Abstract

The dispute between proponents of free trade and those of protectionism in developing nations has persisted for a long time in the field of development economics. The former claimed that prospects for impoverished countries to improve their status would be greatly increased by free trade, whilst the latter believed that trade was detrimental to developing nations and often supported a combination of protectionism and development aid. When it comes to the topic of how international trade affects the Third World, this opposition has a tendency to take centre stage.[1] However, in recent years, a third position has come up. According to this argument, as long as it is carried out fairly, international trade can benefit emerging nations. The rationale behind this is that when engaging in trade, we have a moral responsibility to pay fair rates for goods that were made in decent conditions. This idea has shaped into the concept of fair trade, which we will be analysing in the present study. “Fair trade tips the balance, preventing discrimination against smaller sellers and those trying to earn a living in poorer, less developed communities.”

In the present study, we will be doing a detailed analysis of the difference between free trade and fair trade and closely studying the fair trade certification procedure.

Keywords – fair trade, market, economy, free trade, sustainable, barriers, fairness

INTRODUCTION

Fair trade is a social movement that aims to help producers in developing countries achieve better trading conditions and promote sustainability.[2] The World Trade Organization (WTO) is an intergovernmental organization that regulates international trade and provides a forum for member countries to negotiate trade agreements and resolve disputes.[3]

While fair trade and the WTO both address international trade, their methods and objectives differ. The goal of fair trade is to empower small – scale producers and employees in developing nations by emphasising ethical and environmentally friendly methods. The WTO, on the other hand, supports free trade and works to lower trade barriers in an effort to boost wealth and economic progress.[4]

There have been discussions over whether fair trade and free trade can coexist, and the relationship between fair trade and the WTO is complicated. While some proponents of fair trade contend that the WTO should do more to advance just and moral trading practises, others contend that the WTO’s emphasis on free trade conflicts with fair trade ideals.

Notwithstanding their differences, there are several areas where fair trade and the WTO are similar. For instance, both recognise the significance of sustainability and environmental protection, and both seek to improve the livelihoods of those engaged in international trade.

There have been initiatives to close the gap between fair trade and the WTO in recent years. For instance, to support ethical and sustainable trading practises, certain fair trade organisations have sought to interact with the WTO and other international trade organisations. At the same time, some WTO members have incorporated fair trade terms into their trade agreements after realising the value of it.

Ultimately, there is a complicated and developing link between fair trade and the WTO. Even though their methods and objectives differ, there may be ways for them to cooperate to advance more moral and sustainable global trade practises.

HISTORY OF FAIR TRADE

The term ‘fair trade’ was first used in 1985, having at the core of its conceptualisation a commitment to transparency and accountability in order to provide greater benefits to small producers.  This does not mean that fair trade was born then, since the cause had been referred to as ‘alternative trade’ before that.[5]

“Fair Trade is, fundamentally, considered as a response to the failure of conventional trade to deliver sustainable livelihoods and development opportunities to people in the poorest countries of the world”.[6]

Fair Trade as an idea and a practice saw its origin (in its elementary form) in the post Second World War[7] efforts by the Christian Missionary organizations to help the disadvantaged producer groups situated in the underdeveloped world (whose war – ravaged economy posed challenges) by offering their hand made products, markets in the developed corners of Europe and United States.[8]

Whilst the core concept of “Fair Trade” hasn’t changed, the practise has undergone numerous changes as a result of its development over time and adaption to various regional contexts. It is inevitable with any practise that deals with concerns of livelihood, social justice, development, and environmental sustainability because different geographical areas have varied needs and defence mechanisms against these problems.[9]

In significant part, fair trade contributes to solving the issue caused by unjustified market competition.[10] Setting prices is only one aspect of fair trading. The goal of the movement is to give people more power. Growers, producers, and businesses from all over the world may promote their goods and reach their full potential thanks to the fair trade concept. By offering farmers the chance to reach out to customers in every corner of the globe, individuals and families can fight poverty and build a brighter future.[11]

Some of the products most commonly sold through fairtrade are coffee, tea, bananas, cocoa to name a few.

FAIR TRADE CERTIFICATION PROCESS[12]

Fair Trade certification shows customers and employees that your brand is committed to sustainability and fair business practices throughout the supply chain, from sourcing to production to sale.[13]

• Business assessment – if a business enterprise believes their product qualifies for a fair trade certificate, they get in touch with the FairTrade Organisation, which will understand their business better and help them with their sustainability goals, supply chain, etc.
• Application – the business entity submits a simple application to become FairTrade certified. At this stage the FairTrade organization decides whether the business needs to carry on with their present supply chain or to start utilising a chain that is already certified. FLOCERT[14], the largest auditing body that determines whether a business should be fair trade certified, will provide a “permission to trade” once relevant criteria have been met.
• Contract approval – the business signs a licencing agreement with FairTrade International to get a fair trade certification and have their products labelled as fair trade certified.
• Submit application for each product – FairTrade is a product specific certification, which means each individual product sold by the business needs to fulfil the criteria to be certified.
• Marketing – FairTrade helps you promote your products and market your commitment to be sustainable.

The problem with obtaining a fair trade certificate is that the market for certified products is a small one and producers find it next to impossible to sell the entire quantity produced in the said market.[15] The surplus supply is, therefore, sold through conventional trading channels, increasing the competition between certified and uncertified producers.[16]

1. Problems with the fair trade certification system[17]

1. The unequal distribution of the fairtrade profits is majorly due to the characteristics of the certificate. A consideration has to be paid for the certificate, which is the same everywhere, making it more difficult for disadvantaged countries.

• The cost of obtaining a certificate is based on the sliding scale pricing structure, which makes it costlier for small producers.

• Due to their lower productivity and lack of economies of scale, small businesses have higher costs associated with complying with FT requirements (changes in agricultural and administrative procedures that frequently result in an increase in working hours).

ALTERNATIVES TO FAIR TRADE

In addition to fair trade, there are also other certifications and labels that aim to promote ethical and sustainable practices in international trade. Some examples include Rainforest Alliance, UTZ, and Fair for Life.

Rainforest Alliance works to promote sustainability in agriculture, forestry, and tourism. Its certification program includes requirements for environmental protection, social responsibility, and economic viability.[18]

UTZ is a certification program for coffee, cocoa, and tea that aims to promote sustainable farming practices and improve the livelihoods of farmers. Its certification program includes requirements for environmental sustainability, social responsibility, and economic viability.

Fair for Life is a certification program that aims to promote fair and responsible trade practices. Its certification program includes requirements for fair wages, safe working conditions, and environmental responsibility.

While these certifications and labels have similar goals to fair trade, they may have different approaches and requirements. Some fair trade organizations also offer additional certifications, such as Fairtrade International’s Climate Standard, which aims to reduce greenhouse gas emissions and promote climate resilience in agriculture.

Overall, these certifications and labels can help consumers make more informed choices about the products they buy and support ethical and sustainable practices in international trade. However, it is important to note that not all certifications and labels are created equal, and some may have weaker standards than others.

FAIR TRADE vs FREE TRADE

5.1 Between free trade and fair trade, which one is better?

In my opinion, fair trade is better than free trade. Fair trade aims to help producers in developing countries achieve fair prices[19] and better working conditions, whereas free trade focuses mainly on reducing barriers to international trade to increase economic efficiency. While free trade increases economic growth overall, it can lead to the exploitation of poor farmers and workers. Fair trade counters this by ensuring that producers receive fair prices and wages for their goods and labour. It also promotes sustainability by requiring fair trade certified producers to meet certain environmental and social standards. Therefore, I believe fair trade is superior to free trade because it leads to more equitable and sustainable outcomes.[20]

That said, fair trade also has some downsides compared to free trade. Fair trade goods are often more expensive for consumers since the fair trade certification and higher payments to producers add to production costs. This can make fair trade products inaccessible to some. In contrast, free trade aims to lower consumer prices by enabling producers to minimize costs.

Free trade also increases economic efficiency and stimulates greater competition between producers, which boosts innovation. When producers have to compete for customers, they are driven to improve quality, reduce waste, and develop new products to gain a competitive advantage. While fair trade aims for more ethical practices, it can reduce the incentives for producers to minimize costs and maximize efficiency.

Fair trade organizations prioritize ethical labour practices and work to ensure that workers are treated fairly and have safe working conditions. Fair trade certification often includes requirements for fair wages, safe working conditions, and freedom of association. The WTO also recognizes the importance of labour rights, and has included provisions for labour rights in some of its trade agreements. However, critics argue that the WTO’s focus on free trade can sometimes come at the expense of labour rights.

In conclusion, there are good arguments to be made on both sides of this debate. Fair trade and free trade each have their pros and cons. Ultimately, it depends on how much weight you give to economic efficiency versus ethical concerns. There may also be opportunities to combine the benefits of fair trade and free trade through voluntary fair trade certification programs operating within a free trade system. The ideal approach is likely one that balances economic and social objectives. A free trade system that incorporates voluntary fair trade certification programs may be the ideal approach. Producers and consumers can choose to participate in fair trade when they value the social impact, but they have the freedom to opt out if the economic costs are too high. This balances the objectives of efficiency and ethics.

Why Fair Trade has failed coffee producers.[21]

Fair trade has been severely criticised for failing to increase the income of coffee producers.[22] By simply providing fair trade certificates to small coffee farmers from developing countries, fair trade did not add any additional value to the actual product which is coffee.[23] Which shows that simply joining the fair trade organization and getting your product fair trade certified is not enough significantly improve the livelihood of farmers.[24]

Strict certification requirements are resulting in uneven economic advantages for coffee growers[25] and lower quality coffee for consumers.[26] By failing to address these problems, industry confidence in Fair Trade coffee is slipping.[27] Retailers explain that FLO[28] does not have sufficient data showing positive economic impact on growers. FLO regulations apply to farmers and craftsmen who produce a wide range of items, not simply coffee, such as tea, cocoa, bananas, sugar, honey, rice, flowers, cotton, and even sports balls.

In order to complete the certification process, producing companies must adhere to a set of minimal requirements that are “intended to encourage the sustainable growth of small-scale producers and agricultural workers in the world’s poorest countries.” These standards, which span 31 pages and cover both general and product-specific requirements, cover topics like member farm size, democratic governance and electoral procedures, contract transparency and reporting, and environmental requirements, to mention a few. Among the concerns are that the premiums paid by consumers are not going directly to farmers, the quality of Fair Trade coffee is uneven, and the model is technologically outdated.[29]

Representatives from Starbucks, Peet’s, and Green Mountain Coffee Roasters (which owns such brands as Caribou Coffee, Tully’s, and Newman’s Own) all report a push from consumers for more transparency of contract and socially responsible business practices. Nowadays, it is uncommon to come across a coffee roaster or vendor that does not in some manner address social issues. A few people achieve this by selling Fair Trade coffee. Yet, other people have looked for different alternatives, such embracing different credentials or creating their own programmes. “Some importers and exporters in the coffee industry claim that direct trading will put more money in farmers’ pockets than the FLO model will. The sustainable coffee business model that was popular five years ago has undergone significant transformation. Five years ago, it was common practice to just go out and buy certified coffees and check the box; and today it’s about integrating sustainability and transparency into your supply chain. Companies are making it a core way of doing business.[30]

Conclusion and Suggestions

In conclusion, fair trade and the WTO are two important approaches to international trade, each with its own strengths and weaknesses. While they have different goals and approaches, there may be opportunities for them to work together to promote more ethical and sustainable international trade practices. It is also important to consider the impact of international trade on the environment and work towards reducing its negative effects. By continuing to evaluate and improve international trade practices, we can create a more just and sustainable global economy.

Overall, there is a need for continued attention and action to address the environmental impact of international trade. This includes efforts to reduce greenhouse gas emissions, protect biodiversity, and promote sustainable production and consumption practices.

SUGGESTIONS

The researcher has certain suggestions, which if implemented will help make Fair trade much more useful to the producers.

These suggestions are as follows:

1. The cost to obtain a FairTrade certificate should be dependent upon the country and economy to which the producer belongs. FairTrade International has to be cognizant of the fact that high cost of certification prevents a lot of producers who are in genuine need of certification from obtaining it.
2. Fair trade organizations need to review the requirements put forth for certification and modify the said conditions to be more beneficial towards the farmers.
3. Another important consideration in international trade is the impact on human rights. There have been concerns about the exploitation of workers in developing countries, including child labour, forced labour, and poor working conditions. FairTrade needs to ensure that these rights are not being violated purely for the purpose of profits. Overall, there is a need for continued attention and action to address the impact of international trade on human rights. This includes efforts to prevent exploitation of workers, ensure fair wages and safe working conditions, and promote freedom of association and collective bargaining.

It is also important to consider the impact of international trade on the environment. With increased globalization and trade, there is a growing concern about the environmental impact of production and transportation of goods across the world. WTO’s focus on free trade can sometimes come at the expense of environmental protection. They need to take special care to not damage the environment any further.

[1] Jagdish Bhagwati, 2002, Free Trade Today’, Comparative Economic Studies, 44(4), 141+, https://link.gale.com/apps/doc/A96307006/AONE?u=anon~ddbe456&sid=googleScholar&xid=80fce7e5 [accessed 02 Mar 2023].  

[2] DeCarlo, J. (2007), Fair Trade: A Beginners Guide, Oxford: One World Publications.

[3] Peter Bondarenko, Fair Trade, BRITANNICA (Feb. 27, 2023, 9:29 PM), https://www.britannica.com/topic/fair-trade

[4] Agbaragam, Godfrey O. and Augustine, A. Anele (2021), World Trade Organization (WTO) And Fair Trade Practices Among Member States: Issues And Challenges, European Journal of Research in Social Sciences, Vol. 9 No. 2, 2021

[5] Vanessa Pinksky, Fair Trade: Research Agenda (Feb. 27, 2023, 9:41 PM), https://www.researchgate.net/publication/288856617_Fair_trade_international_literature_review_and_research_agenda

[6] Suman Bagisha, Political Economy of Fair Trade Evaluating Evidence from India (Feb. 27, 2023, 9:29 PM), SHODHGANGA, https://shodhganga.inflibnet.ac.in/bitstream/10603/373267/5/05_chapter2.pdf

[7] Supra note 3

[8], Supra note 6

[9] Ibid

[10] FAIRTRADE UK, https://www.fairtrade.org.uk/what-is-fairtrade/ (last visited Feb. 26, 2023).

[11] FAIRTRADE CERTIFIED, https://www.fairtradecertified.org/ (last visited Feb. 26, 2023).

[12] Ross Mudrick, How and (Why) to become fair trade certified, BUSINESS NEWS DAILY (Feb. 27, 2023, 9:29 PM),  https://www.businessnewsdaily.com/10937-become-fair-trade-certified.html

[13] Amy Shoenthal, What exactly is fair trade and why should we care?, FORBES (Feb. 27, 2023, 9:29 PM), https://www.forbes.com/sites/amyschoenberger/2018/12/14/what-exactly-is-fair-trade-and-why-should-we-care/?sh=35a3f43c7894

[14] Supra note 11

[15] Katharina Bissinger and Daniel Leufkens (2019) : Fairtrade certification – consequences of being a niche market

[16] Bezencon, Valery (2011), “Producers and the Fair Trade Distribution Systems: What are the benefits and problems?”, Sustainable Development ,19 (1): 60-70.

[17] THE GUARDIAN, https://www.theguardian.com/global-development/2014/sep/05/fairtrade-unjust-movement-serves-rich (last visited Feb. 26, 2023).

[18] Boot, W., C. Wunderlich and A. Bartra (2003), Beneficial Impacts of Ecolabeled Mexican Coffee: Organic, Fair Trade, Rainforest Alliance, Bird Friendly, URL:http://privatizationofrisk.ssrc.org.

[19] Doppler, F. and A.A. González Cabañas (2006), “Fair Trade: Benefits and Drawbacks for Producers”, Puente @ Europa, 4(2): 53–56.

[20] https://sellmerch.org/how-does-fair-trade-work-the-pros-and-cons-of-fair-trade/amp/ (last visited Feb. 26, 2023).

[21] Haight, C. (2011), The Problem With Fair Trade Coffee. Stanford Social Innovation Review, 9, 7479. https://doi.org/10.48558/CJ8S-D897 https://ssir.org/articles/entry/the_problem_with_fair_trade_coffee#

[22] Daviron, B. and S. Ponte (2005), The Coffee Paradox: Commodity Trade and the Elusive Promise of Development, London: Zed Books.

[23] OIL SLICK COFFEE, https://oilslickcoffee.com/sustainability/fair-trade-failed/20coffee%20to%20conventional%20markets (last visited Feb. 26, 2023).

[24] Ibid

[25] Calo, Muriel, and Timothy A. Wise (2005), Revaluing peasant coffee production: Organic and fair trade markets in Mexico. Medford, USA: Global Development and Environment Institute, Tufts University.

[26] Dicum, G. and N. Luttinger (1999), The Coffee Book: Anatomy of an Industry from Crop to the Last Drop, New York: The New Press.

[27] Supra note 22

[28] FairTrade Labelling organization

[29] Supra note 28

[30] Ibid 

Aishwarya Bhattacharya