Dossier: Supporting the Green Transition

Moving goods in a circular business model: challenges and way ahead

By Florence Binta Diao-Gueye, Global Policy Manager, Trade & Customs, International Chamber of Commerce

Why are we looking at circular economy approaches?

Global trade has experienced intense challenges for the past two years, with supply chains facing unprecedented pressures during the COVID-19 pandemic and more recently with the Russia-Ukraine war on the European continent.

At the same time, the planet has been heating up and people are waking up to the climate crisis which societies are facing. All these developments have added to a questioning of the current functioning of our global economy that is based on a linear and extractive model using finite resources.

The idea of a circular economy is to use resources more efficiently and to decouple economic growth from material inputs – providing a path to address climate change and biodiversity loss, and to find a workable solution to the current unsustainable consumption of natural resources.[1]

Adopting a circular economy approach means accepting a systemic change that will transform how a business or even an economy functions and how societies consume. While some companies are pioneers in working towards a circular business model, there are regulatory hurdles, as well as practical and legislative barriers, in their way to becoming more circular.

Challenges

In general, all circular models contain the following aspects: reducing, reusing, refurbishing, remanufacturing and recycling. For instance, IKEA is on an ambitious journey, with circular commitments defined until 2030. The company is focused on eliminating waste as much as possible, using recycling only as a last resort, and instead focusing on reusing, refurbishing and remanufacturing to enable the retention of most material and product value, while using renewable or recycled materials from the start.[2]

With complex value chains, it takes innovation and real commitment to get to a circular business. For a company that aims to transform its business, this can be a slow process since it requires a lot of investment, as well as learning and developing this new way of doing business. Practically, it means that new capabilities must be developed, measurable KPIs defined, and exploration and case studies completed before changing business operations.

In order to benefit from comparative advantage and economies of scale, supply chains have become very complex in a highly integrated world economy. While components and goods cross borders many times before becoming a product, there are challenges to operating a circular supply chain.

The lack of harmonization and alignment of local consumer regulatory rules, local Customs regulations, as well as (country) waste management regulations, can make complicated the cross-border movement of goods or components that are part of a circular supply chain.

For instance, Mercedes-Benz is also focusing on measures that are promoting the circular economy, not only by reducing its material consumption, but also through recycling of key components such as batteries. The aim is to reintroduce recycled materials into its supply chain, with its pilot CO2-neutral recycling factory in Koppenheim (Germany) set to open in 2023. With a recovery rate for vehicle batteries of more than 96%, it is a critical step forward in its circular business model, which hinges on the ability of parts to cross borders, since a recycling plant with this technological capacity cannot be built in every country.[3]

Businesses depend on achieving economies of scale, even when it comes to establishing more sustainable systems, such as circular business models, which is why the ability for goods or components to cross borders is critical. Harmonization and alignment regarding global trading regulations and country-specific requirements will be pivotal for all businesses that aim to reuse, refurbish, remanufacture and recycle (four loops of the circular economy).

While each circular supply chain will be designed differently, with varying aspects of the four loops, some of the challenges to materials crossing borders are prevalent. We have listed some in Table 1 which you can download here in a pdf format.

How to enable and accelerate circular business models

It is important to redefine waste as a resource to enable a circular economy. The legal definition of “waste”, that is still based on the Basel Convention, does not allow a distinction to be made between products/materials able to be reused, repaired, repurposed or refurbished, and what should actually be recycled/disposed of. “Waste” in the context of recycling is different from, for example, reuse, refurbishment and remanufacturing. Today, the legal framework does not take these distinctions into account. There are different approaches needed, depending on the “circular loop” (such as reuse, refurbish, remanufacture or recycle), and this should be recognized in the legislation. It is critical to have a clear definition in place that reflects the new needs in a circular society, in order to set the right conditions for legal obligations/rights.

There is also a need to make waste a (harmonized) resource. Not only is investment in better waste treatment infrastructure critical in order to greatly increase the use of recycled materials, but also harmonization of waste rules across markets is a prerequisite to close loops in an efficient way and to encourage greater cooperation among different markets in waste prevention, generation, collection, sorting and treatment.

Last but not least, consistent and safe international frameworks must be established. The promotion of a circular economy will have the most positive impact on the environment if it is adopted globally. We need cross-border collaboration among governments to enable supply chains that are resilient to change, creating business opportunities within the means of the planet. Export and import solutions should therefore account for the big picture, enabling the best preconditions for maximum positive impact, rather than focusing on limitations and bans.

Multilateral institutions such as the WTO and WCO have the potential to enable and accelerate the adoption of circular economy approaches through the harmonization and alignment of standards, regulations and agreements – providing a framework that accommodates the adoption of a circular business model.

To learn more about this topic, I encourage you to read the ICC study The Circular Economy and International Trade: Options for the World Trade Organization[6], which provides an in-depth review of the major policy frictions in transitioning to a circular economy.

More information
http://iccwbo.org

[1] ICC study, Christophe Bellmann (2021): The Circular Economy and International Trade – Options for the World Trade Organization. See https://iccwbo.org/publication/the-circular-economy-and-international-trade-options-for-the-world-trade-organization/, p.6, (30/05/22).

[2] IKEA: Transforming into a circular business. See https://about.ikea.com/en/sustainability/a-world-without-waste, (29/05/22).

[3] Mercedes-Benz: Mercedes-Benz establishes sustainable battery recycling: Own recycling plant to start in 2023. See https://group.mercedes-benz.com/sustainability/resources/battery.html, (29/05/22).

[4] Ragn Sells (16/09/20): Ash2Phos – pioneering patent for vital nutrient. See https://www.ragnsells.com/what-we-do/inspired/ash2phos—the-story/, (31/05/22).

[5] An article without tariff code may not be sold in another market than the market where it is manufactured.

[6] ICC study, Christophe Bellmann (2021): The Circular Economy and International Trade – Options for the World Trade Organization. See https://iccwbo.org/publication/the-circular-economy-and-international-trade-options-for-the-world-trade-organization/, p.6, (30/05/22).