global trade pt 2 (fair trade, SDTs, Cambodia)

what is fair trade

Fair trade works with small-scale farmers around the world to build a fairer trade system - one where they can earn a decent income, work in safe conditions, and invest in their futures as they see fit.

• Fairer prices: Fairtrade set a Minimum Price, a safety net that protects farmers and workers when market prices fall, but still allows them to earn more when prices rise.

• Fairtrade Premium: Farmers and workers receive the Premium - extra money which they decide how to invest, whether it’s for schools, healthcare, or farming improvements.

• Fairer working rights: Fairtrade standard include rights at work, safe conditions, and democratic structures in producer cooperatives, ensuring farmers and workers have a stronger voices.

what are features of free trade

• aims to increase nations’ econokmic growth

• focuses on trade policies between countries

• primarily benefits MNCs and powerful business intersts

• critics say it is injust to marginalised people and sacrifices environmental sustainability

• major actions - countries lower tariffs, quotas, labour and environmental standards

• producer income determined by market and government policies

• supply hain includes many parties between producer and consumer

• key advocate organisations - WTO, IMF, World Bank

what are features of fair trade

• aims to empower marginalised people and improve their quality of life

• focuses on commerce among individuals and businesses

• primarily benefits vulnerable farmers, artisans and workers in less industrialised countries

• critics say it interferes with free market, inefficient, too small scale for impact

• major actions - businesses offer producers favourable financing, long term relationships, minimum prices and higher labour/environmental standards

• producer income determined by living wage and community improvement costs

• supply chain includes fewer parties, more direct trade to farmer

• key advocate organisations - Fairtrade Labelling Organisations, International World Fair Trade Organisation

what is differential access to markets

all countries hae differential access to markets. access to markets refers to a nation or company’s ability to trade within the international market. A country’s access to the market is limited by any barriers that limit a country’s imports and exports, for example, tariffs, quotas, trade regulations

what is a trading bloc

an arrangement among a group of nations to allow free trade between members but to impose tariffs on other countries that may wish to trade

A trading bloc is a group of countries within a specific region that reduces or eliminates trade barriers—such as tariffs, quotas, and regulations—to promote free trade and economic integration among member nations.

what is a free trade area

members abolish trade barriers like tariffs and quotas between themselves but have restrictions on non-member countries e.g. NAFTA/USMCA (same thing)

what is a customs union

a closer form of economic integration - as well as free trade between members, all members operate an external tariff on imports from abroad

e.g. Mercosur

what is a common market

customs market which, as well as free trade, goods and services, allows the free movement of people and capital

e.g. East African Common Market

EAC

what is an economic union

groups of nations that not only allow the freedom of trade and movement of people and capital, but also require members’ common policies on sectors such as agriculture, industry and regional development

e.g. EU

how far do trade blocs encourage globalisation

promotes the movements and flows of people/labour/goods/services e.g. can support struggling countries like EU to Greece

reduces borders between countries in the above aspects

however - trade blocs are not global but regional - they are exclusionary in this aspect and impose external barriers

what are the main advantages of being a trade bloc

politics influence and voting power - security in global politics e.g. EU is very powerful - however, this is as a whole, not as much as individual countries

protection from competitions due to tariffs, specialisation and comparative advantage

allows for cheaper goods, benefiting consumers, as well as producers due to protection from external competition

what are social benefits to grouping of nations

Within social and political unions people are often free to live and work in the country of their choice within the union. This is the case within the EU. This means workers have more CHOICE.

Living standards go up as trade prospers

what are social consequences to the grouping of nations

With relaxed borders it is easier for illegal immigrants to move around within the Bloc, this creates political issues too.

Legislation can limit workers as well as protect them – e.g. people might want to work more hours than stipulated in the Working Time Directive

what are economic benefits to the grouping of nations

Trade blocs protect the area’s economy from competition

Free trade within the bloc – Countries know that they have free access to each other's markets, so they can specialise. This means that, at the regional level, there is a wider application of the principle of comparative advantage.

Market access and trade creation – trade is likely to increase as countries have access to each other’s markets. These imports often have a lower cost because of specialization, so there is an increase in consumption, with increased demand resulting from lower prices.

Economies of scale – goods can be produced cheaper as countries can club together and benefit from economies of scale (buying in bulk, mass production etc.)

Jobs may be created as a consequence of increased trade between member economies. 3 million jobs are said to be directly related to the EU in 2011.

Firms inside the bloc are protected from cheaper imports from outside, such as the protection of the EU shoe industry from cheap imports from China and Vietnam. This is important for WEAKER sections of the economy.

Weaker disadvantaged peripheral regions can be supported by the stronger areas, as they are in Europe

what are the economic consequences of the grouping of nations

The benefits of global free trade can be lost as countries concentrate trade within their trade area or bloc.

Inefficient producers within the bloc can be protected from more efficient ones outside the bloc. For example, inefficient European farmers may be protected from low-cost imports from developing countries because of the advantages of the CAP system of support for EU farmers

Trade wars – Trade blocs can lead to trade disputes where trading blocs argue with one another. A classic example was between the EU and NAFTA, including the recent Boeing (US)/Airbus (EU) dispute. There were also the beef wars, where the EU banned USA reared beef that was raised with hormones and the US responded with £60 million in tariffs on EU beef - 2012

Nonmember countries of the trade bloc will be ostracised (frozen out) since trade blocs are created to help only their member countries reduce trade barriers.

Trade blocs cost money – the EU will cost £960 BILLION from 2014 to 2020. (source) This money comes from taxing people in the member states, who may object to this.

Loss of some financial controls to a central authority such as a bank, e.g. European Central Bank

what are the environmental benefits of the grouping of nations

Social and economic unions can set high environmental standards – such as the EU’s regulations on waste, carbon emissions and even light bulbs.

what are the environmental consequences of the grouping of nations

Trading blocs increase food miles as the cheapest product within the bloc will be the most traded.

Having to share resources may damage economic sectors, e.g. UK sharing traditional fishing grounds and fishing quotas

what are the political benefits of the grouping of nations

The incentives of trade and political cooperation help to reduce the chances of violent conflict; the EU owes its existence in part to this.

Giving individual countries greater political influence when dealing with other nations – the EU has lots of voting power in other institutions for example.

The benefits of democracy can be reinforced by the Bloc – the EU has its own parliament and everyone with the right to vote can vote.

what are the political consequences of the grouping of nations

Many of the groups are seen to be non-democratic. For example, the IMF and World Bank both operate according to a complex voting structure that is loosely connected with economic power. That’s why the U.S., still by far the world’s largest economy in market GDP, has the largest share of votes: about 15 percent in the bank and 17 percent in the fund. Compared with their share of global population, rich countries as a whole are considerably overrepresented. (Source)

Trading blocs add another layer of government which costs money and add complications for countries making their own decisions. The European High Court can overrule decisions made in British courts for example.

Loss of sovereignty with centralised decisions

Some smaller regions don’t like big government and this has led the drive to SEPARATISM – e.g. the Scottish referendum in 2014 OR the Basque case

what is a main criticism of trade blocs for member countries

centralised decisions and authority - feels like a loss of sovereignty to be subject to central blanket rules and standards

leads to separatism e.g. brexit, even before official exit from EU there was a feeling of separatism and nationalism

tax links to this - members may feel unfair for tax to be spent on other member countries and this may also contribute to political sentiment and turmoil

what is special and differential treatment (SDT)

The WTO agreements contain special provisions which give developing countries special rights and allow other members to treat them more favourably. These are “special and differential treatment provisions” (abbreviated as S&D or SDT). 

WTo created formalised SDT agreements in 1995

The special provisions include:

• longer time periods for implementing agreements and commitments

• measures to increase trading opportunities for these countries

• provisions requiring all WTO members to safeguard the trade interests of developing countries

• support to help developing countries build the infrastructure to undertake WTO work, handle disputes, and implement technical standard

• provisions related to least-developed country (LDC) members

• LDEs are allowed to subsidise their exports

• flexibility e.g. phasing on obligations

• technical assistance and training - to better understand WTO rules and better negotiate w trade partners

These let the least developed countries bypass developed countries' tariffs, which gives them greater market access.

• The profits made from SDT agreements allow less developed countries to diversify (make more varied) the range of industries they have.

SDT aims to

• Address the concentration on primary goods, which are vulnerable price volatility on global markets

• Provide incentives for export diversification

• Promote faster income growth and achieve economic take-off

what are problems of SDTs

Problems include

• Not all countries are members of WTO and application is a lengthy process

• Some LICs are not aware of the support available and therefore do not make full use of it

• There is concern from HICs that support of LICs will lead to cheap imports flooding their markets.

• US says SDTs are outdated, abused and in need of fundamental reform

  • trump dislikes SDTs and likes bilaterial trade agreements

• unclear definition of LDE and thus who can claim SDTs

• e.g. china only announced in 2025 it was no longer claiming its SDT benefits

• bilateral trade agreements are often more effective e.g. Mexico used to claim SDT but has benefited a lot more from NAFTA

• some argue that SDT agreements have a negative impact on developed countries by allowing cheap imports into the country. They suggest that regional trade blocs, which allow less developed countries to negotiate prices collectively, are more effective at improving their market access.

do the benefits of SDTs outweigh the negatives? (own opinion)

• The benefits of SDTs outweigh the negatives because they help combat global inequality by helping LDEs, through special provisions such as bypassing tariffs to increase market access and helping implement infrastructure. 

• Although there are impacts on HDEs, such as the entrance of cheap imports into the country which could affect domestic industry, it could be said that these economics have the capacity and resources to manage these effects whereas LDEs need this extra help in order to develop and gain greater market access. 

• Moreover, the produced goods and services of HDEs and LDEs often do not overlap, even with product diversification. For example, the UK provides services and technical skills, often in the quaternary sector, and even with SDTs it is unlikely that these LDEs will be able to move into these industries in the near future.

what is wellbeing

• What is wellbeing? According to the Canadian Index of Wellbeing, it is the highest quality of life possible that allows for full expression of good living standards, health, sustainable environment, education, community, balanced time use, democracy, access and participation in leisure and entertainment.

why were SDTs needed

LDCs are disadvantaged in their participation in global trade because:

• they produce few exports, normally raw materials

  • narrow eocnomy = weak and vulnerable (exceptions e.g. in energy - russia, middle east)

  • raw materials are price volatile e.g. copper in Zambia

• they have inadequate infrastructure

although reasons vary country to country

SDTS are special advantages to developing economies to take full advanatge of trade in order to integrate into the global market

positive efforts

trade is supposed to promote economic growth and reduce poverty but many LDEs struggle in benefiting from it

what is the EU ‘Everything but Arms’ scheme

• EU ‘Everything But Arms’ (EBA) trade scheme - adopted 2001, granting preferential access into European market for all products except arms and ammunitions by countries classed as ‘least developed’ by the UN e.g. CAMBODIA

• intended to create jobs through export-led growth and reduce poverty in the poorest countries

EBA scheme (SDT) - Cambodia - Sugar industry

• the EBA scheme has driven thousands of Cambodian farming families into destitution, and led to human rights violations

• in Cambodia this has led to forced displacement of rural and indigenous communities from large-scale land concessions for agro-industrial development , due to Cambodia’s rapidly expanding sugar industry

• humans rights violations - forced evictions and land seizures

• police and state security forces carried out arbitrary arrests and detentions, using physical violence at the commands of sugar companies against local communities attempting to defend their land

• one community activist was axe murdered after documenting and actively protesting evictions

• at least two villages totally destroyed

• over 11,500 hectares of rice fields and orchards belonging to over 2000 families was seized

• thousands more hectares of community forest and environmentally protected areas were also destroyed to make way for the sugar plantations. 

• many families suffered the destruction of their crops, livestock and personal possessions. 

• more than 1000 men, women and children were left homeless.

• post-eviction, people suffered a reduction in basic human rights e.g. adequate access to food, water, housing, right to work, education, health 

• many families who lost their land had no choice but to work in sugar plantations where work is irregular, poor conditions, pay is insufficient

• many families forced to send their children to work for sugar companies -  child labour, documented 85 children, some as young as 8, doing hard and dangerous work for the plantation that supplies a UK sugar refiner

• ‘increased investment and trade can bring about greater prosperity for people but they can also wreak havoc on local communities and the environment unless adequate safeguards are put into place to prevent abuses and promote economic justice’ 

• ‘The EBA initiative has no such safeguards. It just cuts a blank check to any company that sets up shop in a poor country and ships their goods to Europe. This means that the EU is very likely subsidising a lot of bad behaviour, and not just in Cambodia but in other EBA beneficiary countries as well’

EBA scheme (SDT) - Cambodia - Garment industry

• many factory garment workers have 6 day weeks and earn minimum wage of equivalent 135 euros a month

• garments and shoes make up more than 90% of Cambodia’s exports

• volume is growing

• EU is largest market

• there is no duties and no quotas

• this trade regime holds as long as EU believes Cambodia complies with core human and labour rights

• mostly imports raw materials from China

• EU is considering suspending preferential treatment 

• one party state - main opposition party has been closed down and the right of assembly is not respected - people arrested for gathering to respect a political figure’s who was murdered, who spoke against murder and political corruption

• if the EU withdraws the preferential treatment, duties will be imposed on its goods to Europe, between 2-6%

• Cambodia-made goods would cost more in the EU and production might be shifted elsewhere

• some experts doubt that suspending Cambodia from EBA programme would impact the economy much 

• but this is not the consensus view - some think that withdrawal would be a significant blow to Cambodia’s economy

• loss of thousands of jobs

• garment industry employs 750,000 people, mostly young women, who work 8-10 hours a day

• working conditions are poor, transport to work is an issue, most are transported on the back of trucks over long distances into the factory, or jammed into overcrowded mini buses

• a common problem in SE asia 

• labour unions that represent textile workers that is demanding safer and better transport for factory workers - there are lots of dangerous accidents

• vehicles are often in terrible conditions and no one takes responsibility for making sure they are safe to operate

how does the EBA scheme/SDTS in general need to be improved

• preferential market access for producers needs reforms and policies to ensure core human rights from exporters who want to benefit from these agreements 

• EU should blacklist any company that violates these international standards

• they need the EU to put pressure on the factories, the unions alone are too weak

• the investors do whatever they want to the workers e.g. china

• EU has a decision - suspend preferential treatment due to violations, or keep it to save thousands of jobs 

what happened to Cambodia’s SDT

As of 12th August 2020, some of Cambodia’s main exports such as garments, footwear, travel goods - are now subject to EU’s customs duties

EU has decided to partially withdraw Cambodia’s duty-free quota-free to EU market under EBA

EBA temporarily lifted due to serious and systematic concerns related to human rights

EU enforces this whilst staying open to Cambodia about the necessary reforms

Commissioner for Trade - Phil Hogan - EU gave Cambodia trade opportunities that allowed the development of an export-led industry and provided thousands of jobs, and also gave aid during the pandemic. But their continued support does not diminish the urgent need for Cambodia to respect human and labour rights. They stand ready to restore full access if they see substantial improvement.

The withdrawal concerns around 20% of Cambodia’s exports to the EU, which will have tariffs imposed like any other WTO region. The other 80% still has preferential treatment.

what are the impacts of Cambodia’s SDT being suspended

• The EU represents as much as 45% of Cambodia’s total exports

• Cambodian garment industry is especially vulnerable to the EU policy change - apparel products currently account for nearly 70% of all Cambodia’s export earnings

• The export-oriented garment industry is one of the very few job creators in Cambodia, especially for women living in rural areas. According to the International Labour Organization (ILO), as of 2016, the garment industry in Cambodia employed nearly 928,600 workers (almost 79% were female), an increase of 239% from 2007

• around 42.9% of Cambodia’s garment exports went to EU members alone in 2019, making the region the single most important export market

• Social responsibility is being given more weight in fashion companies’ sourcing decisions - even apparel items not directly targeted by the EU EBA suspension could face widespread order cancellations as sourcing from Cambodia is deemed to involve higher social compliance risks.

• even before the august EBA decision, Cambodia was negatively impacted by Covid-19, as of April 2020, Cambodia had reported nearly 130 garment factory closures and more than 100,000 workers laid off

• David Savman, head of production at H&M, said the company would do less business in Cambodia if the current EU trade benefits ended and named China and Indonesia as alternative sourcing countries.

• The European Chamber of Commerce estimates that 90,000 jobs would be at risk if the EU suspended special trade preferences over Cambodia’s record on democracy and human rights.

• Cambodia’s garment factories are estimated to employ one in every 25 people, most of them young women who provide for their extended families

• Cambodia’s Ministry of Foreign Affairs - “The Cambodian government can only take this decision as an extreme injustice when the EU blatantly disregards the considerable progress made by the country, despite its recent tragic past,” 

• “By implementing these withdrawal measures, the European Commission risks negating 20 year’s worth of development efforts.”

• Cambodia’s exports to the EU were worth 5bn euros ($5.8bn) last year, according to EU data

• $7bn apparel industry is the kingdom’s largest formal employer, providing jobs to some 740,000 people in a country with a population of 15 million