The paper aims at explaining two important terms associated with international trade that is free trade and fair trade. Furthermore the paper is also intended to discuss the “fairness of free trade” by analyzing the international trade operations and systems by judging their fairness. The philosophies of fair trade and free trade are closely related to each other and free trade is expected to promote fairness. Ideally these two are supposed to be practiced together however experts often observe that in some aspects the free trade lacks fairness. The objective of this paper is also to analyze whether or not free trade is fair also. In this regard the paper first describes the concepts of free trade and fair trade and then analysis the fairness within free trade with the help of authentic resources, references, different cases, and examples.
The concepts of Free Trade and Fair Trade
The term “free trade” refers to the exchange of goods and services that is unhindered and is independent of the government watchdog bodies. Free trade doesn’t have to face certain limitations like subsidies, tariffs, and quotas. Whereas, the notion of “Fair Trade” has been challenging the ideology that economic moderation is the best structure and everyone’s benefited from it. Fairtrade actually challenges the basic principles or assumptions of the Neoliberal theories, by expressing that free trade is actually unfair and moreover suggests a substitute trade system that considers the requirements of the producer society. The principles of the free trade notion based on the neoliberal globalization which is practiced today are nothing but the reimplementation of the conventional theories.
Free Trade was initially introduced by the French physiocrats against mercantilism by the eighteenth century and afterward by other conventional economists such as David Ricardo and Adam Smith. Expressing on the philosophy of laissez-fair or free trade they argued that all nations should concentrate on the production of the goods and services in which they are best and then should import the goods which they need in which they are less or not efficient. This economic law of comparative advantage would be beneficial to all the involved nations if there are fewer or not free trade barriers.
The very first practice of free trade was initiated by Great Britain with the cancellation of the Corn Laws which were followed by the extensive tariff lessening by William Gladstone. It was in 1834 that a customs union had been formed to promote free trade in the disjointed parts of Germany. The international trade also gained support from the Anglo-French Treaty of 1860 and other related treaties which were based on the notion of the most-favored-nation status. However, the developing countries then argued to have high tariffs so that their home industries could feel protection from the outside competitive manufacturers. It was until the 1930’s that the United States adhered to protectionist policies when the b Secretary of State; Cordell Hull revitalized the Reciprocal Trade Agreements Act of 1934. After World War II yearning for international trade augmented, as reflected by the General Agreement on Tariffs and Trade (GATT) and Bretton Woods Conference of 1944 and by the European Economic Community and the European Free Trade Association. There have been numerous efforts to encourage universal free trade over history, for example the creation of Latin American common markets such as the Caribbean Community (CARICOM), the Central American Common Market (MCC), and the Southern Common Market. In addition to the above the investiture of World Trade Organization (WTO) followed by GATT by 1995 and the efforts of the European Community in form of the creation of the European Union and the agreement of NAFTA, the North American Free Trade Agreement
However there has been some reluctance shown by the Asian region, as Japan had exercised protectionism. But after the introduction of the Asia-Pacific Economic Cooperation (APEC), Japan and other Pacific regions had been less reluctant to free trade by the emergence of the 21st century. And fortunately the Western nations have also moved nearer to the free trade concept by the end of the nineteenth century and had agreed to enter official agreements to create the Free Trade Area of the Americas (FTAA), and in 2003 other nations such as Singapore and Chile were the fifth and sixth nations to enter into free trade contracts with the Canada, United States, Jordan, Mexico, and Israel.
On the other hand the development of the concept of fair trade emerged along with the emergence of globalization’s concept. For example according to Manfred Steger associates the neoliberal principles to his “globalism” notion which is probably the most underlying philosophy of the current political, economic and cultural globalization. He argues that neoliberalism is ingrained in the traditional economic notions gives dominance of the mechanism which is compatible to the operations of the autonomous market; “The market is seen as a self-regulating mechanism tending toward equilibrium of supply and demand, thus securing the most efficient allocation of resources” (Steger, 2005:9). Classical liberals have been arguing that market capitalism would be beneficial to all. According to many critics of economic principles, it is an expression that there is numerous and strong evidence to support the fact that “Globalization” had been advantageous to very few whereas turned out to be distorting for many others. The richer, more powerful and developed economies have developed through the colonial form of protectionist trade, and now they strive to apply free trade structures to the nations which used to be their colonies. Steger also attempts to interpret the notion of Globalization, as it says that Steger analyzes that Globalization says that it benefits all. However, if the current trade practices were fair there would have not been any need for the initiatives of free trade.
Today there are some initiatives that challenge the notion that free-market capitalism is the only feasible way out, which includes the manipulation and structures based on cooperative production, local markets and currencies, and agriculture. An example of an alternative can be the fair trade model, which is developed under the fair trade certification system. This system intends to achieve the objective of catering to the needs of the producers, which can be done through management of health and labor standards, community funded projects, and upholding minimum prices.
Although the fair trade has been usually considered to be to coffee, however, it has now expanded on to sports balls, other fresh fruit, flowers, tea, cotton seeds, sugar, nuts and oilseeds, wine grapes, rice, honey, quinoa, herbs spices and dried fruits (FLO 2007 and TransFair Trade Canada 2007). The raw materials are the main point of the free trade concept, especially considering those counties that are having problems of poverty and lack of funds as they depend on such items. (Buckman 2005:86-87). In the perspective of this discussion, fair trade is an approach to stabilize prices by minimizing them and create a direct connection between distributors and producers.
The basic requirement of fair trade is to price commodities adequately. However, it is not as simple as it seems that to easily achieve better prices through the exchange market, but also maintain the communities and their well-being. It also tends to verify the core aspects of such exchange, although it is a fraction of the method of commodity exchange. This notion magnetizes attention as Laura Raynolds suggests Polanyi’s account of detachment- the disembedding of economic structure from society and to Marx’s analysis of commodity fetishism.
According to Marx, under capitalism, labor is exploited, with cruelty, this is because the capitalist is not prepared to pay for all costs of labor which is used to produce goods. Nonetheless there are large discrepancies in the case of capitalism; this is because labor is a product itself, traded in the market, only this is the only reason that the fact of unpaid labor is camouflaged by the free trade (Marx 1898:210-213; 1867:357-358).
Raynolds, in her scrutiny of free trade, unambiguously refers to Marx’s analysis of abstract capitalist relations (Raynolds, 2000:298) and tracks on the work of Polanyi that there has to be a focus on re-embed production in social and natural processes. Polanyi expresses that the economy has been merged with the relations of the community before the ascendance in the early nineteenth century, nonetheless then a reversal was observed and in this society was submerged within the economic structure (1947:65). The autonomous market continued that social well being was not the underlying principle of the economic activity anymore. Even the laws and rules and regulating authorities worked to alter the social systems and relationships so that the productivity from the economic cycle increased. According to Raynolds the free trade turned out to re-embed the production and economic activity into social relations (Raynolds 2000:306).
Is Free Trade Fair Trade?
Free trade is widely supported at international level and the international and regional trade organizations like WTO have also formulated certain policies and strategies to make international trade as free as possible but at the same time one cannot neglect the negative impacts of free trade that are drawn mainly upon the less developed countries due to lack of fairness in the free trade policies and operations. Economic experts have observed that the exchange of goods and services between the developed and under developing countries is often done at unfair and uneven terms and conditions due to which the economies of the less developed countries became more weak then they were before the implementation of free trade system.
The experts have observed that there are many countries, sectors and people that are facing negative consequences of free trade among the countries because in case of growing trade relations among countries the domestic industries suffer due to lack of fair and full access to resources that are necessary to compete with other countries. Like China exports several products to different countries and among them there are some less developed countries of Asia and Africa that are struggling with their domestic economic conditions. When China supply products to these countries at low prices, the domestic industries suffer because they product those products with low quality and high cost of production due to unavailability of basic material and lack of developed infrastructure. In such cases the domestic industries fail to face the competition and go behind one more step in the process of development (Howard, 2004).
The supported of the free trade argue that free trade allows all the countries to access each other market places and in this way the free trade is also fair trade but at the same time it is also observed that this access is not ion equal grounds means the businessmen, industrialists and investors of less developed countries do not have that much easy access to the markers of developed countries as the investors of developed countries have to the markets of less developed countries. Thus it is very crucial that the free trade must maintain balance between the rich and poor countries by formulating fair policies and trade laws so that the less developed countries can also get adequate access to the market place of the developed countries and can effectively market their products and can promote their industries.
The paper was mainly intended to explain the concepts of fair trade and free trade and to discuss the fairness of free trade. In order to attain this objective the concepts of free trade and fair trade are explicitly explained in the above discussion. It is found that free trade is promoted at international level by international trading organizations through the formulation of different policies, laws and strategies. Fair trade, on the other hand is a wide and much demanding term that needs the fairness and balance in the trading policies that can give equal opportunities of economic development to the developed and less developed nations so that the less developed economies can also progress well by getting effective support from their international trade operations.
Along with explaining the concepts of free and fair trade, the paper was also aimed at analyzing the statement that free trade is also fair or not. As a reference to the aspects and environment already discussed it can be said that the relationship between the terms fair and free trade have been a controversial one and economist, writers and philosophers have varied opinion about this notion. Some of the renowned economists have argued that today the virtues and characteristics of international trade which is practiced today is fair and beneficial for all of the nations, however there is another approach as well, which says that the trade undertaken today is somewhat the reflection of the earliest trade principles introduced by the Classical theorists and that free trade hidden under the friendly phrase of fair trade is carried out today, which is carried out by the developed countries exploiting emerging nations who are willing to provide their services at very low charges, as this is what they’ve only got to present at the world market.
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