Understanding the global economy


        From the title, as we can notice, the work that I am going to suggest discussion overall about free and fair trade. But we are focalizing especially on the 'fair' trade. I have preferred this subject because has many ways to can see about the international trade. The economy every country it's up to trade. For that reason, every country aspire the increase on your export in the other countries. First of all we must to know, what is trade. Trade' is the voluntary exchange of goods, services, or both. Trade is also called commerce. A mechanism that allows trade is called a market. The original form of trade was barter, the direct exchange of goods and services. Modern traders instead generally negotiate through a medium of exchange, such as money. As a result, 'buying' can be separated from 'selling', or earning. The invention of money (and later credit, paper money and non-physical money) greatly simplified and promoted trade. Trade between two traders is called bilateral trade, while trade between more than two traders is called multilateral trade. Trade exists for many reasons. Due to specialisation and division of labour, most people concentrate on a small aspect of production, trading for other products. Trade exists between regions because different regions have a comparative advantage in the production of some tradable commodity, or because different regions' size allows for the benefits of mass production. As such, trade at market prices between locations benefits both locations. Trading can also refer to the action performed by traders and other market agents in the financial markets. Second, trade has two parts: free and fair. For these two parts I will talk in my assessment.

        In the beginning I will present what is free and fair trade. The key conceptual differences between free and fair trade. After that, I will talk about, ethical trading is really 'fair' or merely good commercial business for companies to exploit a 'niche' marketing opportunity. Lastly, I'll examine some diagrams for the production of bananas to illustrate my answer.

Free and fair trade

        In international trade, free trade is an idealized market model, often stated as a political objective, in which trade of goods and services between countries flows unhindered by government-imposed tariff and non-tariff barriers. Intellectually, this arrangement is supported by microeconomic analysis and nearly all economists, who argue that the benefit of trade is a net gain to both trading partners. It is opposed by anti-globalization and some labour campaigners due to what they see are many tendencies for abuse by wealthier states.The term is given to economic policies, as well as political parties that support increases in such trade. Free trade is a concept in economics and government, encompassing:

  • International trade of goods without tariffs (taxes on imports) or the other trade barriers (e.g., quotas on imports)
  • International trade in services without tariffs or other trade barriers
  • The absence of trade-distorting policies (such as taxes, subsides, regulations or laws) that give domestic firms, households or factors of production an advantage over foreign ones

        Free trade means competition, and competition can be risky, particularly when it affects a country's prosperity. Countries often want to protect themselves against the effects of free trade. They can make foreign goods more expensive by imposing taxes ('import tariffs') on them, which means that consumers have to pay more for them. This protects the people in their own country who produce those goods, because they do not have to compete against cheaper foreign imports.

        In practice, trade has never been free, because some countries have taken steps to protect themselves. However, as we shall see below, trade is freer for some countries than it is for others.

        Free trade is one of the most debated topics of the 20th and 21st century. The issues debated can be dividend in economic, moral and socio-political arguments.

        Fair trade is means of helping small-scale and other disadvantaged producers in developing countries improved their quality of life by providing a more profitable and stable trade relationship. Unlike organic produce, where the criteria used are legislatively based, the criteria of fair trade are product specific, but essentially can be summarized as:

  • Direct trading links with producers in developing countries, cutting out local dealers
  • Guaranteed prices to producers to cover production costs
  • a 'social premium' to producers, for investment in social and environmental improvements
  • credit allowances or advance payments where necessary
  • long term trading relationships to enable planning

        In the case of bananas, specific social and environmental criteria have been established by Fair trade Labeling Organizations International (FLO). The FLO Banana Register is responsible for maintaining a list of producers who meet the criteria and have committed themselves to social and environmental improvement plans.

        Total sales of all Fair trade bananas in Europe were 12.300 tons in 1997, rising to 14.600 in the following year, and over 18,100 tons in 1999.

        If the purchase intentions cited in the European Commission survey mentioned earlier are to be believed, this would translate into volumes of between 3000.000 and 400.000 tons of Fair trade bananas being sold per annum within the EU as a whole-a twenty fold increase on current volumes .

        The fair trade concept has been developing in western nations throughout the past 40 years or so, in response to a growing recognition that benefits accruing from trading and trade growth are not necessarily shared by all countries and all layers of the population within each country in a comparable manner.

        The objective of fair trade is to ensure that producers receive a price which reflects an adequate return on their input of skill, labour and resources, and a share of the total profit commensurate with their input. This is normally effected through an agreement by the participants in the fair trade initiative to pay a fair price which is negotiated on a case by case basis. In situations where the price of goods is agreed internationally (e.g. coffee and cocoa), a minimum price is set so that producers receive a return above the world price for their produce. This enables producers to adopt improved production systems and working conditions to the benefit of farmers and workers and the environment.

        Fair trade gives producers in developing countries higher revenues for their goods as well as increased opportunities to find new markets. In so doing fair trade aims to contribute to establishing the conditions that can foster a higher level of social and environmental protection in developing countries. In Europe our citizens are protected by Community and national laws governing areas such as health and safety at work, protection of the environment, and employers and employees statutory rights and obligations. Similar statutory rights are still in the process of development in many developing countries, and even where these exist economic or other conditions may make it difficult to ensure that the law is respected. Fair trade aims to alleviate these conditions by enhancing sound economic development and sustainable growth from the bottom up. Fair trade also hopes to reduce some of the disparities that have evolved over the decades between industrialised and developing countries as a result of the relative decrease in the prices of basic and notably agricultural commodities.

        For example, fair trade is particularly helpful to small-scale producers, especially in agriculture and the handicraft sector since small-scale producers in developing countries are often living in isolated rural areas and do not produce a sufficient quantity to export directly. They become dependent on intermediaries for both selling their products and providing credit facilities. Some farmers have reduced this dependency by forming their own marketing co-operatives, enabling them to pool resources and shared technical expertise and facilities, including in some cases community services such as health clinics and schools. Alternative trading organisations (which are explained later in this document) can provide a critical bridge in the development of a successful co-operative through paying a fair trade price and by providing assistance as diverse as helping the co-operative to become established as an exporter to purchasing a fax machine.

        Fair trade initiatives can include provision for advance payments to producers and the establishment of contractual relationships to give longer-term security. Thus, the stability of revenues is improved, facilitating planning and investment, and producers have more control over decisions concerning the processing and marketing of their output.

        Fair trade can also provide the possibility for some of the revenue gained to be used for capacity building for such things as the establishment of producer groups (as previously described) and facilities to add value e.g. coffee bean processing. It should be emphasised that profits from fair trade are for the benefit of a community as a whole and not for personal gain.

        The fair trade concept applies especially to trade between developing countries and more developed states. It is not directly relevant to goods produced within the EU, where social and environmental standards are already enshrined in law. All domestic production, producers, and workers already benefit from levels of social and environmental protection at least as high as those established for fair trade products.

        Fair trade initiatives originate in private non-governmental organisations. They are incentive based in the sense that they rely on consumer choice and do not manage trade or otherwise erect barriers to market access in different countries. Consumers are therefore given the opportunity to increase the standard of living and quality of life of producers in developing countries through a sustainable market-oriented approach.

        It should be noted that whilst the term fair trade may be considered a form of ethical trade the term is usually used with reference to fair trading operations which strengthen the economic position of small-scale producers and landowners which may otherwise be marginalised in mainstream patterns of trading. The term 'Ethical trade' is more usually used in relation to activities (e.g. codes of conduct) by multinational companies operating in developing countries, which demonstrate their ethical and social responsibilities to employees or other associates.

        There are a number of routes through which fair trade goods are made available to consumers. All routes are through private initiatives with the most common being through the traditional fair trade movement (including alternative trading organisations) and labelling initiatives, however, some individual companies or retailers not affiliated to any particular organisation, may make fair trade claims about some or all of their products.

        Fair trade for farmers and living wages for plantation workers should not remain the exception; they must become the rule. The more people who people who support producers by buying Fair trade mark bananas, the more this will put pressure on the mainstream trade to spread economic benefits fairly along the chain. Investment in socially and environmentally responsible production is the way forward, but this will only happen when growers receive a fair and stable price. As well as individual consumers and supermarkets, governments, small businesses, trade unions, all have a crucial role to play in promoting fair trade. We have a historic chance to contribute to the building of a new economy which benefits both people and the environment.

NEWS! (Network of European World Shops) - created in 1994. NEWS! brings together the federations of the world shops in 13 European Countries (All Member States are members with the exception of Luxembourg, Portugal and Greece. Switzerland is also a member). Not all shops are within a federation; the situation varies according to the country. In certain cases all the shops are within a federation, in others not all of the shops are members, in other countries there are several federations or isolated groups. In addition to being sales points the shops also provide awareness raising through various activities such as fair trade days. NEWS acts as a co-ordinator for such activities. EFTA (European Fair Trade Association) - was established informally in 1987 and was officially registered as a European foundation in 1990. It represents 12 importers from 9 European Countries (8 Member States - Austria, Belgium, France, Germany, Italy, Netherlands, Spain, United Kingdom - and Switzerland). The World Shops generally get their products from national importers who may be linked to the shops. EFTA represents 60% of sales in the sector. IFAT (International Federation for Alternative Trade) - created in 1989 by alternative trading organisations in Africa, Asia, Australia, Japan, Europe, North America, and South America. IFAT is a coalition to promote fair trade and a forum for the exchange of information. It links agricultural and craft producers in the South with organisations in both the North and South.

        FLO (Fair Trade Labelling Organisations International) -created in 1997, FLO International is responsible for the co-ordination of fair trade certification initiatives, the development of standard international fair trade criteria for each product, and co-ordinating monitoring to ensure that traders and producers respect the criteria. It is an umbrella body whose members are the various independent fair trade certification agencies which operate at national level within individual countries. Currently, there are 4 of these (previously mentioned) which operate in 12 Member States. These agencies hold a common product register of producer organisations - 300 producers in 29 countries. NEWS, EFTA, and IFAT form part of the traditional fair trade movement and FLO relates solely to the label. The traditional fair trade movement and the labelling organisations are interdependent since around 50% in value of labelled products are sold by the alternative marketing outlets such as the World Shop network or mail order. Moreover, the co-ordination carried out by the World Shop network at local level provides support and promotion of labelled products which do not have the structures or means to provide adequate sales promotion alone. In 1998 these organisations joined together to form FINE, which is an informal structure with

the objective of information sharing, co-ordinating activities and arriving at common criteria.


        As we see "free trade can never be fair trade" or "the problems of the developing countries have generally been exacerbated by trade and other economic relationship with the developing world". Of course and ethical trading is really 'fair' for the countries.


  • International trade (Willem Molle)

Internet sources

  • www.fairtrade.org.com
  • www.imf.org
  • www.worldbank.org
  • www.wto.org
  • www.maketrade.fair.com
  • www.freetrade.com

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