Opponents of the fair trade movement believe
that ‘free trade’ is somehow pure and untouched by the dirty hand of
regulation. Nothing could be further from the truth.
All transactions, whether they are between customers and retailers or
multinationals and nation-states are governed by rules. Without rigidly
enforced property rights, dispute settlement procedures and boundaries for
what is tradeable and what is not, there could be no effective system of
It is ironic that many of those politicians and commentators most
willing to criticise the notion of fair trade are some of the staunchest
opponents to the importation of illicit drugs. Tougher penalties and more
resources for customs are the typical solutions to the social and economic
ills associated with illicit drug importation and use. But that sounds
like a trade barrier, one that most people happily accept.
While trade restrictions (in the form of a total import ban) are
promoted as the solution to protecting Australians from the adverse
consequences of illicit drugs, apparently no such action is justified to
protect Australians, and foreign citizens, from the impact of child
labour, slave labour, and dangerous, environmentally destructive,
Although its supporters claim that free trade represents the ideal and
that proposals for fair trade are a deviation from that ideal, the trade
system is not neutral. The rules and institutions that govern trade can be
designed to protect human rights and the environment, or to ignore them.
The existing trade rules already reflect a small number of human
rights. These rights must be expanded if all countries are to benefit from
trade. For example, it is legal under the existing trade rules for a
country to discriminate against goods produced using prison labour, even
though prisons may be able to produce goods more cheaply than wage labour.
What then is fair trade? It is important to separate two sets of
arguments in favour of ‘fair trade’. The first focuses on the
differences between countries in environmental and labour standards and
the way that free trade may see these standards weakened. The second
focuses on the promotion of domestic firms through various forms of ‘industry
policy’. This essay focuses on the first set of issues.
Advocates of fair trade argue that free trade encourages (or at least
ignores) violations of human rights, exploitative labour conditions and
environmentally destructive activities. Producers in countries that permit
sweat-shops, suppression of trade unions, child labour and dangerous or
polluting production processes can often undercut competitors that must
abide by better standards.
Fair trade policies would involve changes to the international trade
rules to allow countries to discriminate against products made by firms
that exploit workers or despoil the environment.
At present, with few exceptions, the GATT rules prevent countries from
discriminating against imports of ‘like products’ so that goods
produced using environmentally damaging process (such as indiscriminate
logging or fish caught by dynamiting coral reefs) cannot be banned. This
was established in the famous Tuna-Dolphin case.
The Tuna-Dolphin dispute between the US and Mexico led to two
successive GATT dispute panels that have been the subject of considerable
controversy. The US attempted to restrict imports of yellow fin tuna
caught by Mexican fishing boats because too many dolphins were being
killed in the process. Mexico challenged the US under the GATT rules.
US laws have ensured that US fishing fleets reduce the risks of killing
dolphins by using better fishing methods. The Marine Mammals Protection
Act also prohibits the import of tuna from countries where the level of
dolphin deaths associated with tuna fishing is significantly higher than
in the US. This prohibition was the cause of the dispute before the GATT.
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