Kingston Fairtrade

Fairtrade | Guarantees a better deal for Third World Producers

Glossary - an explanation of key expressions/terms

TERMS COVERED

Fairtrade, fair trade, ethically sourced, etc.

Fairtrade (Capital F, all one word), see above trademark. The Fairtrade mark denotes that the product has been subject to the CERTIFICATION SCHEME operated by the Fairtrade Foundation. This applies to products from developing countries which are independently monitored and guaranteed by the Fairtrade Foundation, a member of the Fairtrade Labelling Organisation International (FLO) which operates in 49 countries.

Fairtrade can be regarded as the "gold standard" of fair/ethical trading certifications but has not yet developed standards for many goods other than foods as this is time-consuming and expensive process. However work is on-going, e.g. cotton (made up into clothing and into cotton wool) is a recent addition to the scheme. There are other less independently monitored schemes around, claiming they are ethically sourced, fairly traded etc. Many of these are good but bear in mind that there are many possible definitions of ethically traded. Look for membership of a reputable organisation like BAFTS (British Association for Fair Trade Shops - although being a "shop" isn't essential!)

Trade Justice Movement (www.tjm.org.uk)

This movement is a vital part of MAKE POVERTY HISTORY (see below) and is supported by more than 70 organisations that have over 9 million members. New organisations are continually joining.

The TRADE JUSTICE MOVEMENT campaigns to ask the government to:

What is meant by FREE TRADE?

Free trade means the ability to trade freely across borders in an open, unhindered, but not unregulated way. This primarily means no tariffs (taxes on imports or exports), quotas or subsidies (which affect the free operation of a market by making some things artificially cheap, which is unfair to other, non-subsidised producers of the same products). It also means not suddenly changing the rules with no warning.

Most of the requests asked for by the Trade Justice Movement are free trade policies. For example, the most important one is that rich countries stop heavily subsidising their agricultural produce and dumping the inevitable large surpluses on the world market, thus putting many farmers in poor countries out of business. Most rich countries do this, e.g. in the EU it is the CAP (Common Agricultural Policy) that takes up nearly half of the EU budget.

Also rich countries put tariffs and quotas on produce from poor countries, especially processed products, i.e. raw materials come in free of quotas and tariffs but, when poor countries start to make up their raw materials into finished or part-processed goods, e.g. packets of tea, they have typically faced tariffs. One of the Trade Justice Movement's concerns has been to get rid of these. The EU now no longer puts tariffs and quotas on processed goods from the poorest developing countries.

When a country restricts freely moving open trade by using tariffs, quotas, subsidies for its own farmers, etc, this is known as "protectionism" because its aim is usually to protect the country's own farms, industries, etc. When this is done for good specific reasons, temporarily, it can be useful, but it is often not used in this way. There are two major dangers of protectionism when practised for long periods:

1. It disadvantages other countries' products. These countries are likely to retaliate and thus in turn disadvantage the first countries' own producers. This then achieves nothing for either country, in fact disadvantaging both of them with higher prices for consumers etc. This happened in the 1930s with tit-for-tat retaliatory tariffs put on by countries all over the world, resulting in a major world recession, massive unemployment, and ultimately World War 2.

2. This is a longer term problem. Industries protected in major way for long periods of time tend to become inefficient and uncompetitive, and thus unable to export, with prices unnecessarily high at home too. In the end this is very costly to countries, and may discourage innovation and new industries starting up. Finally the uncompetitive industries fail and thus the protection has had little benefit except in the short-term. Many people think that the British motor cycle industry (once the world leader) and car industries were destroyed in this way (over-protection).

So why does the Trade Justice Movement argue for any non-free trade policies?

The slogan "fair trade, not free trade" is less clear than it may seem.

The argument is for a specific departure from free trade for defined purposes. Economists know this as the "infant industry" argument. New young industries may take time to establish themselves, especially in a poor country. Whilst in this phase they are not likely to be so easily able to stand up to competition from established large foreign companies. Provided it is thought that these new industries will be competitive in the longer run, it may be acceptable to protect them for a while. However it is always important to bear on mind the dangers of over-protection.

Poor countries often do themselves no favours by protecting themselves against each other (the opposite of a free trade area, which normally promotes economic growth), but it can be a good idea to protect certain young industries from us, the rich countries with powerful multinational companies.

The famously fast-growing "Asian tiger" countries, like Taiwan and South Korea, improved their prosperity with successful exporting but not standard free trade policies. They chose carefully which of their industries to support and encourage, and did protect them for a while, putting tariffs on certain imports but not on others, e.g. not on inputs for their chosen industries. For example, without this protection in its early years it is unlikely that the highly successful South Korean steel industry would have survived competition from the USA. However, if the government had protected it for too long, it would not have been so efficient and able to compete in the global marketplace. There are a number of fine judgements involved.

When the Trade Justice Movement argues for "fair trade not free trade", it is a shortcut way of saying that countries, especially very poor ones, should be free to decide their own trade policies. At present they often aren't because, as conditions for aid, loans, debt relief, etc, or as a concession to other (rich) countries in return for their making concessions, poor countries are often obliged to open their markets, e.g. charge no tariffs, etc. Critics see this as being done for the benefit of Western big business at the expense of fledging industries in the poor countries.

Rich countries are being hypocritical when they say that poor countries should practice free trade. Almost no rich country developed in this way; they all protected themselves in some way. What is more, they are still doing so in certain areas like agriculture. Most rich countries, with certain exceptions like Australia, do not practice what they preach.

WTO (World Trade Organisation) (www.wto.org)

The WTO comprises 150 countries that come together to decide the rules of international trade. These rules are supposed to be set through a democratic process of negotiation and consensus, but in practice rich countries gain most from them. They use their power to dominate decision making and push through policies that benefit themselves.

The small WTO secretariat (a civil service organising and administering on behalf of its member countries) is based in Geneva. Although decisions are, in theory, made by member governments, in practice nothing is ever voted on; rich countries negotiate together, largely behind closed doors, make most of the decisions, and then try to force them on the poor. This often works because the poor countries so badly need what the rich ones can do for them that they agree to practically anything. However recently they have stood up for themselves more, by grouping together, as at the Cancun (2003) talks, led by more powerful poor countries like Brazil and India.

It is often not appreciated that WTO talks are continuously going on between representatives of the various member governments. There are hundreds of different areas of trade to cover. The bi-annual Ministerial meetings that we hear about in the news are major talks to which member countries' trade ministers go. Here important and contentious matters are thrashed out, often amid much acrimony.

We might ask why, if the talks are so difficult, countries want to be WTO members, especially poor countries who often come off worse than the richer ones. The answer is that it is at least a rules based system; a free for all would be much worse, especially for the poor. Any country can take any other country through the disputes mechanism; the rich can pay more lawyers etc but it is still the case that poor countries can and do win cases against the rich. Overall countries gain more than they lose by being WTO members. Countries don't have to be WTO members. For instance, Vietnam is not a member, and China joined only recently.

However poor countries do not gain as much as they should. The negotiations are not open and transparent, and the poor get pushed around. Negotiations are conducted on a tit-for-tat "I'll give you this if you give me that" basis, which is fine for countries that are roughly equals. However it is not fair for us to negotiate in this tough way with very poor countries. We should be doing the right things, e.g. stop dumping our subsidised agricultural produce on world markets, without expecting anything in return.

Every few years a new "round" of trade talks is launched. In 2001 the Doha Round was started, which is supposed to be a "development round", i.e. it is supposed to be largely about helping the poor. There is little sign so far that it is living up to its name, although there are some concessions under Special and Differential Treatment (S&D) for the poorest countries, whereby they may be given technical assistance, allowed longer to do certain things, etc.

For more information see many independent sites including Oxfam's and the Third World Network.

IMF (International Monetary Fund) and World Bank - what are they? where do they fit in?

Both these institutions (the World Bank is actually a group of institutions) were set up at the Bretton Woods conference of 43 countries in 1944. After the disasters of the 1930s and the war, it was apparent that international bodies were needed to oversee the global financial system and assist countries in financial difficulties.

International Monetary Fund (www.imf.org)

The IMF is the international organization entrusted with overseeing the global financial system by monitoring exchange rates and balance of payments, as well as offering technical and financial assistance when asked. There are now 184 member countries, each paying a subscription the size of which determines its voting rights and its access to IMF financing. Thus inevitably the richer countries have the greatest say over policies, especially the USA, the world's largest economy.

Almost all very poor countries are seriously in debt and dependent on the IMF (and World Bank) for loans, grants, debt-relief and the all-important IMF "seal of approval" for complying with its policy recommendations, which opens the way to other public and private finance. It is difficult to get loans or other assistance from anyone without complying with IMF policies, which tend to be "one-size-fits-all", rigid and theory-driven, with little attention given to real outcomes/evaluation etc.

IMF policy recommendations usually follow so-called "Washington Consensus" neo-liberal economics (abolition of regulations that are thought to impede entry to a country's markets, or restrict competition except for those justified on safety, environmental and consumer protection grounds, and prudential oversight of financial institutions, trade liberalisation, openness to foreign direct investment, privatisation of state enterprises, competitive exchange rates, etc). Versions of these policies have, in fact, been in place in most African countries for the last 20 years or so, during which time most Sub-Saharan countries have been getting poorer. There are disputes about the reasons for this but it seems unlikely that these policies are the best ones for very poor, relatively new countries that lack good infrastructure, legal and financial systems, etc.

In principle it is right to have conditions for loans and debt relief but, in practice, despite what is said, too little attention is given to poverty reduction. Critics believe that the IMF forces open developing country markets to large Western multinational companies. For poor countries, therefore, the IMF is usually more powerful than the WTO, and has as much influence on trade policy.

World Bank (www.worldbank.org)
(International Bank for Reconstruction and Development [IBRD])

More commonly known as the World Bank, the IBRD provides loans and development assistance to middle and low-income countries with a stated aim of reducing poverty. The Bank obtains most of its funds through the sale of bonds in international capital markets, but is owned by its 184 member governments, which subscribe to its basic share capital, with votes proportional to shareholding. Membership gives certain voting rights that are the same for all countries, but there are also additional votes which depend on financial contributions. As of November 1, 2004 the United States held 16.4% of total votes, Japan 7.9%, Germany 4.5%, and UK and France each held 4.3%. As major decisions require an 85% majority, the US can block any change.

World Bank loans, at preferential rates, generally have a five-year grace period and must be repaid over a period of 15-20 years. Like the IMF, the Bank is criticized for undermining the national sovereignty of recipient countries through its pursuit of economic liberalisation and guarantees for private international investment. Less controversally, it may also ask that political measures be taken to, for example, limit corruption or foster democracy. World Bank influence on trade policy in poor countries is therefore much the same as the IMF's but the Bank tends to be less rigid and more accepting of criticism.

For more information try www.brettonwoodsproject.org, www.oxfam.org.uk.

Make Poverty History (www.makepovertyhistory.org)

This huge campaign has hundreds of member organisations. It raises public awareness and campaigns to achieve the Millenium Development Goals (MDGs agreed at the UN in 2000, see below). Many different things are needed to make poverty history but the campaign focuses on three main issues. By far the most important in the long run is Trade Justice (see above). The other two are:

DEBT RELIEF: The enormous debts of the world's poorest countries should be cancelled in full, by fair and transparent means, provided any benefits are used for poverty reduction.

See Jubilee Debt Campaign (Jubilee 2000 follow-on organisation) www.jubileedebtcampaign.org.uk

MORE & BETTER QUALITY AID: Donors must give at least $50 billion more in aid, and set a binding timetable for spending 0.7% of national income on aid. Aid must be made to work more effectively for poor people.

Make Poverty History is part of an international campaign in over 80 countries:
the Global Campaign Against Poverty (GCAP) www.whiteband.org

Millenium Development Goals (MDGs) www.un.org/millenniumgoals

The Millennium Development Goals were agreed by 189 member countries at the UN in September 2000.

Within the eight broad Millennium Development Goals there are 18 targets and 48 indicators to measure progress. These were developed by the United Nations Secretariat and the specialized agencies of the UN system, as well as representatives of the IMF, World Bank and OECD (Organisation for Economic Co-operation and Development).

Below are listed the goals and main targets, and a summary of the 2005 UN report's assessment of progress towards that goal (full report available from website above).

GOAL ONE: Eradicate extreme poverty and hunger

Target 1: To halve, between 1990 and 2015, the proportion of people whose income is less than $1 a day

Target 2: To halve, between 1990 and 2015, the proportion of people who suffer from hunger

2005 PROGRESS REPORT SUMMARY:

Global poverty rates are falling, led by Asia. But millions more people have sunk deep into poverty in sub-Saharan Africa, where the poor are getting poorer.

Progress has been made against hunger, but slow growth of agricultural output and expanding populations have led to setbacks in some regions. Since 1990, millions more people are chronically hungry in sub-Saharan Africa and in Southern Asia, where half the children under age 5 are malnourished.

GOAL TWO: Achieve universal primary education

Target: Ensure that all boys and girls complete a full course of primary schooling

2005 PROGRESS REPORT SUMMARY:

Five developing regions are approaching universal enrolment. But in sub-Saharan Africa, fewer than two thirds of children are enrolled in primary school. Other regions, including Southern Asia and Oceania, also have a long way to go. In these regions and elsewhere, increased enrolment must be accompanied by efforts to ensure that all children remain in school and receive a high-quality education.

GOAL THREE: Promote gender equality and empower women

Target: Eliminate gender disparity in primary and secondary education preferably by 2005, & at all levels by 2015

2005 PROGRESS REPORT SUMMARY:

The gender gap is closing - albeit slowly - in primary school enrolment in the developing world. This is a first step towards easing long-standing inequalities between women and men. In almost all developing regions, women represent a smaller share of wage earners than men and are often relegated to insecure and poorly paid jobs. Though progress is being made, women still lack equal representation at the highest levels of government, holding only 16 per cent of parliamentary seats worldwide.

GOAL FOUR: Reduce child mortality

Target: Reduce by two thirds the mortality rate among children under five

2005 PROGRESS REPORT SUMMARY:

Death rates in children under age 5 are dropping. But not fast enough. Eleven million children a year - 30,000 a day - day from preventable or treatable causes. Most of these lives could be saved by expanding existing programmes that promote simple, low-cost solutions.

GOAL FIVE: Improve maternal health

Target: Reduce by three quarters the maternal mortality ratio

2005 PROGRESS REPORT SUMMARY:

More than half a million women die each year during pregnancy or childbirth. Twenty times that number suffer serious injury or disability. Some progress has been made in reducing maternal deaths in developing regions, but not in the countries where giving birth is most risky.

GOAL SIX: Combat HIV/AIDS, malaria and other diseases

Target: Halt and begin to reverse the incidence of malaria, HIV/AIDS, and other major diseases

2005 PROGRESS REPORT SUMMARY:

AIDS has become the leading cause of premature death in sub-Saharan Africa and the fourth largest killer world-wide. In the European countries of the Commonwealth of Independent States (CIS: these are ex-USSR countries) and parts of Asia, HIV is spreading at an alarming rate. Though new drug treatments prolong life, there is no cure for AIDS, and prevention efforts must be intensified in every region of the world if the target is to be reached.

Malaria and tuberculosis together kill nearly as many people each year as AIDS, and represent a severe drain on national economies. Ninety per cent of malaria deaths occur in sub-Saharan Africa, where prevention and treatment efforts are being scaled up. Tuberculosis is on the rise, partly as a result of HIV/AIDS, though a new international protocol to detect and treat the disease is showing promise.

GOAL SEVEN: Ensure environmental sustainability

Target 1: Reduce by half the proportion of people without sustainable access to safe drinking water

Target 2: Achieve significant improvement in the lives of at least 100 million slum dwellers, by 2020

Target 3: Integrate the principles of sustainable development into country policies and programmes; reverse loss of environmental resources

2005 PROGRESS REPORT SUMMARY:

Most countries have committed to the principles of sustainable development. But this has not resulted in sufficient progress to reverse the loss of the world's environmental resources. Achieving the goal will require greater attention to the plight of the poor, whose day-to-day subsistence is often directly linked to the natural resources around them, and an unprecedented level of global cooperation. Action to prevent further deterioration of the ozone layer shows that progress is possible.

Access to safe drinking water has increased, but half the developing world still lack toilets or other forms of basic sanitation. Nearly 1 billion people live in urban slums because the growth of the urban population is out-pacing improvements in housing and the availability of productive jobs.

GOAL EIGHT: Develop a global partnership for development

Target 1: In cooperation with the developing countries, develop decent and productive work for youth

Target 2: In cooperation with pharmaceutical companies, provide access to affordable essential drugs in developing countries

Target 3: Address the least developed countries' special needs. This includes tariff- and quota-free access for their exports; enhanced debt relief for heavily indebted poor countries; cancellation of official bilateral debt; and more generous official development assistance for countries committed to poverty reduction

2005 PROGRESS REPORT SUMMARY:

The United Nations Millennium Declaration represents a global social compact: developing countries will do more to ensure their own development, and developed countries will support them through aid, debt relief and better opportunities for trade. Progress in each of these areas has already begun to yield results. But developed countries have fallen short of targets they have set for themselves. To achieve the Millennium Declaration Goals, increased aid and debt relief must be accompanied by further opening of trade, accelerated transfer of technology and improved employment opportunities for the growing ranks of young people in developing world.