The Fallacy of "Fair" Trade
Toro @ Tue Nov 22, 2005 2:58 pm
DrCaleb DrCaleb:
Just curious about this; If 'fair trade' doesn't work, then how come South Korea can go from mud huts to a manufacturing giant in a short time, if all they were given is a 'fair, open market' for their goods?
Or is my general synopsis in error?
Or is my general synopsis in error?
You are in error because what is promoted as "fair trade" is something quite different than the export-oriented, globalization-focussed economic strategies of East Asia.
Read up about fair trade at the fair trade federation web site. The ideals sound wonderful, but the idea of paying a "fair" price is unrealistic and impractical, and can, in fact, be damaging. I'll explain why later.
Scape @ Tue Nov 22, 2005 3:15 pm
Test case: How would 'fair' trade react to the privatization of water (the modern day version of snake oil) as opposed to the current 'free' trade polices? Vis-a-vis open market (International) and client to client (free market to free market)?
Toro @ Tue Nov 22, 2005 3:32 pm
Scape Scape:
Test case: How would 'fair' trade react to the privatization of water (the modern day version of snake oil) as opposed to the current 'free' trade polices? Vis-a-vis open market (International) and client to client (free market to free market)?
I don't really understand what you are getting at.
There are two concepts of "fair" trade. The first is an actual "fair trade" campaign, which you can learn about in the post above. The second is a mushy, political definition of what is "fair". In this context, what is "fair" is the genesis behind such anti-trade, anti-growth policies such as the Byrd amendment, softwood lumber, etc., or those pertaining to other matters such as environmentalism and health, i.e. banning beef because of BSE, or those relating to worker rights, which is protectionism in another guise.
Toro @ Tue Nov 22, 2005 6:43 pm
IceOwl IceOwl:
Toro Toro:
Scape Scape:
Test case: How would 'fair' trade react to the privatization of water (the modern day version of snake oil) as opposed to the current 'free' trade polices? Vis-a-vis open market (International) and client to client (free market to free market)?
I don't really understand what you are getting at.
There are two concepts of "fair" trade. The first is an actual "fair trade" campaign, which you can learn about in the post above. The second is a mushy, political definition of what is "fair". In this context, what is "fair" is the genesis behind such anti-trade, anti-growth policies such as the Byrd amendment, softwood lumber, etc., or those pertaining to other matters such as environmentalism and health, i.e. banning beef because of BSE, or those relating to worker rights, which is protectionism in another guise.
So, workers should have no rights, we should eat infected beef, and we should have no right to economic sovereignty?
"Anti-trade" and "anti-growth" are antiseptic terms used to convince people like you that free trade as it stands is just fine the way it is, and that there are no issues facing the people who actually have to live with the economic policies of "free" trade.
This is extremist rhetoric.
These are "fair trade" policies that restrict free trade. BSE is a perfect example. Is it reasonable to ban all Canadian beef imports for two years over one cow? Well, the United States said it was. But what are the odds that someone in the US is going to catch mad cow? You have a better chance of being struck by lightening. Risk is prevelent everywhere. Don't get in your car, because you have a chance of dying! Blame automobile deaths on free trade!
"Fair trade" is "fair" until its applied to you.
Toro @ Tue Nov 22, 2005 7:48 pm
IceOwl IceOwl:
$1:
These are "fair trade" policies that restrict free trade. BSE is a perfect example. Is it reasonable to ban all Canadian beef imports for two years over one cow?
What does it even have to do with free trade? If NAFTA didn't exist, the same thing would happen.
This is what happens under the guise of "fair trade" because...
IceOwl IceOwl:
$1:
"Fair trade" is "fair" until its applied to you.
You fail to demonstrate how.
... the Americans are applying their own standard of fairness. What they determine is "fair" can be very different from what you determine is fair. To the Americans - or the American lumber industry anyways - timber allocation rights are unfair because it isn't similair to the American system, and, according to the US lumber industry, to make everything "fair" a tariff must be placed on Canadian lumber.
That's why "fair trade" is a fallacy. We cannot define what is "fair" because arriving at pricing is enormously complex.
Toro @ Tue Nov 22, 2005 8:35 pm
IceOwl IceOwl:
That's an interesting response coming from someone who claims to have a degree and works "in the field." Are you totally stupid, or have you never heard of countries cutting off trade for one reason or another, regardless of which trade system was in effect?
Apparently I'm stupid in engaging in this discussion with you as you demonstrate scant knowledge to even offer an intelligent critique of the argument. Name-calling and bromides might get you far on the school ground, but it re-affirms your ignorance of the subject at hand.
Scape @ Wed Nov 23, 2005 12:48 am
Looks like the owl is trying to peck they eyes out of the bull.
This seems to be a bit unfair to criticize fair trade as there is no fair trade to speak of. What I am driving at here is protectionism but for who? I see protectionism for the rich as no different than high priced welfare
Toro Toro:
or those pertaining to other matters such as environmentalism and health, i.e. banning beef because of BSE, or those relating to worker rights, which is protectionism in another guise.
Clean water, air and food are not rights but is is far cheaper to 'protect' the majority from the minority that lack a social conscious. Free trade utterly lacks this and that is amoral but worse it is a waste of money. Lack of leadership in this area is one of the many reasons fair trade gains steam.
Motorcycleboy @ Wed Nov 23, 2005 1:03 am
This was an interesting discussion until Iceowl entered in. Iceowl, are you capable of anything other than mindless insults and sound-bite rebuttals? Your posts have as much depth as an Anti-Globalization Rally chant.
i.e.
$1:
TORO: "Free trade, encompasses economic principles that....
Scape: Yes Toro, but you ignore factors up to and including.....
Iceowl: You're Stupid! Hey Hey, Ho Ho, Free Trade has got to go!
Scape: Yes Toro, but you ignore factors up to and including.....
Iceowl: You're Stupid! Hey Hey, Ho Ho, Free Trade has got to go!
Real intelligent Iceowl. Why do you bother?
Toro @ Wed Nov 23, 2005 4:50 am
Scape Scape:
Looks like the owl is trying to peck they eyes out of the bull.
This seems to be a bit unfair to criticize fair trade as there is no fair trade to speak of. What I am driving at here is protectionism but for who? I see protectionism for the rich as no different than high priced welfare
Clean water, air and food are not rights but is is far cheaper to 'protect' the majority from the minority that lack a social conscious. Free trade utterly lacks this and that is amoral but worse it is a waste of money. Lack of leadership in this area is one of the many reasons fair trade gains steam.
This seems to be a bit unfair to criticize fair trade as there is no fair trade to speak of. What I am driving at here is protectionism but for who? I see protectionism for the rich as no different than high priced welfare
Toro Toro:
or those pertaining to other matters such as environmentalism and health, i.e. banning beef because of BSE, or those relating to worker rights, which is protectionism in another guise.
Clean water, air and food are not rights but is is far cheaper to 'protect' the majority from the minority that lack a social conscious. Free trade utterly lacks this and that is amoral but worse it is a waste of money. Lack of leadership in this area is one of the many reasons fair trade gains steam.
See, this is intelligent criticism.
First, you are bang on Scape, in that protectionism in the rich countries is a form of welfare for the wealthy. It is always welfare for special interests who use their economic clout to benefit at the expense of the many. That's why we need less protectionism and more free trade. You are also correct in that there is no fair trade to speak of since what is fair is defined by those applying the standards, which may not be perceived as fair by those receiving the standards.
Second, the problem with linking trade to issues such as labour rights and environmentalism is that those issues are used as hammers to keep products out, particularly from the poorest countries. It is the poorest countries that argue most vehemently against such restrictions. The poor argue that rich world standards are being applied to poor world societies. They rightfully point out that such restrictions did not exist when the current rich nations were developing. And special interests in rich countries use these issues as an excuse for protectionism from poor nations. That doesn't help the poor at all. The best way to help the poor countries isn't to send them welfare in the form of aid. The best way to help them is to allow them to grow.
That doesn't mean you cannot have international agreements on labour, human rights, environmentalism, etc. You just don't link them to trade, as countries should not. For example, setting aside the merits of Kyoto, the Kyoto agreement is the type of framework in which countries can come to agreement on issues of concern outside of trade.
Toro @ Wed Nov 23, 2005 10:35 am
Martin Wolf is awesome. I highly suggest you buy his book, Why Globalization Works, easily the best book on the subject out there, chock-full of statistics and studies making the case for globalization and free trade, and destroys the arguments of the opponents who would roll back the process that has brought literally hundreds of millions out of poverty.
$1:
FT's Martin Wolf on the economic incoherence of Christian Aid's Trade Policy Unit
By Alex Singleton | 23 November 2005 | Send feedback
Martin Wolf, an economist and one of Britain's most respected newspaper columnists, has an article in today's Financial Times on Christian Aid and the "trade justice" movement:
Christian Aid is among the most outspoken opponents of free trade, which it condemns as slavery. Its research even suggests that the trade liberalisation of the past two decades has rendered sub-Saharan Africa cumulatively $272bn worse off than it would otherwise have been. If true, this would be a heinous crime.
Happily, it is not. The paper on which this is based assumes that, if trade deficits exceed available finance, all adjustment occurs through income and output, rather than changes in the structure of production and consumption. Readers may remember that similar arguments were employed by supporters of a "siege economy" in the UK three decades ago. Fortunately, they were ignored. Otherwise, the UK would have gone the way of East Germany. A depreciation in the exchange rate can (and should) offset the impact of tariff reductions on imports. A long-run model that ignores this is a nonsense.
Why then might trade liberalisation be in the interests even of poor developing countries?
First and most simply, the weight of evidence shows a positive relationship between openness and income (Alan Winters et al, "Trade Liberalization and Poverty", Journal of Economic Literature, March 2004).
Second, protection is a tax on trade, paid, above all, by exports. A recent study from the International Monetary Fund shows, for example, that the export-tax equivalents of tariffs on imports in 2001 was 10 per cent in Malawi and 29 per cent in India.
Third, taxing exports is a foolish way to promote infant industries. Kenya has, for example, roughly the same dollar purchasing power as just one of London's 32 boroughs. No sane person would suggest that Lambeth has a big enough domestic market to support the development of globally competitive industries. The same is true for Kenya. A bias towards production for domestic markets guarantees a failure to grow up.
Fourth, competitive exports depend on easy access to competitively priced inputs. Even the largest economies engage increasingly in such "intra-industry trade". Countries with relatively sophisticated administrations can arrange so-called "duty drawbacks" for this purpose. But that is beyond the capacity of most of the developing countries. Export-processing zones are a possible solution. A simpler one, as Hong Kong and Singapore have shown, is simply free trade.
Fifth, the generation of competitive exports also depends on access to foreign know-how, much of which comes with foreign direct investment. The further behind the technological frontier an economy is, the more dependent on such foreign know-how it must be. Yet foreign investment in activities that benefit from protection tends to be extremely costly to the host country, since the expatriated profit then derives from a tax on the rest of the economy.
Sixth, the trade barriers of developing countries are among the most important obstacles to developing countries' exports. One of the most startling findings from the World Bank's Global Economic Prospectsfor 2004 was, for example, that the non-agricultural exports of sub-Saharan Africa faced even higher tariff obstacles in their neighbours than in the high-income countries.
Seventh, it is incoherent to be in favour of more aid and yet strongly opposed to trade liberalisation. Aid pays for imports. If aid is combined with persistently high protection against imports, it is sure to squeeze out exports instead.
Read the full article here.
By Alex Singleton | 23 November 2005 | Send feedback
Martin Wolf, an economist and one of Britain's most respected newspaper columnists, has an article in today's Financial Times on Christian Aid and the "trade justice" movement:
Christian Aid is among the most outspoken opponents of free trade, which it condemns as slavery. Its research even suggests that the trade liberalisation of the past two decades has rendered sub-Saharan Africa cumulatively $272bn worse off than it would otherwise have been. If true, this would be a heinous crime.
Happily, it is not. The paper on which this is based assumes that, if trade deficits exceed available finance, all adjustment occurs through income and output, rather than changes in the structure of production and consumption. Readers may remember that similar arguments were employed by supporters of a "siege economy" in the UK three decades ago. Fortunately, they were ignored. Otherwise, the UK would have gone the way of East Germany. A depreciation in the exchange rate can (and should) offset the impact of tariff reductions on imports. A long-run model that ignores this is a nonsense.
Why then might trade liberalisation be in the interests even of poor developing countries?
First and most simply, the weight of evidence shows a positive relationship between openness and income (Alan Winters et al, "Trade Liberalization and Poverty", Journal of Economic Literature, March 2004).
Second, protection is a tax on trade, paid, above all, by exports. A recent study from the International Monetary Fund shows, for example, that the export-tax equivalents of tariffs on imports in 2001 was 10 per cent in Malawi and 29 per cent in India.
Third, taxing exports is a foolish way to promote infant industries. Kenya has, for example, roughly the same dollar purchasing power as just one of London's 32 boroughs. No sane person would suggest that Lambeth has a big enough domestic market to support the development of globally competitive industries. The same is true for Kenya. A bias towards production for domestic markets guarantees a failure to grow up.
Fourth, competitive exports depend on easy access to competitively priced inputs. Even the largest economies engage increasingly in such "intra-industry trade". Countries with relatively sophisticated administrations can arrange so-called "duty drawbacks" for this purpose. But that is beyond the capacity of most of the developing countries. Export-processing zones are a possible solution. A simpler one, as Hong Kong and Singapore have shown, is simply free trade.
Fifth, the generation of competitive exports also depends on access to foreign know-how, much of which comes with foreign direct investment. The further behind the technological frontier an economy is, the more dependent on such foreign know-how it must be. Yet foreign investment in activities that benefit from protection tends to be extremely costly to the host country, since the expatriated profit then derives from a tax on the rest of the economy.
Sixth, the trade barriers of developing countries are among the most important obstacles to developing countries' exports. One of the most startling findings from the World Bank's Global Economic Prospectsfor 2004 was, for example, that the non-agricultural exports of sub-Saharan Africa faced even higher tariff obstacles in their neighbours than in the high-income countries.
Seventh, it is incoherent to be in favour of more aid and yet strongly opposed to trade liberalisation. Aid pays for imports. If aid is combined with persistently high protection against imports, it is sure to squeeze out exports instead.
Read the full article here.
Link