Fair trade

The fair trade movement promotes international labour, environment and social standards for the production of traded goods and services. The movement focuses in particular on exports from developing countries to developed countries.

The most widely recognized definition of fair trade was created by FINE, an informal Association of the four main Fair Trade networks (Fairtrade Labelling Organizations International, International Fair Trade Association, Network of European Worldshops and European Fair Trade Association):

“Fair Trade is a trading partnership, based on dialogue, transparency and respect, that seeks greater equity in international trade. It contributes to sustainable development by offering better trading conditions to, and securing the rights of, marginalized producers and workers - especially in the South. Fair Trade organisations (backed by consumers) are engaged actively in supporting producers, awareness raising and in campaigning for changes in the rules and practice of conventional international trade. Fair Trade's strategic intent is:

deliberately to work with marginalised producers and workers in order to help them move from a position of vulnerability to security and economic self-sufficiency
to empower producers and workers as stakeholders in their own organisations
to actively to play a wider role in the global arena to achieve greater equity in international trade.”

Implicit and often explicit in fair trade is a criticism of the current organisation of international trade as being "unfair". When developing countries export to rich country markets, they face tariff barriers that can be as much as four times higher than those encountered by rich countries. Poverty advocates claim that those barriers cost poor countries $100bn a year - twice as much as they receive in aid.Advocates of fair trade practices also hold that the fluctuation of commodity prices does not guarantee a living wage for many producers in developing countries, forcing many into crippling debt.[http://www.fairtrade.org.uk/about_what_is_fairtrade.htm Market prices may not properly reflect the true costs associated with producing the product due to economic externalities such as environmental and social costs. Although critics of so-called fairer trading practices charge that proposals for reform simply amount to protectionism, campaigners maintain that it is rich countries such as the United States and the European Union which operate expansive programmes that subsidise their domestic producers.

History

"Fair trade" was originally used by those supporting social justice and the alleviation of the intense poverty found in many developing nations. They contrasted "fair trade" with 'unfair' international trade practices. It is associated particularly with labour unions and environmentalists, in their criticism of disparities between the protections for capital versus those for labour and the environment. The use of the term has expanded beyond campaigns to reform current trading practices, and major institutions such as the World Trade Organization which embody them. Now it has become a movement to allow consumers to choose not to participate in these practices. Fairtrade labelling or "Fairtrade certification" allows consumers to identify goods especially commodities such as coffee, that meet certain agreed standards of fairness.

Advocates of fair trade argue that growing inequity and serious gaps in social justice, and the global export of terrorism, are symptoms of an economic system that permits harms to be exported to other countries, while importing their goods. They point to extinction, deforestation, social unrest, as consequences of globalisation, and in particular of an unfair globalisation. The international trade system, critics say, not only pits David against Goliath - as free trade inevitably will - but blindfolds David.

In the past, the responses sought by critics of the international trade system included various penalties on "unfair" goods. This argument generally made little headway against the long-term movement towards free trade; imposition of penalties for "dumping" was sometimes motivated by domestic political reasons such as the United States imposition of steel tariffs in 2001).

Today, the fair trade movement concentrates more on the abolition of agricultural subsidies and dumping, and to a much lesser extent on offsetting penalties on "unfair" goods. Indeed, although there are many who are still critical of free trade in general, there is a trend towards campaigning against what is seen as hypocrisy by developed countries in using protectionism against the poorest countries, especially in agricultural products, while requiring them to leave their own producers without protection.

Fairtrade Certification and Labelling

The International Fairtrade Certification Mark is an independent consumer Mark which appears on products as an independent guarantee that disadvantaged producers in the developing world are getting a better deal. The Mark is currently used in over 18 countries and guarantees consumers that the products were produced in accordance to Fairtrade Labelling Organizations International standards. Fairtrade certification guarantees not only fair prices, but also the principles of ethical purchasing. These principles include adherence to ILO agreements such as those banning child and slave labour, guaranteeing a safe workplace and the right to unionise, adherence to the United Nations charter of human rights, a fair price that covers the cost of production and facilitates social development, and protection and conservation of the environment. The Fairtrade certification system also promotes long-term business relationships between buyers and sellers, and greater transparency throughout the supply chain.

Fairtrade labelling began with imports of Mexican and Nicaraguan coffee in 1988 by the Dutch development agency Solidaridad. Coffee imported to the Netherlands under the fairtrade standards was labelled by Solidaridad under the name Max Havelaar.

The labelling of individual products has allowed any company or organisation that follows Fairtrade standards to participate, and has brought the concept of Fairtrade to mainstream consumers. Previous initiatives include "goodwill selling" (practised in the United States from the 1950s until the 1970s), the Worldshop movement (begun in 1959 by Oxfam), and alternative trading organisations (ATOs) that operate primarily in the U.S. and Europe from the 1960s until today.

Fairtrade product labelling is distinguished from safe trade which is more narrowly focused on preservation of biodiversity, biosafety, biosecurity and preventing serious global climate change. Although both are often advocated by worldwide green parties or global NGOs like Greenpeace and Rainforest Alliance, the two concerns are usually discussed separately at diplomatic conferences, and historically have resulted in entirely separate treaties. Supporters of safe trade see it as a foundation for fairtrade, since ecological damage is also implicated in social problems.

Fair Trade and Politics

European Politics

In June 2006, Green MEP Frithjof Schmidt submited the report Fair Trade and Development to the European Parliament Development Committee.

The report stresses that the most significant part of the increase in Fair Trade sales has been achieved with respect to labelled products and that Fair Trade labelling initiatives have been developed in most European countries. The Report urges the Commission to issue a Recommendation on Fair Trade recognising its role on pursuing the EU's Development and Trade policy. This Recommendation shall also set up the minimum criteria a certain product needs to comply with in order to be considered 'Fair Trade', in order to reduce the risk of abuse.^*

"This resolution responds to the impressive growth of Fair Trade, showing the increasing interest of European consumers in responsible purchasing," said Green MEP Frithjof Schmidt during the plenary debate. Peter Mandelson, EU Commissioner for External Trade, responded that the resolution will be well-received in the Commission. "Fair Trade makes the consumers think and therefore it is even more valuable. We need to develop a coherent policy framework and this resolution will help us."

The report was unanimously adopted on July 6, 2006.

World Bank

The World Bank has taken a positive stance on fair trade. According to the Bank comments in their 2003 study of sustainable coffee markets, sustainable coffees (both fair trade and organic) "can provide such benefits as improved natural resource management; fewer agrochemicals used in production, which decreases costs and health risks; and increased use of rural labour, which provides more jobs for those in desperate need." The definition of fair trade here does not involve government-mandated additional taxes, or generic foreign aid.

Fair trade versus free trade

In the past, suggestions that "unfair" goods be taxed, or that standards such as those of the ILO be required in order for countries to participate in international trade, have led to heavy criticism by advocates of free trade. Although many organisations and individuals involved in fair trade campaigns are still uneasy about unfettered free trade, they are now generally more cautious about arguing for protectionism or coordinated international intervention. There is a greater awareness that there is no single perspective from which trade is "fair".

However, there are also "fair trade" demands that come from the perspective of developing country producers - today the emphasis is on the lack of free trade caused by the protectionism, including agricultural subsidies, of the developed world. Without such rich-country protectionism, it is argued poor countries might stand a chance of seriously alleviating poverty; yet reducing it will lead to some producers in the developed world losing out. One reason for the increasing popularity of fairtrade labelling is that it avoids these issues of government intervention and complex and drawn-out negotiations between governments, allowing consumers to voluntarily help disadvantaged producers in poor countries.

Free Trade as fair trade

Free Trade advocates such as Brink Lindsey and Milton Friedman have argued that free trade is already fair trade because free trade involves voluntary transactions which in turn implies no coercion resulting from those transactions. They further argue that Fair Trade, if mandated by governments rather than implemented voluntarily, would result in high prices in the first world and slowed growth rates and higher unemployment in the developing world.

The primary economic argument against fair trade is that there is a contradiction between what the fair trade movement wants to do and the effects of the policies themselves. For example the fair trade movement seeks to increase the price of coffee for third world producers. It does this not by seeking to effect the real determinants of price - supply and demand, but by simply saying - this is the new price, pay it. Indeed the ultimate effect of the price increase would generally have a contradictory effect - when the price of a good rises, the supply of that good increases. Third world producers are going to see that the price of coffee has risen, thus they will grow more coffee, people may leave towns, return to the country and start growing coffee themselves. Yet when the supply of something increases without a concordant increase in demand - the price falls. Thus in the end the effect on an economy as a whole would be at best neutral, but more likely negative as when the price falls or western consumers inevitably lose interest in fair trade there will now be more people whose livelihood depends on coffee prices. Indeed the 'problem' at the moment is that there is an oversupply of coffee, which pushes down prices, yet the effect of increasing the price would be to increase the supply by even more. Given these fundamental economic laws the only concievable way for coffee prices to increase in the long term would be for supply to fall (scarce goods command a higher price than abundant ones eg. oil prices versus water prices) or demand to rise (oil prices have risen because of increased demand from China etc). In summary the fair trade movement ignores a fundamental insight of economics - prices are not pulled out of thin air, but are determined by supply and demand.

Critics of this analysis, however, are often quick to point out that supply of a good is determined not only by its end cost to consumers, but by the good's cost to produce. The opportunity cost of coffee production is often very small for coffee producers, because such production (and agricultural production in general) requires a very small skill set that would not likely be better applied outside of the agricultural market. Given the coffee market's similarities to a perfectly competitive market, producers - finding other agricultural markets more attractive - would typically cease production given long periods of price depression. However, this does not happen due to unequal access to world agricultural markets.

Large agricultural subsidies in developed nations impede the ability of agricultural producers in poor nations to exercise much of their obvious comparative advantage in agricultural production. Coffee is largely unsubsidized simply because it does not typically grow in the so-called "global north" where the most damaging subsidies are enacted. Combined with unfair tarrifs, critics claim these factors force coffee producers to compete among eachother however they can, without the skills or market access necessary to produce much else. This artificially depresses prices and prevents producers from exiting the market when otherwise appropriate. As a result, many consumers choose to purchase fair trade goods believing that producers would be better able to use their skills given fair market conditions, and should not have to suffer due to harmful trade restrictions. Consumers may also recognize the ecological impact of so much excess supply of coffee and hope to take some action to promote sustainable and ecologically friendly growing practices that would not otherwise take place.

Another critism of fair trade would be the observation that no country in human history has become wealthy while remaining primarily agricultural, and that in encouraging people in the third world to stay on farms it will harm their development in the medium to long term.

Notes

For example, some Italian consumer organisations proposed in the 1980s that goods that were imported to Italy should be taxed inversely proportionately to the degree to which social and ecological standards of the exporter matched those of Italy - in other words, lower standards meant a higher offsetting tariff. The money so collected would presumably be spent on foreign aid to bring the exporting nation up to Italian standards - thus, all purchasing in Italy would become moral purchasing within the Italian ethical tradition.

External links

Fair Trade Advocacy

Oxfam's Make trade fair campaign.
United Students for Fair Trade

International Fair Trade Organisations

Fairtrade Labelling Organizations

Fairtrade Towns

Alternative Trade Organisations (ATOs)

Fair Trade Networks

Fairtrade Publications

New Consumer

Articles and papers

Video

Big Picture TV Free video clips of TransFair USA President Paul Rice
Santiago’s Story: A Trans Fair Video on Fair Trade A short video produced by TransFair USA
Ants That Moved Mountains: The Maquilador Mujeres Story A short movie about the Maquilador Mujeres, produced by Maggies Organics
Buyer Be Fair Interview clips on Fair Trade from the documentary Buyer Be Fair

Audio

Fair Trade & Shea Butter part 1 Alaffia co-founder Olowo-n'djo Tchala talks about Fair Trade & Shea Butter (part 1)
Fair Trade & Shea Butter part 2 Alaffia co-founder Olowo-n'djo Tchala talks about Fair Trade & Shea Butter (part 2)

Fair trade | Economic ideologies | Business ethics

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