International Trade Theory and Policy
by Steven M. Suranovic

Trade 125-1

Introduction to Fair Trade

If you've watched the international news lately, you have probably seen reports about demonstrations on the streets near the meetings of international organizations. In July 2001, tens of thousands of anti-globalization demonstrators converged on the town of Genoa, Italy where the G8 countries were holding their annual summit.During the protests, one person was killed and hundreds injured. Periodic demonstrations against globalization began in Seattle in December 1999, when the World Trade Organization held its biannual ministerial meeting and considered setting off a new round of trade liberalization discussions among its 140+ members. Afterwards, there were protests outside of the World Bank and International Monetary Fund Headquarters in Washington DC in April 2000 for their twice-annual meeting. Next were more protests in Prague in September 2000 when the World Bank and IMF met again. In that same month, groups also attempted to prevent the meetings of the World Economic Forum in Melbourne, Australia. Add to the list the summer 2001 demonstrations in Gothenberg, Sweden and Genoa Italy and we can recognize a serious cause for concern. In the time since I've written this, I am sure there have been even more demonstrations, that could be added to this list.

If you listen to the concerns and complaints of the demonstrators you will undoubtedly hear about the unfair actions and outcomes that are being promoted by international organizations, multinational corporations, and individual governments. You will also hear about the dangers of free trade and globalization, the exploitation of workers, the degradation of the environment, and the growing inequality of incomes around the world. And ...you will hear calls or demands for "fair trade." Indeed, the most common complaint about globalization would seem to be that it is unfair. Free trade is unfair, the low wages and poor working conditions of foreign workers is unfair, the lenient environmental standards in less developed countries is unfair, the high profits of multinational corporations is unfair, as are virtually all of the actions taken by the World Bank and the International Monetary Fund.

However, if you also listen to the arguments made by the leaders of the international institutions, the multinational corporations, and others who generally favor globalization, you will also hear arguments that use notions of fairness. For example, multinational corporations who pay workers low wages in less developed countries will say their wages are fairly set because they are above the “legal” minimum wage standards. Others argue that the alternative opportunities for these workers are much worse than the low paying jobs themselves, which provides a chance for the improvement of their lives that would not be possible otherwise. Supporters of the WTO will point out that the WTO agreement allows countries to maintain policies, such as antidumping and countervailing duties laws, that are designed to protect against unfair trade. International organizations argue that freer trade will promote economic growth, which in turn will raise living standards throughout the world and subsequently reduce income inequality. It has also been shown that economically prosperous nations tend to have cleaner environment, thus if international trade promotes economic growth, it may also contribute to a cleaner environment. These arguments suggest that globalization can promote better outcomes for many people and in that respect the actions may be conceived of as equally fair.

Since the arguments against globalization and the arguments supporting globalization both incorporate the idea of fairness, it is a valid and important question to ask, just what does fairness really mean? The concept has left many scratching their heads.Nonetheless the idea of fairness is an attractive one.Many individuals and organizations have boldly stated that they are in favor of Fair Trade!! But then, who can be against it? How could anyone come out and proclaim the opposite? Imagine. “I stand before you to announce that I am in favor of “unfair” trade!!”… It just wouldn’t work. Everyone has to be in favor of fairness. And yet, how can supporters of diametrically opposed policies both be in favor of fairness? Well, actually they can. The reason is that there are several different conceptions of fairness that are commonly used and applied to these kinds of situations. AND, the conceptions of fairness are frequently at odds with each other.

In the following pages, I will provide a brief description of seven different ways in which fairness is used and applied in international trade settings, and more generally, in policy debates and social situations. The purpose is to provide a straightforward guide to understanding fairness. For a more complete description please look to my paper titled “A Positive Analysis of Fairness with Applications to International Trade,” in the March 2000 issue of The World Economy.

International Trade Theory and Policy - Chapter 125-1: Last Updated on 8/19/01

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