...HOW FAIR IS FAIR TRADE? ** BY ROBBERT MASELAND AND ALBERT DE VAAL* Summary This paper investigates to what extent fair trade programmes, are indeed ‘fair.’ This is accomplished by comparing fair trade with free trade and protectionist trade regimes on their compliance of the criteria set by the fair trade movement itself. This comparison is made using comparative cost based models and economies of scale models. It is found that whether or not fair trade is superior to free trade or protectionism is highly dependent on a number of characteristics of the products to which fair trade is applied as well as on the context within which international trade takes place. 1 INTRODUCTION A long-standing debate in development economics has been the one between advocates of free trade and proponents of protectionism in developing countries. While the former argued that free trade would offer large opportunities for poor countries to improve their situation, the latter considered trade to be harmful to poorer countries and typically preferred a combination of protectionism and development aid. This opposition tended to dominate the discussion about the role of international trade in the Third World. Bhagwati 1993 , Krueger 1990 However, in recent years, a third position has come up. This position maintains that international trade can be beneficial to developing countries as long as it is performed in a just manner. The idea behind this is that, in conducting trade, we have a moral...
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...L Karp International Trade October 20, 2005 1 Ricardian model The Ricardian model provides the simplest setting to illustrate comparative advantage and the gains from trade in a general equilibrium setting. I will use a simple example to discuss the Ricardian model. Two countries, Canada and the US produce two commodities, corn and umbrellas. (The obvious alliteration is used as a mnemonic device.) Definition of comparative advantage: A country (e.g. Canada) has a comparative advantage in the production of a commodity (e.g. corn) if the ratio between it’s pre-trade marginal costs of that commodity (corn), and its pre-trade marginal cost of producing “the other” commodity (umbrellas) is lower than that of its trading partner. 1.1 Technology and markets The Ricardian model assumes that production uses only 1 input (labor), with constant returns to scale. This assumption means that the technology in each country and each sector is entirely determined by the labor requirement per unit of output. The other assumptions are that (a) labor moves freely between sectors within a country, but (b) labor cannot move between countries. Assumption (a) implies that in a particular country, the wage must be the same in both sectors; assumption (b) means that the wage need not be the same (and typically is not the same) in the two countries. In addition, all agents are price takers, i.e. there is perfect competition. In my example, the unit labor requirements are unit labor requirement Corn...
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...There should be free trade between countries – discuss Economic trade theory suggests that countries can be presumed to have a comparative advantage in some of its industries if it competes on the global market, this would seem advantageous for a country to sign free trade agreements with the expected benefits exceeding the costs. In the last two decades there has been a recognition that free trade has the potential to damage a developing country’s economy and its people and standard of living. “Free trade is considered to be desirable where all nations prosper and develop fairly and equitably” (Shah, 2006). Free trade and free markets are about making trade easier by allowing the market to respond to the needs of supply and demand. Mandela during a lecture at the British Museum said, “We welcome the process of globalisation. It is inescapable and irreversible, if globalisation is to create real peace and stability across the world, it must be a process benefiting all”. Free trade is defined as the unrestricted purchase and sale of goods and services between countries effectively creating a common market (Relyea, 2011), without the imposition of barriers to entry such as tariffs, duties and quotas, put in place by governments to restrict the flow of goods and services, however artificial barriers do exist, Economics and politics are intertwined, artificial barriers are normally put in place to protect domestic producers from international competition and redirect, rather...
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...first wave of globalisation, Britain was the only country in Europe that supported free trade. (1 mark) No, many other countries supported free trade until disrupted by the world wars. 2. When restrictions to imports from the New World came down in the first wave of globalisation, grain prices fell in Britain and many parts of Western Europe. This was bad for both landowners and the manufacturing workers in Britain and Europe. (1 mark) NO, bad for landowners but good for manufacturing workers (as consumers) 3. During the First wave of globalisation, unlike at present, international movements of goods and capital increased rapidly but labour did not move internationally on a large scale. (1 mark) The period known as the age of mass migration from Europe to the new world. International capital movements (FDI) was also arising. 4. During the first wave of globalisation, there was not much international integration of commodity markets. (1 mark) The period for great international commodity integration [total 4 marks for Q1] 2. Consider a ‘small’ country that produces garments and computers. Garments are relatively more labour-intensive, while computers are relatively more capital intensive. The country is relatively labour-abundant. It opens up for international trade. Referring to the relevant model or theorem, briefly explain what would happen to; 1. real wages of garment workers (1 mark) Based on the HO theorem, the labour-abundant...
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...Advantages and disadvantages of free trade In international trade theory, globalization and free trade results over the long term in "commodity price equalization" across countries; or if capital, labor and technology are highly mobile, free trade and globalization is only for rich countries. “Free trade” means freedom to trade. Freedom is a concept and principle that everyone holds dearly, except dictators and bullies [1]. We are going to analyze the advantages and disadvantages of free trade in both cases: the poor and rich countries. The aim of this work is to look into the particularities of free trade. In order to achieve this aim we shall present tasks as following: * Define the concept of free trade; * Explore advantages of free trade; * Find out of disadvantages of free trade. Free trade occurs when there are no artificial barriers put in place by governments to restrict the flow of goods and services between trading nations. When trade barriers, such as tariffs and subsidies are put in place, they protect domestic producers from international competition and redirect, rather than create trade flows. It is in the case of poor countries due to we can’t be competitive with development countries such as Germany, Europe. Some groups, however, have a double standard. They want all their consumption needs and production inputs to be liberalized and to be available at bargains, but want their own products and services to be protected from competition. It doesn't...
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...North American Free Trade Agreement to achieve the higher level of regional integration. This NAFTA not only concerns the removal of trade barriers, but also aims to promote the movement of capital. Firstly, this essay will explain the evolution of NAFTA and its successful influence on economic integration. Furthermore, this chapter will provide the criticism on the influence of NAFTA. Secondly, this study will discuss the impact of NAFTA on regional integration, particularly economic integration. Then, this essay will propose the understandings on the effect of NAFTA on members’ economies and businesses from four perspectives, including trade, economic growth, employment and FDI. Main body The Evolution of NAFTA The North American Free Trade Agreement (NAFTA) issued in 1993 aims to removal trade barriers and liberalise economics and business among the United States, Canada and Mexico. Compared with similar FTA economic relationship, such as EU, NAFTA is described as the most implemented FTA (Orme, 1996). Like most FTAs, NAFTA not only effectively coordinates resource and improves competitiveness of countries and corporates, but also promotes the movement of products, services and investment, even financial integration. For instance, Krugman & Hanson (1993) stress that the implementation of NAFTA can facilitate firms obtain more production resource and achieve the performance of scale economies. Based on the elimination of trade barriers and tariffs, the free movement of goods...
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...price of input factor used in a higher percentage (intensively) (for example: labor intensive or capital intensive) in producing the final product. And there is a negative relationship between changes in the price of an output and changes in the price of the factor not used intensively in producing that product. To explain the theorem, we can have a look at the real world and think about what happens when the U.S. ( a capital abundant and labor scarce country) takes part of the international trade. Would the high-waged labor lose because of international trade? This is the first thing I would ask myself, and it seems to be logical that labor will lose competitiveness with other labor abundant countries, and therefore labor would lose because of international trade. Samuelson and Stolper demonstrated that free trade lowers the real wage of the scarce factor and raises that of the abundant factor compared to autarky and that protection raises the real wage of the scarce factor of production and lowers the real wage of the abundant factor of production. How did they demonstrate it? A small country select a tariff as a trade barrier. As a result, this will increase the price of the import good in comparison with the exported good. In case of homogenous products,...
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...scale nationally. The increasing trend in globalisation has meant an increase in the availability of goods and services increasing our Gross Domestic Product (GDP) through benefiting from increased trade and maxamising on the benefits of fluctuations in the international business cycle. The gains from free trade agreements such as advances in technology and capital equipment have effectively made Australian production far more efficient. In combination, they provide a sufficient argument to conclude that purchasing goods unbiasedly is far healthier for the economy than strictly purchasing Australian made goods. Key Words: Globalisation, Comparative Advantage, Free Trade, Economies of Scale, Economic Growth, Production Introduction As more countries move toward a market capitalist model, a broader range of substitute goods become available, and this increase in choice between substitute goods proves a time consuming issue for the average consumer in today’s society. Therefore, whilst buying Australian made goods is healthy for the economy, in an increasingly globalised society with continuing integration of economic systems, it is far more beneficial for consumers to purchase goods unbiasedly. The economic theory of comparative advantage, effects of globalisation, and free trade agreements all support this notion audibly....
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...trade Trade is the transfer of ownership of goods and services from one person or entity to another. Trade is sometimes loosely called commerce or financial transaction or barter. A network that allows trade is called a market. The original form of trade was barter, the direct exchange of goods and services. Later one side of the barter were the metals, precious metals (poles, coins), bill, paper money. Modern traders instead generally negotiate through a medium of exchange, such as money. As a result, buying can be separated from selling, or earning. The invention of money (and later credit, paper money and non-physical money) greatly simplified and promoted trade. Trade between two traders is called bilateral trade, while trade between more than two traders is called multilateral trade. Trade exists for man due to specialization and division of labor, most people concentrate on a small aspect of production, trading for other products. Trade exists between regions because different regions have a comparative advantage in the production of some tradable commodity, or because different regions' size allows for the benefits of mass production. As such, trade at market prices between locations benefits both locations. Retail trade consists of the sale of goods or merchandise from a very fixed location, such as a department store, boutique or kiosk, or by mail, in small or individual lots for direct consumption by the purchaser.[1] Wholesale trade is defined as the sale of goods...
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...changes can affect other areas too. Preventive measures in the areas of global productivity, monetary and fiscal policy, and increasing international trade could keep the world from entering this kind of recession. By being proactive citizens of the world the global economy could overcome current conditions. If some of today’s issues are not resolved or addressed the world could face real economic hardships. Increasing Global Productivity by Increasing Employment When one thinks of efficiency in productivity and productivity costs usually coincide with job cuts and lower wages. However, according to Okun’s Law, there is a 1 to 2 ratio when comparing unemployment to loss of real output (Schiller, 2008). This relationship means the more employed individuals a nation has the higher the production possibility can be. The higher number of unemployed individuals the lower the production possibility is. Decreasing unemployment globally will maximize global output. Increases in global output can have beneficial effects on demand and supply, inflation, and the Gross Domestic Production Per Capita for the entire world. Monitoring Monetary and Fiscal Policies Government intervention in the economy can be in the form of monetary and fiscal policies. Some economists believe if governments manipulate the economy then then it cannot be a free economy however some interference could have beneficial effects. Regulations over money and the money supply can help stop inflation. Many governments...
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...FREE TRADE AND ECONOMIC GROWTH An evaluation of the American – Peruvian Free Trade Agreement, 5 years after its implementation Adolfo Neira Economy (ECON6090) William Paterson University 10/24/14 Professor Dr. Taghi Ramin Contents ABSTRACT 3 INTRODUCTION 4 LITERATURE REVIEW 9 METHODOLOGY 11 FINDINGS AND DISCUSSION 13 CONCLUSION 17 REFERENCES 20 ANNEX OF FIGURES AND TABLES 22 Figure 1. Peru nominal and real GDP, 1994-2013 and Inflation Rate, 1994-2013 22 Figure 2. Peru Exports (FOB) and Imports (CIF). 1994-2013 22 Figure 3. Peru Trade Openness Index and Contribution of US trade to TOI. 23 Table 1. Trade evolution for Exports, Imports, and Trade Balance, Peru-USA 2009-2013. 23 Figure 4. Trade evolution for Exports, Imports, and Trade Balance, Peru-USA 2009-2013. 24 Figure 5. Peru-USA Trade Exports and Imports per capita. 2009-2013. 24 Figure 6. Peru-USA and Peru-World Net Trade and Balance Trade Comparison. 2009-2013. 25 Figure 7. Peru’s Foreign Direct Investment stock and flow (Equity Capital). 2003-2013. 25 ABSTRACT Peru has signed a Free Trade Agreement with United States on February 2009, this FTA with the US is a balanced and comprehensive agreement covering all aspects of bilateral economic relationship such as: trade in goods, investment promotion, procurement, border services, and protection of intellectual property. It also includes chapters on labor and environmental protection. Objectives for the Agreement are of two...
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...that restrict or retain international trade, often done with the intent of protecting local business and jobs from foreign competition. Typical methods of protectionism are: ● import tariffs - import taxes. ● quotas - quantitative limits on the level of imports allowed. ● export subsidies - a payment to encourage domestic production by lowering their costs. ● Import licensing - governments grants importers the license to import goods. ● Exchange controls - limiting the amount of foreign exchange that can move between countries. ● cuts to local businesses. Quotas, embargoes, export subsidies and exchange controls are all examples of non-tariff barriers to international trade. There is significant debate surrounding the merits of protectionism. Critics argue that, over the long term, protectionism often ends up hurting the people it is intended to protect and often promotes free trade as a superior alternative to protectionism. Tariffs, non-tariff barriers and other forms of protection serve as a tax on domestic consumers. Moreover, they are very often a regressive form of taxation, hurting the poorest consumers far more than the better off. Protectionism is frequently criticized by mainstream economists as harming the people it is meant to help. Most mainstream economist instead support free trade. Economic theory, under the principle of comparative advantage, shows that the gains from free trade outweigh any losses as free trade creates more jobs than it destroys because...
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...GEO 3106 Producing Africa: Take – Home Exam 1) The ‘real Africa’ is presumed to be filthy and miserable (Wainaina, 2005). Discuss. Representations of Africa in a global context have been largely negative, often presumed to be one country the continent is stigmatised as backwards, disease ridden, violent and in need of Western assistance. Although some positive imagery does emerge from Africa including that associated with Comic Relief, corporate campaigns such as Guinness’s stylish philosophy and in music videos like ‘Am I wrong’ by Nico and Vinz, Africa is subject to the use and re-use of negative imagery resulting in prominent stereotypes shaping our geographical imaginations of the continent. This is a similar concept to that of orientalism explored by Edward Said (1987). This essay will argue that presumptions of the ‘real Africa’ are largely negative, discussing how ‘Africanism’ and stereotypes of the continent are heavily influenced by colonial representations of people and place arguing that these assumptions are highly compatible with Western domination and power rooted in imperial attitudes. Jan Pieterse (1992:75) recognises that Africa has been depicted as the ‘Dark Continent’ plagued by stereotypes ‘which colonialism would build on and elaborate’. Imaginaries of childlike, savage, inhumane distant others who are dependent upon Western help dominate the way in which Africa is perceived. Campbell and Power (2010) suggest that a dominant scopic regime shapes...
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...is the new international economic order assembled in Bretton Woods in 1947. There, the United States and Great Britain, the major economic powers of the global North, made a firm commitment to expand international trade and to establish binding rules on international economic activities....
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...Chapter Two The Production Possibility Model, Trade, and Globalization Learning Objectives After you teach the material in this chapter, your students should be able to do the following: 1. Demonstrate opportunity cost with a production possibility curve. 2. State the principle of increasing marginal opportunity cost. 3. Relate the concept of comparative advantage to the production possibility cure. 4. State how, through comparative advantage and trade, countries can consume beyond their production possibilities. 5. Explain how globalization and outsourcing are part of a global process guided by the law of one price. Chapter Outline This is meant to be an outline and summary of what your students read in this chapter in the text, both in terms of concepts and examples. Headings and subheadings are tagged with the number of the learning objective (LO) to which the material in that section most closely relates and the associated PowerPoint slide numbers, so you may also use this to help you outline your lecture. Material followed by a ( is new to the 8th edition. • The Production Possibility Model, Trade, and Globalization • The three main coordination problems are reviewed, and students are reminded about the concept of opportunity cost, which will be central in this chapter to understand production possibilities. • The Production Possibilities Model (LO1) [PPT Slides 3 & 4] • Production...
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