Wasted opportunities

The average American generates 4.4 pounds of solid waste every day. The garbage and recycling trucks come faithfully each week, but we don’t pay much attention to where it all goes. According to the Institute of Scrap Recycling (ISRI), approximately one-third of the scrap recycled in the United States is exported. China is our largest customer.

Recycling is a global industry. 179.6 metric tons of scrap commodities worth $86.5 billion were exported globally in 2015. Ferrous, non-ferrous (copper and aluminum), and precious metals are among the most valuable and highly traded waste. Shipping these non-hazardous scraps for recovery in another country can extend the life of scarce natural resources that might otherwise end up in local landfills.

Why do other countries buy it?

ISRI calls scrap recycling “the first link in the global manufacturing supply chain.” Take the case of China, the world’s largest importer of scrap commodities. For years, cities such as Foshan in southern China have enabled 24-hour a day scrap operations where workers sift, sort, break down, and process metals to feed China’s extended construction boom. The recycled metals find their way into new rail systems, gleaming skyscrapers, automobiles, industrial machines, and other infrastructure needed to support a modernizing country and satisfy the appetite of a newly affluent and growing middle class. China does not have enough of natural resources to meet demand and secondary raw materials recycled in China are often cheaper than virgin materials.

Adam Minter is a journalist based in Shanghai who has spent over a decade studying China’s recycling industry up close. He gives this example in his book, Junkyard Planet:

“In 2012, China produced 5.6 million tons of copper, of which 2.75 million tons was made from scrap. Of that scrap copper, 70 percent was imported with most coming from the United States. That’s not a trivial matter: Copper, more than any other metal, is essential to modern life. It is the means by which we transmit power and information.”

Scrapping plans for “foreign garbage”

In July, China notified WTO members of a change in policy. As of the end of this year, China will ban the importation of 24 categories of solid waste including tires, textiles, plastic, and glass, and it will limit the importation of other waste such as steel, copper and aluminum scrap.

The U.S. scrap industry shipped more than 37 million tons worth $16.5 billion to customers worldwide in 2016. One third of that went to China. ISRI says that more than 155,000 Americans are employed in the U.S. recycling industry, which depends heavily on exports to China. Recyclers in the European Union, Canada, Korea, and Australia are worried about the ban as well. Their representatives to the WTO raised questions about China’s policy at the most recent meeting of the WTO’s Committee on Import Licensing.

2016 US Scrap Exports to China

Recycling good trade practices

As China implements procedures to monitor and control the importation of waste, it will need to be mindful of its commitments under the WTO Agreement on Import Licensing. The obligations in the Agreement are designed to ensure that any procedures used to administer import licenses are “simple, neutral, equitable and transparent.”

The agreement’s disciplines require members to publish and notify new or changed import licensing procedures to other WTO members, to apply simplified procedures without discrimination, and to process import applications within reasonable time limits. The agreement also specifies best practices such as streamlining the number of agencies whose approval is required, and not refusing applications if minor documentation errors are made by exporters without fraudulent intent or gross negligence. These are nitty gritty operational matters that can significantly disrupt exporters’ businesses if not handling transparently and fairly.

Trash talk can be beautiful

The WTO’s import licensing committee meets about twice a year. Members can ask questions and seek clarification about draft laws and import procedures. Why is the measure needed? How will it operate? In this case, China did provide notice and several WTO members queried the representatives from China about the scope and application of its ban. At the same meeting, members asked Indonesia about its dairy import licensing regime; Vietnam said it was taking measures to respond to concerns about discriminatory aspects of its import licensing for distilled spirits. Mauritius, Moldova, and Botswana filed their first notifications.

Publication and transparency are good administrative habits, reinforced by the WTO’s rules. It helps to avoid trade disruption and strengthen domestic processes that promote inclusion in public rulemaking. The committee discussions shine a light on poor procedures, putting peer pressure on countries to apply better practices while offering training and good examples for countries with burgeoning regulation to follow. Importantly, however, the process is only as good as members’ compliance with the requirement to provide timely notification of measures to their trading counterparts, which has been something of a problem in this and other WTO committees. But those flaws should not overshadow the overall opportunity the WTO provides for countries to have regular, ongoing discussions about their trade regimes in a peaceful and civil environment.

What will happen to the garbage?

After December, China may no longer accept waste paper or plastic. Today, China buys over half of the plastic thrown away by the rest of the world and has become the world’s largest paper recycler. The China Paper Association says one quarter of the paper produced in China is made from imported waste paper. The ban will have implications for companies like Amazon and Alibaba that fill millions of orders comprised of products made from recycled materials and packaged in recycled materials. There will certainly be ripple effects that cause price and supply uncertainty.

When economists look at the negative externalities generated by trade in waste, they might cite differences between countries’ pollution policies as driving trade flows. To address environmental externalities the “first-best policy” in economic circles would be to establish appropriate domestic regulation or tax policies. Alternatively, a country might restrict the importation of waste. The Chinese Government cited health environment and health concerns but most of the waste feeding China’s massive and inadequately regulated recycling industry comes from domestic sources.

Where will the world’s exported waste go if not to China? Trade barriers often have the same effect as squeezing one part of a balloon. Trade flows clamped off in one area causes them to swell in another. If there’s demand, high-quality waste will be redirected to other countries. If not, it goes to the landfill.

Read more:

The WTO Agreement on Import Licensing Procedures

Junkyard Planet by Adam Minter