“Fair trade” to fairer trade
“Fairness” is a difficult and disputed concept when it comes to economic development and international trade. It is a concept no one would speak against, after all, we all want to be fair. But essentially “fair” is an ethical judgment.
There are distinct views of “fairness” in trade, all with their evangelistic, even doctrinaire, as well as practical sides.
Most discussions of what the practical implications of “fair trade” are reveal clear fault lines between:
“Fairness” in terms of the liberalising agenda which has dominated the political discourse on international trade since the 1980s
And
“Fairness” in terms of the ethical trade agenda which has seen an exponential growth in influence since the late 1990s.
The rapid and recent rise of the demand for “fair trade” is in part allied to the success of the “Fairtrade” label and other voluntary standards. The fair trade discourse has its origins in the belief that the existing model of “free” world trade reinforces the advantages of the strongest trading nations and companies and that the developing and emerging countries are inherently disadvantaged.
Paradoxically -and somewhat confusingly for the lay person - the consensus for trade liberalisation which has dominated the institutionalised debate within the WTO and other fora has also made use of the term “unfair” as a keystone in its own advocacy.
Development via liberalisation, the Doha Agenda
The liberalisation of trade is carried forward by the World Trade Organisation (WTO) agenda. The WTO resulted from the successive and cumulative liberalisations of the international trade system through the GATT process. The WTO eschews a social or moral role.
The Doha Development Agenda was meant to provide “proof positive” that developing countries could benefit from trade liberalisation.
Advocates of “free trade” or “trade liberalisation” have argued trade can increase global economic performance and thereby contribute practically to alleviating poverty if “unfair” trade practices are removed.
Much of the momentum throughout the 1980s and 1990s came from the ideological conviction that “free trade”, removed from protectionist and restrictive practices of nation states and vested interests, would in itself advance social and economic benefits. Hence the emphasis on tariff reductions and the elevation of market forces as a sufficient instrument for general economic progress. The cliché of this doctrine has been “a rising tide raises all boats”
Scepticism of this view has mounted with experience of the trading world which has emerged since the establishment of the WTO at Marrakesh in 1994.
This has culminated in the inability of trade negotiators to conclude Doha Development Round, so far.
The failure to deliver the general prosperity once promised is now admitted as is the sense of the over-emphasis on materialism. In the opinion of Nobel Prize winner, Joseph Stiglitz:
“Globalization advances material values over other values, such as a concern for the environment or for life itself” and further
“While advocates of globalization have claimed that everyone will benefit economically, there is plenty of evidence from both developed and developing countries that there are many losers in both”[1]
This view is given tacit support by the world’s largest trading block the European Union (EU).
In its response to the faltering Doha process the European Commission produced its own plans for bilateral trade “Global Europe”. In a section on “Social Justice” the Commission acknowledges:
“We must recognise the potentially disruptive impact of market opening for some regions and workers, particularly the less qualified…We need to do better in anticipating the effects of trade opening; and in ensuring the benefits are passed on to citizens ”[2]
It is not too simplistic to suggest that the developing countries’ suspicions of the West’s liberalising agenda are based on the notion that the Doha Round was not “fair”, as it represented more the West’s interest than their own; that the West wanted liberalisation where it was strong, for example services, but remained protectionist where it was vulnerable to domestic pressure, for example agricultural subsidies.
This impasse now has serious repercussions which jeopardise the necessary recovery from the spill-over from the world’s financial crisis of 2008-9. Clearly, there is a need and desire to keep the liberalisation trade agenda going. However, developing countries have made it clear that this can only be at a pace which they feel they can cope with within the terms of their own proper self-interest.
There is a growing consensus that momentum for the liberalisation agenda is unlikely to restart unless a sense of equity is brought to the agenda and the tangible benefits of freer trade for a wider cross section of societies, particularly in the developing world than has been experienced so far.
Paradoxically, as the nation states find it more difficult to encapsulate a development agenda within terms of the WTO agenda, within those selfsame nation states, particularly in the richer states, there is a growing determination to nurture an equitable international trading system based on informed consumer choice.
Fair trade, a pathway to fairer trade
As liberalisation through the Doha Agenda has faltered meanwhile, “fair trade” in the sense used primarily by fair trade advocates has taken off spectacularly at the micro-economic level with the exponential growth of the “Fair trade” movement based on the success of various ethical “fair trade” labelling and in particular the “Fairtrade” trademark.
There are twin pilots of the fair trade movement, WFTO (World Fair Trade Organisations) which certifies the supply chain; and FLO (Fair Trade Labelling Organisations International) which sets the standards for products. Both WFTO and FLO are amalgamations of other similar initiatives. In a joint WFTO/FLO statement the following definition is offered.
“Fair Trade (or “Fairtrade”) is, fundamentally, a response to the failure of conventional trade to deliver sustainable livelihoods and development opportunities to people of the poorest countries of the world”[3]
“Fair trade” then starts from the premise that present trade patterns (“conventional”) have not delivered development goals. Implicit in this premise is that “conventional” trade cannot deliver.
However, day-by-day pragmatism leads the fair trade movement to advocacy and practise of fairer trade within the existing system. Its success has been to get “conventional” traders, particularly food retailers, to accept the concept of “fair trade” as defined by the movement itself. Some advocates of fair trade firmly believe this strategy is a Trojan Horse within the walls of existing trade. Subsequent consumer pressure allied to a political commitment to a more equitable distribution of the profits from trade will engender a growing momentum which will eventually gain sufficient critical mass to turn the “conventional “trade into “fair” trade.
Millions of consumers in Europe, North America and Japan are now regular buyers of "fair trade" products, i.e. products marketed with a fair trade label. However it is only the “Fairtrade” logo certification which is linked to a payment of a "fair trade premium" to the producers.
Under the certification scheme, buyers are required to pay the “fair trade premium” to producers’ organisations for them to make livelihood investments and to improve the situation of local communities. Such social-community expenditure is decided by local committees.
In addition under the Fairtrade certification scheme, buyers are required to pay a minimum price calculated to cover “sustainable” production. This gives the producer a medium to long-term security.
Consumers buy these products for many reasons: because they are seeking an alternative to transnational brands, because they want to help improve the situation of the people who produce them or because they want to support alternative systems of trade.
Fair trade started out as a niche product market with very limited outlets. However, it is now a rapidly growing significant retail market worth an estimated 2.9 billion Euros by the end of 2008. By the end of 2008, there were 746 certified Fairtrade producers worldwide. There are now over 2,700 companies licensed to use the “Fairtrade” Mark[4]
The success of the “fair trade” movement -encapsulated in the ever-growing recognition of the various ethical trade logos - has given a welcome impetus to the debate about ethics in international trade.
Though essentially a question of fairness to producers, and particularly small scale producers, whose plight has been highlighted by the “fair trade” movement, the popularity of the campaign has stimulated many consumers to take an interest in wider trade issues.
Perhaps equally important the “fair trade” campaign has sensitised the public that for a limited but growing number of commodities, mainly foodstuffs, it is worth paying more in order to achieve an ethical exchange.
The notion that the consumer can pay more (and may choose to pay more) has become a daily lesson in basic trade economics based on a choice which consumers can make themselves, rather than having some authority or government make that choice for them. Therefore, as well as rewarding the producers in the developing world, the ethical consumer has become empowered her/himself within the market system.
The allied movement of “Fair trade” towns, colleges, universities, some based on the “Fairtrade” certification, has likewise caught the public’s imagination. It gives a daily and visible focus in domestic High Streets for consumers’ to identify with development issues.
These are remarkable and welcome achievements giving a localised context to the politics of trade which has usually been the preserve of an esoteric but highly influential political and intellectual elite.
Fair and ethical trade labelling has been a success in terms of straight forwarding marketing. The logos issued to certified goods are widely recognised. Any marketing company would be proud of a similar success of growing recognition for any of its client producers.
Challenges for Fair Trade
This success does raise important problems for the labelling process itself. The logos can become a victim of their own success.
The labelling organisation, FLO has two parts; “FLO International” sets the standards and runs the administration and “FLO Cert” which conducts the inspections. Therefore, the system of standard setting and inspection is one of self-regulation even though those standards are based on international standards and despite the statement by FLO that the two arms are “independent”.
This has drawn critical attention. In an opinion, the European Economic and Social Committee (EESC) mentions:
“the need to base the model of the European certification system which…requires compliance with technical requirements to be subject to external monitoring by an independent, accredited body – without prejudice to the requirements to comply with general legal provisions governing the marketing of food products”[5]
Traders and consumers of “fair trade” products must be sure and confident the self-designation of “fair” is scrupulously monitored.
The integrity of any trademark must stand examination in its certification and monitoring processes which must be consistent with the internationally agreed and nationally enforced standards.
The actual certification and monitoring of the labels has proven problematic, particularly when applied to large scale production involving agricultural workers and organised labour. There is anecdotal evidence published in various news sources of such problems .[6]
In addition, a report commissioned by the Fairtrade Foundation itself noted that there are:
“Information gaps neglected by previous investigations (of the impact of Fairtrade), the most urgent including:
The impact on hired labour of participation in Fairtrade”[7]
Given that the premium scheme and the price guarantee are meant to have sustainable impact it would be inadvisable to make any early judgement of their success.
One of the conclusions of the review as above:
“However the existing body of evidence does not yet do enough to analyse the impacts of activities funded by the Fairtrade premium…”[8]
The practicalities of getting more fair trade products into large scale retail outlets is posing questions of compromise and bringing the fair trade movement into unexpected conflicts of interest. [9]
The “fair trade” trademarks are encountering the usual problems of implementation of standards – lack of resources, experience and skills to set up adequate consistent and sustainable monitoring systems.
It would be wrong to expect the various marks to solve these challenges unaided. There is no need to re-invent the wheel. There is a wealth of experience and facilities in national, regional and international apparatuses which can lend and offer support in developing more sophisticated and accountable monitoring systems.
At the moment the effort of the fair trade marks goes into the initial certification to obtain and subsequently renew the trademark. In order to broaden the transparency and accountability, aid and assistance from outside the fair trade movement is necessary.
Widening the impact of ethical standards
Fairtrade labelling has been enormous successful in raising the profile and interests of the small producer. It has established a direct link of sympathy and solidarity between the concerned consumer and the original producer.
However even in the most successful fairtrade goods, coffee, the consumer/producer nexus only produces a small percentage of the overall value chain
Advocates of fair trade beyond the customer/producer nexus have found it more difficult to impact upon the general consciousness regarding ethics in trade. A neat and instantly recognisable signature has not been found as with the various fair trade labels applying to production.
But what of all the interests down the line from the banana or coffee grower to the consumer? Where is the fair deal for the transport worker, the dock labourer, the coffee roaster and even the trainee “barista” in the coffee shop in a western city centre?
In order to have a significant influence on spreading the benefits and rewards of trade the entire trade supply/value chain needs addressing.
“Value chains encompass the full range of activities and services required to bring a product or service from conception to sale in the final market – whether local, national, regional or global. Value chains include input suppliers, producers, processors and buyers. They are supported by a range of technical, business, and financial service providers”[10]
The sympathy and solidarity which the fairtrade label is nurturing between the producer and consumer can be extended to value chains. The fair trade movement has gained a momentum which could be used to leverage influence for the wider range of participants to create a more equitable distribution of the profits of trade.
The crucial question is how, or if, this success can be used to give a new impetus to the debate of equity in world trade.
Can the various fair trade organisations and the fair trade labelling organisations be recruited to support older and broader movements which have a wider and more practical ambition to spread the benefits of trade throughout the entire value chain that is beyond the producer/consumer nexus?
Synergies and divergences
Export trade raises revenue in all countries and export strategies form an important part of the policy options for developing countries. The developed countries are eager for developing countries to follow this route and still offer various incentives, for example tariff reductions and Aid for Trade projects.
Can the energy and enthusiasm of the fair trade movement flow back into the more traditional or “conventional” trade policy agenda; and can they be mainstreamed into GATT/WTO and in achieving the UN’s Millennium goals?
In a study “Can Ethical Trade Certification Contribute to the Attainment of the Millennium Goals?” the author concludes by targeting small-scale producers the Fairtrade system has the potential to contribute to MDG1.
Adding in order for:
“This market-based development scheme ( i.e. ethical trade certification)to broaden its poverty impacts, public sector support in harmonizing standards, building the capacity of certifiers, developing infrastructure development…will be required”[11]
It may be premature to judge, however, empirical evidence of progress in achieving an impact on poverty reduction is not conclusive. According to a review commissioned by the Fairtrade Foundation itself:
“The evidence of Fairtrade impact on net household income is varied”[12]
Challenges for the actors
Fair trade
Fair trade is being already commercially mainstreamed by its adoption by major retailers.
The challenge is to see if the fair trade movement can be and wishes to be mainstreamed into the wider movement to achieve an ethically fairer trade system.
According to the Special Rapporteur on the Right to Food, Olivier De Schutter, [13](who is generally complimentary to the fair trade movement), there are three main challenges:
1. That the proliferation of labels leads to confusion, but perhaps more worryingly that “the less effective labels…those which offer the fewest benefits to producers whilst reassuring the consumer at the supplier’s expense …may be crowding out the best ones”. De Schutter makes reference to “Gresham’s Law” by which “Bad money drives out good”[14] 2. That the supply of fair trade goods outstrip the demand and that fair trade guarantees a minimum price it cannot guarantee the sale of the goods.
3. Fair trade schemes may lock producers into dependent relationships
Some thought should be given to the long-term consequences of this “premium” and price guarantee. The enterprises supported must move towards self-sufficiency, otherwise the enterprises become dependent.
In order to avoid dependence, perhaps some “escalator” mechanism could be considered, whereby enterprises move up and out of support. This would free up space and resources for other starters to be taken into the scheme. Continued financial guarantees in a scheme aimed a sustainability is eventually a contradiction in terms.
For fair traders and activists the challenge is to protect the integrity of the trademarks by recruiting and nurturing the best practices skills in certification and monitoring from existing experience in the international community.
The cost of this cannot be levied on the fair trade mark itself, nor through the payments for certification, which funds such activity at present.
For food importers and processors to continue to test the market for the public’s acceptance or reluctance to pay extra for fair trade products.
The Cooperative movements, already committed to a different ethos than the private sector, have taken a lead in this respect.
State actors, national, regional sub- and supra-national actors in their domestic sphere can promote fair trade through their purchasing behaviour can send a supporting and exemplary signal to the market.
Public procurement can play an important role here.
Some national, regional and local government bodies have sought to promote fair trade by using public procurement. It is vital that such steps are only undertaken when there is a clear democratic mandate to do so.
Public procurement is subject to anti-competition and discrimination laws, and, even though well-intentioned, are open to legal challenge. The implications of the “Groningen” case (see box) need some investigation if the judgement is to be applied in favour of extending fair trade. How such discretion by, in this case, a regional administration, has implications for international trade in respect of anti-competition?
The use procurement policy to promote fair trade is an issue which could be usefully explored under the auspices of the WTO’s Plurilateral Agreement on government procurement (GPA)
After two court cases, the regional government of Province of Groningen in the Netherlands established the right to restrict a public tender to fair trade suppliers only.
The crucial question seems to be one of the range of fair trade suppliers able to tender which in the Netherlands is quite wide. Any party claiming that such a practice is discriminatory may well be deterred by the consideration that challenging positive discriminatory in favour of fair trade by a democratically accountable body, may not be in the best interest of the plaintiff.
Advocates of such “affirmative action” for fair trade, rightly stress caution in the wider application of the Groningen case.[15]
Most regional trade agreements (bilateral like the European Union’s EPAs) and aid development aid programmes which are aimed to help developing countries adjust to the demands of the global economy have Trade Related Technical Assistance (TRTA) programmes. Such programmes could include a specific and explicit commitment to assisting the development of fair trade.
Global Europe opens to door to such a consideration:
“As we pursue social justice and cohesion at home, we should seek to promote our values, including social and environmental standards...around the world”[16]
States do have certain duties particularly relating to consumer protection to guard against abuse of the any product labels.
Although the ethical and fair trade standards are voluntary, this does not exempt them from statutory considerations of consumer protection. State bodies can help mainstream fair trade by offering support in bringing voluntary standards into the fold of statutory requirement.
Is the market is already working? Or can things me left to the market?
Large food manufacturers and retailers are recognising that a “fair trade” or “ethical trade” label is good for trade, and it is reasonable to assume that as more Western customer become sensitised by the fair trade and "fairtrade towns" movements, there will be growing demand for fairtrade products.
This demand is may well be met by existing multinational agri-business.
Nestle and Kraft (through its acquisition of Cadbury’s) have bought into the concept. A fairtrade label is good for business.
This has irritated some purists in the fair movement, which got much of its initial energy from the notion of “alternative” trade.
Leaving equity in trade to be addressed by market mechanisms, by clearing a path for “free trade” from the undergrowth of “unfair” trade practises, has led to the stagnation of the Doha Development Agenda.
Small in overall volume terms as it is, the fair trade movement could provide the intellectual and practical stimulus for re-igniting a successor development round to Doha by re-introducing the notion of social justice into the trade agenda.
Michael Hindley
June 2010
[1] Stiglitz. Joseph “Making Globalization Work” Penguin Books 2006 [2] “Global Europe” European Commission October 2006 [3] “A Charter for Fair Trade Principles” Fairtrade and WFTO January 2009 [4] Figures from FLO press release June 2009 [5] Opinion of the European Economic and Social Committee on “Fair trade food products: self-regulation or legislation” Para 1.4.2 Brussels October 2009 [6] See “Why I won’t be giving my mother fairtrade flowers – ethical consumers shouldn’t bear the cost of decent labour rights”, UK Guardian newspaper. 5th March 2005 [7] “A review of the impact of Fairtrade over the last ten years” Natural Resources Institute (NRI) University of Greenwich, UK March 2010 [9] See “Fair enough? Big business, mass markets and fretting farmers – Albert Tucker reports from the frontline of the battle for fair trade’s soul” New Internationalist. 01/11/2006 [10] Quoted in “Integrated financing for value chains” World Council of Credit Unions. Technical Guide 2009 [11] See Sununtar Setboonsarng “A review of Organic and fair-trade certification” ADB Institute Discussion Paper 115, 2008 [12] Natural Resources Institute (NRI) University of Greenwich Review op cit [13] Report of the Special Rapporteur on the right to food. Agribusiness and the right to food. UN A/HRC/1313 [14] Sir Thomas Gresham (1519-79) English trader and founder of the Royal Exchange expounded the notion that in monetary matters the worst sort of currency would paradoxically be most used. Hence the necessity of regulation of the minting of money. [15] See “Groningen Province (the Netherlands) and Fairtrade (FLO) Standards.” ISEAL. Government Use of voluntary standards. Case Study 3. September 2008 [16] Global Europe op cit