Fair Trade and the need of changing consumption patterns

Map

My general Purpose

Show that fair trade is prevented by many countries and show what has to change to promote a fairer trade system which can initiate more development in developing countries.

Overview

• Introduction
• Why is the existing trade system unfair?
  • Examples of unfair trade restrictions
  • Examples of unfair subsidies
• How can a fair trade system be promoted?
  • The need to cut down subsidies
  • The need to make fair trade agreements
• The influence of fair trade on our lives and consumption
• Conclusion

Question

How do the developed world countries prevent a fairer trade system and how can the necessary adjustments look like and what are the effects for the consumption patterns?

Thesis

By protecting local industries with subsidies and tariffs the developed countries prevent global fair trade. Adjusting these subsidies and create fair local trade conditions will make a fairer trade system more likely.

Connections

• Neo-liberal concept and its consequences
  • Conventionally considered positive aspects of globalisation
  • Conventionally considered negative aspects of globalisation
• The Earth’s Human Population- Growth and Poverty
  • Soil and Food Production
  • Water Exploitation and Pollution
  • Global Threat to Life’s Diversity
• Global Markets in Products, Semi-Products, Services and Technologies
• The market and the global public goods

Introduction

For many developed countries liberated markets and the freedom to trade anything with everybody is one of the most precious principles. During several rounds of trade negotiations many trade barriers where removed and the principals of liberated markets were installed in many cases. The leading countries of these negotiations and their economies enjoyed growth and monetary wealth through the agreements that were made. Many of these agreements led to disadvantages for other countries. After demonstrations in 1999 during a trade round in Seattle and following demonstrations against these unfair agreements the leading countries of the trade negotiations decided to change the rules for letting the developing countries participating in international trade. Although some admissions were promised a real change never happened.

In my essay I would like to show how developed countries prevent a fairer trade system. I will introduce some principles for a fairer trade system and show that these principals can be different from common ideas like liberating markets and fiscal policy and some may even be distorting for some countries. Finally there will be a few words about the effects of changed trade rules on our everyday life and that this could promote a changed behaviour in everyday life.

Fair Trade

To make clear what fair trade means in this essay I would like to describe and define it with a few words. Fair trade is commonly known as a social movement which provides fair prices for producers, what is important and will be mentioned with a few words later, as well as social and environmental standards. This is a good and honourable idea and can play an important role on the way to a fairer trade system. Creating an equal point of view at trade negotiations, making negotiating processes more transparent and less bureaucratic, removing unfair trade barriers like high subsidies and taking the special needs and conditions of developing countries into account are just some aspects which are describing the type of fair trade I want to present. In short, fair trade means a fair access to fair trade negotiations.

Why is the existing trade system unfair?

The last 60 years the developed countries gained massive monetary wealth through trade which was brought forward by the liberalisation of markets. The process of liberalisation was supported through the General Agreement on Tariffs and Trade (GATT) after the Second World War and later the World Trade Organisation (WTO). There are reasons why during the trade negotiations within the GATT and WTO systems mainly developed countries benefited from the decisions. From the beginning developing countries had a special status which allowed them to raise tariffs for their domestic industries to protect them although the developed countries decided to lower the tariffs. That led to the problem that developing countries had weak bargaining positions during the GATT rounds and their concessions were doubtful. Other developing countries like China and India did not want to take part at those negotiations because they wanted to develop their domestic markets and did not see any necessity to trade internationally. As a result the developed countries arranged the trade agreements for their benefit and needs and left out the developing countries. Though the developed countries promised during past negotiating rounds to cut down subsidies and open markets the situation still is disadvantaging for developing countries.

Many developing countries are reliant to agriculture products either for their exports or to supply their own people with food. The system however is distorted by massive subsidies for the agriculture sector of the developed countries. Those subsidies have an effect on world prices and remove the opportunity for farmers to sell their surplus agriculture products. Almost 40 per cent of the GDP, 35 per cent of exports, and 70 per cents of employment are gained in the agriculture sector within developing countries which shows the importance to adjust trade agreements but to adjust them carefully to which I will come later . High tariffs for processed food and industrial goods are obstacles for any industrial developments in the developing countries. Another problem is the high cost for fulfilling the qualifications of the developed countries like any agreements related to intellectual property while at the same time the promises to lower tariffs of the developed countries were broken.

Although they lowered many tariffs for imports those tariffs were mainly for products which are not exported by developing countries. In total it looks like the conditions have improved but in detail there are tariff peaks especially for products which are mostly exported from developing countries. For example in 2001 shoes and clothes were just 6.5 per cent of US imports in value but nearly half of the US tariff venue (20 billion US$) .

Procedural fairness is another requisite for a fair agreement. The complexity of the trade rounds, hinder the developing countries with their limited staff to make constructive proposals.

How can a fair trade system be promoted?

Like mentioned above agriculture products are very important for developing countries. On the one hand it is important to give these countries a chance to trade with other countries because they have their comparative advantage in agriculture and labor-intensive goods. On the other it is important to keep prices and supply for food stable to fulfil the needs of the inhabitants of these countries. Eliminating the subsidies for commodities that will help producers in the developing countries but will not have basic effects on world prices should be top priority. To initiate agriculture and general trade between developing countries should be another aim for the developed countries and should be supported fiscally if needed.

The trade of industrial goods like textiles and processed food is distorted by many tariffs. To reduce these tariffs and especially the tariffs peak that I mentioned above should be on top of the list of priorities. And again the trade between developing countries should be supported.

This seems to be classic liberalisation instruments to open markets and promote trade and development. But to this instrument a new part should be added. The risk is high when a poor country opens the market e.g. for agriculture products because foreign companies with much greater monetary power could enter the market with their subsidised products. Unemployment and the loss of food supply safety can cause serious problems. A current example is the import of EU tomato paste and EU poultry to Ghana. The high direct or indirect subsidies for poultry and tomatoes lead to the situation that the EU products are cheaper than the Ghanaian. Consequently the imports for tomato paste increased from 3,269 metric tonnes in 1998 to 24,740. Unemployment and lost security of supply was the result. The hands of the Ghanaian government were tied because they could not protect their farmers and domestic products with tariffs against the highly subsidised EU products because of the trade legislations Ghana made with the EU . As a result not only the subsidies should cut down but the developing countries should have the right to protect their industry. Reciprocity should not be a main argument in trade negotiations to achieve a fair trade agreement. This may lead to some unemployment in the developed countries but the EU for example employs just 2 per cent of its workforce in the agriculture sector. At the same time the EU spends 40 per cent of its budget for the agriculture sector and could use the saved money from the cut down subsidies for adjusting their workforces which is an alternative that a developing country does not have due to missing budgets. An interesting idea is to install a system which differentiates between poor and rich countries. The richer countries provide free market access to all countries poorer than themselves. Developing countries would have the chance to take part in the trade system with richer countries without having too high costs for restructuring their industries. .

In the end this will have an effect on the consumer prices in the developed countries but food will still be affordable. By paying a fair price every consumer can make a small contribution to a fairer trade system. A possible calculation for the height of a fair price takes the following aspects into account: “production costs, the costs that are attached to converting to meet Fair Trade criteria (for example, the reorganisation of work), what is deemed to be a reasonable profit margin, and a bonus enabling the producers´ groups top improve their production capacities and living conditions.”.

Finally all effort would be worthless when developing countries would not tackle some important problems. Crime and corruption can destroy an uprising economy and the base for long term stability is education and a working infrastructure. And some trade problems concern just developing countries because tariffs and other distorting instruments are preventing trade between neighboured developing countries.

Conclusion

Fair trade is not only the necessity of paying fair prices but also giving countries a fair chance to take part at the international trade system. It needs time too adjust the economy of a country and focus workforce on sectors where a comparative advantage can be found. During the time of change these countries need advice and support to become a fully responsible trade partner. The developing countries should be met with different assumptions then it was before. It may not be possible to install systems which are similar to ours and maybe the majority of the inhabitants of a country do not want to change their habits or have their own trade legislations. Not only economic aspects should be taken into account but also cultural and environmental.

With cutting down subsidies it will be possible to meet many problems they cause. Overproduction will be reduced and the export of artificially cheap products will not longer be necessary or possible. The above mentioned idea of giving the developing countries the chance to get access to the markets of developed countries without reciprocity could be a possible solution to give these countries a chance to develop their markets. The adjustment costs for the developed countries would be manageable and would give them the chance to gain the partnership of a possible trade partner.