TCS Daily

Fair Trade? For Whom?

By Richard Tren - September 11, 2003 12:00 AM

Now that the TRIPS and access to drugs issue has been resolved (for the time being), the make or break issue at the WTO meeting in Cancun is agriculture. Rich country governments are coming under greater pressure to reduce or remove the agricultural trade barriers that keep poor country products out of their markets. Along with the Cairns group of agricultural exporters who promote free trade, an increasingly vocal group of NGOs is working against rich country tariffs. Under the banner of Fair Trade, these groups are correct in calling for reductions in agricultural trade barriers, but their ideological opposition to free trade will keep poor countries poor.


It is difficult to find an exact definition of Fair Trade. According to the organisers of the Fair Trade Expo ongoing in Cancun, Fair Trade is "a business-based approach to development that generates economic self-reliance, enabling the producers of coffee, cocoa, bananas and many other foods and artisan goods to lift themselves out of poverty and preserve their culture and invest in their businesses and communities."


In the words of one of the earliest Fair Trade advocates, Anita Roddick, founder of the Body Shop, "Trade with these communities is about exchange and value, trade and respect, friendship and trust."


The Fair Trade agenda sounds like motherhood and apple pie and the Fair Traders should be supported in their calls for reduced agricultural trade barriers. It is indefensible for the European Union to lavish €115 million every day on its farmers. The US is not much better, and in passing the Farm Bill moved backwards on agricultural liberalisation, losing the moral high ground in the process. Protectionism increases output, pushes down the global prices of agricultural products and undermines farmers in poor countries. Perhaps more importantly it stops poor country farmers from competing with rich country farmers and effectively blocks foreign imports.


But while the Fair Traders are correct on rich country protectionism, they are deeply misguided on the benefits of trade to poor countries. It seems that for Roddick and her eager followers, free trade has nothing to do with value and is based on disrespect, animosity and mistrust. This is curious, as free exchange between willing buyers and willing sellers is rooted in firmly established and observed rules. It is precisely because of this trust, respect and clear rules-based trade that the free trading nations of the world have become wealthy while those that hide behind protectionism are poor and becoming relatively poorer.


According to Oxfam, 900 million of the world's poor earn their living through agriculture and so liberalising this trade is crucial in lifting them out of poverty. But Oxfam and the other Fair Trade advocates have made the same mistake as the governments against which they campaign. They are only intent on representing the concerns of a particular producer interest group (in this case a large interest group) and have forgotten about the billions of consumers in poor countries.


Alex Montero, a consumer rights advocate from Cost Rica, explained at a press conference in Cancun put on by the organization Consumer Alert that millions of consumers in Latin America spend their entire income on food. Yet if their countries had more open trade rules and didn't protect local producers, they could cut their food bill by half. Jose Joaquin Fernandez, from the Asociacion de Consumidores Libres in Costa Rica went further and accused countries that protect producers of enslaving their consumers. "The government should have no place interfering with voluntary transactions and it is immoral to place quotas on what can or can't be consumed."


The Fair Trade advocates should be aware that trade policies in most poor countries already protect local producers. For instance, as the Columbia University trade economist, Jagdish Bhagwati points out, average tariff rates in poor countries are already 13%, compared with only 3% in rich countries. Moreover, the tariff peaks in poor countries are far higher than in rich ones.


All that this protectionism does is ensure that the already poor consumers in poor countries have to pay more for the goods and services that they consume. Liberalising trade should not be a worry for poor country governments. As Dr. Razeen Sally, a trade expert from the London School of Economics, explains "National gains from trade result directly from import liberalisation, which replaces relatively costly domestic production and spurs more efficient resource allocation."


Countries start to become wealthy when they liberalise trade and allow their local consumers access to cheap goods. A recent World Bank study shows that 24 developing countries that reduced their protectionism have a rising share of world trade. Their income growth has gone from 1% a year in the 1960s to 5% in the 1990s.


The only reason that a country exports goods is so that it can earn money to import goods. Ensuring that those imports are cheap and that local consumers have as much choice as possible is the best way to increase wealth, health and development. Yet by arguing against this and pushing a protectionist and anti-free trade agenda, the Fair Trade movement is perpetuating the enslavement of poor country consumers.


The Fair Trade products from poor countries that are sold in supermarkets in rich countries service a small, niche market at best. It is inconceivable that marketing these few products will lift poor countries out of their grinding poverty. Fair Traders are keen to point out that their agenda is good for rich country consumers as they will be guaranteed goods that are produced according to high environmental and labour standards.


The warm glow that rich country consumers are supposed to get when consuming Fair Trade products may give a clue as to why the Fair Trade agenda has caught on so readily. Protecting labour and environmental standards is precisely the way in which the EU and others are trying to protect their own producers. Although Oxfam and others campaign against European subsidies, in "Fair Trade" they are giving the EU alternative trade restricting ammunition if and when agricultural protectionism is reduced.

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