Question

Write an essay on Free Trade vs. Fair Trade (4 – 5 pages). Learn more about the issue, and take a position on it. Present the issue to readers, and develop an argument for the purpose of confirming, challenging, or changing your readers’ views on the issue.

Write a focused paper and on the issue. The writer presents the issue so the reader understands it. Issues need more or less explanation and examples, depending on what the audience already knows.

Have a clear position. The thesis is positioned effectively, usually at the beginning or end of the essay, and repeated for emphasis and clarity as needed.

Have plausible reasons and convincing support. The writer must provide reasons for supporting the position. The writer must go beyond simply asserting reasons, by including examples, statistics, expert testimony, and/or anecdotes to support the reasons.

Anticipate opposing position and objections. An effective argument for a position includes recognizing and refuting opposing arguments, as well as anticipating and answering a reader’s questions.

Answer 1

In a globalized world, very few people would question the benefits of international free trade. Different countries can produce their own products having a comparative advantage, and then exchange with the products produced by other countries. However, in the process of international trade, there will always produce gainers and losers, and thus will always be people complaining about unfair trade. In the global context of the economic crisis, there is a call for further promoting trade liberalization; on other hand some people advocate promotion of fair trade. So, is the pursuit of fair trade more important? Or, is the promotion of the free trade more important? This essay will critically discuss the statement “Free trade is more important than fair trade.”

Free trade is a form of international policy, which local government cannot try to interfere on the operation of foreign import goods, or export goods. (Hill, 2009) This form of international trade policy has been widely spread over the free trade zones nowadays. Since opening the over sea market for the country’s domestic absolute advantages products, it benefits both the trade partners from the long-term economic vision.

Eisenberg states that “Fair trade refers to exchanges, the terms of which meet the demands of justice.” (2005) In fact, fair trade has not been defined universally ever.

FINE is a charity association, which consists of four divisions. The divisions are international fair trade networks, European Fair Trade Association, World Fair Trade Organization, Fair-trade Labeling Organizations International and Network of European World shops.

FINE indicates that fair trade partnership is based on dialogue, transparency and respect; member in this network looks for greater equity in international trade. (European Fair Trade Association, 2009) It contributes to help workers or producers in developing countries, especially in the southern hemisphere, provide a more equitable trading condition and promote sustainability.

Fair trade organizations are supported by consumers for supporting producers in undeveloped countries, and making the rules of international trade campaign more equitable. Fair Trade system has many types of goods growing more, which are coffee, cocoa, dried fruit, fruit juice, nuts, vegetable oil, quinine, rice, spices, sugar, tea and Red wine, etc. In order to selling fair trade goods, companies need to apply for licenses to use the fair trade mark.

Free trade creates an equal business environment. By signing the agreement, countries will put their private sectors to compete with other countries' private sectors in equal terms. For poorer countries, it means their private sectors - whom are relatively weaker - will compete against much stronger companies. The regulation may be equal, but the players capabilities are certainly not. It would be like a football match between Manchester United and Malaysia National Football Team - there might be a level playing fields, but Manchester United will still win every time.

Without the government intervention, the private sectors, commonly farmers or small companies, will fail to protect their production. It happened in Senegal, when it open its market, and should lower the tariff of tomatoes during 1994 to 2001. The country was producing about 73,000 tonnes of tomato concentrate by 1990. In 1996/7, hitted by the imports from EU, the production decreased to 20,000. The EU's exports of tomato concentrate to Senegal increased from 62 tonnes in 1994 to 5,348 tonnes in 1996 due to the increased access to Senegal's market (an 8625,81% increase). Since then, there has been stagnation in Senegal's tomato processing industry with declining prices of tomato concentrate and a lack of credit and investment resources available to processors.

The EU farmers, on the ther hand, have easy access to credit and qualified labour compared to the Senegalese counterparts, and they are able to produce tomatoes more cheaply for the European processing industry. Moreover, in 1997 alone, the

EU paid out US$300 million in export subsidies to tomato processors. This example of Free Trade comes to show how countries that does not have an equal competitive advantage are expected to play against a more stronger player and, in the process, failled miserably.

However promising the benefit of Free Trade the richer country claims, the reality shows that inherently. Free Trade is never a fair ground to compete and therefore should be abandoned.

The price for a free trade is more expensive than the benefit it brings. The practice of free trade agreements will undoubtingly give market access to much richer country. This then will, so they claim, give chances for poorer countries to attract investment and improve growth prospects, and in some cases, even expand their own corporate sector - a fine answer for all the problems in this world.

However perfect it may sound, the hypothetical condition can only be valid in a circumstance where particular industries in the poorer countries has comparative advantage. In truth, most of the companies does not have (if any) comparative or competitive advantages. Being so, these companies whenever a free trade agreement is applied, left alone to compete without government's protection, will never develop and then in the long run will die.

Harsh reality portrays that after a country opens their market, the first sector to suffer is the employment sector. Poorer countries will find their skilled workers moving to greener pasture (Seeking higher wage) thus leaving the workforce inside the country being cheap labor (the main attraction for foreign companies). Meanwhile foreign corporations will also compete for commodities with higher financial capital and stronger purchasing power, raising the living standard of the whole poorer country's society.

No matter how beneficial it might seem by getting access to the new market, the practical thing can differ so much because free trade premise is based only on the potentials that can be reaped, but not on the technical requirements that need to be fulfilled before it can reap the potential.

Eg. THAILAND CASE

The economic indicator of Thailand after the FTA

1. Inflation rate in Thailand rose every year from 2003 - 2007

2. Growth rate of the GDP decreased every year

3. Thailand's account balance decreased from 8 trillions USD to deficit 4 trillion USD in four years (a 150% decrease of their account prior to the FTA)

When in contrary China enjoyed a steady increase in their account balance of 400% in those same four years.

While Thailand, sadly to say did not increase their GDP.

It is not only about poor countries who should not engage in FTA but for countries in general who are poorer compared to their trading partners.

If it is more about poor third world countries having an equal trading terms with the U.S or the E.U for the promise of economic growth, HOW will FTA succeed in this. Because when it comes to economic freedom regarding the development of a country including all of its citizens, promises and assertions will not stand. There is little or no evidence to support claims that free trade lifts people out of poverty, and it is the burden of the opposition to prove otherwise.

The Importance of Free Trade

The free trade is a double sword. One side edge carries advantage; another edge carries disadvantage. Therefore, there will be always gainers and losers.

Gainers

The free trade has many benefits, which produce many different gainers in the global market. It prevents interference efficiently of local government on import and export trade; cancel various privileges of the domestic trade. So the importers can gain many benefits from the free trade. Let’s take a look at other gainers.

Absolute advantage

According to Adam Smith’s theory, countries can specialize in the production of goods for which they have an absolute advantage that including highly skilled labour, sufficient raw materials and then trade these for goods they produced less-efficiently from other countries. (Hill, 2009) This is a win-win situation, two countries exchanging goods from each other are both gainers.

Effective use of raw materials

Free trade also brings great opportunities for effectively using raw materials. Some countries in the Middle East have rich resources of oil, but there will not be much benefit without trade. For instance, Qatar can gain much benefit from exchanging many goods and technologies with oil. On other hand, some developed countries, such as Japan have very few raw materials. They can gain much oil they need with exchanging technologies; otherwise they would be very poor.

Lesser living cost and more products choice

The citizens are also big gainers from free trade. Free trade system can effectively stop selling products at high prices from local protectionism, which lead lower living cost. Free trade also leads to more products being available in the market. Consumers have more choices on the products in market for different prices and types. Charles W.L. Hill mentioned in the book International business that if a national market is small, there may not be enough demand to enable producers to realize economics of scale for certain products. Accordingly, those products may not be produced, thereby limiting the variety of products available to consumers. (2009)

Losers

Free trade brings great opportunities, also brings great competitions, especially for the developing countries. In the initial stage, many new industries in developing countries are not strong enough to survive from the competition of established industries in developed countries. The local government will introduce some measures in order to protecting local industry. Alexander Hamilton proposed it in 1972. According to the argument, there is a potential comparative advantage in manufacturing in many developing countries.for instance, China owns cheaper labour and raw material costs, and India has big population of highly skilled and knowledgeable employees who can communicate with frequent English. However, at the initial stage, most of their small to medium sized firms in industries are too weak to survive from   brutal competitions of established industries much earlier in international market. The reason is that they do not have strong background for financial subsidies and source which assist them get toehold in the start point. Moreover, it is common phenomenon that firms in those developing countries hardly reach the international standard for high-end products. The argument is if the new industries should necessarily be protected temporarily by incentives until they have become strong enough to competition in free international trade market.（Hill， 2009）For example, if China lets the automobile industries from Germany, Japan and other countries enter the domestic market without trade protection, and then China’s own auto industries would collapse. So China adopts the import tariffs on imported cars in order to protecting its automobile industry. When the local new industries become strong enough to global market competitiveness, the government should abolish the protective measures established before, otherwise the measures of protection would adversely affect global trade. In fact, canceling the original protection is not an easy; the negative impact of such measures is to produce local monopoly.

The Importance of Fair Trade

Fair trade is a strategy for sustainable development of economic and poverty reduction in the world. Its goal is to create opportunities for producers from economically disadvantaged countries. It does not only provide fair payments to the producers, but also consider the equal pay according to the principle of equality between the sexes. If the partners of fair traders need payment in advanced in order to surviving in the special situation, fair traders have to ensure matching their demands. Fair traders also need to take responsibilities for avoiding potential health and safety problems for producers. If children are involved in the working environment, fair trader will ensure matching safety and education requirements for them. In the 1960, the largest distribution of the fair trade is to help the countries banned from main global trade market by political issues, to find markets for their products. (Fair Trade Labeling Organizations International, 2009)

Nicolas Eberhart in 2005 had the Bolivian case study concerning fair trade coffee as a member of the French non-governmental organizations Agronomes ET Vétérinaires sans frontières. It proved that the fair trade did not only have a positive impact on the local price of coffee in Yungas, but also have the economic benefit to all coffee producers. Meanwhile, fair trade organization could enhance their production and their political influence. (Ebrehart, 2005)

The econometric analysis led by Becchetti and Costantion verificated effects of fair trade on farmers of Kenya. The researchers observed a group of farmers with fair trade certification, and another group of farmers without fair trade certification for Comparison. After a period of time, Becchetti and Costantion found that fair trade could improve the living quality of famers, reduce child mortality, improve household food intake, and increase the price of their crops and so on, in either monetary or non-monetary value. Unfortunately, in the methodology, this research had errors for the sample of crops, the relative contribution of fair trade and the choice of the control group. (Becchetti, Costantino, 2006)

Free trade is a form of international policy, which local government cannot try to interfere on the operation of foreign import goods, or export goods. (Hill, 2009) The free trade has many benefits, such as producing lesser living cost and more products choice; bringing opportunity for exchanging with absolute advantage and effective use of raw materials. Fair trade is a strategy for sustainable development of economic and poverty reduction in the world. Its goal is to create opportunities for producers from economically disadvantaged countries.

For global economic development, free trade is more important. However, fair trade and free trade have one thing in common, which concern with global justice, poverty alleviation and global prosperity. Moreover, fair trade can be an efficient measure of supervision in order to improving free trade system.