Academic journal article The Review of Social and Economic Issues

Fair Trade: Its Real Impact on the Working Poor

Academic journal article The Review of Social and Economic Issues

Fair Trade: Its Real Impact on the Working Poor

Article excerpt

INTRODUCTION*

Fair trade has been on the rise in last few decades as a solution for the inequality between the developed nations and the developing world. As described by FINE, an informal association of four international fair trade networks-Fairtrade Labeling Organizations International (FLO), World Fair Trade Organization (WFTO), Network of European Worldshops (NEWS!) and European Fair Trade Association (EFTA)-, "fair trade is a trading partnership, based on dialogue, transparency, and respect, that seeks greater equity in international trade (World Fair Trade Organization home page)."1 4

The fair trade movement is organized so as to oppose the supposed exploitative practices utilized by the industrialized world against third world producers. The latter export goods that are typically hand crafted or grown, such as coffee, cocoa, sugar, tea, bananas, honey, and cotton. Often times the fair trade movement operates through petition signing and boycotting importers without fair trade certification (Renard, 2003, p. 91). Such approval is based on the guarantee that workers are not exploited, that purchases are made from cooperatives, that environmental sustainability and safe working conditions are maintained, and that the price is fair.1

There are a number of problems with this initiative. Fair trade has both advantages and disadvantages, but the latter undermine its mission. Like the organic food movement, fair trade is an effective marketing tool for capturing the consumer niche for "socially responsible" and "sustainable" products (Renard, 2003). This initiative reaps benefits from the appeal of fair trade, but also implicitly denigrates free trade. The fair trade movement also walks hand in hand with those who oppose unfair trade practices, but allows for a hidden export subsidy in the form of the fair trade price premium. As a result, the business ethics of the fair trade movement violate the World Trade Organization's (henceforth, WTO) own definition of free trade. Moreover, countries such as Mexico and India, which are among the top initiators of WTO antidumping cases, are also active leaders of the fair trade movement (WTO, 2012). Since antidumping cases are often arbitrary and subject to special interests, this supposed "fairness" deserves more scrutiny (Irwin, 2009).

Fair trade undermines free trade under the pretense of livable income, sustainable environment, and social dialogue. It also restricts international openness by shielding inefficient firms from international competition and rewarding producers for noncompetitive behavior. The distributive politics of fair trade concentrate benefits among the interest groups of regulating agencies and retailers, while the costs are spread across the global economy. In other words, fair trade uses business ethics and public moral sentiments to insulate inefficiency and to justify antimarket conduct (Ruben, 2012; Griffiths, 2011; Valkila et al., 2010; Valkila 2009). While we agree that poverty, child labor, and pollution of the environment are real problems, fair trade is not a "magic bullet." In reality, fair trade incurs real costs, entails welfare loss, and shrinks the window of opportunities for all countries-especially developing ones. Nevertheless, we do not argue that free trade solves all these problems. But unlike fair trade, free trade at least gives a nation the opportunity of engaging in mutually beneficial exchange with other countries. Thus, while the benefits of free trade are substantial, trade is only part of the bigger picture of world economic development.

In the remainder of this paper we proceed as follows. In section II, we review the case for fair trade as offered by its advocates and compare it with that for free trade. In section III we question in more detail whether fair trade makes people in developing countries better off. We conclude in section IV.

FAIR AND FREE TRADE

Are free trade and fair trade compatible? …

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