/ The Latin American Textile Circular Economy: A Comparative Analysis with the European Union

An industry navigating between contractual innovation and regulatory debt. The comparison with the EU highlights both a gap and an opportunity: the region can anticipate regulatory trends and adapt its legal frameworks in a more context-specific manner, avoiding the costs of belated improvisation.

Laura Hernández Bethermyt
Senior Associate

The fashion industry has begun to transition from a linear model toward circular economy schemes. However, while in the European Union this transition is resulting in a progressively coherent and ambitious regulatory framework, in Latin America the phenomenon is advancing in a fragmented manner, driven primarily by the market rather than by law. This asymmetry not only highlights regulatory differences but also foreshadows tensions relevant to the sector’s competitiveness and sustainability in the region.

In the European context, the circular economy in the textile industry is at the heart of the EU Strategy for Sustainable and Circular Textiles [i], which sets concrete objectives: more durable, reusable, repairable, and recyclable garments, along with the phasing out of fast fashion as the dominant model. This approach is not merely programmatic. It is complemented by specific regulatory instruments, such as the Ecodesign for Sustainable Products Regulation (ESPR) [ii], which will extend sustainable design requirements to textiles, and the strengthening of extended producer responsibility (EPR) schemes, obliging brands to take charge of textile waste management.

In contrast, in Chile, Colombia, and Brazil, the circular textile economy is developed predominantly through private initiatives such as resale platforms, rental models, or recycling programs, without a specific regulatory framework to coordinate these efforts. Chile has made progress with the REP Law [iii], but textiles are not yet included as a priority product. This absence is particularly relevant given that, in the EU, the mandatory implementation of EPR systems for textiles is projected to become a minimum standard in the coming years.

This regulatory divergence has immediate practical consequences. In the EU, for example, companies in the sector will have to internalize costs associated with post-consumer management, which directly impacts design decisions, material selection, and supply chain structuring. In Latin America, however, the lack of such obligations allows for lower cost structures, but delays the internalization of environmental impacts, with the risk of facing regulatory barriers in export markets.

From a legal perspective, one of the most interesting aspects is the contractual transformation introduced by the circular economy. Clothing rentals, for example, alter the traditional logic of buying and selling. In Europe, this phenomenon has already begun to spark regulatory discussions regarding the applicability of the Consumer Rights Directive [iv] and the Sale of Goods Directive [v], particularly concerning legal warranties and conformity standards. In Latin America, these models operate in a relative regulatory vacuum, where adhesion contracts structure complex relationships without consistent jurisprudential guidelines.

The same applies to resale models. In the EU, the recent Digital Services Act (DSA) [vi] introduces stricter obligations for digital platforms regarding the traceability of sellers and the prevention of illicit products, including counterfeits.

This directly impacts secondhand fashion marketplaces. In Latin America, while general rules on intermediary liability exist, specific regulation of platforms remains in its infancy, creating gray areas regarding authenticity, liability for defects, and trademark protection.

Another key element of the European model is traceability. The proposal to introduce a “Digital Product Passport” [vii] for textiles—which will contain information on composition, origin, reparability, and environmental footprint—represents a structural shift in how products are conceived. Such instruments not only facilitate the circular economy but also create new regulatory expectations that could extend extraterritorially, affecting Latin American exports to the EU.

In the region, while there are isolated technological initiatives, there is not yet a regulatory push to promote uniform traceability standards. This could become a competitive disadvantage in the medium term, especially for producers seeking to integrate into increasingly demanding global value chains.

However, the European experience also offers a cautionary tale. Regulatory sophistication entails significant compliance costs, which can have adverse effects on small and medium-sized enterprises if adequate transition mechanisms are not implemented. This point is particularly sensitive for Latin America, where the textile industry exhibits high levels of informality. An uncritical adoption of the European model could, in this context, widen existing gaps rather than correct them.

Additionally, a common challenge is emerging in both Europe and Latin America: preventing the conceptual erosion of the circular economy. In the EU, the proliferation of environmental claims has led to regulatory initiatives such as the proposed Green Claims Directive, aimed at combating greenwashing by requiring verifiability and transparency. In Latin America, although there are no equivalent instruments, consumer protection frameworks offer an emerging avenue for challenging deceptive practices. However, the lack of technical standards hinders effective enforcement.

The circular economy in the Latin American textile industry is developing within a delicate balance between innovation and regulatory absence. The question is not whether Latin America will follow the European path, but how it will do so. In this transition, the law plays a crucial role, not only as a corrective instrument after the fact, but as an institutional design tool capable of guiding the transition toward more sustainable models, without sacrificing dynamism or inclusion.

This column was originally published in LWYR

[i] EU Strategy for Sustainable and Circular Textiles – https://ec.europa.eu/commission/presscorner/detail/en/qanda_22_2015

[ii] Ecodesign for Sustainable Products Regulation – https://green-forum.ec.europa.eu/implementing-ecodesign-sustainable-products-regulation_en

[iii] The EPR Law (Extended Producer Responsibility, Law 20.920) requires companies in Chile that manufacture or import certain products to finance and organize the collection and recycling of their waste once its useful life has ended.

[iv] The Consumer Rights Directive grants consumers the same robust rights throughout the EU. It harmonizes national consumer protection rules, for example, regarding the information that must be provided to consumers before they purchase goods, services, or digital content, as well as their right to cancel online purchases, regardless of where in the EU the purchase is made.

[v] The Sale of Goods Directive is a European Union law that establishes uniform rules for consumer contracts, ensures that goods are free from defects, and regulates remedies, warranties, and updates. It establishes a minimum liability period of two years for sellers and covers physical products, including those with integrated digital elements (e.g., smartwatches)

[vi] The Digital Services Act (DSA) is a comprehensive European Union regulation designed to create a safer, more transparent, and more accountable online environment. Its primary goal is to combat disinformation and illegal content while protecting users’ fundamental rights.

[vii] DPP – https://kpmg.com/dk/en/esg/digital-product-passport–dpp-.html