1. Trade, Development & Sustainability
  2. International Trade and Corporations
  3. Roadblocks to Development
  4. The Debt Crisis in Developing Countries
  5. Free Trade and the Environment
  6. Trade and National Boundaries
  7. A Case Study: the Bushmeat Crisis
  8. "Sundown on the Unions"
  9. What's Wrong with Fair Trade?
  10. A Peek at the US Tariff Schedule

What's Wrong with Fair Trade?

In recent 
years a movement known as “Fair Trade” has become increasingly popular. Many people, seeing the social damage wrought by “free trade agreements” and globalization, have tried to create markets for goods produced in healthy and equitable conditions.
Coffee beans being sorted and pulped by workers and volunteers, on an organic, fair-trade, shade-grown coffee plantation in Guatemala.
The movement focuses on exports from developing countries to developed countries. Examples of “fair trade products” include handicrafts, coffee, cocoa, sugar, tea, bananas, honey, cotton, wine and fresh fruit. The basic idea is to establish producers’ cooperatives, which would then sell their products to fair trade organizations which would, by cutting out “middlemen,” ensure that more of the goods’ final value goes to their original producers. Labeling initiatives sought to provide consumer assurance that goods had been brought to market by a bona fide fair trade process; today a standard certification process has been adopted by an international organization, the Fairtrade Labeling Organization, and this process has greatly increased the volume of fair trade sales in North America and Europe.

The rationale for the fair trade movement is that producers in developing countries cannot compete in international markets, because they lack advantages available to producers in the “first world.” These include easy access to credit and technology, market information, and, in many cases outright subsidies.

Fair trade goods tend to sell for a bit more than similar “mainstream” products. Many consumers believe that conventional international-trade systems are unjust. To them, the quality of the goods they buy is enhanced by the assurance that foreign workers have not been brutalized producing them, and they are willing to pay a bit more. This, however, relegates fair trade products to a “niche market” that will never, by its nature, appeal to the mass of price-conscious shoppers. Although fair trade goods are becoming increasingly popular, their overall impact on markets remains small. The Fairtrade Labeling Organization estimated certified fair trade sales in 2006 at $2.3 billion. That amounts to a 41% increase over the previous year — but less than a hundredth of one percent of total world trade in physical merchandise.

Some economists have criticized the fair trade movement for distorting markets. They contend that increased prices for fair trade goods during periods of high demand can lead to overproduction, which can leave non- fair trade producers in a crisis if demand falls. Advocates counter that this contention is not supported by evidence — and that the increased influence of fair trade cooperatives in developing countries allow local producers to become more flexible and independent. Also, nonprofit fair trade initiatives have sometimes been combined with microcredit programs, which have been shown to be highly effective allowing people to pull themselves out of deep poverty. However, despite fair trade’s healthy and honorable intentions, and its increasing success, the brutal fact remains that the movement could raise its overall market share by 1000% and still have a negligible effect at slowing the “race to the bottom.”