We in the North find it easier to provide cash for development assistance for Third World countries than to open up our markets to their products. We are happy to buy commodity products at low prices from poorer countries, but have taken a range of measures to discourage the import of processed products from these same countries.
Calculations by UNCTAD have shown that lifting all discriminatory measures in the textile and clothing trade would raise the level of employment in that sector by 20 to 45% in developing countries. Estimates of the increase in export earnings vary from a few billion to 60 billion dollars (UNCTAD) per year. That figure is comparable with the 54,5 billion dollars of development assistance the OECD countries offer every year (figure for 1993). 'Trade not aid' has therefore been the developing countries' motto for many years.
The call for 'Trade Not Aid' was heard for the first time during the UNCTAD conference in Geneva in 1964. At this early stage, the industrial countries evaded such key issues as primary product prices and market access; and preferred instead to offer development assistance and loans. During the second UNCTAD conference in New Delhi in 1968, the developing countries again presented demands for more equitable trade, and the rest of the world again failed to meet them.
In the Europe of the 1960s, public interest in Third World issues was fairly limited. Among the small number of groups which were concerned, the idea was born of establishing 'UNCTAD' shops. The aim of such shops would be to sell those goods from the Third World which were impeded from easy access to the European market by import duties. The sales were to serve as a protest against the international trading and power relations.
In April 1969, the first 'world shop' was opened in the Dutch village of Breukelen. It marked the start of a period of rapid growth in the world shop movement: hardly two years later, the Netherlands boasted 120 world shops. The world shop model also quickly gained popularity in Germany, Switzerland, Austria, France, Sweden, Great Britain and Belgium.
At that time, an organisation named S.O.S. Wereldhandel, based in the south of the Netherlands, had already been actively involved in importing goods from developing countries for a number of years. It had been founded as a development charity by a number of Catholic young people in 1959. In 1967, S.O.S. Wereldhandel imported handicrafts products from producer groups in various Third World countries for the first time.
These products were sold by mail order, through churches and Third World Groups. The world shops formed stable and direct sales outlets for S.O.S. Wereldhandel. Sales were excellent; the organisation was even able to establish 'subsidiaries' in Germany, Austria, Switzerland and Belgium, which in the course of time evolved into independent national organisations.
In the Autumn of 1973, the first fair trade coffee was introduced. 'Indio solidarity coffee' was imported from coffee cooperatives in Guatemala. The coffee speeded up the developments in fair trade enormously, and coffee turnovers soon exceeded those of handicrafts. The 1970s was a period of regular reconsideration and ideological discussion on the objectives of fair trade. The sale of products was mainly regarded as a means to provide information and raise public awareness. The world shops had become campaign centres rather than points of sale.
In the 1980s, there was a change of emphasis. The sale of products was put on a par with awareness-raising and campaigning. Product quality was greatly improved and product development became an important aspect of the relationship with the partners in the Third World. The product range was steadily extended to include a variety of coffee blends, many types of tea, honey, sugar, cocoa, nuts, etc. Also the range of crafts prod- ucts increased substantially; continuous quality improvement and product development became key concepts in this segment as well. Commercial techniques were no longer avoided to bring the product and the message to the consumer's attention.
Today, fair trade organisations have been established in ten European countries, as well as in Canada, the United States and Japan. The fairly traded products find their way to the consumers through a network of 3000 world shops, mail order, home-sellers and other local groups; in Germany and the Netherlands, the churches' role in the sale of products is also noteworthy. Bulk sales to companies, organisations and government institutions form a rapidly increasing sector within fair trade. Moreover, initial steps have been taken to market the products through regular shops. The sale of fairly traded products through these channels is expected to gain considerable weight in years to come.
A major incentive to fair trade has been the introduction of so-called fair trade marks. By laying down their principles in a fair trade mark, the fair trade sector provides a concrete model that can be adopted by regular trading companies. In 1988, the first fair trade mark for coffee was introduced in the Netherlands under the name Max Havelaar. By now, fair trade marks have been introduced in about ten European countries and even outside Europe, not only for coffee, but for an increasing number of other products.
Commodities to the North, and industrial products to the South - that is the traditional pattern of international trade as it was established in colonial times. For the Third World as a whole, however, this pattern ceased to exist a long time ago. A number of countries, in particular in South-East Asia, have become major exporters of industrial products. Figures published by UNCTAD indicate, however, that 80 out of 147 developing countries depend on the export of primary commodities for more than 50% of their exports. Some of them, such as Malaysia, produce a variety of different primary products, but others, mainly in Sub- Saharan Africa, depend to a large extent on a single commodity.
Over the decades, primary producers in the Third World have witnessed a steady decline in the value of their products, i.e. unfavourable terms of trade (see figure). Although primary product prices have risen slightly from time to time, the overall trend has been a drop in real prices. This means that developing countries can only keep up or raise their purchasing power by ever increasing exports. In the 1980s, this trend took on disastrous dimensions. There were various causes.
First of all there was the growing burden of debt, the full extent of which became evident by 1980, but which has continued to deteriorate since. In 1980, the total foreign indebtness of the 45 poorest countries was 108 billion dollars. In 1993 it had accumulated to 440 billion dollars. This increase was mainly caused by an accumulation of overdue (interest) payments and compounded interest charges. The result is a snowballing effect. The debt countries respond by increasing their exports, a demand imposed by the structural adjustment programmes the IMF and the World Bank. As most of the indebted countries are dependent on the export of primary products, the production of those commodities expanded explosively in the 1980s. Prices fell accordingly.
Increased production is not the only reason for the drop in commodity prices. The demand side in the North has also changed. Although indus- trial output in the North is still growing, its share in total economic growth is declining, as the emphasis shifts towards commodity-indepen- dent sectors such as services. Moreover, in the manufacturing industry, the use of resource-efficient technologies is expanding rapidly. There is also a trend to develop substitutes for primary products: copper is replaced by glass optical fibre, and sugar by synthetic sweeteners. Also the reuse of materials, a positive development in itself, reduces the demand for primary products.
The position of the world's primary producers thus deteriorates further year after year. The recent rises in the prices of e.g. coffee and cocoa are basically the result of speculation in the commodity markets, especially by pension funds; they do not contribute to breaking the vicious circle of growing surpluses and low prices. To achieve that, structural measures aimed at restriction of production and diversification are required.
The position of developing countries in the commodity markets is weak; much stronger is that of the large transnational corporations. Real monopolies that actually fix commodity prices are rare, but it would not be too much to say that some five enterprises control the bulk of the trade in each commodity. Concentration is the key word, higherto mainly realised through vertical integration within a single company (all activities from production to distribution). Today, markets are dominated by a few giant transnational business enterprises. They are hardly concerned with actual primary production that is eroded by ever falling prices. These mammoth corporations have built up gigantic industrial empires. They dominate an estimated 70% of the world commodity trade and control 80% of the land reserved for the production of export crops. They thus have significantly more power than the primary producing countries themselves.
It is not only countries which are faced with steadily declining proceeds from the sale of primary products. The prices which individual farmers receive keep dropping year after year. In particular the small producers suffer. It is virtually beyond their reach to make up for their loss of income by expanding production. If a small coffee grower sacrifices his plot of beans or maize in order to grow coffee, he puts his own food supply at risk. Many small farmers have made that mistake. They simply lack the money to buy fertilisers and pesticides which might allow them to increase their production. Credits can be obtained from the local middlemen, but when prices fall, that is a sure way to bankruptcy.
The best thing for them to do would be to diversify, to reduce their dependence on a single product by growing other crops. But such initiatives require investment as well, and diversification is obviously only a solution if there is sufficient demand for the new product. In fact, all commodity markets are characterised by the same problems, i.e. surp- luses, low prices, and unfavourable terms of trade.
However, the cooperatives that have been partners of fair trade organisations for some time, have achieved major successes in the field of diversification. The position of farmers who are organised into a cooperative is better anyway, but the better prices and credits offered by the fair trade organisations also allow them to invest in other sectors. In Costa Rica, for example, peasants have started to produce nuts and breed cattle. In Mexico, some of them have specialised in organic coffee and are serving a new and growing part of the coffee market.
At world market level, fair trade organisations advocate the signing of international commodity agreements for coffee, cocoa, etc. which should combine (fair) price-fixing, restriction of production and diversificat- ion.
The South is not only a supplier of primary products. Following the rise of a number of developing countries as exporters of industrial products, the traditional industrial countries have implemented a range of protective measures. Even if they are in flagrant conflict with the GATT/WTO agreements, they may be accepted as an exception to the rules, e.g. those regarding agricultural and textile products. Some measures serve different purposes on paper, but are purely protectionist in the impacts they have in practice.
Because the textile industry is a highly important sector in many developing countries, the Multi Fiber Agreement (MFA) is among the protectionist regimes that have been criticised most sharply. The MFA was a framework agreement within the GATT, providing rules for bilateral trade agreements in the field of clothing and textile. It enabled the industrial countries to impose export restraints on developing countries. The decisive factors in establishing export quotas are a product's sensitivity to market changes and the competitiveness of the producer. It is the developing countries in particular which are hit by the MFA; in their mutual trade in textile products, the industrial countries impose far fewer restrictions on one another.
The MFA is not an exceptional case. In practice, trade in such diverse products as cars, footwear, toys and shipbuilding has come to be exempted from the GATT/WTO regulations and subjected to high import tariffs. The latest world trade agreements seek to remove these barriers to some degree. For instance, it was agreed that the MFA would be terminated within ten years. But some scepticism seems justified: the MFA was concluded in 1973 as a 'transitional measure' for a period of five years.
Quota arrangemants are not the only barrier to the exports of developing countries. In spite of all free market rhetoric, ordinary tariffs are still being applied as well. Tariff rates rise by steps according to the degree of processing of a product. Unroasted coffee pays no duty to enter the European Union, but roasted coffee and soluble coffee are subject to a 11.5% tariff - to be reduced to 7.5% in 2000 under the most recent world trade agreement. Again, the developing countries are the ones most affected by these tariff barriers to import. Unlike the United States, they are unable to take a hard line, nor are they normally at the negotiating table. The current tariff system applied by the European Union and the United States thus functions in fact as a penalty for development and industrialisation.
The European Union is also very creative in inventing other measures with a protectionist effect. For example in the harmonisation of stan- dards and quality requirements, there is a tendency to establish these standards at the highest possible level. As a result, these new EU standards are likely to have a more severe protectionist impact on imports from the South than high tariffs or quantitative import restric- tions such as quotas.
Difficult as it may be for countries and large companies in the South to export to the North, small-scale producers are faced with even bigger problems. The quota regulations applied within the framework of the MFA, for example, necessitate a strict licence system. For small-scale producers in the South it is usually extremely difficult to obtain an export licence. These are in the hands of large established companies, or of traders who only sell them at high prices. This makes clothing and other textile products produced by small-scale producers unnecessarily expensive, provided they succeed in exporting at all. Therefore, fair trade organisations have for years been advocating the repeal of the MFA and other quota arrangements and tariff barriers.
The high quality requirements to be met by products entering the Euro- pean market pose major obstacles, in particular for small-scale prod- ucers. For example, how can a North Indian woodworker, whose children play with scraps of wood, judge what European children like to play with; it is even more difficult for him to gain insight into the high quality requirements that toys have to meet in Europe. Fair trade organisations assist their producer partners in product development and the development of new production techniques, thus allowing them to sell their products successfully on the European market.
Other matters of concern to fair trade organisations are working condi- tions and the environment. If necessary, they provide assistance in creating a healthy place to work of the producers. They attempt to find alternatives to vulnerable natural resources such as tropical hardwood.
The goal of fair trade organisations is to fight poverty in the South. Based on the concept of 'Trade Not Aid', they seek to combat poverty through (fair) trade, political lobbying and education.
They conduct trade with disadvantaged producers and with organisations or businesses which contribute to improving the position of the poor in the South. In this way those who grow or manufacture the products get the opportunity to structurally improve their own position. Although it is the economic position of the producer that is their chief concern, fair trade organisations also attach great importance to social develo- pment, the empowerment of women and ecological development.
Peasant households and families producing crafts at home or in workshops often have to struggle for survival. It is difficult for them to get loans, the are faced with competition from large-scale companies, and they are dependent on highly-paid middlemen to gain access to trade. Yet in many countries they constitute the biggest group of producers. They are also the ones who are most disadvantaged by the existing trading system. Fair trade organisations therefore prefer to cooperate with these small-scale producers. The prospects offered by such cooperation are however a determining factor in this decision: will it allow the producers to improve their position.
Fair trade organisations purchase products from producer organisations rather than from individual producers. Such organisations may be cooper- atives or informal associations, often combined into an umbrella organisation for the region concerned which takes care of sales and usually offers other services as well.
Fair trade organisations also cooperate with businesses and plantations. After all, the structural fight against poverty is not limited to providing support to small-scale producers. Improving the living and working conditions of (farm) workers is also essential. Besides, a number of products which may be vital to the structural development of a country are, or can be, generated only through large-scale production. This may also be true for a particular phase in the production process. Coffee is grown by small farmers, but is processed into soluble coffee in a factory. To qualify as partners of fair trade organisations, the businesses or plantations - in common with the small-scale producers - have to meet a number of criteria. Does the business contribute to combating poverty? What about the workers' wages and fringe benefits? The fair trade organisations distinguish themselves from regular trade not only in their choice of trading partners, but even more so in their trading methods. Their primary concern is to strengthen the partner's position.
EFTA: the importers |
The European Fair Trade Association is an alliance of eleven fair trade organisations - the 'importers' - in nine European countries. EFTA was founded in January 1990 after ten years of informal cooperation. It seeks to stimulate practical cooperation between its members, develops common policies and strategies, offers joint support to producers and strives for the adoption of fair trade principles in commercial trading in Europe.
EFTA's importance for fair trade and trading organisations is still growing. Policies with respect to the producer partners are gradually being harmonized. More and more use is made of the knowledge and experi- ence acquired by the various member organisations. Gepa in Germany, for instance, is EFTA's expert on organically grown products, OS3 in Switze- rland is a specialist in the field of cocoa and chocolate, and Fair Trade Organisatie in the Netherlands is EFTA's coffee expert.
Another important aspect is that the European Union forms a unity in the field of trade. Political measures regarding trade (such as import duties on processed products from the Third World) are taken at the European level. EFTA seeks to influence the EU to provide better access for products from the South to the Single Market. The first success has already been achieved: in January 1994, the European Parliament com- mitted itself to promoting fair commodity agreements and abolishing trade restrictions for small-scale producers in particular.
World shops |
The world shops are the specialist shops of fair trade. Through sales, education and political action, they attempt to make world trade fairer. The over 3000 world shops in Europe have joined into national organisations, but also into NEWS!, the Network of European World Shops. Some 50,000 volunteers are involved in running the world shops in Europe.
Fair trade marks |
In the end, all trade must become fair. Fair trade organisations try to achieve that aim not only by influencing political decision-making, but also by offering a concrete fair trade model that can be adopted by regular trading companies. The criteria for this model have been estab- lished in the form of the fair trade marks TransFair, Max Havelaar and FairTrade Mark.
In these fair trade marks, the principles of fair trade are formulated in terms of criteria that can be applied by any regular commercial trader and can be monitored by the fair trade mark organisation. These criteria are specified per product or product group. The producer register allows companies to find potential trading partners in the South.
The TransFair mark is currently awarded to fairly traded coffee and tea in Germany, Luxembourg and Austria. Outside Europe it is used in Canada and Japan. Other products will soon be added to the range of TransFair products. Criteria have been drawn up to extend the mark to honey, sugar and chocolate.
In the Netherlands, Belgium, Switzerland, Denmark and France, national fair trade mark organisations are operating under the name Max Havelaar.
Products currently available with the Max Havelaar trade mark are coffee, cocoa, chocolate and honey. In the United Kingdom, the FairTrade Mark can be found on coffee, chocolate and tea. All fair trade mark organisations work according to the same methods: by formulating cri- teria for fair trade based on the many years' experience of the fair trade organisations. They operate in close collaboration.
Fair trading methods |
Fair trading methods are characterised by the following aspects:
A farmer in Uganda |
Jorumar Rutahwire is a small farmer in Uganda. With his two wives Rhoebe Kyambuganbire and Guadance Korugyege, he grows beans and bananas on a small one-hectare shamba, and coffee on another field of the same size. Rhoebe and Guadance do most of the work. They grow the beans, gather wood, fetch water and cook the meals. They pick the coffee berries and dry them on mats or on the hard red earth. Jorumar takes care of pruning and weeding. Being the head of the family, he is a member of the coope- rative. He delivers the coffee and collects the money.
The cooperative is called Kitagata Kweterena and is situated in the Mbarara district in the south-west of Uganda. Cooperatives play an important role in Uganda. In the area where Jorumar Rutahwire lives, some 60% of the coffee growers are organised into cooperatives. The cooperatives, set up on a local scale, provide first of all common storage and transport facilities. Members can sell to the cooperative or to private merchants - a choice that may be difficult to make. Because the middlemen have greater financial resources than the cooperative, they can pay immediately. The cooperatives usually do not pay until they have found a buyer for their coffee. When the peasants are seriously pressed for money, which is most of the time, the temptation to sell to the private traders is strong. The traders push up the prices to compete the cooperatives out of the market. As soon as a cooperative is able to sell, however, it makes a second payment to the peasants; the middlemen never do. In areas where there are no cooperatives, the coffee price paid by the middlemen is much lower.
Since 1993, Jorumar Rutahwire's cooperative has been selling coffee to Belgian and Dutch fair trade organisations. They pay a better price for the coffee, because they believe that the peasants should be enabled to make a decent living. Jorumar Rutahwire is now able to pay his childr- en's tuition, and the family can afford clothes and other household articles. These exports allow the cooperative to strengthen its position by organising training courses for the members and setting up income- generating activities. That is particularly important for the women, who thus get the opportunity to earn their own income. Because fair trade organisations pay part of the harvest in advance, the peasants' credit problem is alleviated considerably. It makes them less dependent on the middlemen. Moreover, the cooperative has the guarantee that the fair trade organisations will buy its coffee again the next year. Fair trade organisations establish a long-term relationship with their producer partners. Together they can improve the production and the quality of the coffee.
| World | 15 |
| Developed market economies | 14 |
| Latin America | 41 |
| Africa | 22 |
| Asia | 10 |
| Africa (excluding major petroleum exporters) | 47 |
| Least developed countries | 58 |
| Cuba | 100 | sugar | 80 | ||
| Guinea | 100 | metal ore | 82 | ||
| Uganda | 100 | coffee | 92 | ||
| Malawi | 99 | tabacco | 68 | ||
| Myanmar (Burma) | 99 | wood | 39 | ||
| Suriname | 99 | metal ore | 66 | ||
| Niger | 98 | uranium | 86 | ||
| Mongolia | 97 | copper | 61 | ||
| Nicaragua | 93 | coffee | 41 | ||
| Rwanda | 93 | coffee | 81 | ||
| Guyana | 92 | sugar | 32 | metal ore | 32 |
| Sudan | 92 | cotton | 34 | ||
| Burkina Faso | 90 | gold | 40 | cotton | 30 |
| Ethiopia | 89 | coffee | 60 | ||
| Mozambique | 88 | fish | 36 | ||
| Burundi | 87 | coffee | 68 | ||
| Benin | 85 | cotton | 45 | ||
| Cape Verde | 84 | fish | 55 | ||
| Chile | 84 | copper | 35 | ||
| Jamaica | 83 | metal ore | 58 | ||
| Madagaskar | 79 | coffee | 32 | spices | 28 |
| Paraguay | 79 | cotton | 36 | oil seeds | 33 |
| Zambia | 79 | copper | 74 | ||
| Belize | 76 | sugar | 36 | ||
| Ghana | 72 | cocoa | 44 | ||
| Kenya | 70 | coffee | 30 | tea | 26 |
