However trade deficit is the opposite of trade surplus and puts countries on a negative balance of trade. This can be caused because the country imports more goods than in it exports which means it makes less money and this also causes debts.
Below is a graphic I found when I searched for MEDCs and LEDCs on Google
Trade surplus happens in the “north” (MEDCs) because they are the countries which export more than they import which is why they are not in a negative point of trade, however in the “south” (LEDCs) they are mostly in trade deficit which shows a negative point of trade and that is one of the major reasons why they are in debt and poverty.
Now, I will look at another probable cause of global inequality, Colonialism. Colonialism is simply, exploitation by a stronger country of weaker one; Colonizing nations generally dominate the resources, labour, and markets of the colonial territory, and may also impose socio-cultural, religious and linguistic structures on the conquered population (see also cultural imperialism).. ()
The historical events of colonisation are one that stretches around the globe and across time. From the sixteenth century and onwards, the leaders of the western countries of Europe believed it was their right to try to conquer and rule the other parts of the world and form empires. This process of developing the countries in an empire is known as colonialism.
The huge profits made from trade based on cheap imports from the colonies and slavery in America helped Europe and the USA become richer, whilst the countries that became colonies were left behind.
From 1945 onwards, colonies gained their political independence. However, they had lost so much of their economic independence that it was difficult to recover from the effects of the past. This is why people believe colonies are unfair
This map above, which I retrieved from Google of the world in 1898 shows the large colonial empires that European nations established in the Americas, Africa, Asia, and the South Pacific
One country which used to be a colony is India. A case study has shown how European traders used to go to India to buy the best cotton cloth in the world. For the technology of the time, India had a very advanced textile industry. By the end of the nineteenth century, India was now part of its empire. In order to help mill owners in Lancashire, the government put a heavy import tax on Indian cloth. Raw cotton carried no import tax. This raw cotton was now used in Lancashire to mass-produce cloth at a price that was cheaper than cloth made in India. The result was that people in Lancashire had jobs, the mill owners and shippers made fortunes whilst the Indian textile workers lost their jobs and became poor. (GCSE Humanities for AQA: Page 185)
In some cases, the prices of the raw material have been turned down for a long time compared to the price of manufactured products from MEDCs. In addition, Poor countries do not have the technology to process the crops themselves and sell at higher prices. This is why some LEDCs rely so heavily on primary products.
However, I believe Colonialism isn’t a major factor contributing to global inequality and unfair trade. In order to understand how trade is still unfair today, I need to look at what makes trading so unfair today, so I will turn my attention to protectionism. Protectionism is the economic policy of restraining trade between nations, through methods such as high tariffs on imported goods, restrictive quotas, a variety of restrictive government regulations designed to discourage imports and anti-dumping laws in an attempt to protect domestic industries in a particular nation from foreign take-over or competition. (Source: Wikipedia)
The following terms are used in the context of Protectionism
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Tariffs: A tariff is a tax on foreign goods.
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Subsidies: a subsidy is a kind of government assistance, possibly in the form of a monetary grant, given to producers or consumers to help in the production or purchase, respectively, of a good, because it is considered to be in the public interest, or justified as such.
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Quotas: A quota is a prescribed number or share of something.
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Embargo: an embargo is the prohibition of commerce and trade with a certain country, in order to isolate it and to put its government into a difficult internal situation, given that the effects of the embargo are often able to make its economy suffer from the initiative. ( Wikipedia)
Protectionism isn’t normally a problem if it isn’t used a lot. However Some Governments take advantage of protectionism and use/rely on Protectionism because they want to discourage imports into their nations and they want to protect their domestic industries from foreign take-over. An example of this maybe: In the United States, the powerful steel, textile and agribusiness lobbies have kept those industries protected from foreign competition in ways that hundreds of other industries have not; and while unprotected industries have faced stiff foreign competition, they have also faced higher prices on steel, textiles and agriculture. One might look at the situation and decide that steel jobs are more important than other jobs, but to deny the connection between the two is to ignore evident economic principles. (Source: Freedom Works)
This could create a barrier for other industries to trade and it is a sign of unfair trade and a sign of how industries use protectionism to their advantage.
Protectionist quotas can cause foreign producers to become more profitable, for example in the United States (1981-1994), Japanese automobile companies were held to voluntary export quotas. These quotas limited the supply of Japanese automobiles desired by consumers in the United States (1.68 million, raised to 1.85 million in 1984, and raised again to 2.30 million in 1985), increasing the profit margin on each automobile more than enough (14% or about $1200 in 1983 dollars, about $2300 in 2005 dollars) to cover the reduction in the number of automobiles that they sold, leading to greater overall profits for Japanese automobile manufacturers in the United States export market, and higher prices for consumers. (http://en.wikipedia.org/wiki/Protectionism)
These are just some of many governments/countries and industries benefitting from Protectionism and as a result, unfair trade is occurring more often.
One method used to measure the level of protectionism within an economy is the average tariff rate. The table on the left provides a list of average tariff rates in selected countries around the world. These rates were all taken from the WTO's trade policy review summaries.
The average tariff rates are less than 20% in most countries, although they are often quite a bit higher for agricultural commodities. In the most developed countries, average tariffs are less than 10%, and often less than 5%. On average, less developed countries maintain higher tariff barriers, but, for many countries that have recently joined the WTO, tariffs have recently been reduced substantially to gain entry.
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This table tells me that the countries which are exporting more goods have higher tariff rates compared to countries which are not able to export goods.
Some poor farmers can suffer due to protectionism. For example when some sugar farmers collect sugar they to have export it to sell in other countries. But due to subsidies and tariffs which add a significant amount of money onto it they are unable to export it or receive less money for it.
However there is a solution to this, it is called Free trade
Free trade is an idealized market model, often stated as a political objective, in which trade of goods and services between countries flows unhindered by government-imposed prices.(Source: Wikipedia) This means that everything exported would be free from government imposed prices. E.g. Tariffs, quotas etc. However Free trade is a political objective which has been the most debated topics of the 20th and 21st century. Different arguments are used by those who favour and by those who oppose free trade.
The World Trade Organization (WTO) is an international body whose purpose is to promote free trade by persuading countries to abolish import tariffs and other barriers. As such, it has become closely associated with globalisation.
The World Trade Organization (WTO) is the only global
international organization dealing with the rules of trade
between nations. At its heart are the WTO agreements,
negotiated and signed by the bulk of the world’s trading
nations and ratified in their parliaments. The goal is to help
producers of goods and services, exporters, and importers
conduct their business. (Source: World Trade Organization)
The WTO has been the central point of criticism from people who are worried about the effects of free trade and economic globalisation. In a BBC article, there were 4 main points opposing the WTO. They are:
WTO is too powerful, in that it can in effect compel sovereign states to change laws and regulations by declaring these to be in violation of free trade rules.
WTO is run by the rich for the rich and does not give significant weight to the problems of developing countries. For example, rich countries have not fully opened their markets to products from poor countries.
WTO is indifferent to the impact of free trade on workers' rights, child labour, the environment and health.
WTO lacks democratic accountability, in that its hearings on trade disputes are closed to the public and the media.
Supporters of the WTO argue that it is democratic, in that its rules were written by its member states, many of whom are democracies, who also select its leadership. They also argue that, by expanding world trade, the WTO in fact helps to raise living standards around the world. (Source: )
I agree with the criticism of the WTO, that it is too powerful and is run by the rich. Adding to this I think that the world trade organisation isn’t going to reach and fulfil its goal- which is to help producers of goods and services, exporters, and importers conduct their business, because of its rules and not allowing countries to have their say on the rules. Having said this I believe that the WTO can be a major factor in solving unfair trade as there is an increase in members of the WTO.
The above image shows the Current members of the WTO (in green)
(Source: )
So if Free Trade is a failure itself then maybe Fairtrade will help solve world poverty
Fair Trade is defined by the International Federation for Alternative Trade (IFAT) as a trading partnership, based on dialogue, transparency and respect that seek greater equity in international trade. It contributes to sustainable development by offering better trading conditions to, and securing the rights of, marginalized producers and workers – especially in the South.(Source: IFAT)
Fairtrade can have a big impact on the trading world and it has many goals to achieve. Some of these goals are:
- To improve the livelihoods and well-being of producers by improving market access, strengthening producer organisations, paying a better price and providing continuity in the trading relationship.
- To promote development opportunities for disadvantaged producers, especially women and indigenous peoples, and to protect children from exploitation in the production process.
- To raise awareness among consumers of the negative effects on producers of international trade so that they can exercise their purchasing power positively.
- To set an example of partnership in trade through dialogue, transparency and respect.
- To campaign for changes in the rules and practice of conventional international trade.
- To protect human rights by promoting social justice, sound environmental practices and economic security. (Source: BBC)
Some commodities which are covered by the Fairtrade mark are:
Food Products:
- Bananas
- Cocoa
- Coffee
- Cotton
- Dried Fruit
- Fresh Fruit & Fresh Vegetables
- Honey
- Juices
- Nuts/Oil Seeds and Purees
- Quinoa
- Rice
- Spices
- Sugar
- Tea
- Wine
(Source: Fairtrade.org)
In order to find out if Fairtrade is reducing world poverty and to see if it is making a real difference in people’s lives, I carried out a questionnaire to find out if the general public in the UK are aware of and support Fair-trade carried out this questionnaire by asking the general public in numerous locations to fill in the ‘Fair trade questionnaire’. After they had completed it, I’d grouped the data and analysed the results, noticing if there was any links between the answers.
If the people are aware of Fairtrade,
then this helps proves that Fairtrade is reducing World Poverty. If they don’t, then Fairtrade is doing less well than I thought.
So this leads me onto my next question of my questionnaire which is, ‘Do you purchase Fairtrade products?’ Out of the 73% of the people who have heard of Fairtrade, only 38% of them buy Fairtrade products and a monstrous 62% do not purchase Fairtrade products. Personally I am not surprised by these figures because there are no Fairtrade adverts or leaflets which advertise and encourage people to buy Fairtrade products. This is probably one reason why people don’t purchase Fairtrade products because they might not know who sells it and the benefits of buying it.
To double check, if people heard of Fairtrade or not, my third question was, ‘Can you identify the Fairtrade logo?’ In this question, I gave different logos of different companies including the Fairtrade logo and if the Fairtrade logo is circled, this will prove that Fairtrade has continued doing well in terms off awareness.
The questionnaire shows that just over half of the people questioned recognised and circled the Fairtrade logo. This is quite worrying because if many people do not know or not aware of what the Fairtrade logo looks like, then how can Fairtrade products sell? And if Fairtrade is not known and their products are not bought then Fairtrade cannot reduce global inequality.
Another reason for why people are not purchasing Fairtrade products and not aware of Fairtrade is because not many supermarkets are selling Fairtrade products. So to see if this theory is true, one of my other questions were, ‘Where do you buy Fairtrade products from?’ In this question I gave some names of supermarkets to choose from. Or if there is another supermarket which isn’t listed, I gave the option of writing it.
The results shows that a staggering 80% of the people questioned buy their Fairtrade products from Sainsburys.10% of the people but from Tesco and another 10% buy their products from M&S. To see if Sainsbury’s sells Fairtrade products, I went down to my local Sainsbury’s and found a section which sells only Fairtrade products. This maybe good for Fairtrade but it is only one supermarket which are doing this and not others. Hopefully this may encourage other supermarkets to sell Fair trade products.
If people buy Fairtrade products, for what reason would they buy it for? There would be an obscure reason for why someone would choose Fairtrade products rather than a branded product. So my 5th question was what is your main reason for choosing/buying Fairtrade products?
50% of the people questioned said that their main reason for buying/choosing Fairtrade products is that it helps the poor.33% of the people questioned say it is cheaper than others while 17% of the people said they buy it because it is better quality.
Another question that is left unanswered is that, if people would buy Fairtrade products in the near future. If they do, then fair-trade has a better chance of solving world poverty.
My data shows that the majority of the people questioned, answered ‘maybe’, while 32% of the people questioned answered ‘yes, definitely’. This statistics show that there is uncertainty if people will buy Fairtrade products in the future. This may be that not much people have heard of it or that it might be more expensive than other products. This supports the last graph as 50% of the people asked buy fair-trade products to help the poor. Only a small amount of people feel that it is cheaper than branded products and an even smaller amount of people feel that fair-trade products is better quality than other products.
Another reason for why people wouldn’t buy Fair-trade products could be that they feel that Fair-trade isn’t the best solution to solve world poverty. So my last question was, ‘What other things do you think should be done to reduce Global Inequality?’
As you can see from the results, a staggering 73% of the people questioned said that ‘cancel the debt off poor countries’ would help solve Global inequality, while 27% of people questioned said giving money to charity would help resolve global inequality. However, no one questioned said that ‘Fair-trade is the best’ and is helping resolve global inequality.
Despite this I still think Fair-trade is doing a lot to help resolve Global poverty. My results prove that Fairtrade are doing well in terms of awareness. However, Fairtrade are lacking in terms of selling there products. As a result fewer people are buying and fewer supermarkets are selling. However over the last few years there is in increase in demand for Fairtrade products and one of the main reasons for people choosing to buy these products are, to help the poor. This tells me that people are becoming more aware of Global inequality and poverty and as a result of this more people are spending on Fairtrade products.
And supermarkets are doing all they can as some are introducing and others are expanding on Fairtrade products. Stores also went to ‘war’ in a battle to sell Fairtrade products. On the eve of Britain's 14th Fairtrade Fortnight, which started on 26 February 2007, Marks and Spencer’s and Sainsbury’s launched a new product with a cliché written on them- 'give something back'. Below are some of the stores doing their bit for Fairtrade.
Co-op
The Co-op was the UK's earliest adopter of Fairtrade by a supermarket, selling Café direct coffee in 1992. Since then it has many Fairtrade firsts among its products, including the first mangos and pineapples and own brand Fairtrade wine. Now the store has ordered one million Fairtrade Bags for Life, made from unbleached, biodegradable cotton. Co-op was first and still receives lots of applause from Fairtrade experts.
Marks and Spencer
'Plan A', M&S's ethical overhaul, includes a major increase of Fairtrade cotton over the next year, from 100 tonnes to a projected 6,000 tonnes. The newest products are Fairtrade cotton fitted sheets (£18-£24), pillowcases (£7.50), towels (£2-£19.50) and tea towels (£7.50 for three). Sleep and wash up with a clear conscience.
Sainsbury's
As well as a new Fairtrade cotton range, Sainsbury's has gone big on bananas. Three-quarters of the bananas it sells are currently Fairtrade certified from the Windward Islands, and the rest will soon follow suit. We say good news.
(Source: The Guardian Unlimited)
If this goes on, the future is looking bright for Fairtrade and it could prove to solve Global Poverty/inequality.
One article that got to my attention is an article on the ‘Sainsbury’s’ website. It is about Sainsbury’s changing their bananas to Fairtrade and how it is benefitting farmers.
'Fairtrade makes a lot of difference, I get $7 more on a box of bananas and I have personally gained funding to fix up my shed. More widely, it helps with community aids like helping the Dennery hospital and schools in my community. I'm hoping my daughter can now go to college'. Rennicks Doxilly says, Fairtrade banana farmer, St Lucia.
Mr. Rennicks Doxilly has been a banana farmer for 32 years and owns a three acre farm at Hill Twenty Babonneau, quarter of Castries. He worked with WINBAN for 29 years, Ranju farms for 2 years and with SCIC Fertilizer mixing plant for 1 year. He is currently employed by the Ministry of Agriculture, in the Banana Emergency Recovery Unit where he supervises the demonstration plot.
Even with a normal eight to four job, Mr. Doxilly still finds ample time to efficiently manage his own farm through daily routine activities. On a typical Monday when Mr. Doxilly is not harvesting, (he harvests fortnightly) he does general sanitation work around his shed before going off to work. On harvest Mondays he goes through the preparation stage but leaves the harvesting in the more than capable hands of his wife. After work he joins his wife to complete the harvest and subsequently brings his fruit to the inland depot, where he offers them for sale.
A Tuesday morning would find our farmer friend doing one of two things. In a harvest week Doxilly would start his day by cleaning up his shed, removing debris and other discarded material. On Tuesday afternoon after returning from his regular job one could find him scrubbing the shed in continuation of the post-harvest sanitation effort. In a non harvest week he would typically spend early morning and after work de-suckering and propping his plants.
Mr. Doxilly explained that on Wednesdays he would detrash, ensuring that every plant was given due attention and that unwanted pseudo stems were taken off, leaving the least competition for the parent plant. On a Thursday, time on the farm is spent sleeving (he also does early sleeving) and deflowering. Friday, he explained, is a much awaited day of relaxation. On this day Doxilly goes to the Bank to check up on his fiscal standing and later in the afternoon proceeds to the place he refers to as his “studio” (a local bar) where he enjoys a brew and catches up with his friends.
On Saturday, a day off from his regular job, Doxilly continues with the detrashing effort. He also does some general field sanitation work and lowering of diothene sleeves as well as otherwise non routine activities such as placement of fertilizer. Sunday he explains is generally a continuation of Saturday except on harvest weeks when these Sundays are spent erecting his boxes in preparation of course, for the harvest. (Source: www.Sainsburys.co.uk)
These are just some of many farmers benefitting from Fairtrade.
Overall Fairtrade makes a real difference in people’s lives:
- It empowers consumers in the developed world to take some responsibility for the role they can play when buying products from developing countries.
- It means producers in the developing world can look forward to getting a fair price for their efforts and their produce.
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It challenges the conventional model of international trade, offering a progressive alternative for a sustainable future.(Source: BBC.co.uk)
Fairtrade is now seen as being another way to help people. Some say it is better than giving aid to countries. Others think not.
Aid is the help, mostly economic, which may be provided to communities or countries in the event of a humanitarian crisis or to achieve a socioeconomic objective. Humanitarian aid is therefore primarily used for emergency relief, while development aid aims to create long-term sustainable economic growth. Wealthier countries typically provide aid to economically developing countries. (Source: Wikipedia)
There are different types of Aid, which help the poor in many ways.
Emergency/Humanitarian Aid is fast assistance given to people in immediate distress by individuals, organisations, or governments to relieve suffering, during and after man-made emergencies (like wars) and natural disasters (source: Wikipedia)
Development aid is aid given by developed countries to support economic development in developing countries. It is distinguished from humanitarian aid as being aimed at alleviating poverty in the long term, rather than alleviating suffering in the short term. (Source: Wikipedia)
Here are some more aid, including humanitarian aid and development aid and the pros and cons of them.
The critics of Aid: The economist William Easterly and others argue that aid can often distort incentive in poor countries in various harmful ways. Aid can also involve inflows of money to poor countries that have some similarities to inflows of money from natural resources that provoke the resource curse.
Many also criticize U.S. Aid in particular for the policy conditionality that often accompanies it. Emergency funds from the International Monetary Fund and World Bank, for instance, are linked to a wide range of free-market policy prescriptions that some argue interfere in a country's sovereignty.
These are some of many critics of aids. There are also websites which promotes Trade and criticises aid. These sites also explain the problems with aid schemes.
The part of aid which people dislike is when money is wasted on projects that are poorly researched and are not delivered to the expectations that have been given. However there are positive points of aid. Large scale aid plays a huge part in the world and in emergency situations. E.g. Helping build roads etc. But when money is given for aid, most of it ends up in the pockets of manufacturers.
Furthermore, Critics of aid from within donor countries argue that aid breeds a dependency culture, which stunts economic growth. They also claim that corrupt recipient governments divert aid on to arms spending.
(Source: )
Some countries receiving aid certainly have high armaments spending. India spends 15% of its central government expenditure on defence, and Sri Lanka 18%. Military hardware suppliers are generally based in richer countries and donor governments have steadfastly resisted demands to curb their armaments industries. These industries continue to thrive on sales to poorer nations.
Some observers believe that poorer nations spending more on defence seem to attract greater levels of aid. This suggests that aid may not be just directed towards eradicating poverty. It might also be meeting the donors' strategic military objectives. (Source: )
These arguments support Trade rather than Aid as Aid is seen as not helping towards eliminating poverty.
Evaluation
I would like to conclude my essay by saying that I agree, that trading fairly will reduce World poverty. My reasons for my answer are that, Fairtrade can make a significant difference in a farmer’s life as they are getting paid for their commodities at a fair price. Trading is also a big part of a farmer’s life as they trade for a living. So trading fairly will prevent poverty. Fairtrade is also a long term help and support for farmers, and the word of Fairtrade is spreading as supermarkets are switching some of their products to Fairtrade. This can benefit a lot of people.
If I had more time for this essay I would’ve done some things differently.
For example I would’ve explained some issues into depth and illustrated them. I would’ve improved my questionnaire by asking more questions like, ‘What kind of Fairtrade products do you purchase?’
This might’ve helped me more in terms of my overall answer.