An introduction to Fair Trade and how its principles compare with those of the current world trading system.
International Muslim Association of Scientists and Engineers (IMASE)
The rapid modernisation that the world has experienced, especially in the areas of science and technology, has also been felt in Muslim communities around the world. As we may know, Muslim civilization has evolved over the last fourteen centuries and contributed in many fields - influencing the current development around the world. Today, there are many Muslim organisations and movements that promote and establish new ideologies through science and technology. One of them is the International Muslim Association of Scientist and Engineers (IMASE).
IMASE was established in 2001 by a group of postgraduate students at Cambridge University and Imperial College, London, (please also see http://www.imase.org). The objective of IMASE is to act as a platform for people to pool their resources and expertise for the benefit of mankind. In the past, IMASE has organised various kinds of activities through which people have contributed their ideas to the communities at large. Today, the many challenges faced by IMASE are worked on by various groups of experts in the Association who come from different background of culture, knowledge and experience.
In recent times, one issue that has been of great concern is the effect on the poor of unfair trade imposed on the poorer nations by those who are more favoured by mechanisms such as World Trade Organisation (WTO). The WTO is an organisation that promotes free trade worldwide. In conjuction with the WTO conference this December in Hong Kong, there will be a pre-summit of the developed and affluent so-called G-8 countries in Edinburgh. IMASE has taken this as a challenge to educate local communities about Fair Trade as opposed to Free Trade.
Introduction of Fair Trade
The era of globalisation has promoted and brought about the integration of economies in three different worlds: the first, the second and third worlds. It is argued that the ‘merger’ of these economies promotes free trade in a free market and brings economic development to poorer countries.
The first world is composed of a block of developed capitalist, industrial countries with common political and economical interests and is "led" by the United States. The most powerful countries within the first world are collectively known as the G8 countries. The G8 is made up of the USA, Cananda, UK, France, Germany, Italy, Japan, Russia and European Union. (The European Union is always represented at G8 meetings - called Summits - by the President of the European Commission and the leader of the member state holding the presidency of the European Council.The European Commission is the executive body of the EU.)
The second world is defined as consisting of countries with developing transitional economies with an average GDP and birth rate.
The third world is composed of the underdeveloped countries within Asia, Africa, Oceania and Latin America. These countries tend to be associated with poverty, high birth rates and economic dependence on the developed countries.
The divide of the World economies into the first, second and third worlds is new phenomenon which came about with the industrial revolution in Europe. The rapid advancement of science and technology helped to move these nations into a new economic position leaving other nations behind, most of which were still under colonial rule. The Fair Trade moment began as a way of assisting these underdeveloped countries to enhance their economy and countries' infrastructures.
History of Fair Trade
Fair Trade started with individual companies called ATOs (Alternative Trade Organizations) which made a commitment to work directly with indigenous peoples and to market their products directly to end consumers. Some people say that the Americans were first to institute modern fair trade with Ten Thousand Villages (formerly Self Help Crafts) who began buying needlework from Puerto Rico in 1946, and SERRV who began to trade with poor communities in the South in the late 1940s. The first formal “Fair Trade” shop which sold these and other items opened in 1958 in the USA.
The earliest traces of Fair Trade in Europe dates from the late 1950s when Oxfam GB started to sell crafts made by Chinese refugees in Oxfam shops. In 1964 it created the first Fair Trade Organization. Parallel initiatives were taking place in the Netherlands and in 1967 an importing organization, Fair Trade Organisatie, was established.
At the same time, Dutch third world groups began to sell cane sugar with the message “by buying cane sugar you give people in poor countries a place in the sun of prosperity”. These groups went on to sell handicrafts from the South, and in 1969 the first “Third World Shop” was opened. World Shops (or Fair Trade shops as they are called in other parts in the world) have played a crucial role in the global Fair Trade movement. They constitute not only points of sale but are also very active in campaigning and raising awareness among the local communities.
During the 1960s and 1970s, Non-Governmental Organizations (NGOs) and socially motivated individuals in many countries in Asia, Africa and Latin America perceived the need for fair marketing organizations which would provide advice, assistance and support to disadvantaged producers. Many such Southern Fair Trade Organizations were established and links were made with the new Fair Trade organizations in the North. These relationships were based on partnership, dialogue, transparency and respect. The goal was a greater equity in international trade.
Parallel to this citizens' movement, the developing countries were addressing and lobbying international political organisations such as the second United Nations Conference on Trade and Development (UNCTAD) in Delhi in 1968, to communicate the message “Trade not Aid”. This approach put the emphasis on the establishment of equitable trade relations with the South, instead of seeing the North appropriate all the benefits and only returning a small part of these benefits in the form of development aid. In other words, if the poor are paid fairly for their efforts and products, they would no longer need aid as we see today.
The growth of Fair Trade (or alternative trade as it was called in the early days) from the late 60s onwards has been associated primarily with development of trade. It grew as a response to poverty and sometimes disaster response in the South and focused on the marketing of local craft products. Its founders were often the large developmental and sometimes religious agencies in European countries. These NGOs, working with their counterparts in countries in the South, assisted to establish Southern Fair Trade Organizations that organize producers and production, provide social services to producers, and export to the North. Alongside the development in trade there was also a group called ‘Solidarity Trade’ which consisted of organizations which were set up to import goods from progressive countries in the South that were both politically and economically marginalised.
With the introduction of Fair Trade certification organizations like TransFair USA, products from around the world started to be certified as fairly traded. To place a world standard on what is fair, these labeling organizations came together and formed the Fairtrade Labelling Organization, (FLO).
What is Fair Trade?
Fair Trade is an alternative approach to conventional international trade. It is a trading partnership, which aims at sustainable development for excluded and disadvantaged producers. It seeks to do this by providing more just trading practices, by awareness raising and by campaigning. The fair trade movement promotes the use of labour, environmental and social standards for commodities, particularly those exported from the Third World and Second World, to the First World. Fair Trade is not a charity or handout: it is simply a process of giving a fair exchange.
What are the goals of Fair Trade?
To improve the livelihoods and well being of producers by improving market access, strengthening producer organisations, buying at a better price and providing continuity in the trading relationship.
To promote development opportunities for disadvantaged producers, especially women and indigenous people, and to protect children from exploitation in the production process.
To raise awareness among consumers of the negative effects of intentional free trade on various producers from the third world so that they can exercise their purchasing power positively.
To set an example of true partnership in trade through dialogue, transparency and respect.
To campaign for changes in the rules and practice of conventional international trade.
To protect human rights by promoting social justice, sound environmental practice and economic security to all parties.
Generally, the mission of fair trade is to protect the Third World producers from unethical buyers. It tries to ensure that those producers are paid fairly according to the true value of the product whereby in return these producers can recover the expenses of producing the respective products as well earn some profits from those ventures which can help provide them a better standard of living.
The main factor which decides the product’s prices in the market is demand and supply. If the demand of a certain product is high, obviously the supply will have to increase as well to meet the demand, and in order to supply higher number of goods or product, higher capital or investment is needed to produce those goods or product. Goods or products come from raw materials which have to be extracted or purchased at the appropriate market price so that they will return a fair profit margin to the producers or the suppliers.
Fair trade puts the benefits of trade back into the hands of the communities that need it most (for e.g. farmers in the third world). It sets new social and environmental standards for international companies and demonstrates that trade can indeed be a strong support for sustainable development and poverty alleviation. Today, a growing movement of volunteers, environmentalists, consumers, farmers and social movements worldwide are calling for a different framework for trade.
The important issue here is the fair trading campaign which would be able to promote worker’s rights, protect the environment and sustains the ability of local producers to meet the community needs. Together, as consumers, they can make a huge difference by demanding significant changes in the ways goods are produced, and vote with their dollars for a more just and environmentally sound trading system.
Issues of Fair Trade vs. Free Trade
Globalisation, trade, free market and debt alleviation are at the fore today. It is argued that the ongoing agenda of integrating economies and trading systems, and of people of different nationalities and cultures being able to share and trade resources across boundaries openly and freely will benefit all of humanity.
But the question is how ‘Fair’ is trade when a more powerful nation’s own global trading policies together with international corporations’ desires to increase their profits can result in manipulation of international trade pacts and agreements, so that they are most favourable to them? How free is free in a free market? Why do the poor people get poorer and the rich people get richer in the current scenario?
Free trade proponents argue that a lot of overbearing regulations can give too much power to a few, potentially corrupt the ruling regime and prevent innovative ideas from flourishing. It can perhaps be an obstacle for a foreign nation to invest in a country due to those conditions and regulations which may increase costs of production. However investors would want return on their investments. Where would this return come from? The free trade proponents argue that voluntary exchange meets the demands of justice because each party to the trade leaves the trade richer than he or she was before. For example, if you a pay a dollar for milk, both parties would be happy since the buyer prefers the milk compared to the dollar and the seller would rather have the dollar.
However, too much deregulation as with free trade, can lead to corporations being able to undermine basic social and human rights as well as leading to environmental damage, often without accountability. The structural adjustments imposed by the International Monetary Fund (IMF) and its push for deregulation have led to further poverty in most countries. So to take the same example, if the buyer can buy milk from many places, he would then try to forcefully make the seller to reduce his price. The matter becomes worse if the buyer has access to money and technology which would enable him to buy and store milk. The seller, who has no access to money or technology, would eventually have to sell at the buyer’s discretion since he may have a family to feed and no place to store the milk.
If nations trade freely, smaller nations become increasingly reliant on richer states, whose interaction with smaller countries depletes natural resources in those countries, and slows their progress eventually. This is called the dependency theory which has many variations. Richer, powerful nations are collectively known as the “core,” while Lower Developed Countries (LDCs) are known collectively as the “periphery.” Dependency theories state that the periphery states depend for their well-being on the core. The core produces more luxury goods, while the periphery specializes in basic and industrial goods. Ultimately it is argued that that the terms of trade between centre and periphery nations is unbalanced and unfair. According to the principles of fair trade, the prevailing terms of trade between the core and the LDCs are unjust because prevailing market prices for the goods produced in the Third World are too low for the laborers to reap a wage reflecting their dignity.
The correct balance is difficult to reach due to the inherent power conflicts between the various bodies involved. This leads to a lot of unfairness in trade and basic human rights for which the majority of people end-up paying the price. For example, it is believed that one of the main problems that caused the 1997/1998 financial crisis around the world is a lack of global regulations to help protect developing nations as they enter a global market. Even the World Bank has cautioned that globalisation and localisation (the increasing demand for local autonomy) can pose problems as well as offer benefits, if not handled accordingly.
There are many peoples all around the world who are underpaid for their resources, especially the Third World Countries. What they call Free Trade has become ‘unfair’ trade. The low wages and poor working conditions of foreign workers is unfair, more relaxed environmental standards in less developed countries is unfair, the high profits of multinational corporations that operate in the third world is unfair, as are the many of the actions and initiatives taken by the World Bank and the International Monetary Fund. Figure 1 below shows an example of the mechanism of free trade compared to fair trade for the export of coffee beans to the West.
There are many arguments used by the leaders of international institutions, the multinational corporations, and others who generally favour globalisation use. For example, multinational corporations who pay workers low wages in less developed countries thinks that it is fair wages because they are above the ‘legal’ minimum wage standard in the countries they operate. However, the issue of the effect of their presence to the surrounding communities is not taken into consideration.
There is already a growing fair trade movement around the world, where local producers are able to fairly trade their products. However, it isn’t always easy to maintain that when globalisation, in its current form, does not seem to favour those who want to trade in a fair and equitable manner.
Some of the issues highlighted here are mainly intended to give the reader a broad perspective of the issue of fair-trade. It is hope that this will motivate the reader to learn more about this and then do their part to promote Fair-trade. Everyone can play a role in this endeavour by using their power as consumers.