recycling systems and innovations in nature-based fibre.
- Invest in skills development, through capacity building.
- Reduce the risk that the ESPR becomes a non-tariff barrier, including through mutual recognition.
- Enhance product traceability in the textile and apparel supply chain – both with respect to material tracing and overall trade transparency.
Leveraging regional trade agreements (RTAs) and unilateral preference schemes to address challenges and tap into opportunities
RTAs can be leveraged to advance circular economy opportunities in developing countries, including by strategically targeting investment, improving technology transfer including through joint ventures, lowering barriers to goods and services relevant to transitioning towards circular textiles industries reducing trade friction that could result from the ESPR. In particular, it would be interesting to explore to what extent voluntary sustainability standards (VSS) could be considered equivalent to government standards/technical regulations through TBT provisions. Indeed, companies that have been certified by a variety of sustainability standards will be likely to experience fewer difficulties in meeting ESPR requirements. Moreover, for an inclusive and just transition to circular textiles, targeted technical assistance will be indispensable.
A key take-away is that RTAs, when approached strategically, can facilitate a developing country’s transition to circular textiles. A prerequisite to doing so involves identifying the specific opportunities and challenges in the country’s textile and apparel industry, as well as any comparative advantage a country may have with respect to the circular economy as applied to the textile and apparel sector. As circular economy roadmaps and policies identifying the opportunities and challenges specific to circular apparel and textile are lacking in many developing countries, this should be a key focus of technical assistance co-operation. Sharing information about best practices would be one way for RTAs to facilitate this. Another way to do so would be by focusing on capacity building through developing skill sets in areas such as post-industrial waste management, ecodesign, product traceability and general infrastructure support.
RTAs are not the only vehicle for enhancing circularity in textiles and apparel industries and ESPR compliance. In the context of unilateral preference programmes, regulatory coherence between the EU’s GSP scheme and the ESPR ecodesign requirements can be improved by making available a budget to facilitate compliance with the ESPR for those GSP beneficiaries whose EU exports of textile and apparel products comprise 50% or more of the country’s total EU GSP exports. In addition, given that design and other high-value activities related to the apparel and textile value chain are typically in the hands of multinational companies, the private sector can play a critical role in catalysing the transition to circular textiles in developing countries. This can be done through technology transfer as a result of joint ventures between international brands and local businesses and by ensuring that international clothing brands that invest in developing countries are in a position to produce products that comply with the ESPR standards.
Finally, it would be critical to reflect some of the observations made in this study in the ESPR itself, including the yet-to-be developed delegated act for textiles and apparel. This could be done by building in special and differential treatment provisions allowing developing countries more flexible transition times. It would similarly be critical that the process for developing the delegated act for textiles and apparel stakeholders from key apparel and textile-producing countries exporting to the EU, both from the public and private sector.
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