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The Fair Trade System

The concepts and practices surrounding fair trade. The difficulties with certification and monitoring. Addresses the effects barriers to inclusion, transaction costs, market distortions, consumer practice, and tariff and non tariff barriers have on fair trade.

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The Fair Trade theory posits that trade should be a partnership based on dialogue, transparency and respect, that seeks greater equality in international trade . On the surface, Fair Trade theory seems flawless. The bigger question becomes, does Fair Trade, in practice, realize its goals? By looking at several factors that have an effect on the system; barriers to inclusion, transaction costs, market distortions, consumer practice, and tariff and non-tariff barriers, can it then be deduced if Fair Trade does indeed realize its goals. It is my argument that the Fair Trade goal of closing the gap between the rich and poor is not being realized, but Fair Trade has brought about a new ethical and environmental awareness to the global community, which can help to perhaps someday close the income inequality gap.

In the Fair Trade system, producer of a given good is paid a fair amount for his or her product. Eventually, he or she will increase sales and production and will one day he or she will be able to come out of poverty into better living standards. The process of selling products on the Fair Trade market is complex. The World Fair Trade Organization (formerly International Fair Trade Association), has attempted to created a Sustainable Fair Trade Management System. Under which, new world wide standards for independent certification of organizations will fall. Only organizations that demonstrate Fair Trade business philosophies will be allowed to apply for certification. The purpose of the SFTMS is to provide independent, transparent and robust third party oversight. SFTMS is different from previous attempts, such as Fiartrade label, because it applies to the entire business and is inclusive so all of said business' products. Transfair and FLO-CERT are other branches of the system that certify producers as "Fair trade" distinguishing products in retail stores though out the world that that particular product has been produced and traded fairly. Certification is very costly and can be an impediment for very small scale, poorer farmers- exactly those who Fair Trade is supposed to be helping- from reaping the benefits of the Fair Trade system. Certification costs include, the initial cost of the inspection, as well as, an additional $2US/ quintal ...

Solution Summary

The Fair Trade theory posits that trade should be a partnership based on dialogue, transparency and respect, that seeks greater equality in international trade . On the surface, Fair Trade theory seems flawless. The bigger question becomes, does Fair Trade, in practice, realize its goals? By looking at several factors that have an effect on the system; barriers to inclusion, transaction costs, market distortions, consumer practice, and tariff and non-tariff barriers, can it then be deduced if Fair Trade does indeed realize its goals. It is my argument that the Fair Trade goal of closing the gap between the rich and poor is not being realized, but Fair Trade has brought about a new ethical and environmental awareness to the global community, which can help to perhaps someday close the income inequality gap.

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