Monday 18 October 2010

Fair Trade or Free trade?

It  suddenly dawned on me over the weekend that there are infact books in the library that address the concept of free trade.

After browsing through a few of these books, I found myself getting confused by interpreting 'free trade' for 'fair trade' and vice versa. So, the question is, is there a difference between the two concepts?

'Dunkley (2001) in his novel, "The Free Trade Adventure" defines free trade as 'trading across national boundaries unimpeded by tariff duties, quotas, regulations or other barriers to the movement of goods and services'. Clearly, this is exactly what the WTO (World Trade Organisation) aims to do in trying to  encourage international trade to take place. In doing so, sustainable development as well as economic growth is likely to occur. Therefore, it may be argued that the concept of free trade is more of an interpretation of trade from an economists' point of view.

On the other hand, fair trade is a concept which has several meanings but does not really have a clear cut definition.  For example, Dunkley (2001) in the same novel quoted above, puts forward as many as 3 different meanings of fair trade. He does this by taking into account the term as interpreted by it's historical origins, the NGOs perspective and with reference to trade policies. Personally, I prefer the meaning embraced by the NGOs which involves Third World countries selling goods (example coffee, bananas, cotton) to developed countries/MEDCs (most economically developed countries) who in turn sell these commodities  at 'modest mark-ups'. 

Having discussed all this, a thought comes to mind. Is free trade integral in the practice of fair trade or not? Initially, I thought so. I think I still do. However, taking into account what writers such as Rosenberg( 1999) had to say about this in his debate of  CAFCA Farmers as seen in;
http://www.converge.org.nz/watchdog/94/6freet.htm  , ideally, it should be that the best producer of commodities/goods who will benefit from increased economic growth. In fact, it would seem to me that that free trade is a keystone or platform which provides the right economic climate to  nurture fair trade.

Therefore, in my opinion, free trade is a key component in the practice of fair trade.  Unfortunately, this may not necessarily be the case. The free trade concept is believed to be non-existent by some especially Rosenberg because large corporations and transnational companies have taken over international trading. Many examples have been quoted most of which are of the late 1990s but I believe the arguments are still applicable today. Why is it that the WTO members are advocates of free trade and yet it is their own members that seem to be engaging  in the unfair practices associated with it i.e. price fixing in order to reduce taxes. How is it possible that struggling developing countries can triumph through fair trade when MEDCs  have a big influence over international trade policies? Perhaps I've missed something..

Please stay tuned for my next post. Thanks!

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