Transcript Free and Fair Trade

Free and Fair Trade
Colin Vasick • Eric Hankland • Karen Ladenheim • Karina Chow
Jeremy Chen • Timothy Yeh
What is Free Trade?
• In free trade, companies are free to trade with
companies in other countries.
• No restrictions or government intervention (e.g.
tariffs and other import restrictions)
• People are not encouraged to buy products
specifically in their home country.
Proponents of Free Trade
• Hollywood studios, consumer electronics
makers, and music studios (because they sell
their products in many countries)
• The World Trade Organization (WTO), which
helps to negotiate trade agreements between
countries.
How Free Trade Prevents Poverty
• Countries will remove unproductive industries
(countries that are more efficient in these
areas can fill these roles)
– Expansion will be focused on more productive
industries.
– The more productive an industry is, the more
profitable it is, ergo companies can pay their
workers higher wages.
• Fewer restrictions allow for more goods to be
exported to other countries
• Lower tariffs also lead to higher profits
How Free Trade Causes Poverty
• Rich countries will likely trade with other rich
countries that can monitor and create higher
quality products
– This widens the economic gap between richer and
poorer countries.
• Promotes outsourcing due to a larger market
and increased competition; small businesses
that cannot outsource are unable to compete in
a large market.
• Local business is forced to compete with
foreign business
What is Fair Trade?
• In fair trade, the disadvantaged are paid more
for products through:
– Minimum Prices- the price of goods will not fall
below a set floor
– Premiums- buyers pay extra for fair trade products
• Currently, there is a larger fair trade market
for coffee and bananas
How Fair Trade Prevents Poverty
• Gives struggling nations the opportunity to:
– trade their goods for reasonable prices on a global
scale
– establish a secure source of income
– become economically self-sufficient in the future
and improve their standard of living
• prevent child labor
• Improve living conditions
How Fair Trade Causes Poverty
• Fair Trade price regulation sends producers the
wrong message, because
practice goes against
economic laws of supply
and demand
• By paying more than the
product is normally worth,
buyers encourage producers
to make more
• When prices increase, people buy less so the extra
producers struggle
How Prevalent is Fair Trade?
• The worth of all fair trade products amounts to
far less than even a single percent (0.005%) of
the total globe’s economy.
– The world’s GDP (gross domestic product) in 2007
was approximately 54 trillion USD
– The total worth of all fair trade certified products in
2007 was only 3.2 billion USD
Which countries have producers affiliated with
fair trade organizations?
Darker colored countries are associated with fair trade organizations.
Case Study: Free Trade
• Living standards in many countries are not
catching up to those in first world countries.
There are a few who are catching up, and those
are countries who are open to trade.
• There is a strong positive correlation between
trade liberalization and poverty alleviation.
• Open trade may cause some countries to lose in
the short run. To prevent them from failing, the
WTO suggests that social safety nets are
implemented.
Case Study: Kenyan Farmers
• Fair trade led to:
– Good:
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diversification of crops
increased trade
greater price satisfaction for producers
better nutritional variety
economic and social prosperity
– Bad:
• human capital (education of children)
• In conclusion, fair trade contributes to the
wellbeing of farmers, but investment in labor
could be improved.
Discussion Questions
• Is free or fair trade better at alleviating poverty?
• What factors should be considered when
creating fair trade policies?
• Would free or fair trade allow for faster growth in
poor countries?
• Who should make and enforce free/fair trade
policies?
• Should free/fair trade organizations be privately
owned?