Fair trade Notes

How Do Rules, Prices, and Power Make Trade Fairer?

1. In everyday language, "fair trade" can mean any ethical trading practice.
2. In many markets, Fairtrade (capital F) refers to certified schemes with a specific label and standards.

Why Does Trade Exist?

1. Trade exists because societies need exchange, but exchange isn't automatically fair.
2. Humans have traded for thousands of years. Early societies may not have relied on simple barter in the way people often imagine.
3. Some anthropologists argue that many communities shared and stored goods collectively, and later developed systems of promises and credit to represent value.
4. As societies grew, so did the need for more sophisticated ways to exchange goods and services within and between communities.
5. Modern global trade connects consumers and producers who will never meet.
   1. A shopper buying a chocolate bar, a phone, or a T-shirt is connected to farms, factories, logistics firms, and retailers spread across multiple countries.

What Does Fair Trade Focus On Anways?

1. Fair trade focuses on supply chains where producers have low bargaining power.
2. This is because globalization has made supply chains increasingly complex because multinational or transnational corporations can choose where to source materials, where to manufacture, and where to sell.
3. This complexity can make it difficult for consumers (and sometimes governments) to know:
   1. where a product was made,
   2. who worked on it and under what conditions,
   3. how much the producer was paid,
   4. who is responsible when something goes wrong.
4. Unethical behavior can occur across borders, and problems are often discovered later through investigations, whistleblowers, or government action.

How Does Fair Trade Work in Practice?

1. Standards for labor rights and environmental protection.
2. Price rules designed to reduce extreme income instability for producers.
3. Democratic organization, often through cooperatives for smallholder farmers.
4. Traceability and auditing to check claims.

Minimum prices and income stability

1. Commodity markets (such as coffee, cocoa, tea, cotton) can have volatile prices.
   1. When global prices drop, small producers may be forced to sell below the cost of sustainable production, or take on debt.
2. Fair trade schemes often include a minimum price (a floor price) or similar pricing rules to reduce the risk that producers are paid extremely low amounts.

Premiums for development

1. In addition to the selling price, producers may receive a premium that is invested in projects such as:
   1. improving processing equipment,
   2. training and education,
   3. clean water or health initiatives,
   4. environmental improvements.
2. This links trade directly to development goals, connecting to the broader idea that trade involves responsibilities across borders.

What Are The Main Reasons Some People Support Fair Trade?

1. Increase producer incomes and stability in markets where buyers have strong power.
2. Improve working conditions by requiring basic labor standards and discouraging forced labor and harmful child labor.
3. Strengthen communities through the premium model and cooperative decision-making.
4. Encourage sustainable production and reduced environmental damage.
5. Build trust and cooperation between countries and economic actors.
   1. Trade can improve international relations by increasing cooperation and interdependence.
   2. Fair trade is one attempt to make those relationships not only economically beneficial but also ethically defensible.

What Are Some Criticisms and Limits Of Fair Trade?

1. Limited reach: only a fraction of global production is certified or sold under fair trade terms.
2. Certification costs and bureaucracy: small producers may struggle with paperwork, audits, or fees.
3. Unequal benefits: not all members of a cooperative benefit equally if governance is weak.
4. Market dependence: if consumer demand for certified products is low, producers may not sell much at fair trade terms.
5. Structural issues remain: trade rules, corporate power, and historical inequalities are larger than any one label.

What's The Difference Between Fair Trade, Free Trade, and Protectionism?

1. Trade agreements matter for fair trade because they can include (or exclude) rules about:
   1. labor rights,
   2. environmental protection,
   3. transparency in supply chains,
   4. how disputes are resolved.
2. It helps to separate three ideas that are often confused:
   1. Free trade: reducing barriers such as tariffs and quotas so goods and services move more easily.
   2. Protectionism: policies that restrict imports to protect local producers or strategic industries.
   3. Fair trade: changing the terms of trade so outcomes are more equitable, often through standards and pricing rules.
3. A country can support free trade in general but still insist on stronger labor and environmental standards.
4. Another country may use protectionism to safeguard employment, even if it raises prices for consumers.

What Is The "Hidden" Fairness Issue in Global Trade?

1. Exchange rates affect fairness because producers are usually paid in one currency while many costs (equipment, fertilizer, debt repayments) may be linked to another currency.
2. If a local currency weakens, imported inputs can become more expensive, even if the foreign currency price of the export stays the same.

Where Does Fair Trade Fits into Development Debates?

1. A common debate in development is whether progress is best supported through aid or through trade. Fair trade sits in between:
   1. Like trade, it aims to generate income through markets rather than grants.
   2. Like aid, it often has an explicit development purpose (education, health, community investment).
2. Research on interventions such as microfinance also reminds us that economic programs can have mixed results:
   1. Business investment may increase while wider outcomes (health, education, empowerment) change more slowly or unevenly.
3. Similarly, fair trade may improve some outcomes (income stability, organization) without automatically transforming every aspect of development.

What Is The Role of Governments and Companies in Making Trade Fairer?

1. Companies can improve supply chain ethics by:
   1. mapping and publishing suppliers,
   2. auditing factories and farms,
   3. paying living wages or offering long-term contracts,
   4. investing in safer conditions,
   5. changing purchasing practices (for example, avoiding last-minute price squeezing that pushes costs onto workers).
2. Why Governments Still Matter
   1. Voluntary action often competes with the pressure to lower costs. Governments can set minimum expectations and enforce them.
   2. Government tools include:
      1. labor laws and safety inspections,
      2. import rules that restrict goods linked to forced labor,
      3. mandatory supply chain reporting (due diligence),
      4. competition policy to prevent abuse of market power,
      5. cooperation across borders to reduce loopholes.

Case study

Rana Plaza factory collapse (Bangladesh, 2013)

• After the Rana Plaza garment factory collapsed, killing over 1,100 workers, journalists and activists revealed unsafe working conditions linked to global fashion brands.
• Many companies initially denied responsibility, arguing they did not directly control factory conditions.
• As public outrage grew through media coverage, protests, and consumer pressure, governments and international organisations launched investigations.
• In response, brands signed agreements like the Accord on Fire and Building Safety, introducing stricter inspections, transparency, and monitoring.