Fair Trade: Beware the Beguiling Phrase

The current issue of Foreign Policy sketches the “anthropology” of the “fair trade” idea, unfortunately betraying an incomplete familiarity not only with the different ways in which this phrase has been used, but also with the considerable literature on why its extensive use by Oxfam, Bono, et al, has fed protectionism in the rich countries and, hence, caused immense damage to market access by the developing countries. (I even might go so far as to be self-referential in my own blog and refer the well-meaning editor to several reader-friendly articles that I have written on the subject in the Financial Times and elsewhere—some now on my Web site, www.columbia.edu/~38. And also, if she has the intellectual stamina, to refer her to work through the pioneering analyses of the contention that fair trade and harmonization are prerequisites for free trade, which I co-authored with the eminent legal jurist Robert Hudec in two volumes that were published by MIT Press in 1996.)

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There are three distinct senses in which the phrase “fair trade” has been used in public policy circles in recent decades, each case with parallels to historical events.

The first widespread use of the phrase was in the context of Britain’s relative decline at the end of the 19th century as British hegemony was challenged by the rise of Germany and the United States. The British, ahead of the curve on industrialization, had embraced unilateral free trade; the new challengers practiced protectionism. “Fair trade” movements grew up, asking for the abandonment of British free trade; if others practiced protectionism and the British practiced free trade, free trade was not fair. Fair trade—in the sense of reciprocity in trade barriers—was necessary for free trade to benefit a country. In short, Britain should abandon free trade and turn to protectionism to match its rivals. What I have called the “Diminished Giant Syndrome”, which gripped Britain, recurred in the United States in the 1980s, when Japan’s rise led to similar demands for fair trade. Today, this contention that fair trade requires complementary protection if others are protectionism has lost credibility, partly because the Japan-fixation and Japan-bashing have virtually vanished, but also because several economists have examined, and mostly rejected, the view that unilateral openness is dangerous to one’s propensity.

But a second threat to free trade has meanwhile risen from a different band of fair traders, who claim: If your labor standards are different from mine, then that amounts to unfair trade. These standards must be equalized before free trade is introduced. While this demand is often advanced cynically as an act of altruism, as a blow for workers abroad, it is in fact an argument advanced from self-interest: It is “unfair” to have to compete with foreign rivals who have lower standards. It ignores the fact that several labor standards cannot be universal. In requiring identical standards, nonetheless, these fair traders practice what economists call “export protectionism”: Faced with competition, you try to raise the cost of production of your foreign rivals! Unfortunately, President Obama, who obviously does not understand this, has been “captured” by AFL-CIO and the unions into signing on to this protectionist version of fair trade.

Finally, mischief of a different kind comes from yet another set of fair traders, which include Oxfam and some activist NGOs, as well as the singing troubadours like Bono, who argue for us to pay what we used to call a “just” price, as distinct from the market price, to producers of coffee, textiles, etc. in poor countries. This amounts to embedding one’s altruism in a subsidy to these producers, of course. But I need not buy into this particular brand of altruism. There are countless other ways in which I may seek to direct my “personal social responsibility”, such as supporting women’s groups or building playgrounds for poor children. So, if such fair-trade coffee and fair-trade sweatshirts are available as alternatives, then that is agreeable. But if, as often happens, the aim is to proscribe (whether outright or by agitations mounted against non-capitulating firms and campuses) the availability of other coffees and sweatshirts, that is surely wrong. No group should have the right to force you or me into its version of the social good.