2000s >> 2006 >> no-1218-february-2006

Free Trade, Fair Trade or No Trade?

The World Trade Organisation negotiations in Hong Kong in December didn’t get very far. There had been talk of a deal to further “liberalise” world trade, under which the developed capitalist countries would drop restrictions on agricultural products from the “developing” countries in return for these reducing their tariffs on industrial imports. The most that emerged was a promise by the EU to stop subsidising agricultural exports by 2013 – provided that in the meantime there was an agreement on the other points. Not enough, said EU Trade Commissioner Peter Mandelson, to make the meeting a true success, but enough to save it from failure.

Maybe in time – April is the next deadline – some agreement, even along the lines envisaged, will be reached. But, given the nature of capitalism, it is not surprising that agreement is proving difficult. The WTO has 149 member states – 149 capitalist states, each with its own economic interests to defend and promote.

Under capitalism goods are produced for sale with a view to profit. Profits originate from the surplus value created by the workers who actually produce the goods that are put on sale, but are realised – i.e., converted into money – only when the goods are sold. Built in to capitalism, therefore, is an intense and relentless competition between capitalist firms to sell their goods, not only between firms in the same country but on the world market between firms from different countries. The role of states in this competition is to defend and promote the economic interests of the capitalist firms within their frontiers, by, for instance, protecting them from foreign competition on the home market or helping them to conquer foreign markets, which are of course the home markets of other countries.

A range of measures are open to states to do this. They can impose tariffs and quotas on imports (protectionism) and they can offer insurance and other financial aid for exports. They can pay subsidies on exports (dumping), but this is politically controversial since these subsidies have to come from taxes on non-exporting capitalist firms within the state.

If these policies – protectionism and dumping – get out of hand, they turn into “beggar-my-neighbour” and no state gains. This can lead to wars, and was in fact one of the causes of the Second World War when Germany and Japan felt they had no alternative to go to war to break through the restrictions on their trade resulting from the policies pursued by Britain, France and America. So there is room for promoting capitalist interests all round  by negotiations such as those at Hong Kong aimed at what is in effect tariff disarmament.

The jockeying for competitive position that went on in Hong Kong wasn’t just between the industrially developed “West” (including Japan and Australia) on the one hand and the poor states of Africa, Asia, Latin America and the Caribbean on the other. There were also arguments among the developed capitalist states themselves. The US wanted access to EU markets for its agricultural products, while the EU accused the US of hidden dumping since its “food aid” involved giving food (for which US farmers are paid) rather than money. Then there were the “emerging” capitalist states – China, India, Brazil, Russia – which also want access to EU (and US) markets, but are precisely the countries to which the West wants easier access for its industrial goods. The really poor states – the so-called “Least Developed Countries” – have no clout at all, and are only defended by Non-Governmental Organisations such as Oxfam and the World Development Movement (which also have no clout). In fact, they are not likely to gain anything out of any deal, which will be a carve-up between the developed and the emerging capitalist states.

Free Trade v Fair Trade
Alongside the clash of economic interests there was an ideological battle between the partisans of “free trade” and those of “fair trade”.

The ideology of “free trade” (no restrictions on imports or exports) has been part of conventional economics since David Ricardo propounded his theory of “comparative advantage” in 1817. Ricardo took as an example Portugal as a producer of wine and England as a producer of “cloth and hardware”. While Portugal could produce cloth and hardware and England wine, neither could do so as cheaply as the other; if they did this there would be a waste of resources compared with what would happen if Portugal specialised in wine and England in cloth and hardware. This was because, said Ricardo, the cheaper wine produced in Portugal and the cheaper cloth and hardware produced in England could then be exchanged for more of each other. Both sides would be better off.

This is the theory, but it doesn’t allow for change. It was obviously attractive to English capitalists as it meant that they would have a world monopoly in manufactured goods. But it was not so attractive to the up-and-coming capitalists of other countries who wanted to produce industrial goods too, nor to the rulers of these countries who wanted to built up their industrial and military strength to better compete for a place in the sun. So they, the US and Germany in particular, embraced protective tariffs for “infant industries”, as propounded by the German economist Friedrich List.

By the end of the 19th century the manufacturing industries of these two countries were strong enough to compete with British industry and even to outcompete British products. A section of the British capitalist class began to have second thoughts about free trade; they demanded protection for British industry through tariffs imposed on foreign imports. They called this “fair trade”. An hundred years ago “free trade” versus “protection” was in fact the main bone of contention between the free-trade Liberals and the protectionist Tories.

Today, the main ideological defenders of “fair trade” (protectionism) are the “development NGOs”. Thus, Benedict Southworth, Director of the World Development Movement issued a press release on 13 December declaring:

“More free trade is not the answer to Africa’s problems. Trade Justice means poor countries getting access to our markets to sell their goods without being forced to open their own economies to our multinationals and losing their ability to protect poor farmers, infant industries and basic services.”

While Barbara Stocking, Director of Oxfam, wrote to the Times (19 December):

“South Korea and Tokyo industrialised using state intervention such as high tariffs to protect infant industries and credit for strategic sectors. The EU and US are pressing to force developing countries to lower their industrial tariffs even though these policies helped South Korea, Taiwan and others to trade their way out of poverty. If Korea had stuck to its supposed ‘comparative advantage’, it would still be exporting rice and wigs instead of cars and computers”.

In an article in the Times (14 December) journalist Carl Mortished admitted that free trade wouldn’t benefit the poorest states, but rather the emerging capitalist states:

“Free trade is fair and just, contrary to what Oxfam will tell you. However, because it is just, it cannot be kind. Trade works in favour of those with comparative commercial advantages and the poorest nations have few. If an agriculture deal is done in Hong Kong, the winners will be powerful developing nations with agribusiness potential, such as Brazil and India. The farmers of Mozambique will gain little. The reason emerges in a report by the UN’s Food and Agriculture Organisation. The State of Food and Agriculture 2005 concludes that liberalising farm trade would benefit consumers in protected markets, such as the EU, with lower-priced food. It will also benefit efficient producers, such as Brazil, but the poorest countries will suffer.”

So was he, then, in favour of “fair trade” for the poorest states? Not at all, as the title of his article “Why ‘fair trade’ is bad for poor nations it seeks to help” proclaimed. Preaching being cruel to be kind, he argued that farmers in these countries “don’t need favours, but fertiliser and equipment. In short, they need investment, and that means more open markets … Poor countries must reform if they are to compete. If we stopped throwing favours at them, the reforms might begin”.

He’s right about one thing: “they are to compete”. They have to. All states have to. And that’s the problem. Built in to capitalism is competition, and where there is competition there are losers as well as winners. Oxfam, the WDM and the others are on completely the wrong track in imaging that there can be no losers or that the winners will help the losers out to their own disadvantage.

One World
We are living in a world that has the productive potential to turn out enough to adequately feed, clothe, house, educate and care for the health of every single person on the planet, irrespective of where they live. That this isn’t done today is due to the fact that the production and distribution of wealth is organised on the basis of buying and selling, of trade.

The Earth’s natural resources and separate parts of the world-wide industrial network are owned separately, by corporations, states or rich individuals. These owners compete amongst each other to sell what those they employ produce and so realise as profit the surplus value contained in them. This has a number of effects. Production stops, not when enough to satisfy people’s needs has been produced, but well before this, when what people can afford (the market) has been catered for. At the same time there is a huge waste of resources on the process of selling itself, on things that have nothing to do with production as such, but only with the buying and selling of the products that constitutes trade (on fixing prices, making and receiving payments, transferring money, changing currencies, etc.) And there is also a huge waste in the armed forces and arms that all states are forced to equip themselves with in order to be in a position to protect and promote the interests of the capitalist groups within them.

So inherent to capitalism – the world trading system – is both artificial scarcity and organised waste. And as long as the system is allowed to continue there’s nothing that can be done to prevent this. But “another world is possible”, and it has to be another world, since there are no national solutions to world problems like world poverty, hunger and disease.

The alternative is a world in which all the Earth’s natural and industrial resources become the common heritage of all humanity. This means that the production and distribution of the things that people need can be organised on the basis of the world being a single unit. The oil resources won’t belong to filthy rich sheiks in the Middle East – or even just to the people living in the Middle East – but to all humanity, to be used for their benefit. The same goes for all the world’s other natural resources. They won’t be traded. They will simply be transferred from one part of the world to another as required to meet needs. This wouldn’t be trade since there would be no question of payment or of any transfer of something of equal value from the part of the world where they went to the part they came from.

Under these circumstances, if people in one part of the word needed food – as is undoubtedly the case at the moment – it would be transferred there, as for instance from the wheatlands of North America. This wouldn’t affect local agriculture since there would be no competition between the two; there’d be no local markets to undermine since local production wouldn’t be for a market either. In fact, local agriculture could be given the fertilizer and equipment that they need – without demanding any counterpart – so that it can contribute increasingly to satisfying local food needs.

This – no trade, but production for use – is the alternative to both the free trade favoured by capitalist corporations and their agency, the WTO, and the fair trade favoured by the equally capitalism-accepting development NGOs.


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