Fair Trade Viability to Free Trade

Introduction

Many countries in the global trade interface have been supporting free trade due to the reduction of artificial barriers that were previously created by various governments. These barricades were seen as items that hindered free movement of goods and services amongst a number of countries that had entered trade agreements. There have been immense advantages such as improved efficiency in production, increased foreign exchange, and emergence of more employment opportunities that led to upward mobility of the economy. However, most countries in the developing world were at the losing end due to a number of disadvantages that accompanied free trade. These drawbacks included structural unemployment, economic instability, environmental pollution, and difficulties of establishing industries at the global interface among others. As a result, fair trade was established thereafter as an alternative to earlier restricted business tactics. The main goal of this line of business is to assist developing countries to create favourable business conditions at the global trade level. Such business endeavours are undertaken to implement equitable trade. This essay critically analyses the applicability of unrestricted international business as an alternative to the free trade system.

Operational Ways of Fair Trade

Fair trade is perceived as a way of approaching global trade with an aim of capturing and sustaining development. It favours underprivileged producers who are mainly found in the developing nations; hence, it is meant to create better trading conditions, improved collective bargaining, and awareness of trade issues (Bovard 1991). A better understanding of the fair trade system involves five characters. At the outset, it is characterised by increased price premiums whereby some goods are valued higher as compared to others in the same market system (Nicholls & Opal 2005). The income that is obtained from the price differences is used for improvement of the working conditions of the producers. Another tool that is evident in the fair trade system is the certification of products. This character enables fetching of better markets. The products that are offered in such marketplaces must meet high standards and quality requirements. Therefore, labelling and certification procedures must be followed.

The fair trade system also provides a credit means for the producers to enhance their progress in the trade system in micro-levels (Nicholls & Opal 2005). The stakeholders also provide technical support to the producers and other people who are involved in the enhancement of quality and development of new methods through training (Nicholls & Opal 2005). This state of affairs enables them to finance various business activities in an attempt to expand their operations. Lastly, fair trade entails the use of advocacy as a tool enhance distribution of products, especially in businesses such as supermarkets among others that have established reputable market niches in the international system (Nicholls & Opal 2005).

Pros of Fair Trade System

Better Living Standards

An effective and efficient way of improving life has been achieved through engagement of producers in the fair trade system. The business technique mainly benefits the small-scale producers in terms of the profits that they earn from their merchandise. The trade system advocates for minimal or no intermediaries that can otherwise increase costs and lower income rates. Therefore, it enables producers to handle activities amongst producers and retailers. This situation further lowers the production expenses (Bacon 2005). Fair trade leads to further development of local industries and businesses. This situation results in improvement in areas such as employment, healthcare, and education among others (Bacon 2005). Various benefits are also realised amongst the retailers due to increased exportation of goods and expanded market niche. Partnerships are also established amongst business professionals and marketers at the global level (Bacon 2005).

Education and Consumerism

Many buyers are currently seeking more information about what they consume. The fair trade system advocates for packaging and labelling that comprises information about particular products. Therefore, the consumers are currently aware of the quality of various products that are ethically produced. Safety has also become a key concept in the marketplace. This situation has significantly promoted consumerism; hence, it leads to development of healthier businesses (Walton 2010). Consumers, local producers, and businesspersons are sensitised to various skills that are involved in production and effective management of small enterprises. This kind of education is further instilled in children and other people for purposes of passing knowledge about fair trade to future generations.

Accessibility to Finance and Loans

Most of the developing countries are currently benefiting from the fair trade systems since most of the small-scale producers have gained accessibility to loans and finance for further development. Furthermore, these businesses develop the community through creation of employment opportunities to the local people; hence, they facilitate eradication of poverty (Walton 2010). Many countries have benefitted from loans. For instance, Mexico and Ethiopia have significantly expanded their coffee production. Poor countries also benefit from the unrestricted businesses in cases where rich markets avail goods of higher quality and quantity to consumers at standard prices that match with those of the local markets (Walton 2010).

Fair Trade and Labels

Fair trade ensures labels that are friendly to the environment since it encourages sustainability at all costs (Doherty & Davies 2013). Moreover, labelling promotes preservation of biodiversity. Lastly, the system promotes the value of organic production without the usage of pesticides among others. This situation escalates environmental conservation; hence, it improves consumer health greatly (Doherty & Davies 2013).

Fair Trade and Behaviour

Most producers who operate under fair trade regulations believe that the movement influences the behaviour of markets and its players. It aims at establishing favourable conditions in a conventional trade setting. Formation of organisations that encourage belongingness is encouraged through the fair trade system (Sampson 2008). Furthermore, togetherness makes small-scale farmers to gain a collective bargaining in the market. It also enables formation of co-operatives. This situation enhances their strengths to meet the fair trade market standards. The goods that are produced by these people have to meet such criterions for certification. Moreover, it enhances impartial price bargaining. These benefits are evident in Nicaragua and Mexico among other countries (Sampson 2008).

Fair Trade and Empowerment in the Society

The fair trade system is mainly practiced in the developing nations. According to Utting-Chamorro (2005), almost 2 billion of people who live in these areas are women who are less fortunate. They are further mistreated by making them work without pay or for a long time at fewer wages (Capling 2001). This system, system brings into play various support programmes that promote the livelihood of the women in the developing nations. For instance, most women from Nicaragua have taken an initiative to establish co-operatives (Utting-Chamorro 2005). Through such activities, they have been able to enhance societal development. Some women have resumed school programmes due to the benefits that are realised through such co-operatives. Such situations have also been noted in Ghana (Capling 2001).

Cons of Fair Trade System

The Rules of Fair Trade System

The rules of the fair trade system are not favourable to most of the producers in developing nations. The management and governing body of Fairtrade Labelling Organisations International (FLO) use complex criteria that govern the market systems, especially during measurement of qualifications and needs. The principles minimally offer provisions for ways of dealing with employees (Henderson 2008). These measures are viewed as benchmarks for joining the fair trade markets (FLO 2009). Most of the FLO measures also in-cooperate arbitrary means that further lead to discrimination, especially to the underprivileged producers in the third-world countries that are not in a position to meet the standards.

According to Doherty and Davies (2013), the fair trade system only focuses on assisting a minimal number of producers whilst ignoring the larger group members. This situation is evident through the governing systems of the FLO that do not guarantee the use of hired labour systems to peasants and/or small-scale producers. As a result, it does not meet various demands that are necessary for exploitation of market opportunities. Therefore, the system only favours small-scale producers that are not dependent on permanent hired labour (Sampson 2008).

In terms of certification criteria, the FLO fair trade only focuses its mandates on enabling the developed nations whilst ignoring evolving countries, especially those in the African continent. For example, certification is majorly approved for products such as coffee in Mexico (Sampson 2008). Briefly, it is clearly noted that the fair trade system is a one sided trade co-operation that does not benefit the developing nations unlike the free trade system. Although such situations exist in the contemporary world, most of the small-scale producers lack capacities to satisfy the FLO policies and benchmarks.

Fair Trade and Economics

Henderson (2008) reveals that fair trade provides support to the establishment of co-operative systems, especially to the small-scale farmers. The benefits of this practice are evidenced through the profits that are accrued from the trading system. However, a problem arises where by a tendency of unscrupulous leadership in the co-operatives lead to corruption. In this case, the officials squander a good percentage of the generated money (Henderson 2008). Nonetheless, some of the money is also used in activities such as repayment of overdue debts in the co-operatives among others.

Furthermore, many economists perceive the fair trade system as a business framework that enables the producers to reduce living, operational, and environmental costs by providing them with direct money. In a personal view, the fair trade system is less effective in matters that pertain to establishment of standards, certification, and provision of direct funds to the producers (Henderson 2008).

The system is seen as an interface where producers can get information about various businesses and their unique means of production (Tallontire 2000). However, such sentiments are not satisfactory in most cases. Most producers do not have the opportunity to learn production and business management tactics; hence, integration of such instruments into trade affairs becomes complex (Tallontire 2000). This situation implies the fair trade is a failure since it does not provide robust information on production. Although the fair trade system was established as a solution to unfairness that was rampant in free trade, it only escalated the problems. This situation led to increased production of goods. As a result, the sales volume of goods reduces due to oversupply that further results in decline of prices globally. Both large-scale and small-scale players feel the effect of reduced sales and prices in the free trade system. The overall impact of such situations on various countries is reduced economic growth (LeClair 2002).

Fair Trade and Quality of Goods in Reality

The fair trade system guarantees certification based on standardisation and quality of monitored business parameters. Therefore, the producers ensure generation of superior goods to fetch better markets. Due to these emphases on quality, producers categorise goods into either high or low qualities. Superior products are distributed in open markets while the poor ones are often dumped in consumer zones that are not guided by specified standards and quality.

In reality, majority of the consumers cannot afford high quality goods that are highly priced. This situation compels them to obtain poor quality goods that are cheaper. The notion that most substandard goods are taken to markets that are under fair trade is untrue since the system incorporates both low and high quality merchandize goods (Oxfam 2002).

Conclusion

The essay has evaluated fair trade as an alternative to free trade by providing an insight into its pros and cons. The system has been identified as one that effectively enables the poor farmers in the developing world to improve their production capacities rather than depending on the free trade approaches that suppress their growth. It is evident that the fair trade system has enabled many producers to conduct business in the international level through provision of financial support. This situation has led to generation of considerably higher profits amongst the small-scale entrepreneurs. This fact makes it more preferred than the free trade system. Although some problems have been realised during implementation of the unrestricted trade system, good leadership among the co-operative officials and unbiased treatment as seen in the FLO regulations can enable improvement of quality and benefits to developing nations.

References

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