False Representations About the Concept of Free Trade

In recent years, the demand for attention to social issues has risen exponentially. Movements for equality, justice, and identity among other pressing issues are increasingly prominent in contemporary society. As a result, corporations have made the welfare of the impoverished a profitizing factor. Terms often used to target privileged consumers looking to feel good about their purchases include cruelty-free, conflict-free, ethically-sourced, sustainable, oceanwise, etc. The concept of fair trade that has gained widespread recognition is defined as products “produced by small-scale farmer organizations or plantations that meet Fairtrade social, economic and environmental standards”. These standards include secure worker rights, environmental protection, and investment in community projects. Fair trade organizations, describing themselves as “an independent, third party certification system for goods that are produced in the Global South”. The thesis of this paper will engage the false perception that fair trade results in an egalitarian trade market where farmers of agrarian industries can prosper directly from the purchase of fair trade goods at little cost to the consumers. While Fairtrade is known for bringing attention to marginalized third world workers and making a difference in their lives, I argue that this perception is false through personal accounts of workers under Fairtrade, economic analyses of the effects of the Fairtrade model, analysis of its protectionist role in relation to populism, to show that not only do workers from developing countries benefit minimally, the fair trade concept can be damaging to consumers as well.

Definition and Criticisms of Free Trade

To better understand the basis of Fairtrade and the role of fair trade in populism, a brief definition of free trade is needed. Free trade was initially believed to create a more peaceful world order by Richard Cobden in the nineteenth century. Free trade is largely a liberal ideology; true to the concept of laissez-faire, it advocates minimal interference in the market. According to section 1.2 of the North American Free Trade Agreement, “NAFTA seeks to liberalize trade between the U.S., Mexico and Canada and abolish tariffs and other trade barriers. The Agreement opens up the three countries’ markets by ensuring that future laws will not create barriers to doing business.” Criticisms of free trade are often aimed at the poor working conditions it often generates in the processes of offshoring and outsourcing, which moves low-skill work such as production to countries with lower wages. This appeals to producers and consumers, who both benefit from lower wages and lowered overall costs of production developing countries provide. Developing countries in which factories are offshored to often do not have laws in place to regulate and ensure safe working conditions, and often workers are exploited and forced to work in labour-heavy jobs under undesirable working conditions. Sometimes these violations of human rights go unchecked and the workers are helpless to the injustices of their supervisors. It is mainly these human rights violations and environmental concerns associated with free trade that the concept of Fairtrade attempts to abolish.

Definition of Fair Trade

The Fairtrade International Organization and its label influences a diverse range of industries; from cocoa beans, flowers and rice, to commodities such as cotton and sport balls. The Fairtrade Labelling Organizations (FLO) sets the Fair Trade-certification standards and serves to inspect and certify the producer organizations. The Fairtrade organization primarily uses two mechanisms in an attempt to achieve its goal of improving the lives of farmers in developing countries. The first is a minimum price that is guaranteed to be paid if the product is sold as Fairtrade. This is meant to cover the average costs of sustainable production and to reduce the risk of bankruptcy faced by coffee growers. The second is a price premium paid to producers. This premium is in addition to the sales price and is set aside to be invested in projects that improve the quality of life of producers and their communities. The concept of fair trade in this paper will be defined both by the focus of the Fairtrade International Organization, the organization that spearheads the fair trade concept, and the concept of fair trade in general, which reject human rights violations and negative environmental impacts brought on by international trade. The Fairtrade International Organization will be distinguished from other fair trade concepts in this paper through its spelling: “Fairtrade” will refer “only to Fairtrade organizations or products certified through the Fairtrade International system”. Topics regarding fair trade concepts not certified by the organization will be referred to as fair trade. This is also heavily enforced by Fairtrade to prevent the dilution of the fairtrade label; which can be done by corporations who manipulate the Fairtrade label to redeem their globally denounced practices, using the labeling process as a business measure to increase sales and improve their image. For example, Nestlé has introduced fair trade cocoa in the production of their kitkats. This is controversial because of their Baby Killer scandal, where Nestlé was exposed for targeting vulnerable mothers and infants in poverty-stricken countries in Asia, Africa, and Latin America in an attempt to market their baby formula, forcing the mothers to rely on infant formula they cannot afford. The Fairtrade label has also been diluted by the development of new and competing labels that confound the fair trade message. One good to recently bear the fair trade title has been under some scrutiny is fair trade condoms; although not officially under the Fairtrade Labelling Organization, many contraceptive brands are on the uprise, labelling themselves as fair-trade. These brands introduce fair trade using a quirky and sexual play on language that turns consumers away from the hardships that Fairtrade is supposed to shed light on. “It is of paramount importance that this Mark not be used in a way that is misleading to the public.”

Negative Effects of Fairtrade on Workers and Consumers

As stated in my thesis, I will detail the personal effects of fair trade on the welfare of workers, and consumers of the Fairtrade coffee industry to give insight into the dark side of Fairtrade. Over the years, especially with the pressure of increasing social awareness, fair trade has somewhat become a concept of reverence, attaining what almost seems to be a cult following in the developed world. In an interview of 62 workers and their managers at 8 coffee mills, the contrast between Fairtrade and free trade coffee is revealed. A majority of the coffee producers studied in Nicaragua demonstrated a poor understanding of what Fair Trade is. “At best, they knew that their cooperative was selling coffee to Fair Trade markets; however, most were unaware of the rights and responsibilities associated with it.” Fairtrade calculations show the income of small coffee producers in Chayopetec and other villages amounts to around $2 daily, a significant improvement from the original 80 cents before the introduction of Fairtrade. However, in an analysis done by Nico Roozen and Franz Van Der Hoff, small-scale coffee producers were still far from the minimum wage of $3.30 applied in Mexico. In the sample provided by Dragusanu and Nunn, 50% of all workers in the coffee industry are unskilled, 43% are skilled, and 7% work under “other” occupations, and 57% of all workers felt no overall impact. In these cases, coffee alone is not sufficient to sustain a living or make standard of life significantly better as advertised. This is demonstrated directly by Lorne Matalon in an interview of a trio of coffee farmers in Chiapas, a state in southern Mexico. The growers clearly lament the lack of money they receive selling through Fairtrade, mainly due to the fact that they are unable to form a cooperative, and are preyed upon by middlemen of the industry. One grower even admits to selling outside of his cooperative last year, since outsiders provided a higher price his cooperative could not. In conclusion, “although FLO does dictate certain minimal labor standards such as paying workers minimum wage and banning child labor, the primary focus and beneficiary is the farmer, who, in turn, is defined as a small landowner.”

As for consumers, Fairtrade means one may be receiving lower-than-average coffee beans when they purchase Fairtrade. Coffee is separated into two categories: commodity and specialized coffee. Commodity coffee is separated into grades and each grade has batches that are assumed to be identical to each other. Specialized coffee, on the other hand, is selected for their distinctive flavour profiles and commanda much higher price than standard coffee. However, due to the complex requirements in the production process of Fairtrade beans, Fairtrade coffee is sold as specialty coffee, regardless of its actual grade. This poses a problem for consumers because the low demand for fair-trade coffee means that not all of a farmer’s coffee beans will be sold as fair-trade. Therefore, farmers often try to maximize profits by selling the lower-grade coffee at the minimum fair-trade price knowing it is much more than their actual worth, and save the good-quality beans to sell at market price, which will most likely be above Fairtrade price. Individually, it seems that Fairtrade does not benefit workers and consumers overall, and is only giving a small percentage of coffee farmers “a safety net in a messy market. They earn steady money, good times or bad, while the majority of their neighbors struggle.” The findings by Dragusanu and Nunn states that only those who have additional benefits fair trade are the coffee farm owners and skilled workers; and there are little to no additional benefits to unskilled workers. This gap in living conditions is due to the flawed structure of the Fairtrade Organization. They found that unless the members of the cooperative, who tend to be the ‘skilled workers’, decide to allocate some of the premium to increase the wages of coffee pickers and unskilled workers, then income effects for this group of workers will not change even with increasing Fairtrade production.

Downsides of Fairtrade Through an Economic Lens

Relatively poor producers are marginalised as they do not have the means to sufficiently pay for the various administrative costs of the Fairtrade certification procedure. As a result, Fairtrade tends to only select groups of producers that are already at a certain level of organisational and economic capacity. This means that Fairtrade standards can only be met by relatively wealthy countries like Costa Rica, and less often poor countries like Ethiopia, in which the coffee industry made up 32% of its 2017 total exports. By buying Fairtrade coffee, one is choosing to overlook the poorest producers that are most in need, ones whose countries and thus lives completely depend on the sale of their crops. In addition, Fairtrade discourages the purchase of free trade coffee based completely upon what the developed world perceives to be intolerable factory working conditions, whereas those factory jobs are most likely the best jobs a citizen from that underdeveloped country can find. Lowering the demand for free trade coffee forces the poorest of workers into jobs that are not desirable even by third world standards, and the welfare of these workers deteriorate. The benefits of Fair Trade are concentrated only in 43.5% of those employed in the coffee sector, made up of farm owners and skilled coffee growers. Unskilled workers, comprising nearly 50% do not receive any additional benefits. Since intermediaries in the coffee trade have incomes that are approximately 50% higher than the skilled farmers, a consequence of Fairtrade is that it decreases income inequality between intermediaries and skilled workers by transferring rents from intermediaries to farmers, but the welfare of unskilled workers remain static, which increases the welfare gap of those who need it most.

According to Philip Booth of the Institution of Economic Affairs, there are numerous other ways in which impoverished farmers can get better prices. Methods include speciality brands, traditional trade channels and using other labelling initiatives. Economists have scrutinized Fairtrade policies for shrinking employment options as the labelling initiative forces workers into only one job. The only palpable solution, for most economists, is to create competition by increasing different job sectors, which in turn will employment options for these workers. More importantly, the way to attain higher wages is through increasing worker productivity, not by marketing tactics such as Fairtrade. The economic function of product certification or legitimization “rests upon its ability to define not only specific qualities of goods or the social conditions they embody (e.g., production processes, labor conditions, or trading practices), but also to define which products do not meet such definitions” as a result, Fairtrade has created in some ways a Monopoly, because their process of defining products has created a new market for consumers in the Global North, those who are conscious of human-rights and environmental concerns. These restrictions control the mechanisms in which market entry and exclusion become a source of power for the labeling organizations such as Fairtrade, and companies that focus on other concerns are unable to thrive in the market in the long run.

Fair Trade as Protectionism in Populist Rule

Fair trade (note the space) is a form of protectionism: a restrictive approach to international trade that is intended to eliminate competition and foreign trade through import tariffs and other forms of government regulations. Fair trade concepts, sets moral pretexts in which citizens are restricted from purchasing overseas goods like those of protectionist ones. Traditionally, protectionism involves the implementation of tariffs or quotas to decrease the trade deficit caused by imported goods, but through fair trade, protectionists can shun the import of a certain good by deeming it unfairly-traded, thus the role of tariffs are shifted to conscientious consumers. Fair trade, like any other trade barrier in protectionist trade policies, blocks the flow of imports by placing suspicions on free-trade agreements. This not only “undermines the productivity of capital and labor throughout the economy”, it is also costing American consumers up to 10 times as much as domestic producers benefit. Protectionism, in turn, is favoured heavily by populist economics. The current United States administration is a perfect example of how fair trade is tied into populist governance as a form of protectionism. The Trump Administration has been deemed populist since before its inauguration, beginning with Trump’s agenda to place US interests first and protect domestic interests. This economic populism is rampant in the Trump administration as well as in the campaign of Elizabeth Warren, a US senator who is now running for president. Where Trump uses fair trade protectionism to Make America Great Again, Warren promotes her idea of “Economic Patriotism”. On Warren’s campaign website, she states that her administration will “create automatic triggers to initiate investigations into unfair trade practices. If those investigations produce compelling evidence of a violation, the Department will impose trade remedies immediately until the offenders show they are no longer engaging in an unfair trade practice.” In addition, she adds that these triggers “will also apply to violations of labour and environmental standards”. This targets almost all commodities that are sourced overseas, since low labour and environmental standards are what makes production cheap. The goals of this administration lines up perfectly with the vision of fair trade, and the idea of fair trade is used as a method of protectionism in Warren’s populist administration. Fair trade in this case is used under false pretenses because this is the only instance she talks about fair trade in terms of benefitting overseas workers and environmental issues, it is only a small piece in her “economic patriotism” campaign to appeal to the American working class by protecting domestic jobs. Both these economic populists promotes the idea that cheap imported goods pose a threat to national jobs and production, and use the concept of fair trade to control the consumption of domestic buyers to adhere to their policies.

In theory, protectionism may sound appealing, but analysis has shown that the effects of protectionism are injurious to the countries and citizens that implement them. For example, “according to U.S. Department of Labor's own statistics, protectionism destroys eight jobs in the general economy for every one saved in a protected industry.” In addition to lost jobs, protectionism leads to higher prices, higher taxes, debt crises, and trade wars. not only does protectionism gain movement through the manipulation of fair trade by populists, it poses a real threat to innocent consumers and workers when it sets off trade wars between countries.

Conclusion

There is a fundamental flaw in principle when a movement such as Fairtrade is based upon the commodification of labour from emergent nations. As shown in the paper, there is very little economic evidence that it has raised living conditions for the workers they represent in any sector, and interviews of workers supposedly protected by Fairtrade only have lamentations aside from those featured on Fairtrade’s website. In addition, the concept of fair trade in general has been exploited by populist politicians to promote a protectionist economy to appeal to the working class for votes. Although legitimate in theory and one cannot deny the international attention it has brought to the problem of third world working conditions, there is an increasingly large gap between the image Fairtrade represents and the reality of its implementation.The concept of fair trade should be scrutinized by its consumers, for there is a majority of people that falsely believe fair trade can do no wrong, which can have detrimental effects in the long run.