This is the Dissertation I wrote and submitted in 2012
Development Through Trade Justice:
A Synthesis of Ideas
Catie Eliza Raikes
University of Newcastle-upon-Tyne Business School
Many thanks to Tony Boland for his dependability and insight as a supervisor and his open-mindedness as an academic.
Also with gratitude to Rod, Judith and Ann Marie Raikes, and my lovely housemates for their kind support.
Ultimate thanks to Jesus.
A post-structuralist interpretivist methodological approach has been taken to form an intellectual synthesis of argument, theory, academic literature, and miniature case studies relating to the ways in which trade has the potential to enable progress for developing countries. Globalisation and free trade have been marketed as the solution to poverty in developing countries by academics and theorists for generations, but the realities of global trade have produced many discontents. The inadequacies of international trade, in its conventional free-market state, to meet the social and economic needs of developing countries, might be remedied, and the emergent means by which to do so have been analysed in this dissertation. Corporate Social Responsibility has been exposed as a weak contributor to trade justice, with some exceptions, and broad potential if governance is strengthened. The Fair Trade Movement has been a positive radical influence for development, albeit thus far limited in scope. The gathering of information and theory, positioned alongside the context of individual and developing country experiences, produced strong arguments towards the need for enforced impartial governance in order to overcome the inequalities caused by trade which operates from a philosophy of selfishness embedded in capitalist neoliberalism.
1 Introduction 1
2 Globalisation and Trade 2
2.1 Globalisation and Free Trade 2
2.2 Corporate Social Responsibility (CSR) in Development 4
2.3 Fair Trade and Development 5
2.4 Governance Approach 8
3 Methodology 9
3.1 Goals and Perspective 9
3.2 Method 11
4 Free Trade: Is There Any Hope Here? 12
5 CSR: How Responsible? 14
6 Fair Trade: Delivering Development? 17
7 Towards Impartial Governance 20
8 Discussion and Conclusion 23
8.1 Current International Trade System’s Failures 23
8.2 Alternative Methods of Implementing Trade Justice 24
8.3 Fair Trade as a Superlative Catalyst for Development 25
8.4 International Trade as it Currently Operates is Failing to Benefit Developing countries: Can Alternative Models Deliver Greater Justice and Progress? 26
9 References 27
10 Appendices 28
Development through Trade Justice: A Synthesis of Ideas
The rationale for this dissertation comes from the concept of research as a means to provoke thought and change for the sake of moral duty of human beings to one another (MacIntyre, 1984; Fay, 1987); to solve problems of poverty. Globalisation has brought great opportunities to developing countries, but the international trade system, as it stands, has not resulted in great economic development (Stiglitz, 2006); promises have not been fulfilled (Tiemstra, 2007; Peet, 2003). The neoliberal capitalist ideology which has dominated international trade is not the only possible approach (Panić, 2011; Macdonald and Marshall, 2010a); this has led to the following research question:
If international trade as it currently operates is failing to benefit developing countries, can alternative trade models deliver greater justice and progress?
In the process of collating and interpreting various sources of information, it became apparent that the predominant responses to injustices created through neoliberal free trade, have been Corporate Social Responsibility (CSR) and Fair Trade (Murray and Raynolds, 2007; Utting, 2010). In addition to these means of accountability there have been calls for strengthened governance of international trade which could come from state governments (Lobel, 2010). There are challenges which these initiatives face which need to be explored. For the purpose of answering the research question, the following research aims have been identified:
+ Identify the current international trade system’s failures
+ Evaluate fair trade as a superlative catalyst for development
+ Critique alternative methods of implementing trade justice
The research question and aims were the result of initial reading on the topic, this made it clear that the area of research was contentious; there have been arguments for various approaches to international trade, some of which were not necessarily fuelled by egalitarian intentions. This revelation fed into the methodology, which considers the normative understanding of neoliberal international trade as fallible, and perceives additional information and context to be valuable in forming knowledge on the subject (Williams, 2001).
2 Globalisation and Trade
In this chapter an exploration will be made of areas of influence in international trade in relation to their ability to deliver progress to developing countries. The literature and sources explored aim to uncover their strengths and weaknesses, grounding the research in a well developed context while also revealing areas which will feed into further research and analysis.
2.1 Globalisation and Free Trade
Globalisation has the potential to relieve those captive to poverty, and it is commonly accepted that it should aim to provide ubiquitous prosperity and economic development along side sustainability and cultural diversity (Tiemstra, 2007). Globalisation is viewed as a shift of economic activity towards further international integration and interdependence, which many perceive to be inevitable and irreversible (Panić, 2011).
Adam Smith was an eighteenth century pioneering British economist, who had strong arguments for free trade as a macro-economic approach to increasing the wealth of the nations (Stone, 1992). His depiction of free trade includes improvement of the living standard for communities as a whole through increase in market size and decrease in prices. The main arguments made by Smith, as explained by Stone (1992), hold striking resemblance to ideas held by modern economists; Bhagwati (2007) claims that observation and scientific evidence show globalisation to be a poverty reducing tool, and importantly, specifically indicates that free trade is the crucial element. His book contains many anecdotal examples of how trade has been used as a strategy to spark growth and increase wealth in various economies across the globe.
Bhagwati (2007) also mentions however, that economic growth does not always truly lead to helping the poor; in some cases it may lead to increased productivity but is accompanied by decreased prices which can outweigh the benefits of increased exporting. In stark contrast to Bhagwati (2007), Peet (2003) posits that while there is great resistance to globalisation from social movements, the actual protest is against the particular neoliberal idea of globalisation that produces free trade. ‘Free Trade’ is basically defined as trade without government barriers (Ehrlich, 2010).This however, is a simple definition and the outworking and impact of free trade is complex. Peet’s (2003) explanation of free trade is slightly more detailed; he asserts that it involves ‘allowing goods to flow smoothly from one country to another, without disruption or distortion, supposedly permitting all countries to achieve larger output levels and increasing economic growth’. This appears to be an idealistic definition, as implied by use of the word ‘supposedly’, which is reflected in the plethora of academic debate and exploration of issues caused in developing countries during the era of neoliberalism, capitalism and globalisation. Neoliberal globalisation, in the form of free trade, does encourage economic growth which can lift people out of poverty, but some argue that influential global institutions like the World Trade Organisation (WTO), World Bank and International Monetary Fund (IMF) not only fail to play a great enough role in helping countries develop out of poverty, but that they actively keep them back from reaching their potential through unfair agreements (Peet, 2003; Shaffer and Meléndez-Ortiz, 2010; Lee, 2010). The World Bank (2011) state its mission to be ‘help reduce poverty’, but with its leadership being so heavily American, there are likely dangers that the interests of the developing countries are not always served first, and an unhealthy amount of power can be exercised by the Wold Bank over its debtors (Peet, 2003). Most influential in this area, and a strong proponent for free trade, is the WTO. WTO agreements regulate trade, or rather de-regulate trade; the member countries are said to benefit from economic growth as trade becomes freer and incomes rise (WTO, 2012a). The WTO (2012a) fails to explain how the added income might be distributed to those who labour to create the exports. The information provided regarding the benefits of the WTO are appealing, in the majority, from the perspective of the consumer and not the labourer (Peet, 2003). John Pilger (2003) writes about the World Bank’s ‘model pupil’; Indonesia, which, under the dictatorship of General Suharto was plunged into a system of ‘free trade’ at great and horrific cost to its people. Although Pilger’s (2003) book is now almost a decade old, and things will have changed to a certain extent, it is still an example from which valid observations and lessons may be taken; as a result of the brutal transformation, absolute poverty rocketed and the working conditions and pay revealed by Pilger’s investigations reflected anything but the success which the Wold Bank seemed determined to portray. Sweat shops and unemployment were rife and did not provide living standards which could truly be described as development.
Sklair (2002) identifies some different viewpoints of globalisation; he supposes that the term globalisation is commonly used to refer to what is in actual fact capitalist globalisation. Sklair (2002) understands capitalist globalisation to be a framework for considering the worldwide system, but insists that globalisation need not be capitalist, and in a recent article Sklair and Miller (2010) argue that in order for globalisation to be a useful tool for reducing poverty, it is essential to admit where it is flawed and to adopt Corporate Social Responsibility (CSR) into policy making. Trade between different national economies is required for development to take place due to the scarcity and abundance of different resources in different countries as well as differing density in population of different countries (Panić, 2011). However Panić (2011) states that development can only result from free trade where equality of opportunity is present in the competition. The argument of several academics seems to conclude that global trade is not negative but there are questions to be raised about the current system of free trade.
2.2 Corporate Social Responsibility (CSR) in Development
Corporate goals are generally assumed to be unconcerned with paying a fair price for produce, let alone the wider social development of the producer community. Nevertheless, there is a growing school of thought that corporations do have some responsibility for their actions, or at least are expected to attend to matters of common concern (Visser et al, 2009). As with fair trade, the rise of CSR is understood to be a response to the neglect of social development driven by neoliberalism and ineffectually governed by state-centred regulation (Utting, 2010). CSR is difficult to define due to the variation in nature of corporations and their scope for impact, and because it can be seen as a social construct (Dahlsrud, 2006), it is also complicated by moral issues and values which are influenced by philosophy, politics, society and spirituality (Cahn and Pastore, 2003).
Windsor (2006) broadly identifies CSR to be any ‘concept concerning how managers should handle public policy and social issues’, elaborating by distinguishing three CSR approaches. According to Windsor (2006) economic CSR and Ethical CSR are mutually exclusive approaches which sometimes overlap with the third approach of corporate citizenship which can be either instrumental or idealised. Economic CSR is not the necessary response to neoliberal globalisation and its faults but more an expression of capitalism in corporate policy and ideology; some hold that the sole responsibility of a corporation is to its shareholders (Sage, 2012). Evidently this is not likely to be a facilitator to development for developing country producers, since the shareholder’s interest is invested in maximum profit, regardless of negative impact elsewhere. Sklair and Miller (2010) suggest that CSR is regularly understood to indicate the allegiance to and execution of ethical activities and practices in terms of social justice and environmental sustainability by corporations. Utting (2010) has identified CSR as a voluntary practice but discusses the issue in depth; considering what influential dynamics affect the policies set by an organisation, he says that CSR is usually inclusive of principles and guidelines such as codes of conduct, policy on the environment, health and safety and triple-bottom line accounting; essentially policies which improve corporate interactions with various stakeholders. These policies are not always coherent though; there are often disconnects between the objectives and the outcomes which Utting (2010) claims need addressing through more effective regulation. There is a danger that CSR policy such as codes of conduct can be seen as merely a protection for the corporation; a method of quashing criticism which might otherwise tarnish the value of shares (Jenkins, 2002). CSR is heavily condemned by Sklair and Miller (2010) as a marketing tool for most corporations; the motivation behind creating apparently humane policies is scarcely disguised as a means for attracting new customers and differentiating products; under the surface they lack any real aim of navigating away from capitalism and the class polarisation crisis. Even so, Sklair and Miller (2010) do not discount authentic CSR, they simply argue that the real motivation for the majority of current CSR must be exposed, and reason that it is imperative that genuine radical alternatives to capitalist neoliberal globalisation be found. For development to be realised through CSR then the perception of what it is needs to shift towards that of Küpers’ (2011) understanding, where responsibility is stripped back to its elementary meaning as the ‘ability to respond’. It is therefore suggested that those companies which have the ability to respond to the needs of the developing economies are in a position of responsibility.
The fair trade movement is extensively deemed to be a superlatively significant CSR enterprise (Jones and Shaw, 2006), but this is distinctive from the CSR adopted by individual corporations as the fair trade movement unites around rigid standards which are not first-party regulated as are many of the alternative CSR initiatives (Reed, 2009). If greater accountability is necessary to make CSR effective in promoting justice, including enabling development through their supply-chains then third party involvement may be necessary (Macdonald, 2010).
2.3 Fair Trade and Development
It is not accepted by all academics that the present ideology of capitalism and system of neoliberal globalisation is inevitable or unchangeable (Stiglitz, 2006). The key issues identified with free trade and the current system of global trade are that even in cases where there is some macro-economic improvement as a result of trade liberalisation, the micro-economic situation is frequently worsened for some groups of people. Stiglitz (2006) identifies problems with globalisation but does not write it off completely; proposing that if the issues are dealt with then globalisation can be a positive agent towards reducing poverty and increasing development. His argument includes an allegation that free trade has not been truly free and nor has it been fair; among other things he exposes the problem that even if agreements are made about liberalisation and there are perfect markets it is still likely that the benefit to developing countries as a whole will not reach the majority of workers (Stiglitz, 2006).
In answer to this perceived injustice the social movement of Fair Trade aims to alter globalisation to provide a system of trading where there is more equal gain in trade between developed and developing countries; directly benefiting marginalised producers (Raynolds and Wilkinson, 2007). From its beginnings in the post World-War II period where fair trade started out as ‘charity’ or ‘good-will’ trade it has developed into being a commonplace consumption choice (Reed, 2009; Archer and Fritsch, 2010). There is a slight distinction between fair trade and fairtrade; the former refers to the movement consisting of many Fair Trade Organisations (FTOs), the latter refers to products with the Faitrade Labelling Organisation’s (FLO) certification mark. In order to trade using the registered Fairtrade certification label on a product there are standards set by the FLO which must be met (Fairtrade Foundation, 2011a). The fair trade movement is comprised of the FLO and hundreds of FTOs which also have similar standards, together they collaborate to advocate fair trade, set standards and monitor them (Archer and Fritsch, 2010). The standards can be summarised as: i. guaranteed higher prices for marginalised producers than the conventional world market prices, ii. supporting organisational capacity development and democratic representation through co-operatives and unions, iii. improving the skills of participants and iv. endowing the community with a premium with which health, education or other services might be improved (Murray and Raynolds, 2007).
The Fair Trade movement has seen much success, developing from an unconventional niche market to a world renowned growing trend which has infiltrated even mainstream consumption (Archer and Fritsch, 2010). The financial and social gain to individuals and co-operatives participating in fair trade, from the perspective of living in developing countries, is evident (Knapp, 2010), but as the fair trade market has expanded, some challenges have come to light about the future for fair trade and its potential as a new form of globalisation to combat poverty, particularly in light of reaching the mainstream market (Hira and Ferrie, 2006). A key enabling factor for mainstreaming has been the fairtrade certification mark which has allowed mainstream commodity providers to distribute fairtrade products (Knapp, 2010). Reed (2009) provides an in depth analysis of the various forms of corporate involvement in fair trade with detailed explanation of the risks and benefits to the movement. He highlights the tensions which have become evident, between the fair trade organisations which have collaborated, over the roles of the corporate participators. The FLO have to balance the enabling of mainstreaming fair trade in order to have a broader scope for improving economic development for marginalised producers with ensuring that the values and standards of fair trade are upheld (Reed, 2009). Bezençon and Blili (2009) find, through use of five case studies, that there is evidence that adoption by large corporations does boost quantity of fair trade sales internationally but does not always effectively communicate the revolutionary intention of fair trading. One contentious issue is the extent to which the small producers are involved in decision making (Raynolds and Murray, 2007). In terms of retail participation, despite the risks of lower standards, small producers have been keen for the additional involvement (Renard, 2005) despite risks. Big retailers have the ability to use their power to pressure producers into investing in quality rather than development of the community services, but notwithstanding this, they also have great capacity for fair trade market growth (Reed, 2009). Contradictory to this however, the World Fair Trade Organisation (WFTO, formerly IFAT) feel that the label is beginning to have too much influence over the original values of fair trade, doubting the commitment of the corporations to promoting equality and sustainable development for the producers (Knapp, 2010).
The issue at hand; development, is worth defining, in order to ascertain the barriers to it, and the benefit that fair trade might have. Stiglitz (2007) characterises developing countries to be ones which have low incomes and low levels of education, accompanied by high poverty and high unemployment. Development is a process of improving this situation; essentially it is economic growth (Gereffi et al, 2001). There are many barriers to development which can stifle a developing country’s ability to grow economically. Knapp (2010) names lack of clean water, sanitation, electricity, access to credit, investment and technology as the basic infrastructural dearth which limits ability to develop. In addition there are further hindrances to development which include lack of education and therefore knowledge, in particular about markets, limited experience of business and negotiation and being deficient in co-ordinated organisation which lessens their power to influence market interaction (Knapp, 2010). Therefore the local development and macro-economic development are seen as inextricably linked; the strategy of the fair trade movement in enabling macro development is to facilitate community development; to remove barriers to development through a fairer system of international trade (Knapp, 2010). In order to maintain the value of the fair trade movement in reducing these barriers while fair trading occurs, it is vital for the Fairtrade certification system to reinforce its goals which must not be undermined by corporate goals (Hutchens, 2010). In a capitalist free trading system there will always be a primary concern with the lowering of costs for the sake of profit maximisation (Stiglitz, 2006). This simplistically translates as a barrier to any avoidable expenditure due to corporate profit growth having precedence over social development. Nevertheless, multinational corporations have also been a source of benefit to developing countries and Stiglitz (2006) argues that while they can certainly be blamed for many problems caused by globalisation they have played a role in enabling development and have a great potential to further increase standards of living; he says that ‘social welfare is not maximized if corporations single-mindedly maximize profits… corporations must take into account the impact of their actions on their employees, on the environment and on the communities in which they operate’.
2.4 Governance Approach
Governance of trade agreements is not a new concept; the WTO is a regulator of trade, however their approach of free trade is significantly flawed in terms of promoting development, as discussed. There is relatively little academic literature discussing the possibility of state regulation of international fair trading, however the literature examined so far points towards egalitarian governance as being key to successfully promoting development through global trade. Traditionally the ethical demands of consumers have been the driving force behind corporations making policies to be socially responsible and to trade fairly (Wilkinson, 2007), and this pressure still plays an integral role in pursuing a multi-level approach to attaining fair trade on a broad scale and to a high standard (Lobel, 2010). Lobel (2010) suggests that there are several possible concerns relating to interactions between CSR movements such as fair trade and state-based systems of governance; regulation has the potential to compromise voluntary endeavours and obstruct their efficiency, though this does not have to be the case.
Another issue which threatens to surface in light of international governance initiatives is the complexity and difficulty in implementation and enforcement, as seen to be the case with the International Labour Office (ILO) which deals with labour standards (Peet, 2003).
Despite the many obstacles to state involvement, that is, national and international legal pressure to trade fairly and enable development, Macdonald and Marshall (2010b) maintain that were it possible to carry out, in the long term there are defensible arguments of state involvement in enforcing cohesive and transparent policies which support trade justice. There is a power imbalance between producers in developing countries and retailers in developed economies which voluntary CSR initiatives only address largely to an unsatisfactory level. The state would be in a position to address this more effectively if it were to reassert itself (Howe, 2010; Macdonald and Marshall, 2010b).
Petersmann (2007) stresses the important and significant role that human rights law and international economic law can and should play in the protection of freedom and equality in trade and in counter balancing disparities of power. He also argues that national polities must be integrated with one another across nations so that government institutions are equally enabled to protect and benefit their citizens, enabled by bodies such as the WTO (Petersmann, 2007).
The literature therefore provides moral reasoning for governance and regulation which promotes trade justice and practical reasoning against attempting such governance initiatives. The research shows that the arguments from both perspectives is contestable and requires further exploration and Macdonald and Marshall (2010b) suggest that experimentation will reduce uncertainty.
This chapter has outlined the promise and limitations of free trade, CSR, fair trade and other governance initiatives. From this framework some questions for further exploration have been identified, the answers to which should inform conclusions drawn in answering the research question and fulfilling the research aims. To identify the ways in which the WTO is failing to facilitate free trade that can benefit developing countries would answer questions about the scope for the WTO to change and what changes would be necessary. CSR has been criticised but has become an important part of business, can corporations make a genuine difference, and can they really be held responsible? What difference does fair trade really make to producers in developing countries? Some tensions have arisen in the fair trade movement but what does this mean for progress in developing countries? Will any of these measures be enough or is further governance needed to provide incentives? The answers may not be incontrovertible but the discussion should shed some light on the appeal of these options.
3.1 Goals and Perspective
In this dissertation the goal is to arrive at some analytical conclusions about the current international trade system’s failures, fair trade as a catalyst for development and alternative methods of implementing trade justice. Selecting the most appropriate research methodology is conditional on the purpose of the study and how to achieve it with accuracy (Denscombe, 2002). Kuhn’s model of diachronic paradigms (Appendix A) demonstrates how the development of science and knowledge is not a continuous flow but goes though cycles of calm and consensus which are replaced by challenge and disturbance, before returning to calm as the new consensus is reached (Jackson and Carter, 2007). This dissertation aims to challenge and deconstruct the epistemological and methodological foundations of neoliberalism “that depend upon a universalization of homo economicus” (Brosio, 2005).
The research has been conducted from a post-structuralist interpretivist stance which rejects positivist empiricism as the ultimate means of collecting, producing and developing knowledge. In order to justify this perspective it is important to consider the epistemology; to question the way we acquire and develop knowledge and understanding and discover the implications of this information (Fowler, 1998).
Goetz (1990) identifies that for several decades there have been criticisms of the conventional discourse of positivist knowledge production; deductive empirical research cannot be considered to be exclusively reliable or appropriate. She states that “the history of science as well as current investigations in moral philosophy, reveal that all attempts to establish an indisputable foundation for our knowledge have met with failure” and continues to argue that our knowledge of the world around us and the means by which we interact are constantly evolving. Brosio (2005) proclaims that “It is our duty to analyze critically the ideas and subsequent implicit or explicit calls to action by important theorists”. A juxtaposition of empirical and interpretive accounts aims to enable trustworthy and critical conclusions (Comstock, 1982). In light of this, the methodology of this dissertation aims to take on a critical and inductive nature, to analyse theories and academic literature in conjunction with examples and case studies, in order to evaluate and synthesise ideas in a way which contributes to existing pools of knowledge.
In order to maintain reliability in research while taking an inductive interpretivist approach, it is essential to retain objectivity (which is not the same as objectivism) and not to allow relativism to dilute knowledge with personal bias, superstition, or false beliefs (Bernstein, 1976). Without this clause, knowledge would become a personal matter, incapable of being criticised (Bernstein, 1976). Dobbert (1990) articulates the need for critical reflection in social disciplines and inquiry, which is a reiteration of earlier thought in terms of linking social science with public philosophy and reintegrating moral analysis as part of the social construction of reality (Bellah et al, 1985; MacIntyre, 1984; Birnbaum, 1988). There is an element of constructivism, which influences the method by which the analysis is done in this dissertation, whereby the there is a concern with lived experience of participants which draws out the communicative capacity of human beings which can be distorted by an empirical, and in particular quantitative, approach to research (Goetz, 1990).
The research has been done with a view to reaching conclusions that may challenge the status quo with suggestions that lead in the direction of a particular course of action or trajectories for change; this is in line with Fay’s (1987) concept that theory should be educative and inform social practice “as a first step in becoming different sorts of people with different sorts of social arrangements”. This may result in suggestions which are idealistic and could be criticised for being unrealistic or utopian. However, recognition of the problematic areas will be included in the holistic approach by which an understanding is reached. The areas of thought and practice examined are broad and complex; by taking the route of interpretivist knowledge production, the research attempts to facilitate “the reconstruction of intersubjective meanings, the interpretive understanding of the meanings humans construct in a given context and how these meanings interrelate to form a whole” (Greene, 1990). Kuhn posits that the purpose and test of scientific research is found in its aptitude for solving problems and contribution to progress (Jackson and Carter, 2007).
In order to achieve the aims of the research in line with the perspectives outlined above, analysis of data from secondary sources will be carried out as, within the financial and geographical constraints of an undergraduate student, this is likely to produce the most holistic synthesis, thus providing insights most relevant to the research question (Quinlan, 2011; Cowton, 1998).
The research was carried out in light of the above methodology as follows. Initial exploration of trade and globalisation in academic literature yielded the information and arguments set out in the second chapter, which is accordingly named. Following this, further questions were identified from the chapter which directed the more in depth analysis of the subjects in four chapters entitled ‘Free Trade: Is there any hope here?’, ‘CSR: How Responsible?’, ‘Fair Trade: Delivering Development?’ and ‘Towards Impartial Governance’. These chapters include insights from academic journal articles, case studies, which were aided by documentaries, articles, books and websites, and books which display traditional academia, theory and personal opinion. The literature and sources used were the result of scrutiny against their relevance to the research question and research aims, in order to create a well rounded answer which was not prescribed by orthodox understanding of the issues addressed. The conclusion then aims to draw together a synthesis of argument from these various sources which answers the research aims in a critical and thorough way; recognising limitations but contributing to knowledge in such a way as to provide some suggestions which would facilitate progress and development.
4 Free Trade: Is There Any Hope Here?
Exposed by the literature, free trade as part of a capitalist international trade system has flaws in its ability to deliver social and economic development in developing countries and does pose some threats to the ideal of improved standards of living. The question that follows is whether or not there is any scope for free trade to be part of a strategy for enabling development?
The protagonist in the realm of free trade is the WTO, which must be examined more closely to deduce whether it holds potential. The WTO consists of over 150 member countries, the majority of which are developing countries (WTO, 2012b), in theory the trade agreement negotiations are democratic and every member is part of reaching a consensus decision (WTO, 2012b). There is some tension regarding ‘Green Room’ meetings which involve a smaller number of delegates which can create an impression of exclusion (WTO, 2012b). In the documentary film Black Gold (2006) Barry Coats of the World Development Movement who attended the WTO ministerial conference held in Cancun, Mexico in 2003 stated that the negotiation was done in a way that put developing countries at a severe disadvantage. Where smaller working groups gather to negotiate, the members with as few as three delegates cannot have their voice heard as easily as the European Union who had over six hundred and fifty delegates. There is a clear concern that the WTO does not facilitate equality between members not only in negotiations about trade rules but also in dispute settlements (Schunken, 2008). During the negotiations in Cancun the injustice was felt too keenly by the members from developing countries for an agreement to be reached; Hon Irene Ovonji MP of the East African Legislative Assembly said “The WTO is supposed to be a rules based organisation but it is a power based organisation and we are not ready to accept that” while the U.S. trade representative made it clear that the United States of America were not flexible and would achieve their ends of opening up markets “one way or another” (Black Gold, 2006).
Stiglitz’ (2006) assertion that free trade is not genuinely free, and that trade without hindrances to less developed nations has not been attempted, leads to the question of what changes would be required by the WTO to attain said equality? In searching for an example of a successful WTO execution of negotiating with such trade agreements in mind has rendered little fruit. The failure of powerful members, at Cancun, to lower their subsidies to farmers, which creates an unrealistically low export price, has crippled farmers from developing countries who get no subsidies (Black Gold, 2006; Smith and Rice, 2004). However there has been some promising progress, which will particularly benefit African cotton farmers; the following year the WTO were forced to concede that US cotton subsidies were unfair (Smith and Rice, 2004). This is significant because it signals that despite there being a great deal further to go before the WTO genuinely facilitates fair competition in multinational markets, there is hope that political victory is possible in favour of the developing countries within the WTO (Smith and Rice, 2004). This indicates the potential significance and impact that increased governance could have for farmers in developing countries. Gallagher, Low and Stoler (2005) reveal that, as in the aforementioned case, intentional participation and communication within the member country can enable developing countries to take maximum available advantage from the WTO system; however creating a more equal trading system is still more preferable.
Stiglitz (2006) argues that in order to create some symmetry in the liberalisation of trade that subtle trade barriers must be lowered by the developed countries and in conjunction with this, that the disadvantages of under developed infrastructure must be recognised and a factor which prevents truly fair competition in export markets. He identifies the factors which create inequalities and says ‘this is not the world as it has to be. Trade liberalisation can, when done fairly, when accompanied by the right measures and the right policies, help development.’ (Stiglitz, 2006). Peet (2003) is of the opinion that the WTO needs to change towards being unbiased in favour of large corporations and to open discussions out to include social movements voiced by highly informed NGOs where topics are not limited to neoliberal ideas of trade. He states that unless such changes are made the WTO is not only redundant as a force for trade justice and development, but is a danger to it.
The problem with free trade as a means to equality and development is that the mechanism relies on competitiveness which is driven by selfishness (Chomsky, 1999). If this is the ideology behind the tool by which poverty and injustice are tackled, then there is a constant strain on its actualisation; since developing countries are not in the same position of power to manipulate markets in their favour as multinational corporations and developed countries, the opportunity to exploit them for additional profit, regardless of the social consequences, is the logical outcome. Each person’s own wellbeing becomes their own responsibility, regardless of whether they have the means to invest in it or protect it (Harvey, 2005).
Trade is of course key to enabling development, but for developing countries to use trade as a means to reduce poverty then trade systems must have regulation which takes into account the need for differential treatment for developing countries (Stiglitz, 2006). It appears therefore that external pressure to enforce radical change in the democracy of the WTO is necessary; otherwise it seems reasonable to look to alternative means of trade to globalise equality.
5 CSR: How Responsible?
This chapter aims to give an in depth discussion of the issues surrounding CSR as a means of tackling trade injustice. As the spotlight hones in on corporations and their CSR activities the question of why corporations should engage with issues of development and poverty must be answered.
The predominant answer provided by literature is that there are basic human rights which should not be violated. The UN Universal Declaration of Human Rights states that “All human beings are born free and equal in dignity and rights. They are endowed with reason and conscience and should act towards one another in a spirit of brotherhood.” (United Nations, 2012). Wettstein (2009) views human rights as an ethical minimum which corporations are obligated to recognise. He directs the weight of responsibility into the hands of multinational corporations in particular due to the power that they have to affect change; their position makes it possible for them to be very influential global agents of justice through trade. The concept seems perhaps unrealistic but Wettstein (2009) encourages the pursuit of this ideal as the cost to humankind of the status quo is too high to tolerate. Some may be inclined to contest the social development obligations of multinational corporations (Friedman, 1970; Amaeshi et al, 2008), but Kolstad (2007) reasons thoroughly that it is a universal obligation that humans not violate each other’s rights and that if corporations cannot operate somewhere without doing so they should cease to operate in that field. Furthermore his argument reinforces Wettstein’s position that with the increase of power so increases the duties of a corporation, and adds that the positive duties to contribute to the social development of a country are necessitated by the failure of, or constraints on, the national state to do so. This concept of the division of moral labour; where the burden of social and economic development is distributed between corporations and public institutions respective of their capabilities, is a valuable insight since many of the largest economies belong to corporations rather than nations (Hertz, 2001). Along with these arguments, which apply to all powerful corporations, there is the added weight of the historical debt that some developed economies have, such as that of Britain, due to the exploitation of slaves. The comparatively thriving economy of the UK owes much of its initial development to slave labour, which was operational in the eighteenth century and involved enslaving people from nations which today still constitute developing countries (Blackburn, 2011). If nations like Britain owe their current status of development to slaves from developing countries, the onus on their corporations and consumers to contribute to their development would appear to be a minimum repayment.
Looking to CSR as a source of hope for globalising the benefits of trade as well as trade there are similar criticisms as with free trade; much is promised but frequently with little substance below the image surface. This is a generalisation since CSR is a broad and comprehensive field of study. The main criticisms of CSR as a proponent for positive change is the way corporations use their responsible actions for marketing purposes or as a defence against a negative corporate image (Sklair and Miller, 2010). Although it is clear that CSR is used for these functions, it is possible that CSR can be driven by a genuine desire to impact all stakeholders positively. According to Diviney and Lilliwhite (2010) the factors which drove a surge of CSR stem largely from pressure groups and consumer desire for ethically made products but are also a response to information about working conditions becoming more available which links to the importance of corporate image and vulnerability to being tarnished. All of these factors have been created or affected by economic globalisation and contribute to the concept of CSR. It is almost impossible to ascertain the primary motive for corporate actions but the actions of the corporation can reveal whether there is any depth to their concern for the people and the planet that their business affects.
Companies which pursue a more than nominal ethos of responsible practice are likely to include their ethics in their brand but that in itself does not diminish the positive effects of their CSR policies. There are few multinational corporations without significant blemish upon their record for socially responsible business practices but there are many smaller organisations which achieve a great deal through CSR. The Ethical Consumer (2012) provides detailed feedback on various companies with a broad collection of CSR issues taken into account. In the clothing industry there are obvious ways in which the producers and manufacturers in the supply chain can be affected either negatively or positively, and these are frequently outsourced to developing countries. Sweatshops are not a new phenomenon, particularly in the clothing industry (Pilger, 2003) and yet they continue to supply many of the brands that western consumers wear (Ross, 2011) however even some of the bigger high street shops in the UK such as New Look and, surprisingly, Primark have made some significant improvements to their CSR impact through their supply chain policies (Ethical Consumer, 2011). These improvements are often only subject to having received bad press, and not out of genuine concern (Corporate Eye, 2008). The strength of value that CSR has through smaller alternative clothing companies such as Vericott ltd. undoubtedly surpass the larger corporations (Ethical Consumer, 2011). Vericott ltd. source locally where possible to avoid unnecessary carbon footprint and source cotton in India with long term relationships with their suppliers Agrocel who produce organic cotton, avoiding harmful pesticides, own 10 percent of the company and are paid a certified fairtrade price (Gossypium, 2012). The problem with such organisations is that despite the immensely positive impact they have it is not able to have as wide an influence as that of a multinational corporation.
Effectiveness through genuine CSR demanded by Sklair and Miller (2010) is happening in some organisations and to a lesser degree in many organisations (Ethical Consumer, 2012). The challenge is to maximise the benefits of CSR, in particular through the supply chain where goods and labour are sourced in developing countries, so that where human rights are not protected by their government, the international and multinational corporate policies are socially responsible. Companies like Nestlé which are influential actors in many commodity markets have been subject to many boycotts and suffered a great deal of criticism for their unethical and irresponsible corporate activities (Martinson, 2006) have produced lengthy reports of their CSR efforts with many impressive promises (Nestlé, 2011). These plans sound as though they are taking their responsibility seriously but reveal Nestlé to be vague and non-committal in relation to serious problems such as child labour in the Ivory Coast cocoa plantations. Statements such as; “The cocoa supply chain is long and complex, making it difficult for food companies to establish where the cocoa comes from and conditions in which it was harvested.” illustrate the evasive nature of their CSR commitments (Nestlé, 2011). The Ethical Consumer (2012), it transpires, confirms the weakness of their CSR efforts despite Nestlé’s attempts to protect its brand image.
In order to further the effectiveness of CSR as an instrument for development and the protection of human rights, a realistic comprehension of the necessary incentives must be explored. Although Falck and Heblich (2007) emphasise that it is possible to benefit financially from strategic CSR policies, the cost of creating an ethical supply chain policy means that CSR is not necessarily good for profit margins (Kolstad, 2007). The incentive to impact stakeholders positively and protect human rights through codes of conduct is held by some as a genuine intention but Kolstad (2007) infers from the widespread mal-practice that harder incentives are necessary as voluntary CSR policy lacks sustained effectiveness.
Pines and Meyer (2005) explore how pressure can be applied to corporations to stop exploitation of workers in commodity supply chains from two directions; economically, which requires demand from consumers, and socio-politically, which calls for action from Non-Governmental Organisations (NGOs) and governmental organisations. They find that consumer pressure has been the most likely instigator of change for brand owners but that consumer price sensitivity, which is heightened in recession, makes this incentive unreliable. In addition to this they suggest that producers of un-branded commodities are also left un-protected by this responsibility mechanism. NGO pressure is deemed as less effective than consumer pressure and they perceive the potential of governmental pressure to be the greatest (Pines and Meyer (2005), which will be discussed further in the governance chapter.
6 Fair Trade: Delivering Development?
This chapter will use case studies and other sources to ascertain the true value that fair trade can add to development through trade. In developed countries, the various logos which indicate that goods are fair trade must be taken on faith that they indicate a better life for the farmers and producers at the base of the supply chain. Fair trade has been championed as a success story of CSR, but is it able to deliver the social and economic development which it seems to promise?
The Day Chocolate Company, now Divine Chocolate Ltd, is a case worth investigating to evaluate the impact of fair trade. Kuapa Kokoo is a farmer owned co-operative in Ghana, which supplies fair trade cocoa to the market. In 1997 the Day Chocolate Company, of which Kuapa Kokoo is a significant shareholder, was founded in the interest of increasing the profits going back to the communities in Ghana through the added value of the branded final product; Divine chocolate. The impact of the fair trade co-operative in communities in Ghana has had manifold benefits; increased farmer power, environmentally sustainable production, fair prices which are agreed on prior to production and in some cases more than double world market price (Fairtrade Foundation, 2011b). In addition a social premium is received. The social premium has been used by Kuapa Kokoo for investment in clean water supplies, education, health facilities and establishing other income producing ventures for women such as soap making (Doherty and Thachrell, 2005). For example Doherty and Thachrell found that prior to their article in 2005, over 100,000 people, who were not necessarily members of Kuapa Kokoo, had received free medical attention and prescriptions via medical students who were sponsored by Kuapa Kokoo to accomplish medical degrees. This model of fair trade and its achievements reveals itself to be momentously significant for the communities which are affected (Doherty and Thachrell, 2005; Kuapa Kokoo, 2011; Divine, 2012).
The contrast between this model and the cocoa farming situation in the Ivory Coast, where Nestlé , Mars and Hersheys source the majority of their cocoa, is unsavoury. As mentioned before, Nestlé have been condemned for leaving child labour unchallenged in their supply chain, but additional detail may highlight the benefit of fair trading standards. Hundreds of thousands of children are involved in cocoa production on the Ivory coast, as many as twelve thousand of whom, it is probable, have been trafficked into their situation, and they have no guarantee of any remuneration (McMahon, 2005; BBC Panorama, 2010). In 2001 the multinational chocolate companies operating in the Ivory Coast were threatened with legislation which would require them to place a ‘slave-free’ label on their confectionary, but US Congressman Eliot Engel was placated by a commitment from the corporations to participate in voluntary protocol to eliminate child labour (BBC Panorama, 2010). Ten years on from this agreement the BBC reveals that progress has been insignificant; children are still widely used to harvest and process cocoa, often with the use of pesticides and dangerous machetes, meanwhile over forty percent of people who live in the Ivory Coast cling on to survival from below the poverty line (Hawksley, 2011). The reason this case study is of pertinence to the argument for fair trade is that the root cause of the problem of child labour in the Ivory Coast is the low prices which farmers receive for their cocoa. Households receive such low incomes from cocoa farming that they cannot survive without the children being utilised to harvest cocoa, not only this, but the possibility of their affording to attend school is also lessened by the low prices. If farmers were to receive a higher and fairer price for cocoa, such as would be provided through the fair trade movement, then development away from poverty and therefore child labour would be possible. Nestlé in particular are in a good position to be able to do this; “The enormity of Nestlé ‘s profits (over $65 billion in annual sales) and its leveraged position in the food industry underline the company’s culpability and capability to ensure a fair wage and fair labor practices.” (McMahon, 2005). In contrast to the complete failure of the voluntary commitment of multinational corporations to self-regulate away from child labour, the Fairtrade Foundation has responded to a case of identified child labour, within its certified cocoa producers, by suspending the certification from communities until they address and rectify the problem (BBC Panorama; 2010). Child labour and slave labour free cocoa is sustainable and feasible because the fair prices make it possible for families to survive without wages from their children and because the social premiums are invested in making education possible.
Not all fair trade participants operate through co-operatives like Kuapa Kokoo though, as mainstreaming fair trade has led to fair trade suppliers which operate in different ways. As noted earlier, the FLO Fairtrade mark endorses many main stream firms which do not necessarily carry the transformative message that many fair trade pioneers deem to be of great importance. This tension between radical and mainstream fair trade could be a danger to the potential that fair trading has as a developmental tool, which calls for careful consideration. Primarily this is an issue of the difference between a ‘fair trade’ organisation and a ‘Fairtrade’ organisation. The World Fair Trade Organisation sets out ten rigorous principles which it requires fair trade organisation to follow, and they are monitored on a regular basis (WFTO, 2011) [Appendix B]. The FLO’s criteria are aligned with these principles but less demanding [Appendix C] (Fairtrade International, 2011) and are more geared towards being accepted by mainstream corporations (Hutchens, 2010). One weakness of this model is the ability of institutions to ‘capture’ the certification body with their financial prowess, and thereby destabilise their evolution towards development (Ayres and Braithwaite, 1992; Hutchens, 2010). In terms of potential to instigate development, all trade which is endorsed by the faitrade logo must meet the minimum requirements of the criteria, and as such, are enabling increased income through fair prices and development through premiums (Hutchens, 2010). The adoption of fairtrade by supermarkets and other mainstream retailers has produced significant growth and advancement in the fair trade movement (Barrientos and Smith, 2007). In spite of this, FTOs who comply with more rigorous standards and whose commitment to fair trade goes much further than simply paying a fair price, have been critical of this corporate participation; their involvement may pose a threat of dilution of the fundamental values of fair trade by falling short of the broader aims of the movement (Hutchens, 2010).
Hutchens (2010) examines a range of approaches to the types of trader participation in fair trade and fairtrade markets; FTO brand companies, standard FTOs, sympathetic corporate buyers and standard corporate buyers [Appendix D]. Evaluating from the perspective of commitment and contribution to development it becomes evident that, while all provide some degree of financial security in volatile commodity markets, the only model which enables producers to maximise their development potential are the FTO brand companies. Without direct access to the market through brand co-ownership producers are tied to the relatively low value activity of commodity production (Doherty and Thachrell, 2005; Hutchens, 2010). What makes this model so potent is its long term viability; it is in the producers interest to engage in ‘reverse supply chain integration’, developing their own brand and co-owning the company enables them to be directly involved in decision making and enabling the profits of the added value to reach hard working farmers (Hutchens, 2010).
If the ideology of fairtrade is impressed with greater magnitude upon the mainstream traders who sign up to fairtrade certification, as Barrientos and Smith (2007) suggest is necessary, then these varying models which have different strengths can operate simultaneously, to catalyse development through trade. Hutchens (2009) argues that the more radical approach of the FTO brand companies can influence markets to ratchet up fairtrade standards as they engage in direct competition with mainstream fairtrade brands [Appendix E].
Evaluating the scope of the fair trade movement for economic and social development, the above case studies and academic examinations show that the fair trade co-owned brand model, like that of Divine ltd., has the greatest impact on development in the communities in which it operates. This model can be seen as ‘game-playing’ which transcends the existing conventional codes of trade (Hutchens, 2009). However the adoption of fairtrade by mainstream and multinational corporations, though less effective can impact a far greater number of people and communities, and can attract a broader market than purely those who are interested in ethics and development (Hutchens, 2010). This model emulates what Hutchens (2009) calls ‘resistance’, whereby the fairtrade model is not a radical alternative to, but positioned within, the conventional capitalist system of trade, while seeking to influence it in a positive way (Hutchens, 2009).
7 Towards Impartial Governance
It is not easily contested that trade is an essential tool for development (Madeley, 1992); the argument begins in the discussion of how it should be done. The chapters above which examine the case for free trade, CSR and fair trade have revealed some weaknesses of varying degrees in each as a means to progress development in developing countries. These vulnerabilities, it can be argued, might be lessened by the introduction, or strengthening, of governance.
Hon Irene Ovonji’s complaint about the WTO being a ‘power based organisation’ highlights the need for a more robust system of trade regulation where the ethos of equality is upheld. Rawls (1999) states that “justice is the first virtue of social institutions” which is not an overt feature in the outcomes of WTO trade agreements and negotiations, which are derived from competitive bargaining rather than the rule of law (Stiglitz, 2006). There have been occasional success stories for developing countries but the World Bank Institute (2012) recommends that intensification of a climate for pro-poor reforms is necessary for Africa to take advantage of having an unprecedented opportunity for transformation. Moran (2005) sets forth a framework for integrating the International Labour Organisation (ILO) labour standards into the WTO agreement; an ambitious and contestable initiative which challenges the status quo of the WTO’s rejection of labour standards responsibilities. Peet (2003) finds that the WTO acts in the interest of multinational corporations, and that governments interact with the WTO only to discuss the topics which co-exist comfortably with capitalist neoliberal ideology. Doctrines of law inspired by Aristotle state that “government should govern for the good of the people, not for the good of those in power” (Pakaluk, 2012) which Hertz (2001) indicates is an alarmingly urgent requirement as multinational corporations have wielded power unchecked for too long.
This brings the discussion onto governance in CSR as a countermeasure to the insufficiency of voluntary CSR. Kolstad (2007) advocates the necessity for tougher incentives to actualise the great potential that corporations have for enabling development. Although Pines and Meyer (2005) find that consumer demand has thus far been the greatest actor to mobilise corporations towards CSR, they suggest that prospective impact from government force would outstrip its success to harness further trade justice and significantly prevent trade injustices. As Hertz (2001) demonstrates, multinational corporations are incredibly powerful influencers in trade. The International Bar Association (IBA) advises that “experience suggests that the only way to control power is by countervailing power” (IBA, 2009) which, if true, supports the argument that for the benefit of the democracy and equality, particularly in developing countries, national and international trade law of some strength is needed to protect human rights and enable development. Nourafchan (2011) warns that issues of CSR failure and human rights violations will not dissipate without government prohibition that is followed up and implemented. This sentiment is echoed by American lawyer Terry Collingworth, who says that the ten year failure of the voluntary CSR initiative to reduce child labour highlights the necessity for legislative enactment for the sake of progress in this area (BBC Panorama, 2010).
Aaronson (2005) says that policy makers should define social and environmental responsibilities of global companies which replicate the social and environmental law that US based firms are required to follow within the States. Clarity of policy and the elements which constitute accountability are of great importance with regard to victims of human rights violations (Dimitrieva 2009), and Hoppe, an economist at the Poverty Reduction and Economic Development Department at the World Bank, reported that African countries needed greater transparency and better complaint mechanisms to address legal challenges. The Organisation for Economic Co-operation and Development (OECD) urges that policy makers in developing countries should not distinguish between regulatory and judicial means of enforcement as though they were mutually exclusive but instead perceive them as mutually reinforcing better corporate practices which support development (OECD, 2007).
One of the ways in which multinational corporations are stunting the advancement of developing countries is by tax avoidance through the use of tax havens; there are various recent campaigns calling for effective European Union tax laws to enforce transparent financial reporting. These laws would allow developing countries to claim the rightful amount of tax they are due from exploitative corporations who avoid paying an estimated 160 billion US dollars a year (Christian Aid, 2012; Nwabuzor, 2005; Millar et al, 2005).
For the existing and potential laws which aim to govern corporate activity for the benefit of development to be effective, it is essential that they are fully accepted and implemented (IBA, 2009; Ghana News Agency, 2012) Ayres and Braithwaite (1992) consider symbiosis between regulation and self-regulation a necessary given, and understand that creatively balancing the two responsively leads to achievable policy solutions. Currently for many developing countries, the situation to which policy must respond, calls for fortitude in impartial judicial implementation (OECD, 2007). Whether regulated, self-regulated or under imposed self-regulation, the vital outcome is that, unlike the commitments of multinational corporations in the Ivory Coast, the governance mechanisms include compliance assessments which are rigorous and defensible in order to be able to drive standards up (Moran, 2005).
If the role of the state is to be an effective device in regulating trade standards and labour rights for developing countries, then fair and robust international law needs to be accompanied by domestic measures; Cooney (2010) found that the interplay of international and national measures to improve working conditions in China strengthen each other but that the greatest significance was found through reforms in local enforcement agencies.
The fair trade movement has, for the most part, withstood scrutiny and remained standing as a valid contender in the global trade toolkit for combating injustice and facilitating development (Macdonald and Marshall, 2010b). The success and growth of fair trade marks the emergence of private governance the likes of which have not before been prevalent outside of state control. The independent certification bodies maintain the outworking of the corporate commitments which allow producers in developing countries to advance their infrastructure, income and quality of life (Hatanaka et al, 2005). However, despite mainstreaming initiatives within the fair trade movement, the span of influence which fair trade is able to reach within global markets dominated by capitalist ideologies, is limited. Thus without outrageous growth, the movement unaccompanied by further governance to which corporations and trade participants are answerable without volition, will not suffice to address the trade injustices of the developing world. Equally so, the failings of legislative regulation in trade standards have been the catalyst for such a movement, the key is for both to co-operate towards the same goal without weakening each other’s capabilities (Lobel, 2010).
There are risks that hard governance through legal structures can stifle intrinsic or moral motivation (Lobel, 2010), but the reason that the rule of law is an attractive, if difficult to apply, approach is that, as Tamanaha (2004) says, everyone, including governments, is subject to the law; it is not arbitrary but democratically made; it is transparent and available to all citizens and it is independently interpreted and applied.
8 Discussion and Conclusion
The following arguments and suggestions have been induced from the synthesis of the above chapters. Each research aim is addressed in a subsection, as is the research question, but, conclusions do integrate influential aspects of other topics. The emergent inductions of understanding which have been developed in this discussion are the product of interpretivist research and are therefore contestable, as one interpretation of many possibilities. The conclusions made could be considered unrealistic and, as Peters (2001) suggests, “the possibility of new institutions and structures as part of an emergent global architecture ultimately relies upon a philosophy that is extra-individual, yet is able to protect the rights of the individual”.
8.1 Current International Trade System’s Failures
The international trade system, dominated by capitalist ideology, has served to create wealth polarisation, which has disadvantaged a great proportion of the population; meaning that “about 80 percent of the world’s population lives in developing countries, marked by low incomes and high poverty, high unemployment and low education” (Stiglitz, 2006). Received wisdom has pronounced free trade the solution to these problems but the reality does not qualify this theory; development must be recognised as more than simply slightly elevated GDP (Knapp, 2010).
The WTO has been exposed as an undemocratic organisation which operates not by regulation but by bargaining with the currency of power. Neoliberal free trade, which the WTO champions, transpires to be at the crux of globalisation as we know it, fuelled by capitalism. The mechanism which supports free trade relies on self-seeking competition and does not make adequate allowances for the infrastructural and developmental disadvantages which developing countries have to overcome.
For wealth to be more equally distributed, those nations and corporations that generate massive profits would be bound to see a decrease in their gains, as producers in developing countries would reap greater rewards for their toil. However as illustrated by the inflexibility of the wealthy members of the WTO at Cancun (Black Gold, 2006), there is great reticence on the part of those set to make some degree of sacrifice.
Stiglitz (2006) surmises that trade liberalisation would be of benefit to developing countries if regulated by democratic policies and measures but acknowledges that, without the independent governance, the necessary urgent progress will not be made. If the WTO does not broaden its discourse to incorporate “alternative conceptions such as fair trade” then it is a danger to the advancement of developing countries (Peet, 2003).
8.2 Alternative Methods of Implementing Trade Justice
Some parallels can be drawn between free trade and CSR as means for aiding development; both have great potential, as their scope for influence is great, but the delivery of that potential leaves much to be desired. It can be convincingly reasoned that corporations should act responsibly and the obligation that they have is apportioned to them primarily due to the intrinsic importance of human rights and the power that corporations wield (Wettstein, 2009). In terms of economic and social development the extent to which the burden falls to corporations may vary; the minimum requirement being that corporations do not violate human rights. The division of moral labour may increase, relative to greater power, and to the aptitude of the domestic state to meet the social and economic needs of those impacted by the corporation’s operation (Kolstad, 2007).
Idealistically, if corporations cannot act according to this premise, then they “should stay out” (Kolstad, 2007), but unfortunately the reality is not so. CSR is weakened by false commitments and lack of transparency; it is often used as a tool for marketing, covering up injustice or shifting the blame to preserve corporate brand image. These devious realities need to be recognised in order for the potential of genuine CSR to be harnessed (Sklair and Miller, 2010). In comparison to free trade, there are more positive examples and trajectories for CSR as an avenue to development and trade justice. The challenge for making progress in this avenue is to create greater incentives for implementation which is more than skin deep and demands participation from all corporations (Kolstad, 2007; Pines and Meyer, 2005).
Impartial external control is one of the ways in which to overcome the weaknesses which emerge from self-regulatory CSR initiatives; this is a role customarily taken by state government, but emergently also played by fair trade certification bodies. Fair trade as a movement has taken substantial steps towards bringing justice into economic globalisation. Where trade liberalisation has failed, due to injustice in trade agreements, fair trade has stepped into the breach, bringing the vital ingredient of egalitarianism into the trade mix.
8.3 Fair Trade as a Superlative Catalyst for Development
Some tensions have become evident within the fair trade movement between models of participation, which adopt different approaches to combating trade injustice. Fairtrade certification appeals to large corporations such as Starbucks and Nestlé ; the standards required for FLO endorsement are fair and implementation is effective, but the transformative message and ethos are less potent than those of the WFTO. This model seeks to influence the existing trade system for the benefit of developing countries while operating according to its established mechanisms; the breadth of markets it is able to impact is extensive. At the other end of the fair trade spectrum, the FTO co-owned brand model is of greatest significance in transforming and developing the communities in which it operates. Producers are enabled to maximise profits through direct market access. The added value generated by the brand is fed back to the production communities to be reinvested in development. This radical means of fair trading transcends existing trade systems and sustainable governance makes it viable by the fact that co-ownership empowers producers to affect decision making (Doherty and Trachnell, 2005; Hutchens, 2009; Hutchens, 2010).
One of the contrasts between the fair trade movement and alternative methods of stimulating development is that the fair trade movement is addressing root causes of problems like child labour; the fact that families can’t afford for their children not to work, rather than simply passing on blame or responsibility elsewhere (McMahon, 2005).
8.4 International Trade as it Currently Operates is Failing to Benefit Developing countries: Can Alternative Models Deliver Greater Justice and Progress?
Aside from the FTO co-owned brand model of fair trade, all other initiatives examined for globalising development through trade are constrained by a system founded on neoliberal capitalist ideology. Therefore it is the only model which is not under significant tension to compromise development for the sake of greater profits. Yet the FTO co-owned model is not sufficiently prolific to advance the necessary development singlehandedly; other initiatives must be utilised alongside it.
Despite the risks of stifling genuine voluntary morally motivated initiatives, increased hard governance appears to be the logical requirement to counteract the inherent selfish motives which affect trade. The WTO is biased towards those members who are powerful and an unbiased judicial system to which its agreements are answerable has the potential to affect greater equity. If corporations were to be answerable to government which required genuine responsibility and countervailed their disproportionate power, developing countries and their inhabitants would be greater equipped to challenge human rights violations, tax evasion and exploitative trading prices.
This governance must serve to impose or give incentive to corporations and nations to act selflessly. The rule of law is a great equaliser and has the potential to overcome the failings of free trade and CSR and in doing so protect areas of development unreached by voluntary fair trade systems. Implementation is both important and difficult, but the achievable development of these methods combined are able to deliver greater equality and improved standards of living than economic globalisation as it has been managed thus far has succeeded in doing.
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Appendix A: Kuhn’s Model of Diachronic Paradigms
Source: Jackson and Carter, 2007.
Appendix B: World Fair Trade Organisation 10 Principles of Fair Trade
|Principle One: Creating Opportunities for Economically Disadvantaged Producers
Poverty reduction through trade forms a key part of the organization’s aims. The organization supports marginalized small producers, whether these are independent family businesses, or grouped in associations or co-operatives. It seeks to enable them to move from income insecurity and poverty to economic self-sufficiency and ownership. The organization has a plan of action to carry this out.
Principle Two: Transparency and Accountability
The organization is transparent in its management and commercial relations. It is accountable to all its stakeholders and respects the sensitivity and confidentiality of commercial information supplied. The organization finds appropriate, participatory ways to involve employees, members and producers in its decision-making processes. It ensures that relevant information is provided to all its trading partners. The communication channels are good and open at all levels of the supply chain.
Principle Three: Fair Trading Practices
The organization trades with concern for the social, economic and environmental well-being of marginalized small producers and does not maximize profit at their expense. It is responsible and professional in meeting its commitments in a timely manner. Suppliers respect contracts and deliver products on time and to the desired quality and specifications.
Fair Trade buyers, recognizing the financial disadvantages producers and suppliers face, ensure orders are paid on receipt of documents and according to the attached guidelines. An interest free pre-payment of at least 50% is made if requested.
Where southern Fair Trade suppliers receive a pre-payment from buyers, they ensure that this payment is passed on to the producers or farmers who make or grow their Fair Trade products.
Buyers consult with suppliers before cancelling or rejecting orders. Where orders are cancelled through no fault of producers or suppliers, adequate compensation is guaranteed for work already done. Suppliers and producers consult with buyers if there is a problem with delivery, and ensure compensation is provided when delivered quantities and qualities do not match those invoiced.
The organization maintains long term relationships based on solidarity, trust and mutual respect that contribute to the promotion and growth of Fair Trade. It maintains effective communication with its trading partners. Parties involved in a trading relationship seek to increase the volume of the trade between them and the value and diversity of their product offer as a means of growing Fair Trade for the producers in order to increase their incomes. The organization works cooperatively with the other Fair Trade Organizations in country and avoids unfair competition. It avoids duplicating the designs of patterns of other organizations without permission.
Fair Trade recognizes, promotes and protects the cultural identity and traditional skills of small producers as reflected in their craft designs, food products and other related services.
Principle Four: Payment of a Fair Price
A fair price is one that has been mutually agreed by all through dialogue and participation, which provides fair pay to the producers and can also be sustained by the market. Where Fair Trade pricing structures exist, these are used as a minimum. Fair pay means provision of socially acceptable remuneration (in the local context) considered by producers themselves to be fair and which takes into account the principle of equal pay for equal work by women and men. Fair Trade marketing and importing organizations support capacity building as required to producers, to enable them to set a fair price.
Principle Five: Ensuring no Child Labor and Forced Labor
The organization adheres to the UN Convention on the Rights of the Child, and national / local law on the employment of children. The organization ensures that there is no forced labor in its workforce and / or members or homeworkers.
Organizations who buy Fair Trade products from producer groups either directly or through intermediaries ensure that no forced labor is used in production and the producer complies with the UN Convention on the Rights of the Child, and national / local law on the employment of children. Any involvement of children in the production of Fair Trade products (including learning a traditional art or craft) is always disclosed and monitored and does not adversely affect the children’s well-being, security, educational requirements and need for play.
Principle Six: Commitment to Non Discrimination, Gender Equity and Freedom of Association
The organization does not discriminate in hiring, remuneration, access to training, promotion, termination or retirement based on race, caste, national origin, religion, disability, gender, sexual orientation, union membership, political affiliation, HIV/Aids status or age. The organization provides opportunities for women and men to develop their skills and actively promotes applications from women for job vacancies and for leadership positions in the organization. The organization takes into account the special health and safety needs of pregnant women and breast-feeding mothers. Women fully participate in decisions concerning the use of benefits accruing from the production process.
The organization respects the right of all employees to form and join trade unions of their choice and to bargain collectively. Where the right to join trade unions and bargain collectively are restricted by law and/or political environment, the organization will enable means of independent and free association and bargaining for employees. The organization ensures that representatives of employees are not subject to discrimination in the workplace.
Organizations working directly with producers ensure that women are always paid for their contribution to the production process, and when women do the same work as men they are paid at the same rates as men. Organizations also seek to ensure that in production situations where women’s work is valued less highly than men’s work, women’s work is re- valued to equalize pay rates and women are allowed to undertake work according to their capacities.
Principle Seven: Ensuring Good Working Conditions
The organization provides a safe and healthy working environment for employees and / or members. It complies, at a minimum, with national and local laws and ILO conventions on health and safety.
Working hours and conditions for employees and / or members (and any homeworkers) comply with conditions established by national and local laws and ILO conventions.
Fair Trade Organizations are aware of the health and safety conditions in the producer groups they buy from. They seek, on an ongoing basis, to raise awareness of health and safety issues and improve health and safety practices in producer groups.
Principle Eight: Providing Capacity Building
The organization seeks to increase positive developmental impacts for small, marginalized producers through Fair Trade.
The organization develops the skills and capabilities of its own employees or members. Organizations working directly with small producers develop specific activities to help these producers improve their management skills, production capabilities and access to markets – local / regional / international / Fair Trade and mainstream as appropriate. Organizations which buy Fair Trade products through Fair Trade intermediaries in the South assist these organizations to develop their capacity to support the marginalized producer groups that they work with.
Principle Nine: Promoting Fair Trade
The organization raises awareness of the aim of Fair Trade and of the need for greater justice in world trade through Fair Trade. It advocates for the objectives and activities of Fair Trade according to the scope of the organization. The organization provides its customers with information about itself, the products it markets, and the producer organizations or members that make or harvest the products. Honest advertising and marketing techniques are always used.
Principle Ten: Respect for the Environment
Organizations which produce Fair Trade products maximize the use of raw materials from sustainably managed sources in their ranges, buying locally when possible. They use production technologies that seek to reduce energy consumption and where possible use renewable energy technologies that minimize greenhouse gas emissions. They seek to minimize the impact of their waste stream on the environment. Fair Trade agricultural commodity producers minimize their environmental impacts, by using organic or low pesticide use production methods wherever possible.
Buyers and importers of Fair Trade products give priority to buying products made from raw materials that originate from sustainably managed sources, and have the least overall impact on the environment.
All organizations use recycled or easily biodegradable materials for packing to the extent possible, and goods are dispatched by sea wherever possible.
Source: World Fair Trade Organisation, 2011.
Appendix C: Fairtrade Foundation Objectives and Trade Standards
The key objectives of the standards are to:
- ensure that producers receive prices that cover their average costs of sustainable production;
- provide an additional Fairtrade Premium which can be invested in projects that enhance social, economic and environmental development;
- enable pre-financing for producers who require it;
- facilitate long-term trading partnerships and enable greater producer control over the trading process;
- set clear minimum and progressive criteria to ensure that the conditions of production and trade of all Fairtrade certified products are socially, economically fair and environmentally responsible.
Companies trading Fairtrade products must:
- Pay a price to producers that aims to cover the costs of sustainable production: the Fairtrade Minimum Price.
- Pay an additional sum that producers can invest in development: the Fairtrade Premium.
- Partially pay in advance, when producers ask for it.
- Sign contracts that allow for long-term planning and sustainable production practices.
Source: Fairtrade International, 2011.
Appendix D: Typology of Trader Participation in Fair Trade and Fairtrade Markets
Source: Hutchens, 2010.
Appendix E: Changing Big Business
Source: Hutchens, 2009.