Fair Trade Caroline Burr Yesterday we looked at Globalisation and Multinationals and on Monday we talked about International Trade, now we take a look at Fair Trade

Lecture Overview To consider the problems with the WTO To understand how Fairtrade works To appreciate how Fairtrade benefits the Third World

International Trade International trade is worth $10 million a minute. But poor countries only account for 0.4% of this trade. Their share is actually half what it was in 1980. If the 3rd world countries were to increase their share of world exports by 1%, it would lift 128m people out of poverty

Could the WTO help? Benefits of WTO: Tariffs reduced significantly. Encouraged ‘good behaviour’. WTO rules covers services. Opening up of world markets. Limits on governments ability to use subsidies.

Problems WTO cannot itself impose sanctions. Policing non-tariff barriers difficult. AIC’s reluctant to accept more 3rd world exports. One vote one country regardless of size. Only half of the poorest countries can afford any representation. Environment and human rights not considered.

Did you know? The three richest men in the world have more wealth than all 600m people living in the world's poorest countries. Nearly half the world's population (2.8 billion people) live on less than $2 per day. More than 800 million go hungry every day. Income per person in the poorest countries in Africa has fallen by a quarter in the past 20 years. 2008 Warren Buffet – investor has $62Bn Carlos Slim Helu – Mexican telecomms mogul, has $60Bn Bill Gates, Microsoft has $58Bn

How does Free Trade benefit rich countries? The Southern hemisphere is dependant on basic commodities eg cotton. These are risky, so investors avoid it. Many poor countries are in debt. They are forced into ‘structural adjustment’ programmes.

Structural Adjustment Programmes Poor countries must export whatever they can to earn foreign currency to pay debts. If all countries do this, there is a glut and the price goes down. We benefit from low prices. Therefore free trade benefits rich powerful countries more than poor ones.

Other problems Adverse terms of trade. Added value (eg roasting) happens elsewhere. World price of commodities goes down relative to manufactures. Therefore any country which imports manufactures and exports commodities is in trouble. Terms of trade – individual countries earn foreign currency from exports and spend it on imports eg one country exports rice and imports oil and the world price of rice halves or the price of oil doubles then it will take twice as many exports to import the same amount of oil. This means the terms of trade have worsened or become ‘adverse’. The critical thing is not just the price, but the price relative to everything else. This is the problem with exporting commodities. It’s not just that the ‘added value’ of processing eg coffee beans is lost to the exporting country, but over the years the world price of commodities has tended to fall relative to the world price of manufactured goods. So any country that largely exports commodities and imports manufactured goods is in trouble. This has happened particularly in Africa. Odd things can happen – a hungry country might find itself exporting more and more grain because that’s all it has.Especially If the world price has gone down. This means food gets more scarce at home and the price goes up for the local (hungry) population. Worsening terms of trade are felt in declining standards of living and increased poverty. Commodities also need to be exported to pay for foreign debts – meaning even more has to be exported. It’s a down ward spiral where the rich benefit and the poor suffer.

What is the solution? Fairtrade. Removal of protectionism. Development agencies are pressing for world trade to be organised more fairly: Removal of protectionism. A set of international rules to govern MNE’s A fair price to be paid to 3rd world producers ie Fairtrade. First launched in 1988 in Netherlands. A specific response to the collapse of world coffee prices, which fell to far less than the cost of production.

The Fairtrade Foundation Established in 1992 by CAFOD. The first product- chocolate- was launched in 1994. This was followed by Fairtrade coffee and tea. 20 initiatives across Europe, Japan, North America, Mexico, Australia/NZ. This covers a range of commodities eg sugar, fruit, cocoa. The Catholic Agency For Overseas Development (CAFOD)

Traders must………. Pay a price that covers the costs of production and living. Pay a premium so that farmers can invest. Pay some advance payments when requested. Sign long term contracts to allow sustainable, long term production.

Conclusion Oxfam International says………. “We can choose to allow unfair trade rules to continue causing poverty and distress, and face the consequences. Or we can change the rules. We can allow globalisation to continue working for the few, rather than the many. Or we can forge a new model of inclusive globalisation, based on shared values and principles of social justice. The choice is ours.“

Bibliography Oxfam website www.christainaid.org Lamb H (2008) ‘Fighting the Banana Wars and other Fair trade Battles: How we took on the Corporate Giants to Change the World’