I have previously written an article on Fair Trade and some of the problems it poses for developing countries. I didn’t explore Free Trade then at least partly because because “Free Trade” is another one of those ideas, like human perfection, or Arsenal winning the Premier League; it is possible, but highly improbable. I also did not fully understand the practical difference between the two ideas. Real-world implementations of both seem to involve the usual uninspiring deal-making with an eye towards profit. Color me skeptic.

In any case, it’s come to the fore of my mind now because I have been reading about the potentially damaging effect it could have on affordable HIV treatment in the third world. “How?” you ask, a slightly perplexed look on your face. Once again, the devil is not in the idea; it’s in the execution…Free Trade Agreements. I shall return to this in a bit, so stay with me.

When I discovered this issue, I decided to really dig in and find out what I could about this Free Trade concept. I wanted to understand what it was all about, and how it could turn out to be negative. So, I put my excellent research skills to work (RE: Google) and came up trumps. Basically, Free Trade is a system that levels the playing field for anybody wanting to produce/trade a given product. At its core is the principle of making pricing a true reflection of supply and demand. This applies to domestic companies, international companies…everyone, regardless of country or location. Pretty simple.

It’s funny…I have always imagined this is how the world works, mostly. You put effort into producing something – time, money, etc – then you charge a certain price to reflect that. If said item is difficult to produce or rare, and in demand, you can charge more, within reason. I was right. This is how it does work…but only within a given bubble. A bubble, say, like the United States. Any given bubble will have rules in place to protect its “integrity”. The system functions to ensure that any external force that breaches it doesn’t easily cause harm to those inside. Usually, that means that if you are a producer in a given industry within, a producer in the same industry from outside cannot expect to come in and compete without some forced handicap (high taxes for them, tax cuts/subsidies for you etc).

The idea of Free Trade is to make the bubble irrelevant, or at least reduce it’s effectiveness drastically. No Government helping the locals out and making life more difficult for the outsiders. Like I said, a level playing field. It seems to have a whiff of fairness about it, afterall we all end up with a true reflection of prices, and the competition is fair. However, the world as we know it is way too complicated to allow such a principle be applied on a grand scale. Well, at least that’s what I think.

Most of the basis of Free Trade rests on the idea of Specialization, which is one I readily identify with, having run a business in the past (so what if it was a web development company when I was at University…it still counts). Basically, everybody is much more effective if they concentrate on things they are best at (even if you are capable of doing all things reasonably well) and leaving the other bits to people who are better suited. In an ideal scenario, a new web designer could hire a new accountant instead trying to do her taxes herself; and the new accountant could hire the new web designer to manage his website. They can both spend their time doing what they are best at. The system benefits from two people at their highest productivity level, who are also able to trade effectively with each other. Win-win.

The problem here is that societies today are not at a template level. They are filled with multiple examples of our web designer and accountant at multiple levels of complexity. Let’s say, for instance, that the land of Narnia is better at Wheat farming than Hogwarts. Let’s say that it is also cheaper to do it there than in Hogwarts. Now, let’s also say that the reverse is true for the manufacture of…I don’t know…Hawaiian shirts. The idea would be for Hogwarts to leave the wheat to Narnia, and stick with the shirts, and trade with the Narnians for wheat. Even though both Nations can do both, perhaps effectively, this is the optimum arrangement.

Now, in implementing this, the Narnian Government might remove protections in place for its local wheat growers…deregulation, really. These locals would quickly have to get creative in order to survive in this new landscape of “openness”. They would have to find a way to cut prices and compete with the potentially more effective foreign companies…or go out of business. There is more innovation, more co-operation between the nations; it’s all good…for consumers and the whole system at large. But there is a cost. A large chunk of locals who are in this industry will possibly be left without any livelihood. Also, any others who were working towards entering said industry would have to divert their efforts into something else.

So, clearly, trying get this to work on a large scale is difficult. That is why there are Free Trade Agreements (e.g. NAFTA). They basically lay down rules that must be followed by all parties to the agreement. They make sure that everything is set up correctly so things are fair, so all parties are treated equal. It’s deal-making, and someone always loses, at least in the short term. For instance, to “facilitate” this process, subsidies might actually be given to the foreign companies instead of local ones. If these locals are unable or unwilling to deal in the new environment, then it’s often tough luck for them.

Around the Globe, the issues are plentiful. For instance, NAFTA has been blamed for the loss of the United State’s manufacturing credibility (Mexico has grown their ability), while also being blamed for the difficulties local farmers face in Mexico (America wins here). When it happens between Developed countries and Developing countries, we start to see more problems. How much should Governments in less developed countries be allowed to influence prices to encourage entrepreneurship in their own economies while dealing with the much more advanced Companies from the Developed Countries? There’s a very thin line they have to walk.

Locals in Europe tend to have protections in place governing how many hours they can be made to work, how much they must be paid etc. I once worked – I use that term loosely…there was quite a bit of sleeping – for 24 hours straight as a Security “Officer” while I studied in England because the guy for the night shift didn’t show. My manager was extremely worried about all kinds of penalties the company might have to pay if it ever came to light. All of these protections are laughable on the farms and manufacturing plants in Developing countries. So, even though such conditions might not be created as part of any trade agreement, they already exist and are a major reason why business might be significant more expensive in Europe. How do European Governments factor that in when considering Free Trade?

I think that is where things start to get a bit sinister. Now, I am not a big conspiracy theorist – everyone knows the U.S. Government is covering up details of an imminent alien invasion – but my last point underscores part of this idea of framing arguments and deals as existing between Nations for the benefit of their peoples. From what I can see, that’s not the case. The parties that gain from all of these deals are companies, particularly the big boys. A company that would have had trouble being competitive in farming in Europe can move into farming in Jamaica because of a Trade Agreement or an “opening-up” of the markets. They are free of the constraints that would have existed on employee practices back home. At the same time they possess the clout and wealth to completely bamboozle – for lack of a better word – most other local companies. This idea of specialization benefiting even traders in that industry changes because some multinational firm is suddenly able to muscle their way into the game. Locals lose on both sides…the big companies win. I am having trouble seeing how this is good for everyone.

Global producers are…like…evil.

Now, back to how all of this affects affordable HIV treatment. This Article on GlobalIssues.org covers it in more detail, but the general idea is that Indian Companies have been able to make consistently cheaper versions of HIV treatment drugs because they only have to get patents for the “process” by which the product is made, not the “product” itself. That is going away as International Free Trade Agreement rules come into place. This could mean that international companies, attempting to make more money off these drugs, can bring Intellectual Property suits against the Indian Government around this issue. To stay out of trouble, Indian drug manufacturers in this area will have to be more careful. The potential result is a reduction in these sorts of drugs, and a potential increase in costs where available…because of “Free Trade”. Where do we draw the line?

Now, don’t get me wrong. I am not saying all multinationals are bad, or that globalization is wrong…or even that all of these agreements are wrong. It’s just that Free Trade could actually do more harm than good, particularly when looking at developing countries who just can’t operate at the same level as their peers from developed countries. Fair Trade has risen up in recent years to try to address the inbalance that can arise in these situations, but that idea has also been mostly usurped for profit as well.

I was hoping to find a solution when I started out on this path, but I have come up with nothing. At the end of the day, there isn’t a one-size-fits-all package that can be flogged to all parties. So, maybe in that lies the answer…I don’t think we can hope to apply the same principles (i.e. free and open trade) to all situations. We should consider the uniqueness of every situation, of every party involved; maybe even consider the positives of some protectionism. We also need to watch these globe-trotting companies because this is their show, mostly.

The offshoot of all of this might be a more complicated and drawn-out process; but whoever said life is supposed to be easy all the time?

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[THIS IS A REPUBLISHED ARTICLE...THE ORIGINAL WAS DELETED]

It turns out that fair trade isn’t necessarily fair after all.

In July of 2008, The representatives of the nation members of the World Trade Organization holed themselves up at the WTO’s Headquarters in Geneva, Switzerland. The objective was to try – once again – to resolve differences between two major camps (developing countries and developed countries). These negotiations were started as part of the Doha Development Agenda which commenced in 2001. The issue, when it really comes down to it, was a difference in opinion of what is “fair” as far as trade goes between the nations. That’s what the WTO is all about, you know…fairness. Negotiations broke down after 9 days over something called a “Special Safeguard Mechanism”, which would allow the developing countries more leeway to deviate from WTO guidelines to ensure that local farmers didn’t suffer too much in the event of a price crash…or something to that effect. The developed countries (including the US and EU) weren’t keen on that then; they still aren’t now.

The idea of fair trade, grand in its inception, just hasn’t worked in practice. That’s often the way with great ideas. Once they truly come into play, they can be interpreted, adjusted and twisted to suit the needs of the people in control. Organizations like the WTO and IMF, particularly in their approach to dealing with trade and development in the developing world, have not been able to produce the results once imagined for their schemes. Some of the key principles of the IMF include transparency, non-discrimination and “special and differential” treatment for developing countries. These goals are really important-sounding…high, lofty and other adjectives like that. On closer examination though, one can’t help but see the cracks.

Transparency is fair enough; everybody has equal rights etc, etc, etc. With the idea of non-discrimination one can start to see problems emerge. It basically means that no favoritism would be shown to any party in trade e.g. a domestic company over a foreign one, or a one nation over another. This should apply no matter what coalitions, relationships, deals etc. already exist. Do you see any problems there? Well, me too. However, special treatment was the one that really caused – is still causing – all that uproar at the WTO negotiations. Just what is fair in regard to the treatment of developing countries? This is trade, not charity (see Bob Geldoff for help with that). This is about profit. And since we are talking about international trade here, we are therefore talking about Multi-National firms, some of which have been reaping huge rewards off these deals for decades. Their model of “trade” has helped the economies of the US and EU to get to the strong position they are in – or were in before the global recession set in. Trying to merge this world where competition, exploitation and underhand practices are the norm with the feel-good, equality for all, fair-trade dream-world is asking for trouble.

Just look at the Banana Trade, for instance. Bananas are one of the most consumed fruit on the planet. They are also among the biggest profit-makers for supermarkets. So, we can all agree that they are big business; so big, in fact, that companies have been involved in exploitation, bribery and even the overthrow of governments since the early 20th century…all that good stuff just to keep business going; not to mention the Banana Wars between Europe and the USA in 1999. During this “conflict”, America actually levied duties on European products (completely unrelated to the Banana), whilst the EU stopped importing American beef. They eventually sorted this out once they had worked out a way to ensure all parties could reap their fair share in the bounty, except of course the poor sods from whose countries they got it.

The search for competitive advantage causes players to find ways, understandably, to reduce costs where possible. As I indicated previously, you cannot ask them not to do this. It’s the only way they can stay in the game. So, if there’s a way find the product for cheaper from another supplier, they will go for it. If there’s a way to pay less to workers and take short-cuts, they’ll also do that. It is what it is. Now add in developing countries with IMF Programs as suppliers and you have the potential of a tragedy in the making. Here’s how: A developing country gets some more money off the big boys (the EU, for instance) to invest in their countries. In return, said developing country has to implement IMF Structural Adjustment Programs. Essentially, they are given some “direction” on how to spend the money loaned, amongst other things. Usually, this involves growing of cash crops i.e. stuff they can export to the developed countries for money e.g. Banana. The country then concentrates primarily on this industry (often to the detriment of others – seems to happen all the time). Now, imagine a multi-national company involved in farming in the developed country. Do you think the government can adequately dictate practices to them? Do you think the treatment of workers will be of paramount importance? As for the EU that is importing the bananas…what happens when something goes wrong…like a disease outbreak that makes banana production more expensive? They can abandon ship…go somewhere else where it’s cheaper (this is precisely what happened to Jamaica).

What we end up with is an unhealthy dependence on the cash crop by the country. There just isn’t room for them to do much else because of the programs in place. It’s kind of like credit companies insisting on dictating what you spend the money on before they lend. It’s a great way to ensure they get their investment back. It’s not a great way to help provide sustainable development to an economy. This, apparently, is at least part of the goal of the IMF program in question. It fails. When the crap hits the fan, these countries have to do all kinds of things to make their exports attractive e.g. devalue their own currencies to keep the prices low. Majority of the land is devoted to growing cash crops to raise money, while people starve because other food crops and industries are neglected. These countries actually import food from the US and EU. It’s a sweet deal for developed countries. They get the raw materials for cheap, then process it and export back to the original source, ensuring they make more profit. They are in a position of power (those of us who have owed money to someone might better understand the helplessness in this situation). Finally, if anything happens that causes prices to go up, they can apply pressure to keep it lower for them (their loans, remember?). Heck, they can even change to another cheaper source who is equally under similar pressure. It’s a crappy system:

- Country has a crop which they produce for export
- They are provided with money to grow this industry…with limits
- More and more competition amongst companies (and other nations exporting the same) mean that prices invariably fall. It’s a race to the bottom. Everyone wants stuff for cheap.
- More effort and resources have to be put into the industry to ensure that the debt is paid, and to generate money
- Substantial mismanagement, corruption and dodgy practices ensue (individuals are greedy, and thinking of one’s fellow countrymen really won’t do when you can get rich)
- And on and on it goes

It doesn’t really matter what was intended. In this case, it isn’t the thought that counts. It’s the results. The results here suck…big time. So we see that:

- Overall trade increases (yay!)
- Multinational companies and the developed countries rake in profits (yay!)
- More people in the developing countries starve, as they export so much of their food (not so yay)
- They actually have to IMPORT food from the US and Europe (sigh)
- There is little room to expand any other industries as all the resources are devoted to producing cash crops…education etc. suffer (bummer)
- Rinse and repeat…because the idea is sound; it’s just mismanagement etc. that has caused it to fall flat on it’s face in this case…blah, blah, blah – further nonsense like this continues

So, the safeguard mechanism is supposed to help protect the poorer parties. It’s a way to say that if it goes to hell they won’t be forced to drop prices so they don’t sink further – along with other provisions of similar nature. This isn’t entirely crazy. It’s how the world works, right? Costs in general get transferred to the buyers. Why sell something for less than it costs to produce it? However, when you have buyers controlling the market, then you have a problem. They can say “I simply won’t buy”. Then you are buggered. The problem is the system. It’s one that works quite well for some, and not so well for others. Everyone has to look out for themselves. After all, who is to say that the America and the EU will remain at the top of the food chain forever? There is already change in the air as China, Brazil and others step up their game. It’s okay to do favors for others…as long as there is potential for gain. It’s just best not to call it fair trade.

The idea of these organizations as benevolent entities going around spreading goodness and cheer is obviously flawed. What is the IMF? Where does the WTO get its funding from? Even bodies like these are subject to the pressures of powerful members. The idea of equality for all is fine; however we all know that some are more equal than others. In this game, the developing countries don’t stand a chance…until the rules change.

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