Fair Trade and Free Trade

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  • Created by: FloraD
  • Created on: 01-06-16 16:04

Importance of Trade

  • Countries with strong economies have greater influence over international trade
  • Many TNCs or MNCs strike hard bargains with the producers of their primary products.
  • General Motors, Wal-Mart and Exxon Mobil all have revenues greater than the GDPs of the 48 least developed countries
  • A country should aim to have trade surplus - the opposite is trade deficit
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Free Trade

  • Free Trade assumes that there are no barriers to trade between countries
  • A balance is created between how much the producer wants and how much the consumer is prepared to pay
  • If a commodity is scarce, the producer has the greatest influence
  • If there is a glut, the consumer has greatest influence
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Fair Trade

  • Focuses on trading with poor and marginalized groups
  • Pays fair prices that cover production costs and provides living wage
  • Provides credit for producers
  • A premium can be paid that will provide funds for social development in local communities
  • Fair treatment of all workers + safe workplace conditions
  • Development of long term trading relationships
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Kenya - Disadvantaged

Kenya is classified by the World Bank as a LOW INCOME COUNTRY

  • The cost of Kenya's imports is rising more quickly than the value of Kenya's exports
  • Most of the exports are primary products: tea, coffee and fresh flowers
  • Tourism is a growing industry, but in susceptible to political instability
  • Farmers in countries like the EU and USA recieve subsidies - can sell goods at cheap prices
  • Countries whose farmers are not given subsidies cannot compete with these subsidised producers
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Traidcraft in Kenya

Kenya is ranked 134 out of 177 in HDI - 60% of the population live on less than $2 a day.


  • Help local businessed develop and enhance their capacities
  • Promoteethical trading policies = increased productivity & reduced poverty
  • improve skills of businesses


  • Craft productts from Bombolulu Workshops for the Handicapped in Mombassa
  • Machakos District Co-operative Union - 7000 artisans
  • Tea from a range of producers on the FLO register
  • Business Linkages Project - small & medium businesses create links in supply chain
  • Coastal farmers and wood carver co-operatives to gain access to new markets
  • Fair Trade Tourism - promoting people-to-people tours
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Role of WTO

The WTO has 162 members (2016). It remits to reduce tariffs and other barriers to trade. 

Significant progress has been made; the average rate of import tax has gone down from 40% in the 1940s to 4% today.

  • Discussing on agricultural and on-agricultural goods, as well as services
  • If talks were successful, it was said that global income could be raised by $500 billion a year and over 60% of teh inc. would occur in poorer countries
  • The real discussion was centred around LEDCs opening their markets compeltely to free trade, whilst the MEDCs cut subsidies for farmers
  • Meeting failed as no one was willing to compromise

There is a growing recognition that it is in everyone's interest to have a system of trade that allows LEDCs and LDCs to develop their industries and compete with MEDCs.

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Market realities


  • The EU is home to many dairy farmers who are subsidised on average $2 for every cow
  • In Burkina Faso, a cotton famrer with a small plot of landwithout fertiliser or irrigation etc. has an average annual income of just $250
  • The USA is the world's biggest cotton exporterand gave its cotton farmers $4.7 billion in subsidies in 2005
  • This figure is larger than the amount of aid given to sub-Saharn Africa in the same year

Import Levies

  • In order to develop their industries, LEDCs may want to move away from producing and exporting raw amterials, and instead export manufactured goods
  • This is already difficult as they do not have the same level of knowledge or technologies as MEDCs
  • Whats more, richer countries charge higher import levies on manufactured goods than on raw materials
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TRIPS (Trade-Related Aspects of Intellectual Prope


  • TRIPS is a policy that was agreedon by the WTO
  • TRIPS states that the inventors of medical treatments have monopoly rights over their inventiions for 20 years
  • During the AIDS epidemic, the standard drug used in MEDCs was too expensive for the LEDCs, so South Africa purchased generic drugs from India and Brazil - this was in breach of the TRIPS agreeement
  • LEDCs are unable to treat their patients as they are unable to create their own drugs (limited knowledge). 
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What is needed to make trade fairer?

LEDCs need help in developing their trade. This comes in the form of...

  • Protection of their fledgling industries from cheaper imports
  • Rich countries sharing technical expertise and knowledge
  • The dismissal of policies which support the protection of such informations
  • In terms of the WTO, poorer countries often lack the expertise of the teams of specialist advisers that support trade ministers from richer countries
  • All the G7 countries meeting their target of giving 0.7% of GDP in aid
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