Free and Fair Trade Colin Vasick • Eric Hankland • Karen Ladenheim • Karina Chow Jeremy Chen • Timothy Yeh

What is Free Trade? In free trade, companies are free to trade with companies in other countries. No restrictions or government intervention (e.g. tariffs and other import restrictions) People are not encouraged to buy products specifically in their home country.

Proponents of Free Trade Hollywood studios, consumer electronics makers, and music studios (because they sell their products in many countries) The World Trade Organization (WTO), which helps to negotiate trade agreements between countries.

How Free Trade Prevents Poverty Countries will remove unproductive industries (countries that are more efficient in these areas can fill these roles) Expansion will be focused on more productive industries. The more productive an industry is, the more profitable it is, ergo companies can pay their workers higher wages. Fewer restrictions allow for more goods to be exported to other countries Lower tariffs also lead to higher profits

How Free Trade Causes Poverty Rich countries will likely trade with other rich countries that can monitor and create higher quality products This widens the economic gap between richer and poorer countries. Promotes outsourcing due to a larger market and increased competition; small businesses that cannot outsource are unable to compete in a large market. Local business is forced to compete with foreign business

What is Fair Trade? In fair trade, the disadvantaged are paid more for products through: Minimum Prices- the price of goods will not fall below a set floor Premiums- buyers pay extra for fair trade products Currently, there is a larger fair trade market for coffee and bananas

How Fair Trade Prevents Poverty Gives struggling nations the opportunity to: trade their goods for reasonable prices on a global scale establish a secure source of income become economically self-sufficient in the future and improve their standard of living prevent child labor Improve living conditions

How Fair Trade Causes Poverty Fair Trade price regulation sends producers the wrong message, because practice goes against economic laws of supply and demand By paying more than the product is normally worth, buyers encourage producers to make more When prices increase, people buy less so the extra producers struggle

How Prevalent is Fair Trade? The worth of all fair trade products amounts to far less than even a single percent (0.005%) of the total globe’s economy. The world’s GDP (gross domestic product) in 2007 was approximately 54 trillion USD The total worth of all fair trade certified products in 2007 was only 3.2 billion USD

Darker colored countries are associated with fair trade organizations. Which countries have producers affiliated with fair trade organizations? Darker colored countries are associated with fair trade organizations.

Case Study: Free Trade Living standards in many countries are not catching up to those in first world countries. There are a few who are catching up, and those are countries who are open to trade. There is a strong positive correlation between trade liberalization and poverty alleviation. Open trade may cause some countries to lose in the short run. To prevent them from failing, the WTO suggests that social safety nets are implemented.

Case Study: Kenyan Farmers Fair trade led to: Good: diversification of crops increased trade greater price satisfaction for producers better nutritional variety economic and social prosperity Bad: human capital (education of children) In conclusion, fair trade contributes to the wellbeing of farmers, but investment in labor could be improved.

Discussion Questions Is free or fair trade better at alleviating poverty? What factors should be considered when creating fair trade policies? Would free or fair trade allow for faster growth in poor countries? Who should make and enforce free/fair trade policies? Should free/fair trade organizations be privately owned?