Free Trade or Fair Trade

Recently, I followed a debate on Free Trade vs. Fair Trade in "Economist" website. And these days, it is very common to see this topic emerge in many international economic discussions. This debate of free trade versus fair trade is largely misunderstood. People who argue in favor of free trade do not say that the trade should not be fair and most people who say that trade should be fair do not say that trade should not be free. Instead the whole debate is always about which comes first - free or fair? Well, the obvious answer should be "fair". But what is the definition of "fair" here? And how much fair is fair? Who would judge this fairness?

Today we have various international institutions - International Monetary Fund (IMF), World Bank, World Trade Organization (WTO) etc. etc. But most of these institutions are structured to represent political power than to truly facilitate economic equality. These institutions, largely dominated by industrialised nations, and voicing their support in favor of views proposed by developed countries, itself is clearly against the "fair" trade that both industrialised and developing countries want. As an example, IMF, for years has been against capital controls in developing countries. This was like telling the developing countries indirectly to open their markets to foreign investors when at the same time it did not propose policies or solutions on ways to increase access to the markets of the developed countries by poor and developing nations. Since in today's world, globalization has integrated the financial markets and economies of the world more closely, fearing that excessive capital flows to emerging markets may result in an unstable global economic situation, IMF has started to advocate for capital controls in emerging markets.

Now what is fair? - yesterday's proposal to be completely open to capital flows or today's proposal to have capital controls? How much capital control is fair? Who will decide what is fair? How? In what time frame? For years, these questions remain unanswered.

The Doha Round of talks on free trade, started in 2001 and still incomplete, co-ordinated by WTO, to achieve a global multilateral free trade agreement is caught in an argument about "fair" trade. One of the major points of disagreement between developed and developing nations is on the agricultural sector. Industrialised nations want the developing nations to fully open their agricultural markets. But at the same time, the industrialised countries do not want to fully cut their agricultural subsidies that the farmers in these countries enjoy. Why? The answer is - Politics!

As of today, the European Union has the largest agricultural subsidy program under its "Common Agricultural Policy". Wikipedia states that agricultural subsidies and programs represent 48% of the EU's budget, which was 49.8 billion Euros (roughly $60 billion) in the year 2006.

The developing countries are also to blame in this economic game where politics take center stage and not economic welfare of the people. When many times, when we have clear evidence that opening up certain markets will benefit the people, the markets still remain closed purely for political reasons. But in the meantime, millions of people, generations after generations are left poor due to flawed economic policies guided by political factors. The United Nations says that at this moment there are around one billion people without access to proper three meals a day (this is one-sixth of the world's population).

These days, when we read newspapers, we see that there are so many bilateral and regional free trade agreements (FTA) signed between nations to promote free trade. Somehow we might even become successful in concluding the multilateral Doha Free Trade agreement but as long as politics stays the guiding factor for economic agreements, we will only be achieving "free" trade agreements and not "fair" trade agreements.