Fairtrade problems on the ground

Not a good week of press for Fairtrade. FT:

“Ethical” coffee is being produced in Peru, the world’s top exporter of Fairtrade coffee, by labourers paid less than the legal minimum wage. Industry insiders have also told the Financial Times of non-certified coffee being marked and exported as Fairtrade, and of certified coffee being illegally planted in areas of protected rainforest.

And more from Alex Singleton, who just visited Africa:

Out in rural Kenya last week, I found that there was some scepticism towards the traditional view the co-operatives are always forces for good. In fact, in Kenya, the coffee co-operatives have suffered from significant mismanagement, with individual farmers often exploited by the leaders of the co-operatives. In fairness, Kenya has been trying to help rebalance the situation, for example introducing six year term limits on co-operative leaders. I do worry that spokespeople for the Fairtrade movement suffer from a myopic romantic vision of the coffee farmer in a co-operative, which the truth such an existence is backbreaking and mired in exploitation.

Dollar Depreciation and the Trade Balance

New NBER paper on the J-curve:

The pattern of international trade adjustment is affected by the continuing international role of the dollar and related evidence on exchange rate pass-through into prices. This paper argues that a depreciation of the dollar would have asymmetric effects on flows between the United States and its trading partners. With low exchange rate pass-through to U.S. import prices and high exchange rate pass-through to the local prices of countries consuming U.S. exports, the effect of dollar depreciation on real trade flows is dominated by an adjustment in U.S. export quantities, which increase as U.S. goods become cheaper in the rest of the world. Real U.S. imports are affected less because U.S. prices are more insulated from exchange rate movements — pass-through is low and dollar invoicing is high. In relation to prices, the effects on the U.S. terms of trade are limited: U.S. exporters earn the same amount of dollars for each unit shipped abroad, and U.S. consumers do not encounter more expensive imports. Movements in dollar exchange rates also affect the international trade transactions of countries invoicing some of their trade in dollars, even when these countries are not transacting directly with the United States.

Hat tip to Tyler Cowen, who comments:

This asymmetry is no accident but rather stems, in large part, from the central role of the dollar as a reserve currency and a medium for invoice pricing. When an Asian export is priced in terms of dollars in the first place, exchange rate movements lead to less pass-through. In other words, to the extent we would see an improvement in our trade balance, from dollar depreciation, it would be vis-a-vis the countries with the highest propensity to consume more American exports. It would not be with the countries whose exports we are most likely to consume. This also means that we cannot in every way extrapolate European currency experience to the United States.

The paper’s claim has important implications for papers like this one, which claimed that a dollar devaluation had a one-for-one impact on import price inflation while minimally impacting overall US inflation. Is this effect strong enough to render calls for a Chinese revaluation of the renminbi irrelevant? Or does the lower pass through rate just mean that the RMB will have to rise even higher?

(I don’t have NBER access at the moment, so I don’t know if the phrase “depreciation of the dollar” implies across-the-board appreciation of other currencies. If so, conclusions about the RMB revaluation question may be different.)

Doha Round update

NYT:

RIO DE JANEIRO, Sept. 10 — Despite repeated declarations of their desire to resuscitate suspended global trade negotiations, representatives of leading industrial and developing nations meeting here this weekend were unable to agree on a resumption date.

Robert McMahon has a nice round up of the latest talks at CFR.

DeLong on Wade

Adopting the 1:3:2 framework, Brad DeLong argues that the existing international economic institutional framework is likely to last:

The current neoliberal rules of engagement make it difficult for the rich post-industrial core to succumb to protectionist and nativist pressures that would slow growth for the three billion significantly. And the current neoliberal rules of engagement give the largely-kleptocratic rulers of the two billion nice lives as well.

Stiglitz’s Trade Unilateralism

Joseph Stiglitz:

“Rich countries should simply open up their markets to poorer ones, without reciprocity.”

Josh Hendrickson:

A man such as Dr. Stiglitz should know better to make such a comment. A basic concept of economics is that in order for a transaction to take place, it must benefit each party. While I am certainly an advocate of free markets and free trade, this statement ignores important political and social factors associated with doing so and is strikingly idealistic.

If Mr. Hendrickson is an advocate of free trade, then he ought to recognize unilateral trade liberalization when it is proposed. Lower US trade barriers would benefit each party. Stiglitz’s proposal is idealistic because if the US was unwilling to make “concessions” at Doha, then it certainly won’t reverse course and make them unilaterally. But Hendrickson ought to support Stiglitz’s position if he believes in the classic case for free trade.

1:3:2 World

In making his standard argument against “free trade fundamentalism” Robert Wade presents a novel analytic suggestion:

In thinking about these issues, we should also give up talk of “the developing world” in contrast to “the developed world,” and talk instead of a “1:3:2 world” (one billion people live in the rich countries, three billion live in countries where growth rates are faster than those of the rich countries, and two billion live in countries where they are substantially slower).

[Hat tip: Pienso]