Trade matters, and fair trade matters in particular. The British economist Paul Collier took time to talk with Alexandra Schade and Michael Kröber about trade liberalization and the merits of economic sanctions.
The European: How fair is fair trade?
Collier: First of all, it is very sensible for anybody concerned with development to be concerned about trade. Trade really is more important than aid. And so getting the basis for trade right is indeed a very important thing to focus on. I think there has been a tendency of the fair trade movement to sometime focus too much on particular issues. Fair trade coffee obviously did not increase the demand for coffee. It just switched it from one type of coffee to another type of coffee. The demand of coffee which has been registered as fair trade goes up. The demand of coffee which has not been goes down. So the price of fair trade coffee goes up whereas the price of other coffee goes down. Now that is okay depending on who is actually producing all this coffee. The essence of fair trade is to certify a chain of transaction. So be to credible it has to happen in an environment where governance is good enough to be trusted. Fair trade is a very worthy goal and I don’t want to be too critical of it, but anything to do with the economics of trade can be a bit tricky.
The European: So, if those farmers who produce fair trade products get higher prices for their products, would that not lead poor farmers to actually try to produce fair trade products as well?
Collier: Well, let’s hope. The danger is that all that takes such a long time that in the meantime they are actually poorer. But all this is a diversion from the much larger issues of trade policy where we really need a fair trade movement to get involved. I mean the centerpiece of Europe’s trade policy towards Africa is the economic partnership agreements. So far that has been a euphemism because there have not been many signs of partnership. Africans have been very hostile to what Europe has offered them. Some of that hostility is pretty understandable because the economic partnership proposals from the European Commission really need to be improved. In particular, what they have been demanding is that Africa liberalizes its import tariffs preferentially in favor of Europe. If Europe manages to bully Africa into doing that, it will be very bad news for Africa.
The European: What would that mean for Africa?
Collier: Suppose a European firm is competing with a firm from South Korea and they are both selling the same product. And suppose that the European product is more expensive. But now the South Korean firm would have to pay tariffs when the good was sold in Africa but the European firm would not. So the Africans would end up choosing the European product even though it costs more. And that would be very bad for Africa’s terms of trade. I don’t think you will find a single academic economist supporting that idea that Africa should liberalize preferentially in favor of Europe. But that is what European Commission trade officials have been demanding – ostensibly on our behalf – and we need to tell them that they should not be doing that.
The European: In your opinion, what way is there to improve the economic partnership between Europe and Africa?
Collier: What Europe should be offering to Africa is to say: “Yes, we give you better market access into Europe but in return you Africans should follow the European model and deepen economic integration amongst yourselves.” Africa has been very slow in liberalizing internally. Very often the barriers of trade within Africa are bigger than the barriers facing outsiders. And that is what fair trade should be all about. It is unfair of Europe to demand from Africa that it worsens its terms of trade by giving Europe preferential access. That is the message to the fair trade movement. Trade really matters and fair trade really matters. Right now, the European Commission trade officials are negotiating with Africans and trying to force them to accept the worse for their terms of trade. They are doing that on our behalf and we should stand up and say we don’t want that.
