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8/3/2019 Economics Debate

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Geoffrey Weaver

Professor Little

Writing 340

October 18, 2011

Fair Trade vs Free Trade

International trade policy is often times a much contested issue. Countries impose tariffs,

quotas, subsidies, and embargos to sometimes bring in more revenue, but these tactics are also

used to protect the domestic suppliers. The debate regarding Fair Trade on www.economist.com

brings to light some of the main issues that are presented with trade policy. Ngaire Woods

believes that there should be policies that are put in place that will help make trade fairer, while

Jagdish Bhagwati makes the point that freer trade is more effective and efficient. Ultimately,

both sides present compelling reasons and useful data that help to further their argument.

Ngaire Woods supports policies which allow for fairer alternatives to the current trade

laws. One of her main problems with international trade policies at this time is that they tend to

only favor the more developed countries. However, the developing countries have not been given

the opportunity to change any of these biased policies because of their lack of power within the

negotiations. Furthermore, more developed countries have failed to adhere to some of their

vague trade agreements with developing countries. Woods introduces this point in her opening

argument when she notes that the negotiations of, industrialised countries were perceived to

have exacted precise and far-reaching commitments from developing countries, in exchange for

vague promises, such as to liberalise agriculture, which they have not kept.

Another issue which Woods introduces is that trade rules have also been unfair because

these rules are not being adequately enforced. These rules have also tended to favor the more


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developed countries. She points out that it is almost unthinkable for a developing country to even

consider bringing a suit against a developed country because of the possibility of losing

discretionary trade access which could seriously dampen a developing countries economy.

Furthermore, even if they were to win the suit, the result would provide a very small gain.

Woods also presents the possible benefit of having universal standards. She feels that

such standards will help with possible child labor issues in foreign countries. Furthermore,

Woods introduces how the United States was able to provide greater trade access and other

incentives for Cambodia to improve their labor standards. This example provided by Woods

helps fights the argument that more developed countries will only enter into more protected trade

agreements with developing countries.

Lastly, Woods seems very concerned about the extent to which Bhagwati wants to take

free trade. She provides the example of how air polluters may be able to pay less in Kenya

because of the abundance in fresh air, but Woods wonders about how far this practice of

pollution in other countries will be taken.

Jagdish Bhagwati supports policies which allow for freer trade. He believes that freer

trade will provide for an overall gain because people will be more willing to open up their

markets. He uses the theory of unilateral trade or reciprocity to make his case. This theory states

that when one country chooses to open of their market another country will choose to open their

as well therefore doubling the dividend. Therefore, Bhagwati believes that by providing

countries a less restricted more free trade there will be a higher overall growth for these

countries.

One of his other main counterarguments to Woods point is regarding labor standards. He

believes that these labor standards, reflects the local history, politics and economic


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circumstance of that country. However, he asserts that while arguments posed by proponents of

universal labor standards is, couched in terms of altruism it is in fact an argument, prompted

by self-interest, that is, it is designed to raise the cost of production abroad so as to moderate

competition which, it is wrongly feared, is harming one's own workers.

Furthermore, Bhagwati also introduces the possibility that by making trade fairer it will

force traders to pay a just price to foreign suppliers. Therefore, this could mean that people will

be paying higher than market value for many goods because a country will be forced to subsidize

the producer the higher priced amount.

After reading both of these arguments I feel that Bhagwati does a better job of defending

his free trade policies. First off, he is able to understand that while it is true that the developing

countries may not have as much negotiating power, they do still in fact participate in trade and

have certain labor policies. Furthermore, his point about rising costs is also very compelling

because if such a trade policy was to be enforced, what would make developed countries want to

participate in these trades? What makes trade so valuable is that it is an exchange of goods and

services from one country for an equal value of goods and services from another country. If the

terms of this exchange had not been met, why would the sides agree to the terms? Overall, I feel

that Bhugwati provides a very thorough counterargument to Woods arguments.

While Woods does provide some very compelling arguments about how fairness could

help level out the playing field, I feel that she does not quite do a full enough analysis. For

example, Woods repeatedly speaks about how developing countries will benefit from these

policies. However, she never once addresses why developed countries would continue to trade

with these developing countries if the policies ended up being so extreme to the point that it was

not efficient to trade. Furthermore, the argument that she introduces regarding the Kenyan air


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pollution is made using the slippery slope logical fallacy. Lastly, if a policy enforced that states

that countries must purchase a certain good above the market price, this would possibly make a

developed country choose to produce that product internally and therefore lessen the trade

abroad.

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