Fair Trade and Hired Labor

Fair Trade:

There are 2 main types of FAIRTRADE standards for developing country producers – for smallholder producer organisations and for hired labour situations. Fairtrade standards for smallholder producer organisations include requirements for democratic decision making, ensuring that producers have a say in how the Fairtrade premiums are invested. They also include requirements for capacity building and economic strengthening of the organisation. Fairtrade standards for hired labour situations ensure that workers receive decent wages and enjoy the freedom of join unions and bargain collectively. Fairtrade certified plantations must also ensure that there is no forced or child labour and that health and safety requirements are met. In a hired labour situation, Fairtrade standards require a “joint body” to be set up with representatives from both management and workers. This joint body decides on how Fairtrade premiums will be spent to benefit plantation workers.

For some products, such as coffee, only Fairtrade standards for smallholder organisations are applicable. For others, such as tea, both smallholder producers and plantations can be certified.

Why is Fair Trade hostile to hired labor in the production of coffee but not tea?

The Latest in Preferential Liberalization

Dan Drezner points to a FT story that says competitive liberalization is kicking into high-gear, as the US shifts from trade deals with foreign policy implications (Bahrain, Oman, CAFTA) to trade deals with larger economic implications (Malaysia, South Korea). And the IIE’s latest book details the possible benefits of a Swiss-US FTA. Once again, agriculture is the critical component.

Singleton on fair trade coffee, again

As per my August post, I am confused by Alex Singleton’s take on fair trade:

Such policies, whether government enforced or done through consumer schemes, encourage more affluent producers to stay in the market. This kicks away the ladder from the poorest producers who have no choice but to stay in the market. A quarter of “fair trade” coffee comes from Mexico, a relatively affluent developing country, where only 18% of the workforce is employed in agriculture. Mexico is a country which, if it so chose, could easily exit the coffee market. Because of the incentive of “fair trade”, many producers have decided to stay producing coffee, even expanding production. This is a disaster for the poorest coffee producers, such as in Ethiopia, where drinking coffee was invented. [The Business]

How can a rightward shift in demand hurt suppliers? If we’re in econ 101 land, the demand shift raises the equilibrium price, inducing marginal suppliers to enter the market and also increasing the size of the producer surplus enjoyed by suppliers already present. What assumptions about market structure must we make to obtain Singleton’s result?

Question on Djankov, Freund & Pham (2006)

If you’re familiar with “Trading on Time,” I have a quick question. At the bottom of page eleven, in defining the remoteness variable, the subscript for Distance is lj. I suspect this is just a typo that should have been kj. Is this what others who have read the paper concluded? D is used for both distance and a vector of dummy variables at different points in the paper, so I may just be confused.

Two Papers

I apologize the lack of blogging this month. The dry spell will continue until I complete my thesis at the end of March. In the meantime, let me recommend two interesting papers I came across in the course of my work:

Dani Rodrik – Why We Learn Nothing from Regressing Economic Growth on Policies – March 2005:

Government use policy to achieve certain outcomes.  Sometimes the desired ends are worthwhile, and sometimes they are pernicious.  Cross-country regressions have been the tool of choice in assessing the effectiveness of policies and the empirical relevance of these two diametrically opposite views of government behavior.  When government policy responds systematically to economic or political objectives, the standard growth regression in which economic growth (or any other performance indicator) is regressed on policy tells us nothing about the effectiveness of policy and whether government motives are good or bad.

Alessandro Nicita – Export led growth, pro-poor or not? Evidence from Madagascar’s textile and apparel industry – February 2006

Madagascar’s textile and apparel industry has been among the fastest growing in Sub-Saharan Africa. Fueled by low labor costs, a fairly productive labor force, and preferential access to industrial countries, Madagascar ‘ s exports of textile and apparel products grew from about US$45 million in 1990 to almost half a billion in 2001. The impact of this export surge has been large in terms of employment and wages, but less so in terms of poverty reduction. To address the concern of whether the poor benefit and to what extent, the author follows a new approach to identify the beneficiaries of globalization and to quantify the benefits at the household level, so as to understand which segments of the population benefit most and which, if any, are marginalized. The analysis focuses on the labor market channel which has been recognized as the main transmission between economic growth and poverty. The methodology uses household level data and combines the wage premium literature with matching methods. The results point to a strong variation in the distribution of the benefits from export growth with skilled workers and urban areas benefiting most. From a poverty perspective, export-led growth in the textile and apparel sector has only a small effect on overall poverty…

Nuclear Power & Indian Well-being

The IHT has a story summarizing the implications of nuclear power for India:

Almost a tenth of India’s economy was being murdered in the dark, strangled by power shortages. And then George W. Bush said, “Let there be light.” That, in a nutshell, is the thrust of a much-debated nuclear-energy agreement that the U.S. president pursued and concluded Thursday with Prime Minister Manmohan Singh of India in New Delhi…

An acute power crisis is all too visible. Computer software companies in Bangalore keep enough generator fuel to last them a week, or longer, in case the overburdened power distribution network breaks down. Households are buying “intelligent” washing machines that “remember” where they had stopped when power went out. That way, people don’t waste time, water and detergent by starting all over again after supply resumes. For Singh’s government, nuclear energy is fast emerging as the centerpiece of a strategy to ease the power crunch…

In their joint declaration, the two leaders agreed that India would separate its military nuclear program from the civilian one, and that it would voluntarily place the latter under the watch of the International Atomic Energy Agency. In return, Bush recognized India as a “responsible state with advanced nuclear technology” and promised to adjust U.S. and international laws, to give India’s civilian facilities unrestricted access to imported nuclear technology…

If India can use the accord to overcome its energy crisis, there is a lot that its fast-growing economy can buy from the rest of the world. That will be the ultimate economic prize for the global economy if it accepts India as a de facto nuclear-weapons state. Whether the prize is worth the risk of “tempting” states without nuclear weapons to give up their “self-restraint,” as Talbott puts it, is for Congress to decide. [IHT]

TPA won’t be renewed

Also pushing the agenda is a likely lapse in President George W. Bush’s fast-track trade negotiating authority, which is set to expire in July 2007. Lamy, who visited Washington last week, said his talks with leading members of the finance and agricultural committees in both houses of Congress, including Senator Charles Grassley, Republican of Iowa and chairman of the Senate Finance Committee, had made clear that those powers would not be extended. [IHT]