Fair trade can refer to several trade-related topics:
- It is a term used by social justice, peace movement, ecology movement, and green movement groups, to contrast with 'unfair' trade practices, and sometimes, to contrast with free trade as promoted by the World Trade Organization and NAFTA.
- It can refer to fairtrade labelling, a movement to allow consumers to identify goods (especially commodities such as coffee) that meet certain agreed standards of fairness.
- It is more rarely used to refer to corporate governance and reforming anti-competitive trade principles (such as antitrust issues). Sometimes (in Korea and Japan, for example) these issues are pursued by organisations that are called Fair Trade/Trading Commissions.
- It can also refer to consumer rights and fair contracts. Office of Fair Trading is a common name for an organisation that aims to protect these interests and/or to facilitate a fair and ethical marketplace. Governmental and non-governmental organisations with this name exist, for example, in the United Kingdom and Australia.
- In United States history, it can refer to laws in place starting in the 1930s and continuing until the 1970s. Those laws, first formalized nationally in the Miller-Tydings Act of 1937, protected independent retailers from the price-cutting competition of large chain stores by permitting manufacturers to specify the minimum retail price of a product. Federal laws requiring this form of fair trade were all repealed by 1975.
This article is about the first definition of the term.
'Fair', as opposed to 'unfair', trade aims to guarantee not just low prices, but some adherence to principles of ethical purchasing and/or tax, trade, tariff rules that apply some significant offsetting penalties to imported goods that do not satisfy the local concept of fairness, goals that are sometimes, but not necessarily, contrasting with free trade. These principles include adherence to ILO agreements (mainly banning child labour 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 will at least cover the cost of production and facilitate social development, and especially in agriculture, protection and conservation of the environment. Fair trade also aims for long-term business relationships that are transparent throughout the chain. For the consumers, fair trade seeks to guarantee high quality. The adherence to these principles is indicated to the consumer with a fair trade label or brand.
The main argument against fair trade is that the term in practice is primarily intended to protect inefficient industries and that fair trade as conceived of by its proponents would do little to help as fair trade still remains a niche and indeed would aggravate problems of global poverty and social injustice, as not everyone can get a fair trade certification.
Fair trade is also to be distinguished from safe trade which is more narrowly focused on preservation of biodiversity, biosafety, and biosecurity, and preventing serious global climate change. Although both are often advocated by the worldwide green parties or global NGOs like Greenpeace and Rainforest Alliance, the two concerns are usually discussed separately at different diplomatic conferences, and historically have resulted in different treaties entirely. Supporters of safe trade see it as the foundation for fair trade, since ecological damage is implicated in social problems as well.
Currently the most common definition of fair trade is that of the FINE group of organizations (Fairtrade Labelling Organizations International, International Fair Trade Association, Network of European Worldshops and European Fair Trade Association). The FINE definition does not require or imply offsetting penalties which have been one of the main sources of arguments against fair trade, and reads as follows: "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 organizations (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."
The history of such movements spans the 20th century. Initiatives include "goodwill selling" that was practiced in the United States from the 1950s until 1970s, the Worldshop movement that was begun in 1959 by Oxfam, and alternative trading organizations (ATOs) that operated primarily in the U.S. and Europe from the 1960s until today.
Some Italian consumer organizations 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 be normalized as moral purchasing within ethics prevailing in Italy.
An extreme version of fair trade is the Community-Based Economics also promoted by worldwide green parties, which establishes a local currency for trade only in locally produced goods and services. Presumably, since each purchaser and producer are part of the same community sharing some risk of bodily harm due to infrastructure lacks or failures of emergency response or policing or government, there is an implicit and common standard of fairness assumed in all such local trade. Trade outside the borders of the community is at higher tax rates, with more complex trade rules including labels, and at higher tariff rates, to pay for the difficulties of assessing and equalizing the risks borne by the community for its involvement in remote production and (potentially) exploitation.
However, the current fair trade movement concentrates more on a fairer price on fair trade goods, and abolition of agricultural subsidies and dumping, and to a much lesser extent on offsetting penalties on "unfair" goods. Fair trade is therefore best known for the fair trade labelling plan, which gives the consumers a tool or brand which they can recognise, should they wish to take part in the process.
The labelling of fair trade products began at the initiative of Mexican coffee farmers in 1988, together with Dutch development agency Solidaridad. Coffee that was imported to the Netherlands under the fair trade principles was labelled by Solidaridad under the name of Max Havelaar. This fair trade labelling system is today known as "Fairtrade" or "Fair Trade Certified", includes the Max Havelaar and TransFair labels, and is controlled by Fairtrade Labelling Organisations International (FLO).
Criticism and counterargumentsEdit
Supporters of free trade argue against government enforced fair trade measures on the grounds that charging higher prices than the global commodity markets for the goods exported by developing nations would penalize third world producers unduly, denying them hard cash, and preventing them from gaining market share and trusted positions in a supply chain (since varying tax and tariff rates or complex trade law would prevent them from competing on an equal basis with developed-nation suppliers). These critics of fair trade argue that a growing economic inter-reliance of all nations also contributes to peace, because they say that suppliers rarely wage war on their customers.
In response, advocates of fair trade argue that growing inequity and serious gaps in social justice, and the global export of terrorism, are simply 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 globalization, and as proof that fair trade strategies would generally have worked better. Also, advocates of fair trade point out that the previous argument only concentrates on the extreme form of fair trade, where governments would actually tax "unfair" or non-locally-produced goods differently, and that the current fair trade schemes are mostly based on labelling schemes that give the consumers an option to choose whether to participate. This way, fair trade actually works in the context of free trade. As to inter-reliance, fair trade is not aiming to decrease the reliance of countries from each other in any other way than decreasing the poor countries' reliance on foreign aid from rich countries.
One response to this argument is that, regardless of the struggles of poor nations, to have foreigners tax one's goods to spend foreign aid as they see fit in your land is no more than colonialism in yet another well-meaning disguise. Another is that there is no reason to believe that money raised from tariffs would actually go to foreign aid. That, ultimately, these nations need to follow the same difficult development path to political and economic maturity as developed nations did - and cannot simply have a more advanced political economy imposed on them, setting a higher price on ecology and on life, one that is beyond their capacity to support given local conditions. No amount of foreign aid, they argue, even if locally spent, would offset the lost markets and the ability to export what is most readily sold without any tariffs under free trade.
A further counterargument to this by fair trade proponents is that current fair trade premiums in the labelling system are in fact spent in the producer community directly, and are not channeled to generic foreign aid, and that the producer community will democratically decide for which purposes the premium should be used. Fair trade premiums have been used, for example, for providing healthcare, schooling, and pensions. Another point is that both free and fair trade proponents have clear common goals, such as abolition of dumping by minimising agricultural subsidies.
Critics of fair trade argue that the protectionism some fair traders advocate benefits producers at the expense of consumers, since consumers are forced to pay higher prices for imports as a result of tariffs, quotas, "red tape", etc. This is countered by arguing that the fair trade labelling system is actually completely voluntary, as no-one is forced to pay higher prices, and it is up to the normal free market systems to decide whether customers actually want such products.
Fair trade and politicsEdit
The Federation of European Green Parties, who unlike most counterparts outside Europe are usually represented in some numbers in the European Parliament, are strongly in the fair trade camp. One of their MEPs, Caroline Lucas from the UK, argues that "many developing countries called for a study to examine the effects of tariff reductions on local industries and jobs, before being required to open their markets further. Local industries, they say, have already collapsed in most African and least developed countries as a result of previous tariff cuts."
According to Lucas, "The choice is not between global trade rules and chaos: rather, it is between trade rules that undermine sustainability and favour the rich, and trade rules that support sustainability and equity." A major focus of Greens is land reform that respects natural ecologies, and traditional cultures, while other groups focus more clearly on equity.
The World Bank has taken a positive stance at fair trade. According to World Bank's comments on 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 labor, which provides more jobs for those in desperate need." It should be noted that the definition of fair trade here does not involve government-mandated additional taxes or generic foreign aid.
The European Commission has stated in 2002 that they will support fair trade plans of the private sector.
Fairtrade Labelling Organizations InternationalEdit
Fairtrade Labelling Organizations International is an organization which exists to promote products which are produced and sold in accordance with its definition of fair trade. For more information, see Fairtrade labelling.
- Fairtrade Labelling Organizations International (FLO): The coordinator of the Fairtrade labelling system
- In association with IFAT, NEWS! and EFTA (below), FLO forms the FINE group that defines fair trade criteria and defines accrediation schemes for fair trade organisations. For links to national initiatives of FLO, see above.
- International Fair Trade Association
- NEWS! Network of European Worldshops
- European Fair Trade Association
- Fair Trade Resource Network
- United Students for Fair Trade
- Oxfam - Fair Trade
- Made-By: Fair Trade Fashion
Articles and papersEdit
- "Coffee Markets: New Paradigms in Global Supply and Demand", World Bank, March 2004
- "The State of Sustainable Coffee: A Study of Twelve Major Markets", World Bank, July 2003
- "Coffee & Codes: Overview of codes of conduct and ethical trade initiatives in the coffee sector", SOMO, December 2003
- "The Myth of Fair Trade", Cato Institute, November 1991
- Special Report on "Fair Trade", Guardian (archive of articles)
- "Creating Market Opportunities for Small Enterprises: Experiences of the Fair Trade Movement", International Labour Office, Geneva, 2002
- "Grounds for Complaint?", Adam Smith Institute, 2004
- History of alternative/fair trading, Church Times, 2003