A New Fair Trade Organisation - IELTS Reading Answers & Explanations

You should spend about 20 minutes on Questions 14 – 26, which are based on Reading Passage 2.

A New Fair Trade Organisation

Trade has, so far, proved ineffective in solving the major problems faced by most nations. However, the answer to the injustices of the existing trade regime is not no trade, but fair trade.

The existing regime forbids poor nations from following the path taken by the rich. With the exceptions of Switzerland, Belgium and the Netherlands, all the nations that have become independently wealthy did so with the help of a mechanism economists call ‘infant industry protection’: defending new sectors from foreign competition until they are big enough to compete on equal terms. The textile industry in Britain, for example, on which the Industrial Revolution was built in the nineteenth century, was nurtured and promoted by means of tariffs (or trade taxes) and the outright prohibition of competing goods. Between 1864 and 1913, the US was the most heavily protected nation on earth. Only when these countries had established technological and commercial superiority did they suddenly discover the virtues of unimpeded competition.

For nations to develop in direct competition with countries with established industries is like learning to swim in a fast-flowing river: you are likely to be swept away and drowned long before you acquire the necessary expertise. Your competitors have experience, legal rights and established marketing networks on their side; your infant industries have none of these. It is all but impossible, in other words, for poor nations to extract money from the rich unless they can safeguard some key parts of their economies.

Clearly, nations that are currently poor should be permitted to defend certain industries from foreign competition with the help of tariff barriers and subsidies. Rich nations, on the other hand, should be permitted neither to subsidise their industries nor to impose tariffs on imports. Nations should be forced gradually to lift their protections as they develop. So, the first function of what we might call the Fair Trade Organisation (FTO) would be to lay down the rules governing the protections and privileges permitted at different stages of development.

A fair-trade system should, or so we should hope, slowly push the world towards genuine free trade, which is likely to be the most equitable means of governing nations’ relationships with each other. This system could provide a potent means by which the world could begin to move towards the economic equality that is an essential precondition for political equality. It would not, however, directly address some of the other critical problems that the people of poor nations confront – such as inadequate working conditions, environmental devastation and the inordinate power of the multinational corporations.

Many campaigners in the rich world have suggested that the best way to raise standards is to discriminate, through tariffs or other measures, against imports from countries where workers or the environment are mistreated. This approach has also been advocated by trades unions seeking to protect members’ jobs from foreigners. Unsurprisingly, it is deeply resented by the very people it is supposed to help: the workers of the poor world.

If our purpose is to regulate international trade, then it surely makes sense to address the behaviour, not of nation states, but of the multinational corporations operating between them. So a second function of the FTO could be to set the standards to which those corporations must conform. A corporation would not be permitted to trade between nations unless it could demonstrate that, at every stage of manufacture and distribution, its own operations and those of its suppliers met the necessary standards.

If, for example, a food-processing corporation based in Europe wished to import cocoa from an African country, it would need to demonstrate that the plantation owners it bought from were not using banned pesticides, expanding into protected forests or failing to conform to whatever other standards the FTO set. The company’s performance would be assessed, at its own expense, by monitors accredited to the organisation.

One other precondition of justice is that producers and consumers should carry their own costs, rather than dumping them on other people. The monitors deployed by the FTO could determine whether or not companies are paying a fair price for the resources they use. Companies would, among other costs, have to buy enough of a nation’s carbon quota to cover the fossil fuel they consume.

One of the many beneficial impacts of such full-cost accounting would be that everything that could be processed in the country of origin would be. No multinational company would export logs, coffee beans or cotton, as it requires far more (costly) energy to transport these bulky resources from one place to another than would be involved in exporting the finished products – furniture, instant coffee and T-shirts (all currently manufactured on the other side of the world). Those nations which are currently locked into the export of raw materials would become the most favoured locations for manufacturing.

Under this scheme, export growth comes to measure something quite different. At present it represents a mixture of gains and losses, which are misleadingly compounded into a single figure. The loss of natural resources is ‘added’ to the genuine addition of value provided by the application of labour. The FTO system would effectively separate these measures. The extraction and export of natural resources would in most cases be accounted as a loss. The application of human labour would be measured as a gain. Nations would be able to see immediately whether they were being enriched or impoverished through trade. To introduce these measures in the face of the resistance of the world’s most powerful governments and companies would require severe and unusual methods. But the goal of universal fair trade would permit the global economic levelling without which there can be no justice.