Fair Trade and Developing Countries - Essay Example

Introduction A President of the United s once said that the business of America was business. With globalization and the liberalization of trade, however, this particular line became significant to almost every nation of the world. However, it is likewise a well-known fact that business in the first world countries follow a better structure and is more sophisticated as compared with those in the third world countries. In fact, it was likewise argued that globalization and the liberalization of trade has been likewise creating not only opportunities but other consequences as well in the less developed countries. Apparently, because of the popularity of trade, much has to be done with the developing countries (Ferrer 2008). It was likewise mentioned that the producers in the developing countries do not profit a lot from trade because they have to split profits and royalties with the governments. At times, they even have to pay those who are in charge of granting licenses thereby going through a number of red tapes within a the bureaucratic structure (Jaffee 2008). Fair trade is defined as that organized social movement which is regarded as a market-based approach aim towards helping producers from developing countries in ensuring the development of better trading conditions and also to ensure sustainability (Ferrer 2008). Basically, the movement is concerned with the need to pay higher prices to producers as well as the development of higher social and environmental standards. In the same manner, fair trade also highlights the export of goods from the developing countries to developed countries. Most of the said goods involve, but are not limited to the following: handicrafts, sugar, coffee, tea, bananas, cocoa, wine, cotton, honey, fresh fruits, flowers, chocolate and gold. The concept related to free trade generally surface as a response to environmental and social goals. Basically, fair trade was considered as a long term approach by which problems related to poverty can be addressed (Jaffee 2008). Thus, through fair trade, it has been argued that producers such as farmers in the developing countries are ensured of a better, sustainable future. In addition thereto, the establishment of the concept of fair trade was also brought about by the inability of free trade in the globalized market economy to cater to the needs of smaller industries thereby contributing to its slow demise. Parenthetically, the proponents of the idea of fair trade mentioned that there is indeed a need for the latter because of the failure of the liberalization of trade to protect small industries which at the same time, also contributes to the exploitation of its members (Ferrer 2008; Jaffee 200). Having established the main definition of the concept of free trade as well as the purpose behind the introduction of the said idea, this essay presents the common issues surrounding the topic. More or less, it aims to give an overview as to the history of fair trade, the purposes behind its establishment and its ability to actually help developing countries attain the sustainable development that it has envisioned (Lyon and Moberg 2011). The Need for Fair Trade The importance in establishing free trade has been premised on the inability of world trade to contribute to the betterment of all the members of the global market, most especially, the developing countries, more specifically the producers and industries therein. Evidently, meetings of the World Trade Organization, the primary international body tasked with the regulation of global trade, were able to show that free trade was relatively successful (Stiglitz and Charlton 2005; Ransom 2006; Nicholls and Opal 2005). Contrary to what the organization envisioned, it was shown that free trade tends to favor the developed nations. Unfortunately, there are even instances when the members of the developed world even come up with measures by which they block and delay important trade agreements. Consequently, because of this, there was a tendency for the members of the developing world, the third world nations to believe in the concept of free trade; hence, they were relatively hesitant in terms of making definitive actions (Nicholls and Opal 2005). Undeniably, the globalization of trade was deemed of paramount importance to ensure that the development experienced in the first world countries are likewise experienced by the members of the developing world (the third world) (Stiglitz and Charlton 2005). Nevertheless, because of the damage that globalization may contribute on the local industries, the members of the developing world tend to impose protectionist policies that prevent free trade. In this regard, the adoption of the concepts of fair trade was once again considered of paramount importance in a sense that former helps in ensuring a “fair playing field” in the global market (Stiglitz and Charlton 2005). Fair Trade: A Brief History The principles of fair trade started in societies in the European continent even before the so-called alternative trading organizations (ATOs) surfaced after the Second World War. Basically, the main idea behind fair trade is similar to the pre-capitalist ideas with respect to the manner by which the company and the society are organized. It was, however, only immediately after the Second World War when the fair trade movement that we know today was born. At that time, religious groups and non-governmental organizations took the primary steps in attempting to commercialize the market goods from the Northern hemisphere which have been produced by marginalized producers therein (Ransom 2006). Thereafter, various organizations such as the Mennonite Central Committee (MCC) and SERRV International in order to ensure the development of fair trade by managing supply chains in the different countries belonging to the developing world. These organizations tend to focused on handicrafts (Lyon and Moberg 2011). It was only in the beginning of the 1960s when fair trade movement was strengthened in the European continent. At this particular, fair trade was merely developed in response against neo-imperialism, most especially as regards the need to protect the newly-established traditional businesses against the multinational businesses (Ransom 2006). Presently, the main organization that caters to fair trade is the World Fair Trade Organization, the successor of the International Fair Trade Association. The International Fair Trade Association was established in 1989 as a global association of three hundred and twenty-four organizations belonging to seventy countries. Most of its members are importers, retailers and marketing companies. Thus, the primary aim of the organization is to improve the situation of the disadvantaged producer by ensuring greater justice in the arena of global trade (Stiglitz and Charlton 2005). In 2004, the World Fair Trade Organization launched the fair trade certification mark which has been used worldwide, thus guaranteeing that a certain organization complies with the standards set forth by the latter as regards working conditions, wages and effects on the environment (Ferrer 2008). Notwithstanding all the efforts aimed towards the betterment of fair trade, as earlier mentioned, there are various arguments raised as regards the effects of the former on the developing countries. It is in this regard that the next section of this research focuses on the effects of fair trade on developing countries (Lyon and Moberg 2011). The Effects of Fair Trade in Developing Countries As mentioned, this section of this present research focuses on the effects of fair trade in developing countries. In order to ensure proper understanding of this, the researcher divides the section into two: the positive and negative effects of fair trade in developing countries. The Positive Effects of Fair Trade in Developing Countries. The concept of free trade, as earlier mentioned, has been established in order to reduce the negative effects of globalization and trade liberalization on the developing countries. Succinctly, it is because of fair trade that the following results are experienced in the global arena: to establish a better connection between the producers and the consumers; to promote fair trading conditions, and lastly, (3) to encourage the producers at the disadvantaged to combat poverty, strengthen their position in the global economy, and lastly, to ensure that they control over their lives (Ferrer 2008; Jaffee 2008; Lyon and Moberg 2011; Ransom 2006). Notwithstanding this, there are various negative consequences associated with free trade and these are discussed in the succeeding subsection. In addition to the abovementioned, there are other researchers who have built on the advantages of fair trade by mentioning that it is through fair trade that farmers in the developing countries are self-sufficient. The Negative Effects of Fair Trade in Developing Countries. Some authors and researchers believe that the development of fair trade does not really contribute to the development of the third world countries, the producers as well as the industries therein. In fact, some of the critics who have written regarding the topic mentioned that fair trade is a “poverty trap.” According to the critics who have named fair trade as a poverty trap, there is a tendency for the former to fail in terms of addressing issues pertaining to mechanization and industrialization which are considered as the important changes that allow farmers in the developing countries to abandon their strenuous work and thus, allow them to go out of the poverty cycle (Stiglitz and Charlton 2005; Lyon and Moberg 2011). Other issues cited as a disadvantage related to the fair trade are market distortions and overproduction. According to various researchers, market distortions and overproduction are among the criticisms that the proponents of fair trade have cited in relation to the disadvantages of the latter. The researchers mention that because fair trade promotes minimum prices for the goods that they create, the same also result to various market distortions which in turn result to overproduction and the prevention of allocation of resources to the other types of production in the developing nations (Chamni 2006). Apparently, too much production of the resources marketed in fair trade tends to result in a significant reduction in its prices. A paper reviewed by the researcher mentioned that this is contrary to the principles of fair trade. Taking the experiences of coffee producers for example, there exists a tendency whereby fair trade exacerbates their condition. Apparently, this is because coffee producers are encouraged to produce their commodities by offering high artificial prices. Cogently, it was mentioned that under this perspective, coffee growers in the developing nations must be able to receive a good signal from their market before switching to alternative crops. This situation likewise runs contrary to the principle behind fair trade certification. As mentioned in the earlier parts of this paper, the main purpose behind fair trade certification is to inform which of the products available in the market come from fair trade and which do not. It is also worth noting that the supply and demand curves for both types of product vary. Hence, the higher price stipulated for certified goods may once again be construed as the need to comply with the rules pertaining to fair trade to gain a better market share. Unfortunately, the high prices with respect to certified groups are caused by other factors, such as the fact that it reflects the cost with respect to compliance with fair trade standards. In this sense, the misconstruction would definitely lead to overproduction and several market distortions which are likewise harmful to the economies of the developing countries. Aside from overproduction and market distortions, another negative issue related to fair trade is its incapacity to benefit those that it has intended to positively affect. Most of the critics tend to argue that fair trade has not really been successful in terms of aiding the groups from the developing countries. In fact, in a study, it was even pointed out that only 5% of the income coming from the sale of bananas reaches the growers in the developing world (Chamni 2006; Goldberg and Pavcnik 2007). Arguably, the importers, wholesalers and the retailers maintain a percentage of the profit for their own benefit in order to offset the costs that they have incurred with respect to the maintenance of fair trade supply chains. Aside from the abovementioned, there are also arguments as to the compliance of fair trade with the right standards. Parenthetically, there were issues as to the use of the child labor just to bring the prices of goods down in order to comply with the standards related to fair trade. Undeniably, whilst Fair Trade was established in order to address the needs of the developing countries, the former nevertheless negatively affects the latter. In fact, as previously demonstrated, there are various arguments as regards the tendency of fair trade to actually contribute to the benefit of the developing countries (Goldberg and Pavcnick 2007). Conclusion The establishment of fair trade is deemed of paramount importance in terms of reducing the negative effects of globalization and trade liberalization. As established in the previous paragraphs, trade liberalization and globalization has negatively affected the developing countries. While the World Trade Organization has been established in the hopes of ensuring the betterment of all the members of the global economy, the said benefits were merely confined to the members of the developed world. In fact, as demonstrated, various problems arose as regards the developing countries as they have not received any benefits. As a result, the main solution was to establish fair trade. Unfortunately, as also previously stipulated, the establishment of fair trade has not really resulted to the benefits contemplated. Therefore, much has yet to be done with respect to fair trade in order to ensure the progress and development of the third world countries. References Chimni, B.S. 2006. Book Review: Reclaiming Development in the World Trading System. World Trade Review, vol. 5, pp.498-500. Ferrer, T. 2008. Free Trade Versus Fair Trade. BiblioBazaar, UK. Jaffee, D. 2008. Brewing Justice: Fair Trade Coffee, Sustainability and Survival. University of California Press, US. Goldberg, P.K. and Pavcnik, N. 2007. Distributional Effects of Globalization in Developing Countries. NBER Working Paper No. 12885, February 2007. Lyon, S. and Moberg, M. 2011. Fair Trade and Social Justice: Global Ethnographies. NYU Press, US. Nicholls, A. and Opal, C. 2005. Fair Trade: Market-Driven Ethical Consumption. Sage Publications, CA. Ransom, D. 2006. The No-Nonsense Guide to Fair Trade. New Internationalist, UK. Stiglits, J.E. and Charlton, A. 2005. Fair Trade for All: How Trade can Promote Development. Oxford University Press, UK. Read More