This article is part of a Synergies series on climate and trade curated by TESS titled Addressing the Climate Crisis and Supporting Climate-Resilient Development: Where Can the Trading System Contribute? Any views and opinions expressed are those of the author(s) and do not necessarily reflect those of TESS or any of its partner organizations or funders.

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The European Union’s Clean Industrial Deal, which seeks to boost the competitiveness and resilience of EU industry while reducing carbon emissions, highlights the circular economy as a strategic priority, emphasizing its critical role not only in lowering CO2 emissions but also in maximizing the EU’s limited resources and reducing trade dependencies. It references the Ecodesign for Sustainable Products Regulation (ESPR), a flagship EU initiative which entered into force in July 2024. The ESPR establishes a framework for the setting of ecodesign, performance, and information requirements that most products consumed within the EU, including imports, must comply with to be placed on the EU market.

In particular, the ESPR provides the legal framework for the Commission to establish performance requirements to extend the life cycle of the product, including by enhancing a product’s durability, repairability, reusability, recyclability, and remanufacturing, while seeking to reduce a product's material footprint, including through emphasizing the use of recycled material.

Furthermore, the ESPR establishes information requirements through Digital Product Passports. The information to be provided would include, inter alia: a repairability and durability score; information about a product’s carbon footprint or environmental footprint; information on how to ensure optimum durability; and information on treatment facilities or places for disassembly, recycling, or reuse. The ESPR further includes a ban on the destruction of unsold goods. Secondary legislation will establish sector- and product-specific performance requirements for a select list of priority products identified in the 2025-2030 Working Plan: textiles and apparel (1st priority), iron and steel (1st priority), furniture (2nd priority), tyres (3rd priority), mattresses (4th priority), and aluminium (4th priority).

The ESPR is a commendable effort from the Commission to accelerate a transition towards a more circular economy, tackling key aspects of product durability and sustainability. At the same time, it will have profound trade implications. While it has not received similar attention compared to other green trade regulations in the EU, such as the Carbon Border Adjustment Mechanism (CBAM) or the Regulation on deforestation-free products (EUDR), the ESPR is a non-tariff measure that could negatively affect EU market access. Indeed, the envisioned performance and information requirements will likely increase the costs for manufacturers seeking to export to the EU, with businesses in developing countries and small and medium-sized enterprises being disproportionately affected. These costs are incurred as manufacturers adjust their production methods and product design to comply with the ESPR, and as they engage in reporting and conformity assessment procedures to establish compliance.

The ESPR’s impact on trade will differ by sector and by trading partner. For instance, for textiles and apparel—a number one priority sector under the 2025-2030 Working Plan—trade implications will depend on the gap between the ESPR and the domestic regulatory framework, existing compliance of garment manufacturers with voluntary sustainability standards, the existence of a digital infrastructure to support Digital Product Passports, and the resource and carbon efficiency of a country’s garment sector compared to similar sectors in competitor countries. Industry-specific characteristics will also play an important role. For instance, a study on the impact of the ESPR on garment producing developing countries found that it will be easier for Bangladesh to enhance recycling and the durability of a garment compared to competitors like Vietnam, due to the prevalence of cotton garments, which are relatively easier to recycle compared to, for instance, the heavy use of polyester and blended garments in Vietnam.

Export exposure also impacts the extent to which EU trading partners will be affected by the ESPR. Bangladesh, the second largest garment exporter to the EU after China, will he highly exposed, given that garment exports account for more than 80% of the country’s exports, with the EU as the largest export destination. By contrast, countries like Vietnam or Cambodia are less exposed to the ESPR, due to more diversified export baskets and a higher dependence on the United States (this could change in light of the Trump administration’s so-called reciprocal tariffs, which have already affected US garment orders).

Understanding the ESPR in the steel context—the other product sector with the highest priority—requires taking a closer look at the EU’s new strategy for the sector: the EU Steel and Metals Action Plan. This plan touches on circularity by seeking to stimulate demand for low-carbon steel and recycled metals within the EU, while exploring scrap export restrictions to foster circularity and ensure metal scrap availability within the EU. The Commission is currently establishing a voluntary low-carbon label for steel aimed at supporting the creation of lead markets, green public procurement, and ensuring that manufacturers receive a green premium and thus a return on their decarbonization investments.

The ESPR delegated act for steel will complement this labelling scheme by adding other relevant environmental criteria beyond carbon footprint. It will also assess the feasibility of setting recyclability and recycled content requirement obligations for steel in specific products under ESPR, and the possibility of prioritizing product design and waste treatment features that facilitate the separation of copper components from steel. It will further require information about the iron and steel carbon or environmental footprint across an additional stage of its life cycle. These and related criteria could negatively impact the competitiveness of iron and steel exports from the EU’s trading partners that are not able to meet the low-carbon steel definition or do not have the required traceability infrastructure in place.

Moreover, the ESPR must be seen within the wider context of applicable EU regulations that affect importers, most notably the CBAM, which requires payment for the embedded carbon emissions generated in the production of covered products, including iron and steel. Inability to obtain a low-carbon label, and thus benefit from the associated premium, could make the EU market even more out of reach for countries with highly energy- and emission-intensive steel industries, such as South Africa and India.

The possibility of mandatory recycled content requirements would also have implications for trading partners. While boosting the EU recycling industry, establishing post-usage recycling targets for steel could lead to a further dearth in global scrap available to decarbonize steel. The EU already restricts the export of certain types of scrap steel to non-OECD countries under the EU Waste Shipments Regulation and is now expanding these restrictions even further, placing an excessive burden on non-OECD countries. Under the revised Waste Shipments Regulation adopted in 2024, the remaining waste exports still allowed to non-OECD countries (that is, non-hazardous metal waste) will be prohibited from May 2027 onwards, unless recipient countries can demonstrate their ability to treat EU waste in an environmentally sound manner. These and other developments would not only disrupt global recycling markets but would also make it significantly more challenging for countries such as India, the world’s second largest scrap importer.

Interoperability will be key in minimizing trade barriers with EU trading partners. As noted in this report of an international expert group on trade, circular economy, and sustainable development, a key challenge in the development of trade-related circular economy measures is the lack of alignment in product definitions and classifications—an issue that also affects ESPR, particularly in developing product-specific requirements.

For example, there exists no international definition or standard on low-carbon or green steel, and different countries or business associations have adopted different approaches. Indeed, a recent study of the European Commission comparing major international initiatives and standards that aim to define “low-carbon emissions steel” reveals that existing initiatives vary significantly in terms of scope, emissions thresholds, and emissions accounting methodologies. These fragmented and uncoordinated approaches hinder the comparability of steel products across different frameworks, making it challenging to assess how one tonne of steel compares to another. Addressing this regulatory heterogeneity requires greater harmonization, equivalences, and mutual recognition, as well as resorting to international standard guides and recommendations where they exist.

The WTO Secretariat has endorsed, together with private and public sector stakeholders, the Steel Standard Principles, which call, inter alia, for interoperability between greenhouse gas emission measurement standards and methodologies as well as data collection and disclosure frameworks. As it develops the Delegated Act for iron and steel, the Commission should ensure that it follows the principles developed in this framework, as well as the International Energy Agency’s "net zero principles" for Emissions Measurement and Data Collection for a Net Zero Steel Industry.

Similarly, regarding ecodesign standards for garments, there is a variety of predominantly voluntary sustainability standards but no leading international standard. To the extent that the Commission would be developing new standards or setting out mandatory criteria, it should follow the good regulatory practices set out in the World Trade Organization’s Technical Barriers to Trade (TBT) Agreement’s Code of Good Practice for the Preparation, Adoption and Application of Standards and the TBT Committee’s Six Principles for the Development of International Standards, Guides and Recommendations. Moreover, to enhance interoperability, the Commission would be encouraged to identify which existing standards would provide sufficient levels of assurance for compliance with specific ecodesign criteria, as they will be developed for textiles and apparel. Doing so would mirror the approach the EU has adopted in its green procurement. With regards to measuring a garment’s life cycle assessment, such as its carbon footprint, it would be key to enable interoperability with regards to the methodology employed.

In implementing the ESPR requirements, trading partners should also seek to utilize existing and emerging initiatives. For example, with regards to product traceability, the UNECE traceability system for garment and footwear sectors is establishing a framework to help industry actors engage with an international set of agreed practices for the harmonized collection and transmission of data needed for tracking and tracing materials. This could be key as businesses prepare to align their production methods with the transparency requirements of Digital Product Passports.

More generally, countries can also leverage bilateral instruments to align sustainability standards through regulatory cooperation and mutual recognition. For instance, regional trade agreements can include mutual recognition of technical regulations (including ecodesign lists), reduce tariffs and non-tariff barriers on environmental goods (which provides the opportunity to include circular goods, including by factoring in product and process characteristics beyond end use), and fostering cooperation on circularity. New EU tools like the Clean Trade and Investment Partnership (CTIP) could offer additional avenues for alignment. Interestingly, one of the stated aims of CTIPs is to enhance regulatory cooperation to “support partners in deploying in particular clean tech, electrification, circularity, decarbonisation standards as well as carbon pricing” (emphasis added).

Finally, it is important to ensure more inclusive and transparent regulatory processes. This includes ensuring that trading partners potentially impacted by the ESPR are adequately consulted and that their challenges are meaningfully considered. Some lessons on what not to do can be learned from other EU regulatory initiatives, like the EUDR and CBAM. In both cases, there was insufficient engagement with third countries during the legislative process. Moreover, dedicated support mechanisms (i.e. Task Force for International Carbon Pricing and Markets Diplomacy, Team Europe Initiative on Deforestation-free Value Chains, EU-Malaysia-Indonesia Joint Task Force on EUDR implementation) were only introduced after significant diplomatic tensions arose and are deemed mainly insufficient.

In the context of the ESPR, the EU should engage trading partners early and meaningfully. The EU has already created the EU Circular Economy Resource Centre, led by Sitra and the Finnish Ministry of Foreign Affairs, which is a platform for knowledge-sharing, technical alignment, and capacity building, and could serve as a key resource to address challenges for developing countries as the ESPR is being rolled out in priority sectors like textiles and apparel as well as iron and steel. In addition, setting up a dedicated ESPR Task Force on Circularity Cooperation with sector-specific workstreams—as a standalone initiative or within the Circular Economy Resource Centre—could support a smoother implementation and ensure a just transition.

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Colette van der Ven is Founder and Director, TULIP Consulting.

Cláudia Azevedo is Lead, Sustainable Trade Policy (EU), TULIP Consulting; formerly Senior Policy Analyst, Europe Jacques Delors.

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Synergies by TESS is a blog dedicated to promoting inclusive policy dialogue at the intersection of trade, environment, and sustainable development, drawing on perspectives from a range of experts from around the globe. The editor is Fabrice Lehmann.

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