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Fair Trade Versus Free Trade --UMW Action Alert

by Washington D.C. Office of Public Policy

Contact: Office of Public Policy GBGM-Women's Division 100 Maryland Avenue, NE Room 530 Washington, DC 20002 (202)488-5660 Fax:(202) 488-5681
Office of Public Policy
GBGM-Women's Division
100 Maryland Avenue, NE Room 530
Washington, DC 20002
Fax:(202) 488-5681

Take a closer look at where all of the products in the store come from

The next time you go shopping take a closer look at where all of the products in the store come from.  If you notice that there are more variety of items available from different parts of the world and the products that were once made in the United States are now manufactured by the same company in different countries, this is a result of free trade.  This also holds true for shoppers in some developing countries, where the shopper now has the option of purchasing a variety of American products.  The volume of world trade has increased dramatically since 1950 from $320 billion to $6.8 trillion.[1]  Although international trade has resulted in economic growth around the world and has lifted 400 million people out of poverty since the 1970’s,[2] trade can also bring about social and economic disruption if trade negotiations are not conducted fairly.  If trade is well managed it has the potential to take millions of people out of poverty.  Unfortunately, most free trade agreements are not equal and result in unfair trade practices by giving some countries, such as large industrial countries like the United States, Canada and some countries in the European Union, more opportunities than others and putting some countries, such as ones in Latin America, Africa and Asia, at risk.  Free trade is trade without restrictions while fair trade is an equitable and fair partnership between trading countries.    

Free trade can be defined in simple terms as trade without restrictions.  In free trade, there are no tariffs, for example customs duties or import quotas on goods from other countries.  Free trade aims to allow the world market to operate without any constraints by eliminating such things as tariffs, quotas and investment barriers (restrictions or limitations on companies investing in foreign countries).  Today trade agreements take various forms.  These include bilateral free trade agreements (FTA) between two countries and larger multilateral agreements such as the World Trade Organization (WTO), which is an agreement among 135 nations.  There are also regional trade agreements which encompass the establishment of a free trade zone among many countries in the same region.  Examples of these include the North American Free Trade Agreement between the United States, Mexico and Canada, which covers 400 million people who collectively produce about $8.5 trillion in goods and services[3], and the European Union between countries in Europe.  By the end of 2002, 250 free trade agreements had been notified to the World Trade Organization.  If all trade agreements currently under negotiation are concluded that number will approach 300.[4]

Recently, US interest in bilateral and regional free trade agreements has increased.  The United States signed its first free trade agreement with Israel in 1985 and its second one with Canada in 1989.  Just in the past two years the US completed free trade negotiations with Jordan, Singapore and Chile.  The US is currently negotiating three major regional free trade agreements.  One is the Central American Free Trade Agreement (CAFTA) with Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua.  Another is an agreement, which is planned to be completed by December of 2004, with the Southern African Customs Union which includes the countries of Botswana, Lesotho, Namibia, South Africa and Swaziland.  The largest agreement the US is currently negotiating is the Free Trade Area of the Americas (FTAA).  This agreement, planned to be completed by 2005, will unite the 34 economies of the Western Hemisphere, stretching from Canada to Chile, except for Cuba, into a single free trade zone.  The FTAA would essentially be an expansion of NAFTA.  Once it is launched, it will be the largest free trade zone in the world with a population of 800 million and a combined GDP (the total value of all final goods and services produced within a country in a given year.) of $11 trillion.[5]  Trade Ministers from the 34 countries participating in the FTAA recently met in Miami, Florida (November 17-21, 2003) for negotiations.  After intense negotiations over disagreements between Brazil and the United States over agricultural subsidies and intellectual property rights, the negotiations were completed a day early for the Miami meetings, bringing the participating countries a step closer to the full implementation of the FTAA by 2005.

Fair Trade

Free trade agreements can be beneficial.  They provide access to one another’s markets and allow countries to concentrate on the production of goods they are best capable of producing.  According to Oxfam, a British based non-profit organization dealing with the issue of free trade, “participation in world trade has figured prominently in many of the most successful cases of poverty reduction-and compared with aid, it has far more potential to benefit the poor.[6]  Since the end of World War II there has been a reduction in average global tariffs (a duty paid to the government on goods) from 40% to 5%.[7]  According to the World Bank, the income per person for countries involved in free trade grew more than 5% a year while incomes in poor countries not involved in free trade grew just over 1%.[8]  Despite these outcomes, millions of the world’s people living in poverty are still being left out by unfair agreements.  World trade has the potential to provide growth for the world’s poorest countries, but that potential is not being realized.  There are many reasons for this.  Some include the lack of economic power of the poor countries, which results in a lack of bargaining power when trade negotiations are being conducted. 

The gap between developed countries and developing countries still remains very large.  Inequalities in trade practices are hurting developing countries.  Despite the growth in free trade agreements, “low income countries account for more than 40% of the population, but less than 3% of the world trade.”[9]  “When developing countries export to rich countries they face tariff barriers four times higher than those encountered by rich countries.  Those barriers cost them $100 billion a year-twice as much as they receive in aid.”[10]  There are solutions to these inequalities.  According to the IMF, a repeal of all developed country trade barriers and subsidies to agriculture would improve global welfare by about $120 billion.  The result in gains from an increase of only 1% in Africa’s, East Asia’s, South Asia’s and Latin America’s share of world exports would lift 128 million people out of poverty.[11]

Many developing countries are finding themselves locked out of the markets of developing countries because of high tariffs on the agricultural and manufactured goods they seek to sell.  The 2002 Farm Bill granted more than $180 billion in various measures to support US producers over the next ten years.  Unfortunately, these subsidies generally only reach a few small farmers.  Most of the subsidies are focused on benefiting large agribusiness.  60% of direct

payments to farmers by the US government go to only 10% of the producers who control large commercial operations.[12]  Developed countries continue to subsidize their agriculture at a rate of $1 billion a day.[13]  As a result of these subsidies producers in the developed countries can produce their goods below production cost and with access to the markets of developing countries they are able to sell their produce at extremely low prices.  This unfair competition forces international prices to drop in an artificial manner and causes rural farmers in developing countries to collapse.  The US exports wheat at 46% below the production cost and corn at 20% below production.[14]  In May 2003, World Bank President James D. Wolfensohn stated that “the average European cow receives more subsidies than the entire average income of a person in Africa.”  This means that local producers can not compete in their own domestic markets and the result is major losses in income.

Fair Trade Certified

Recently groups have come together to start a movement to sell goods produced and sold under fair trade.  One main focus of these groups has been the production of coffee.  Coffee is the world’s second most valuable traded commodity.  There are about 25 million farmers and coffee workers in over 50 countries that produce coffee.  The United States’ largest food import and second most valuable commodity is coffee.  The U.S. imported 2.72 billion pounds of coffee from September 2001 to September 2002.  The U.S. imports coffee mainly from Brazil, Colombia, Mexico, Guatemala and Vietnam.[15]  Unfortunately, many coffee farmers receive less money for their harvest than the cost of its production, forcing them into a cycle of poverty and debt.  Coffee is not the only commodity facing serious problems.  Cocoa farmers are also facing many hardships.  A cocoa farmer in Ghana only gets 1.2% if the price we pay for a bar of chocolate.[16]  Now, thanks to the fair trade movement, we have the option of buying fairly traded products.  These products, which have the fair trade symbol on them, are produced under fair trade rules.  The farmers get a fair price for their harvests.  These fair payments are then invested in health care, education and environmental stewardship and provide economic independence for the farmers.  There are over 100 companies in the United States that have licensing agreements to offer Fair Trade goods such as coffee, chocolate and teas.     

Multinational companies are also taking advantage of highly exploitative employment practices in developing countries and using relaxed labor laws to their advantage while workers are being denied their rights and are forced to work long hours in hazardous conditions for very low pay.  The issue of patents is another concern.  Developed countries have been trying to protect their large pharmaceutical companies by introducing patent protections into free trade agreements.[17] This would mean that generic brands of essential medicines would not be allowed to be sold and this could result in the doubling of costs of medicines.  This could result in devastating consequences for developing countries dealing with epidemic numbers of people infected with HIV/AIDS.

The United States also faces some trade barriers for its products.  Despite the fact that U.S. agricultural producers are among the most competitive in the world, U.S. agricultural goods still face many barriers in many markets.  U.S. corn exports to the EU have declined by 55% and US poultry exports to Russia have declined by almost 45%.  Japan imposes restrictions on imports of U.S. apples and is increasingly implementing standards and other administrative requirements to limit agricultural imports.  These are only a few of the many examples of other countries imposing barriers and trade restrictions on agricultural goods from the U.S.[18] 

There are some major issues of concern with the Free Trade Area of the Americas which, if not addressed, could result in many unfair practices.  Some of these issues include the privatization of government services such as education, health care, water, environmental protection services, postal services, prisons and transportation.  This will mean that foreign corporations will be competing with local governments to provide basic services thus causing prices for essential services to become unaffordable to many.  The FTAA will also allow “investor-to-state” lawsuits, which essentially means that private corporations may sue governments for lost current and future profits if they feel that current laws affect their ability to make a profit.  This would mean that corporations could challenge local and national laws.[19]  The investor-to-state clause greatly challenges a nation’s ability to protect its citizens and provide adequate environmental and safety standards. 

Trade negotiations are closed to the public.  Only government representatives and representatives of large corporations take part in the negotiations.  The lack of capacity of developing countries to deal with highly complex agreements puts them at a disadvantage during negotiations.  It is very difficult for developing countries to find the budget to attend WTO meetings in Geneva that average around 50 a week.  30 developing countries can not even afford to fund an office in Geneva, while ones that can are greatly understaffed.[20]  The recent WTO meetings held in Cancun, Mexico in September 2003 collapsed after a group of 21 poor nations allied together, led by Brazil, India and South Africa, against the European Union and the U.S. which had refused to cut tariffs and subsidies on agricultural products.  We must urge our leaders to make trade fair because fair trade has the potential to lift millions of people out of poverty while unfair international trade rules have the opposite effect.


•  Write to the United States Trade Representative Ambassador Robert B. Zoellick and urge him to negotiate fair trade practices when negotiating on behalf of the United States so that all countries involved will benefit.  You may write to him at USTR, 600 17th Street, NW, Washington, DC 20508.  You may also call USTR at their public information line at 1-888-473-8787.  The USTR is responsible for developing and coordinating US international trade and is a Cabinet member who serves as the President’s principle trade advisor, negotiator and spokesperson on trade and related investment matters.

•  Learn more about the FTAA negotiations.  You may find information by contacting the USTR office or by contacting Oxfam America at 1-800-776-9326 or visiting their website at www.oxfamamerica.org.  You may also visit the official FTAA website at www.ftaa-alca.org/alca_e.asp.

•  The next time you go shopping try to purchase products that have been traded fairly.  These are usually commodities such as coffee, tea or chocolate.  To find out which brands have been traded fairly look for the fair trade certified stamp on them.  You may find an example of the fair trade stamp on the second page of this action alert.  For more information about fairly traded goods you may contact TransFair USA at (510) 663-5260 or visit their website at www.transfairusa.org.  You may also contact Equal Exchange at 781-830-0303 ext. 228 or e-mail them at interfaith@equalexhange.com

[1] Center for Strategic International Studies Global Connections.  Trade. www.globalization101.org

[2] Oxfam.  http://www.maketradefair.com

[3] U.S. Department of State.  International Information Programs.  An Outline of the US Economy.  http://usinfo.state.gov/products/pubs/oecon/

[4] Bhagwati, Jagdish and Arvind Panagariya.  Bilateral Trade Treaties are a Sham. Financial Times.  July 13, 2003.

[5] Barlow, Maude.  The Free Trade Area of the Americas: The Threat to Social Programs, Environmental Sustainability and Social Justice, A Special Report by: The International Forum on Globalization (IFG), February 2001.

[6] Oxfam.  http://www.maketradefair.com

[7] Center for Strategic International Studies Global Connections.  Trade. www.globalization101.org

[8] US Trade Representative website.  http://ustrade-wto.gov/benefitsafrica.html

[9] Oxfam.  http://www.maketradefair.com

[10] Ibid.

[11] The Rigged Trade Game, New York Times, July 20, 2003                                                                                                                                   November 2003

[12] Oxfam Briefing Paper.  Make Trade Fair for the Americas, Number 37.

[13] Poor Countries Agree Common Demands in Trade Talks. Reuters, June 2, 2003.

[14] Oxfam Briefing Paper.  Make Trade Fair for the Americas, Number 37.

[15] Global Exchange Website.  Frequently Asked Questions about Fair Trade Coffee.  www.globalexchange .org/campaigns/fair-trade/coffee/faq.html.pf

[16] Oxfam. http://www.maketradefair.com  

[17] Oxfam Briefing Paper.  Make Trade Fair for the Americas, Number 37.

[18] USTR website.  Press Release.  USTR Releases 2003 Inventory of Trade Barriers. April 1, 2003.

[19] Canadian Department of Foreign Affairs and International Trade website.  http://www/dfait-maeci.gc.ca/tna-nac/DS-DES-en.asp.

[20] BBC News.  What’s Wrong with Doha, November 7, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

Date posted: Jan 07, 2004