Governing the Trade of Secondary Materials

Transitioning to a circular economy requires fair and transparent trade for re-circulated resources.

Henrique Pacini and Tze Ni Yeoh, 4 February 2021

China’s ban on the imports of most scrap plastics and other materials in 2018 sent shock waves globally. The ban not only diverted a significant stream of scrap plastic trade to other regional countries but raised important questions on the nature of waste and its implications across global value chains, vulnerable local communities and sustainable economic growth.

China’s reaction to the risks related to the trade of scrap and other waste materials will neither be the first nor the last. It elucidates the urgency to understand and monitor flows of scrap materials for two reasons: to mitigate environmental risks related to pollutants in waste materials and to minimize negative long-term consequences on developing countries due to the dumping of cheap, imported second-hand goods.

But, at the same time, the global vision for a circular economy fundamentally depends on turning waste into resources. The global trade of secondary materials can manifest in significant cost savings as well as environmental gains, such as less water usage and CO2 emissions, by reducing the need for primary production.

Indeed, in 2019, countries traded USD 135 billion worth of secondary materials amounting to 550 millions tonnes of used materials including scrap plastics, metals, used paper and second-hand clothes. However, a circular global economy cannot do without a robust exchange in secondary materials, and so the question is, how can it be done better?

The case of scrap plastic

To get a better understanding, an examination of the data is needed, one which assesses the complex relationships in the trade of scrap plastics. Some insights, based on a recent analysis of trade data following China’s ban, show that, as more countries respond to risks and restrict the imports of plastic waste, countries with weaker regulations tend to absorb these flows, resulting in disastrous environmental consequences. For example, since China’s adoption of waste import restrictions, the spread of secondary material imports into developing countries has widened significantly.

However, more factors are at play. The analysis finds that countries in a ‘trade cluster’ are often – but not necessarily – in the same geographic region. Furthermore, scrap materials do not flow from more developed to less developed countries in a linear way. For example, there are stronger flows of recycled ethylene heading from Mexico to the US, and then subsequently from the US to Malaysia, then there is in reverse.

But the formation of a trade cluster for a specific secondary material can be due to various reasons such as commercial routes, reverse logistics, geographic proximity or trade agreements. This suggests that, in addition to multilateral action on plastics governance, it is important to consider regional characteristics of the trade in scraps.

Another important insight is that imports of mixed plastics are subject to lowest import tariffs – averaging only 5.4 per cent vs. more than 6 per cent for all other types of scrap plastics. This is contrary to environmental sense since mixed plastics are harder and more costly to recycle and also worse for the environment. This finding is made worse by the fact that more than 50 per cent of recycled plastics traded in both value and weight are mixed plastics.

The data also finds the presence of a sizeable ‘shadow economy’ in the trade of scrap plastics. Large price discrepancies have been found between declared exports and imports of trade partners, in other words, what an exporter declares often does not match what the importer booked in. Exporters declare values of on average 18.47 per cent higher than importers thereby in contravention of the typical reported discrepancy of international trade.

Operations by the World Customs Organization to capture snapshots of illicit trade flows in waste, for example, seized tonnes of illegal shipment – the largest single seizure measuring up to 180,000 tonnes of smelting slag from Spain. These operations reveal that not only is more data needed but that illicit trade flows cut across a wide number of regions and across a large spectrum of goods and materials.

Improving governance

Improving the governance of secondary materials to promote a responsible, circular economy based on the Sustainable Development Goals is currently being addressed by various international groups. The Basel convention amendment, for example, enhances control on the transboundary movement of plastic waste. Furthermore, a recently-created World Trade Organization working group focuses specifically on plastic trade issues. UNCTAD, too, has been active in providing support for WTO members concerned with the issue of ocean plastics pollution as well as in terms of providing technical assistance for countries across Sub-Saharan Africa and South Asia through the SMEP programme.

The private sector and civil society are also responding with initiatives, such as the Alliance to End Plastic Waste and the Platform for Accelerating the Circular Economy (PACE), while national governments are similarly exploring mechanisms, such as Extended Producer Responsibility schemes, in order to incentivize better design-for-circularity and absorption of secondary raw materials.

Nevertheless, the process of improving the governance of trade in secondary materials is an opportunity that goes beyond plastics. Many other secondary materials are traded internationally as illustrated by Chatham House portal, which presents the scope of secondary materials traded in the world.

Some embodied characteristics of those products including process and production methods (PPM), reveal important connections to how the world manages its secondary material flows, their value and their climate impact.

Indeed, in December 2020, the World Trade Organization, under its committee on Trade and Environment, formed a working group on Trade and Environmental Sustainability, supported by over 50 members. The goal of this group is to strengthen discussions around climate change, the promotion of a circular economy and biodiversity protection, among others, in the run up to the 12th WTO ministerial scheduled for late 2021. Other multilateral efforts at the OECD, as well similar World Bank initiatives, are also great examples of how the multilateral community is mainstreaming such discussions.

2021 will be important for international materials stewardship as BRS conventions, the UNEA-5 as well as UNEP’s SAICM and the 12th World Trade Organization ministerial are all scheduled to take place later this year. While there has been significant progress in establishing a system of governance of scrap plastics at a high-level so far, its success ultimately depends on enforcement. Stakeholders across the board, therefore, must hold each other accountable and work cohesively to translate plans into action.