NationStates Jolt Archive

Can someone explain fair trade to me, i read wikipedia, and I can't fully understand it's ideas, and beliefs behind it.

To give my understanding, the point seems to be to trade with people without exploiting them.

Fair trade places restrictions on the ability of residents of poor countries to sell their own labour, and thus is far less fair than straight free trade.

The basic idea behind it is that commercial products that use raw materials from developing countries are made by buying these raw materials at the market determined price. Fair trade products are made with raw materials that are bought at a price fixed over a long period of time, and one that often provides a wage substantially above the general subsistence wage for wherever the raw materials are bought from.

For example, non fair trade raw coffee may have been bought for the general market price of, say, 85 cents per pound, which might not be enough for the coffee grower to actually live on. Furthermore, this price could go down if demand for coffee falls, or if there is massive over-supply. The price for fair trade raw coffee will be fixed at, say, $1.50 per pound for a period of time (maybe 5 years). This will be enough for the growers to live on.

Some companies take this further and will not only provide a guaranteed price and market for the product, but will also sponsor schemes to increase the standard of living for the people who grow the raw materials they use.

Fair trade places restrictions on the ability of residents of poor countries to sell their own labour, and thus is far less fair than straight free trade.Not at all. Some restrictions on labor are perfectly fair.

so essentially, it's where like countries like the US can buy products for less from developing countries, cause of their smaller economy. However, fair trade pushes for those smaller countries to get trade so the producers of the product can get money to live on and sell their product at an equal standard?

so essentially, it's where like countries like the US can buy products for less from developing countries, cause of their economy in contrast to like England.No, it's where the products bought from the developing countries are bought for a subsistence wage, like I V Stalin said.

“Fair trade” basically means that people want to impose price floors on goods and to regulate who gets to sell what – all in the name of “fairness” of course.

This is a grossly misguided effort by people who have opened their eyes and became educated enough to realize that a managed economy with government setting prices and quota production is a bad idea, but still try to cling to the whole “we cant just let people do whatever they want” security blanket fear of what they don’t control.

This is a hopeful sign… instead of them all campaigning for socialist and communist government they are now arguing for something not too far off from free trade. All we have to do is get them to let go of the security blanket and development can proceed.

To give my understanding, the point seems to be to trade with people without exploiting them.


Exploit them slightly less. It's liberal capitalism.

In the conventional use of the word, an oxymoron. Free trade is the only form of fair trade.

In the conventional use of the word, an oxymoron. Free trade is the only form of fair trade.
Free trade didn't stick during the nineteenth century, and the final nail in its coffin was the 1930s. I find it unlikely it will make a comeback in my lifetime.

In the conventional use of the word, an oxymoron. Free trade is the only form of fair trade.Free trade is inherently both unfree and unfair.

so to my understanding poorer countries get exploited by free trade?

Free trade is inherently both unfree and unfair.

And how is rewarding poor nations that are incapable of providing meaningful trade fair? Social Darwinism, my friend. No use in artificially propping up the weak.

And how is rewarding poor nations that are incapable of providing meaningful trade fair? Social Darwinism, my friend. No use in artificially propping up the weak.Free trade makes it impossible for poor nations to provide meaningful trade.
Social darwinism is a repugnant philosophy. Not "propping up the weak" is unfair.

Basically, it's protectionism, but with a different name.

Free trade in no way “makes it impossible” for poor countries to participate in trade, nor does it ‘exploit’ them.

Free trade means that people are free to trade what they want for a price they agree on for the exchange. In a free trade system, I can grow and offer mangos for sale – nobody can force me to grow and sell mangos for a price I consider too low, and I cannot force anyone to buy my mangos at a price they consider too high. Everyone is free to sell to whomever they want, for whatever price they want – likewise everyone is free to buy what they want, from whoever they want, for any price at which the producer is willing to sell.

If you choose to only buy mangos from one-armed Dominicans for twice the typical market rate, that is your choice and you are free to make it. You cannot, however, force me to buy only from one-armed Dominicans for twice what is generally paid.

People who argue that free trade is a horrible system for poor countries because the industrialized nations impose high tariffs on them obviously has no clue what free trade is about – there is nothing free about tariff and non-tariff barriers. Rather than arguing against free trade, you should be arguing for free trade.

Free trade in no way “makes it impossible” for poor countries to participate in trade, nor does it ‘exploit’ them.Industrialization almost always occurs behind a barrier of protectionism.

Free trade means that people are free to trade what they want for a price they agree on for the exchange. In a free trade system, I can grow and offer mangos for sale – nobody can force me to grow and sell mangos for a price I consider too low, and I cannot force anyone to buy my mangos at a price they consider too high. Everyone is free to sell to whomever they want, for whatever price they want – likewise everyone is free to buy what they want, from whoever they want, for any price at which the producer is willing to sell.

If you choose to only buy mangos from one-armed Dominicans for twice the typical market rate, that is your choice and you are free to make it. You cannot, however, force me to buy only from one-armed Dominicans for twice what is generally paid.

People who argue that free trade is a horrible system for poor countries because the industrialized nations impose high tariffs on them obviously has no clue what free trade is about – there is nothing free about tariff and non-tariff barriers. Rather than arguing against free trade, you should be arguing for free trade.No, free trade is when the third-world countries are forced to sell the first-world countries their goods or else they receive trade sanctions and tariffs. If the one-armed Dominicans don't want to sell you their mangos, they receive not only sanctions from you, but from nearly everyone else associated with you.

And how is rewarding poor nations that are incapable of providing meaningful trade fair? Social Darwinism, my friend. No use in artificially propping up the weak.

But ensuring they can develop the necessary infrasturcture, technology and capital investment allows nations to develop so-called "meaningful" trade. Exploitation does the opposite.

No, free trade is when the third-world countries are forced to sell the first-world countries their goods or else they receive trade sanctions and tariffs. If the one-armed Dominicans don't want to sell you their mangos, they receive not only sanctions from you, but from nearly everyone else associated with you.


This is not free trade at all.
As I said in my previous post - free trade is, by definition, absence of tariff and non-tariff barriers. Trade sanctions and tariffs in no way constitute free trade.

This is not free trade at all.
As I said in my previous post - free trade is, by definition, absence of tariff and non-tariff barriers. Trade sanctions and tariffs in no way constitute free trade.Yes, but the trade sanctions and barriers don't apply - the threat of them does, though.

What you two are talking about are 'ideal free trade' and 'free trade in practice'. Ideal free trade will never happen. Free trade in practice does happen sometimes, but doesn't really advantage the lesser nation.

Free trade means trade free of barriers (like tariffs or quotas). If the trade is being in any way restricted by tariffs or quotas, then it isn't free.

Free trade and fair trade should be the same, but due to politics it is virtually impossible for this to happen.

Trade liberalization is generally highly beneficial to the nations that pursue it; India and China are both testaments to the benefits of trade liberalization, and their continued loosening of their markets has definitely been responsible for the accelerating economic and living-standards growth since the mid-1990's.

Can someone explain fair trade to me, i read wikipedia, and I can't fully understand it's ideas, and beliefs behind it.
You give me a cookie that is worth a $1. I give you a dollar.

Fair trade.

Ideal free trade vs practical free trade?

Are you serious? Free trade is just that – free trade. No barriers to trade, the free exchange (that means uninhibited by tariffs, quotas, and such) of goods and services.

What you are saying is equivalent to saying that Iran is a true democracy – ‘practical democracy’ vs ‘ideal democracy’.

Just because many countries do not engage in free trade does not mean it does not exist – additionally, what you call free trade is a serious misnomer (which I think is where the confusion sets in). Many people call what the US and EU engages in as ‘free trade’ and uses it to bash the whole concept – just because those opposed to free trade want to paint anything they can show in a negative light as ‘free trade’ and use it to further their own political ends, does not mean what they call ‘free trade’ is actually free trade.

Really, how can you possibly call a 300% tariff on sugar ‘free trade’?

Free trade benefits all involved as it allows them to engage in whatever they think beneficial to themselves. This is the fundamental basis of capitalism (please do not get me started on command economies and socialist control): people are free to engage in what brings benefits. It makes no sense to grow pineapples in Alaska, it makes sense to for Alaskans to trade for them – look up comparative advantage. When you understand it, reevaluate your position that free trade cannot benefit the lesser economy.

Free trade benefits all involved as it allows them to engage in whatever they think beneficial to themselves. This is the fundamental basis of capitalism (please do not get me started on command economies and socialist control): people are free to engage in what brings benefits. It makes no sense to grow pineapples in Alaska, it makes sense to for Alaskans to trade for them – look up comparative advantage. When you understand it, reevaluate your position that free trade cannot benefit the lesser economy.

Understanding the effect comparative advantage has on the production-possibilities curve is a key underpinning of the case for free trade. We're able to provide a lot more than our resources allow us to because we trade for the things we can't produce efficiently in the domestic economy. You would not be able to buy most of the products you own today for the prices you are paying without trade.

In the conventional use of the word, an oxymoron. Free trade is the only form of fair trade.
"Free" trade between developed countries is fair. "Free" Trade btwn undeveloped countries and developed countries is not for a variety of reasons.

"Free" trade between developed countries is fair. "Free" Trade btwn undeveloped countries and developed countries is not for a variety of reasons.

Yes it is, because comparative advantage sparks economic development in the poor country and enables it to develop itself.

so to my understanding poorer countries get exploited by free trade?

Essentially yes. Because coffee farmrs (for instance) have very little market power, under free trade, large multinational companies (Nestle for example) can buy their goods at prices that are literally, less than a living wage.

Fair Trade companies set a price floor for the farmers they work for. In other words they HAVE to buy their coffee at a high price rather than going for the lowest possible price.

The other wing of the Fair Trade lobby is essentially trying to impose free market reforms on Western countries in the form of reduced subsidies, preventing companies from selling for cheap because the government covers their ass.

Which is why it's so amusing watching loony free-trade fanatics bitching about it. Although it'd be nice if Fair Trade activists said what they were actually after. Misleading propaganda gets annoying...

I don't agree with free trade people, poor countries obviously need some help, but that doesn't stop fair trade advocates annoying the crap out of me. The kindof people who wear those badges are invariably wankers.

Yes it is, because comparative advantage sparks economic development in the poor country and enables it to develop itself.

Generally I have no problem with free trade. However there are examples were it becomes unfair. For example rich countries can subsidize their agricultural industries were poor nations cannot.

Fair Trade companies set a price floor for the farmers they work for. In other words they HAVE to buy their coffee at a high price rather than going for the lowest possible price.

And that causes massive overproduction of coffee, depressing the market and making the farmers dependent on price floors and subsidies and in the long run doing little to improve the situation. Price floors create surpluses which depress the market price and eventually cause the market to collapse, worsening the problem far beyond its.

Price floors in the US ruined the world sugar industry.

The other wing of the Fair Trade lobby is essentially trying to impose free market reforms on Western countries in the form of reduced subsidies, preventing companies from selling for cheap because the government covers their ass.

This is how you solve the problem. The main reason why the developing world can't compete in agriculture is due to the subsidies from OECD governments to their farmers. America's sugar tariff and subsidies, for example, enable the domestic industry to become one of the largest in the world because prices are manipulated to give them artificially high prices.

US-World Sugar Prices 1950-2000 (http://www.tinotopia.com/graphics/sugar-price-chart.jpg)

How can South American producers compete with American sugar when it gets a guaranteed market at prices nearly 150% higher than the market price? Even worse, what happens when those same producers start selling their surpluses to the world market at subsidized price?

Generally I have no problem with free trade. However there are examples were it becomes unfair. For example rich countries can subsidize their agricultural industries were poor nations cannot.

That's not free trade. Subsidies are not only against trade liberalization but also against the very concept of economic efficiency itself; they're a mind-bogglingly stupid policy when analyzed in practice as well as in theory.

And that causes massive overproduction of coffee, depressing the market and making the farmers dependent on price floors and subsidies and in the long run doing little to improve the situation. Price floors create surpluses which depress the market price and eventually cause the market to collapse, worsening the problem far beyond its.

Price floors in the US ruined the world sugar industry.



This is how you solve the problem. The main reason why the developing world can't compete in agriculture is due to the subsidies from OECD governments to their farmers. America's sugar tariff and subsidies, for example, enable the domestic industry to become one of the largest in the world because prices are manipulated to give them artificially high prices.

US-World Sugar Prices 1950-2000 (http://www.tinotopia.com/graphics/sugar-price-chart.jpg)

How can South American producers compete with American sugar when it gets a guaranteed market at prices nearly 150% higher than the market price? Even worse, what happens when those same producers start selling their surpluses to the world market at subsidized price?

Personally I believe in passing down a ladder, not hauling someone up on a rope so I'm more in favour of the latter course too but I buy Fair Trade on the principle that it gives farmers a baseline price to try and bargain for with other companies 'If you don't buy at this minimum price I'll go to them instead'.

ok, this is what I understand so far in my interpretation. When you have free trade, people can sell for who ever they want, for what price. Then with fair trade, the producer of the product does have an established wage, when trading with foreign countries? i'm sorry if i don't understand it yet

Free Trade economic theory would be the perfect economic system to follow. True Free trade would mean that any person, company, Country could enter into trade with any other at an agreed upon price that would leave both happy. Should one side be unhappy, in free trade theory the trader or buyer could move to another supplier/purchaser to find a better price. That's the theory.

In practice, it doesn't hold up. The only way it can operate is if everything is sold and produced at the lowest level, i.e. one-on-one. As soon as a company is larger than any other, or even a group of people get together as a purchasing group, they then begin to wield control of purchasing power and are able to begin to set the price that they will pay for a good rather than the price that the seller wishes to sell the good. The only way for the producers to regain control is to join into conglomerates and begin to control the selling price of the product, this leads to ever larger companies which each begin to wield more and more power and eventually will become monopolistic in their chosen good or product, at which point the free trade becomes mute as their would only be one place in which to purchase the product thus price fixing would ensue.

Free Trade in the real world doesn't work, hence Fair Trade where groups attempt to guarantee the income of producers at X level for X amount of time. Fair trade attempts to remove price discimination, but in doing so reduces the freedom of the market to set prices. Neither system is the ideal, and so it is up to the consumer to attempt to purchase products that follow whichever system they believe to be the correct one, however this becomes difficult as it is not always possible to do so.

Personally I believe in passing down a ladder, not hauling someone up on a rope so I'm more in favour of the latter course too but I buy Fair Trade on the principle that it gives farmers a baseline price to try and bargain for with other companies 'If you don't buy at this minimum price I'll go to them instead'.

I'd prefer to give them aid in the form of fuel, fertilizer, and other supplies and gradually withdraw it as their economy matures until the farmers can fully afford to buy the supplies they need. It boosts productivity while preserving market equilibrium and teaching the farmers how to make production decisions.

This must be combined with eliminating the subsidies in developed nations as well as the developing nation's tariffs; usually, poor nations have tariffs on manufactured goods that make vital production equipment too expensive to obtain. Eliminating them not only enables farmers to compete but also enables them to afford the things they need to produce as efficiently as possilbe.

In practice, it doesn't hold up. The only way it can operate is if everything is sold and produced at the lowest level, i.e. one-on-one. As soon as a company is larger than any other, or even a group of people get together as a purchasing group, they then begin to wield control of purchasing power and are able to begin to set the price that they will pay for a good rather than the price that the seller wishes to sell the good. The only way for the producers to regain control is to join into conglomerates and begin to control the selling price of the product, this leads to ever larger companies which each begin to wield more and more power and eventually will become monopolistic in their chosen good or product, at which point the free trade becomes mute as their would only be one place in which to purchase the product thus price fixing would ensue.

Monopolies can only be created through regulation preventing competition.
To use the coffee example everyone seems to be so fond of…
If farmers cannot get a good price for coffee they have to switch to a profitable crop (and for those of you complaining about this, how much sense does it make for me to complain that nobody will pay me a small fortune for me to grow poison ivy? If there is no demand it makes no sense to complain that you cannot get a good price). When they do this the supply drops – when supply falls relative to demand, the prices go up. If there is more demand than supply, companies who want to buy coffee will offer more money to get their hands on a supply. If suppliers demand too high a price so that nobody is buying, someone will want to actually make some money and offer their coffee supply for a reasonable price. It’s a simple function of the supply and demand equilibrium – aka the market clearing price.

I'd prefer to give them aid in the form of fuel, fertilizer, and other supplies and gradually withdraw it as their economy matures until the farmers can fully afford to buy the supplies they need. It boosts productivity while preserving market equilibrium and teaching the farmers how to make production decisions.

Actually, this doesn’t tend to work that well in practice. You see… it does no good to create an industry that is profitable only if the inputs are highly subsidized. I can make money selling driftwood carvings so long as someone pays my rent and food – but without these payments I cannot survive in this trade. Thus developing my driftwood business is silly.

This must be combined with eliminating the subsidies in developed nations as well as the developing nation's tariffs; usually, poor nations have tariffs on manufactured goods that make vital production equipment too expensive to obtain. Eliminating them not only enables farmers to compete but also enables them to afford the things they need to produce as efficiently as possilbe.

This is the concept of free trade – without tariff and non-tariff barriers economies will develop greatly. One little misconception is that it is only tariffs in developed nations that cause problems for developing nations, but in actuality there is even more to be gained by eliminating barriers between developing nations.

Free trade benefits everyone – developed and developing nations alike. Unfortunately special interests and poorly educated people with little understanding of economics tend to dominate politics.

Unfortunately special interests and poorly educated people with little understanding of economics tend to dominate politics.

That's because the voters have little understanding of economics, and thus don't understand why it would be a valuable quality in their leaders.

thanks for your help now i understand fair trade.

Quick ?: Can fair trade exist within the confines of free trade? I've seen a number of coffee brands which say they adhere to voluntary fair trade standards...

Quick ?: Can fair trade exist within the confines of free trade? I've seen a number of coffee brands which say they adhere to voluntary fair trade standards...

That depends on how you define ‘fair trade’. In your particular example of the voluntary ‘fair trade’ coffee, that is indeed part of free trade. The coffee company pays higher than market price for what it considers a superior product of its own free will – and customers are able to choose, once again with their own free will, whether or not to purchase ‘fair trade’ coffee for a higher price than regular coffee.

The key here is voluntary – if it is voluntary it is entirely within free trade. The problems come when people try to get government regulation passed to force ‘fair trade’ – that is when it becomes inconsistent with free trade.

People should have the freedom to choose – much like coffee in general: you can go for Denny’s coffee which is cheap but tastes horrible, or you can go for Dunkin Donuts coffee which costs more but is of better quality. The choice is up to you – and I happen to think that is the way it should be.