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“Unless serious concessions are made by all sides—developing countries as well as developed countries, Europe, the United States, Japan, everyone—the Doha Round of trade talks [continuing in Hong Kong December 13-18] will fail and the people who will suffer the most are the poor people of the world.” Paul Wolfowitz President, World Bank; October 2005

Approximately half the labor force in 120 developing countries depend on agriculture to earn enough to support their families. Besides the hard physical labor these individuals endure on a daily basis, they face a global system in which producers in wealthy countries are able to sell goods at artificially low prices, thanks to subsidies provided by their governments. Having to deal with these and other barriers to trade, as well as the whims of sometimes unstable world markets, many in the developing world are finding that the labors their families have engaged in for generations simply no longer pay. But, there is an alternative for some.

In an effort to try to account for some of the disadvantages faced by the poor, a global “fair trade” movement has arisen, which, as this edition of Perspectives will review, has begun to ensure a fair and living wage for producers of certain specialized products in the global South. Incomes from the sale of fair trade products, which are often managed by cooperatives, have also been used to improve educational and health services in many rural communities. The reality remains, however, that while the fair trade movement has made a positive difference in the lives of many, it represents only a minor fraction of a global trading system that many believe is unjust.

Defining “Free” Trade

The modern world largely operates under a so-called free trade system. Those advocating for this system note that benefits of trade will accrue to the most people when a government interferes as little as possible with imports and exports and lets the supply and demand of markets work freely to set prices. In theory, if a country or region is using its labor pool and natural resources to specialize in the development of a product or service, such specialization will lead to greater efficiency, higher production, and benefits for everyone. If free trade is operating as it should, then the job creation that results can be an important force in improving the lives of the poor.

But, is free trade really “free”? Free trade is so named because it means that goods and services should be traded without tariffs imposed by governments or the use of other trade barriers like quotas, which limit the volume of imports into a country. It means that there will be a minimum of restraints when foreign companies want to invest directly in domestic plants and equipment. And, it also means that certain industries will not get government financial help, or subsidies, in order to sell their goods at below-market prices. In short, it means that domestic industries get no special favors and, like everyone else, have to compete in an open international marketplace.

In reality though, such an ideal rarely exists. Both developed and developing countries engage in different kinds of trade restrictions like those mentioned above. In efforts to protect favored domestic industries, for example, governments will often place high tariffs or import quotas on the goods produced by similar foreign industries that are trying to access their markets. Wealthier countries are naturally better positioned to protect their industries than poorer countries are.

Subsidies Considered

Providing government subsidies to the agricultural sector—often in the form of cash payments to farmers producing a particular crop or raising certain animals—is a common practice, particularly in wealthier countries. Producers of rice, sugar, milk, wheat, grains, meats, and other agricultural products in OECD (Organization of Economic Cooperation and Development) countries—which include the U.S., EU, Australia, Japan, and Canada, among others—received $279 billion in total support in 2004, according to a recent report. The developing world has consistently criticized such countries—with the European Union (EU) taking particular heat—for the generous financial support they provide to their farmers. Such subsidies give farmers in the developed world a definite advantage, but result in driving down prices on world markets. In a practice known as “dumping,” products are exported to other countries at an unfairly low price, which makes the fruits of poor country farmers’ labor much less profitable. Many advocating for fair trade have called for the abolition of such agricultural subsidies. Other fair trade groups point to historical trade inequalities, noting that if any farmers should be subsidized it should be those in poor countries.

Some of this pressure may be working as producer support in most of these countries has gradually declined over the past 20 years. As the above-noted report indicates, however, levels of support remain high and large differences exist across countries. Despite the media focus on agricultural subsidies in the U.S., support to U.S. producers in 2002-2004 was 20 percent of farm receipts, whereas this figure was 60 percent in Japan and 70 percent in countries like Switzerland and Norway. Smaller countries do not have as much impact on global prices as does the U.S. Still, if the U.S. is being pressured to make large cuts in trade-distorting support for agriculture, it wants to see other countries do the same.

Although many fair trade advocates remain skeptical that market access will improve for heavily protected industries like sugar and dairy, the U.S. and the EU have recently voiced commitments to begin phasing in substantial reductions to support measures and tariffs over several years. At the same time, they want developing countries to open their doors to more trade in industrial goods and services. Of course, developing countries do not provide anything like the levels of subsidies that developed countries do and, hence, their impact on global prices is much less than that of the U.S. and EU.

Poor Countries Weigh In

Finding strength in numbers, a group of developing countries formed a coalition called the G20 to negotiate trade concessions at the last Ministerial Conference of the World Trade Organization (WTO)—the primary decision-making forum for the global trading system—held in Cancun, Mexico in September 2003. Led by India, China, Brazil, South Africa, and Argentina, the G20 called for the U.S., the EU, and Japan to reduce import tariffs and domestic subsidies—especially in agriculture—so that developing nations would have more market access. For many years, groups of developing countries have also lobbied for trade preferences that take account of their disadvantaged position in the global marketplace. Although such preferences can often give these countries space to compete internationally, critics cite their complexity, politicization, and trade distorting effects and, thus, they remain very controversial.

In the meantime, industrialized countries have wanted developing countries to further open their markets to foreign companies. They also remain concerned about the impacts that low-cost goods from overseas might have on domestic jobs. Disagreements over all of these points led to a breakdown of global trade talks at Cancun. While promises have since been made by wealthier governments that farm subsidies would be reduced, the outcome of the next important Ministerial Conference—taking place December 13-18 in Hong Kong—remains to be determined as this issue goes to press. Developing countries have, nonetheless, made it clear that they want and expect a meaningful role in the discussions.

Civil Society Views

From the point of view of many developing countries—and most civil society organizations—current trade rules serve the interests of wealthier nations and the big corporations based within them. And, not only in agriculture. Intellectual property rights, for example, tend to favor large software and pharmaceutical companies in the North, they argue.

Another View As major players in advancing free trade economics, large multinational corporations have often created job opportunities where none may have existed before. For example, most multinational corporations pay about eight times more than the average salaries in developing countries and, as such, have generated new earning opportunities for workers. Civil society groups point out, however, that the drive for profits can often result in a lack of adherence to labor standards, damage to the environment, and can create even greater fault lines between the rich and poor.

As the most influential world forum on trade policy, the WTO is the central target of some non-governmental organizations (NGOs), which see the organization as catering to rich country interests at the expense of the poor. Organizations such as Focus on the Global South, the “Our World is Not for Sale” Network, and Global Exchange are among NGOs that claim the WTO increases poverty, is a tool of powerful lobbies, and does not have democratic decision-making processes. The WTO refutes such accusations, adding that decisions are made by consensus, that the WTO is only a forum for member states, and that over three-quarters of WTO members are developing or least developed countries. Although organizations like Oxfam try to influence the direction of WTO negotiations, other civil society groups have called for scrapping the WTO altogether and lobby for working through an institution like the U.N. Conference on Trade and Development, which is seen to be more sensitive to developing country concerns.

Whatever position they may take on the WTO, civil society groups are consistent in their message that, with a fairer trading system, significant numbers of people could escape poverty. In its “Make Trade Fair” campaign, for example, Oxfam notes that “if Africa, East Asia, South Asia, and Latin America were each to increase their share of world exports by one percent, the resulting gains in income could lift 128 million people out of poverty.” Anti-poverty campaigners such as Oxfam further assert that trade barriers cost poor countries twice as much as they receive in foreign aid.

For all of these reasons, many fair trade campaigners have made “trade not aid” their central theme. Above all, the fair trade movement has sought to challenge inequalities in the international marketplace by linking ethical consumers in the North more directly with organized groups of producers in the South. (See article on “The Fair Trade Movement: A Closer Look.”) This movement may not be an answer to all of the perceived injustices in the global trading system, but many see it as an important start.

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