Two objections to fair trade

Bhagwati on fair trade:

The “fair trade” lobbying, on the other hand, is something that I find ill-advised. Oxfam and other charities use the phrase to argue that we should subsidize the producers so as to give them a “just” price that exceeds the market price. But we have two serious problems here. This phrase has been long used in United States discourse as a code word for protectionism. By bringing all kinds of extraneous issues as preconditions for freer trade, the proponents of so-called “fair trade” essentially mask their protectionism in the language of “fairness”, a tactic that has been exposed and denounced for decades in the U.S. but which now is in danger of being legitimated by the witless adoption of the “fair trade” terminology for altruism. Next, if the “fair trade” lobbies want to bamboozle us into being altruistic by channeling subsidies to the producers of commodities such as coffee designated as “fair trade” coffee, we then must confront the fact that many of us prefer to direct our altruism to the poor countries instead in myriad other ways which we consider to be both more desirable and even more efficacious. We need to look in the eye therefore the growing pressures on retailers to violate restraint-of-trade practices by stocking only “fair trade” goods.

3 thoughts on “Two objections to fair trade

  1. Jim

    I don’t think those are very good points. Firstly just because some people misuse the term as a code word for protectionism doesn’t mean we shouldn’t buy real ‘Fair Trade’ products, which after all are hardly protectionist since they’re all imported! Secondly, nobody is stopping Bhagwati donating to charity while sipping his fine Fair Trade coffee – to suggest they are in contradiction is nonsense.

    I’m surprised and disappointed to see JB chuck around loaded terms like “bamboozled into altruism”. In my view Fair Trade is distinguished precisely by its transparency on the issue of wages. Its unique selling point is that when you buy FT you know that the original producer is getting a ‘decent’ wage. When you buy other coffee you have no idea what the producer is getting. I honestly don’t see how this is a ‘subsidy’ – surely it’s just FT making a public commitment to its producers on wages and sticking to it?

    Finally, I agree with JB that we retailers shouldn’t be pressured into selling only FT coffee. I would like to see that result, but not by those means.

  2. LR

    Unfortunately I think you have completely missed the point.

    Fair trade does not seek to subsidise producers. What it does seek is to counteract the damage of protectionism from subsidies in developed countries such as the USA and the European Union. Subsidies in these countries force down the price of raw products (I read recently that American cotton farmers are on average given $200,000 in subsidies each year). This in addition to high import tariffs on raw products mean that the market is unfairly skewed in favour of developed countries’ producers. Farmers of cotton, coffee, tea etc in developing countries end up selling their products way below the cost of production because they have to sell their products at the market price – which has been forced down so far because subsidised farmers can sell their goods way below production value. Fair trade is not a charitable initiative – it just seeks to pay the ‘real’ price of producing the goods.

    You are right to be cautious about fair trade, and indeed any other initiative that says it will alleviate poverty. However to disregard fair trade because you say it is protectionist is misplaced.

    Later you suggest that retailers are coerced into stocking fair trade goods. Do you not think that perhaps it is consumer demand for fair trade that is making retailers stock new goods – in the same way that green issues has influenced retailers into re evaluating their actions.

  3. Jonathan Dingel

    Jim,

    I think there’s a US-UK gap in trade activist vocabulary. In the States, opponents of liberalization use the phrase “fair trade” to oppose NAFTA, the WTO, and outsourcing. Check this out – http://www.citizen.org/hot_issues/issue.cfm?ID=1471

    Therefore, if the fair trade (consumer awareness) movement gains popularity, it lends legitimacy to the fair trade (protectionist) movement. Bhagwati’s comments about the terminology are valid in the United States context but may not survive the trip across the Atlantic. That’s not an argument against the price premium scheme, it’s a negative externality that makes the name choice “ill-advised.”

    LR,
    Fair trade labeling is not merely a counter-subsidy movement. Fair trade activists have long had an interest in social justice and poverty alleviation, and none of them plan to end the Fair trade label when the US and EU end their agricultural subsidization.

    In regards to cotton and poor country exporters, see http://www.tradediversion.net/archives/2006/10/cotton_subsidie.html

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