FAIR TRADE
(20856)
14223/99
COM(99) 619
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Commission Communication on fair trade.
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| Legal base:
| — |
| |
| Document originated:
| 29 November 1999
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| Forwarded to the Council:
| 30 November 1999
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| Deposited in Parliament:
| 17 January 2000
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| Department: |
Trade and Industry
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| Basis of consideration:
| EM of 31 January 2000
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| Previous Committee Report:
| None |
| To be discussed in Council:
| No date set |
| Committee's assessment:
| Politically important
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| Committee's decision:
| Not cleared. Referred to the Trade and Industry Select
Committee for its opinion
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Background
4.1 The Commission gave an undertaking to
produce this Communication at the June 1998 European Council.
It follows increasing political interest in the issue within the
EU.
4.2 In January 1994, the European Parliament
adopted a resolution on "promoting fairness and solidarity
in North-South trade"[21]
calling for EC level initiatives to support fair trade, dedicated
funding and the inclusion of fair trade in Community development
and co-operation policy. Later that year, the Commission published
a document[22]
on Alternative Trade, expressing its support for strengthening
fair trade both in the South and the North. In 1996, the Economic
and Social Committee issued an opinion on the "European 'fair
trade' marking movement"[23]
which in its conclusion welcomed the development of fair trade
labelling initiatives and called on the Commission to create a
dedicated budget line to support fair trade activities. This request
was reiterated in a European Parliament report on fair trade[24]
which made a number of proposals for further Commission action
in support of fair trade.
4.3 Apart from this general interest in
fair trade, lobby groups, Non-Governmental Organisations (NGOs)
and politicians have raised the issue in relation to bananas and
in 1997, the EU-ACP[25]
Joint Assembly passed a resolution requesting the Commission to
take action to assist those wishing to market fair trade bananas
within the EU.
The Commission Communication
— The concept of fair
trade
4.4 Recalling that Article 177 of the Treaty
requires Community development co-operation to foster sustainable
economic and social development, the Commission says that fair
trade is one way of bridging the gap between developed and developing
countries. As a result of the relative decrease in the prices
of basic and notably agricultural commodities, disparities have
evolved over the decades between industrialised and developing
countries which it is hoped that fair trade will reduce, through
trading relationships and by providing improved commercial opportunities.
Furthermore, by enhancing sound economic development and sustainable
growth from the bottom up, fair trade aims to foster the development
in these countries of conditions such as health and safety at
work, protection of the environment, and employers' and employees'
statutory rights and obligations.
4.5 Whilst fair trade may be considered
to be a form of 'ethical trade', the Commission says that the
term is usually used with reference to fair trading operations
which strengthen the economic position of small-scale producers
and landowners who may otherwise be marginalised in normal patterns
of trading. The term 'ethical trade' is more frequently used,
it says, in relation to activities — such as codes of conduct
— by multinational companies operating in developing countries,
which demonstrate their ethical and social responsibilities to
employees or other associates.
4.6 In practice, fair trade seeks:
"... to ensure that producers receive a price
which reflects an adequate return on their input of skill, labour
and resources, and a share of the total profit commensurate with
their input. This is normally effected through an agreement by
the participants in the fair trade initiative to pay a fair price
which is negotiated on a case by case basis. In situations where
the price of goods is agreed internationally (eg. coffee and cocoa),
a minimum price is set so that producers receive a return above
the world price for their produce. This enables producers to adopt
improved production systems and working conditions to the benefit
of farmers and workers and the environment".
4.7 The concept of fair trade was originally
developed by NGOs and the first initiatives involved the creation
of alternative trading organisations, or fair trade businesses.
A second route, developed in the Netherlands in 1988, is through
fair trade certification of goods sold through normal retail outlets.
The four labels used within the EU are "Max Havelaar",
"Transfair", the "Fairtrade Mark" and "Rättvisemärkt".
The certification organisations are all members of Fair Trade
Labelling Organisations International (FLO) which co-ordinates
at an EU and an international level. The criteria are harmonised
at international level, and are developed from international instruments
such as the International Labour Organisation (ILO) Conventions
and the United Nations Agenda 21 recommendations. They cover,
for example, employment conditions, controls to prevent pesticides
from contaminating rivers and drinking water, and the protection
of natural ecosystems. Currently, criteria are developed on a
product by product basis to enable the specific characteristics
of production systems and trading patterns to be taken into account.
4.8 The aim of the FLO agencies is to be
self-financing but, initially, costs can exceed revenue, and most
receive some financial support from Governments or development
NGOs.
4.9 Key organisations involved in fair trade
include:
- NEWS! (Network of
European World Shops). This brings together world shops in 13
European countries: Switzerland and all EU Member States other
than Luxembourg, Portugal and Greece;
- EFTA (European Fair Trade Association), which
represents 12 importers and accounts for 60% of sales;
- IFAT (International Federation for Alternative
Trade), a coalition of alternative trading organisations in Africa,
Asia, Australia, Japan, Europe, North and South America which
promotes fair trade. It links agricultural and craft producers
in the South with organisations in both the North and South.
- FLO. (See paragraph 4.7 above). The four agencies
who form the membership of FLO hold a common product register
of producer organisations, now amounting to 300 in 29 countries.
4.10 In 1998, these organisations joined
together to form FINE[26],
which is an informal structure with the objective of information
sharing, co-ordinating activities and arriving at common criteria.
4.11 A high proportion of total sales are
through specialist outlets such as the world shops which sell
goods imported by alternative trading organisations. There are
3000 World Shops and 70,000 points of sale in Europe, managed
mostly by volunteers, of whom there are about 100,000. The principal
products sold, either in this way or through labelling schemes,
are coffee, craft products including textiles and clothes, tea,
chocolate, dried fruit, honey, sugar and bananas. Currently, the
only products labelled are coffee, cocoa, tea, bananas, sugar,
and honey. The total turnover is estimated to be in the region
of 200 to 250 million euro. Food products represent around 60%
of retail turnover of fair trade products and of this figure almost
half is from coffee sales. However, fair trade coffee represents
only around 2% of the total coffee market in the EU. Fair trade
bananas, which are a more recent fair trade 'product' than coffee,
represent around 0.2% of the total EC banana market.
4.12 A survey for the Commission by EUROBAROMETER
indicated in 1997 that 11% of the EU population had bought fair
trade goods, though the percentages varied widely from 49% in
the Netherlands to 3% in Portugal and Greece. There was evidence
of retailers beginning to respond to consumer demand for some
guarantees concerning the conditions in which the goods they bought
were produced.
— EU activities in
support of fair trade
4.13 A limited amount of financial support
for EU NGOs and developing countries' producer groups has been
given to fair trade and ethical trade initiatives, under the heading
of alternative trade. Within the EU, this has been used to finance
labelling, world shops and EFTA's advocacy, research and awareness-raising
activities.
4.14 According to the Commission, since
the Copenhagen Summit, the EU has placed more emphasis on the
social aspects of trade globalisation and has been striving to
make real progress towards the goal of making good inadequacies
in core social standards throughout the world. It has begun to
put these ideals into practice by incorporating the principle
of awarding trade incentives for compliance with minimum social
and environmental standards into its legislation on external trade.
The Commission notes that on 25 May 1998 the Council adopted Regulation
(EC) No. 1154/98 which provides special incentives, in the form
of additional preferences under the EU Scheme of Generalised Tariff
Preferences (GSP), to countries which comply with labour standards
established by certain ILO Conventions, and with environmental
standards set by the International Tropical Timber Organisation.
— Other initiatives
such as codes of conduct
4.15 The Commission notes that initiatives
have included joint declarations on core labour standards issued
by the Social Partners within the framework of the sectoral social
dialogue, and seminars on codes of conduct and labour standards
organised jointly with the US Department of Labour by the EU in
Brussels in February 1998 and by the US Government in Washington
in December 1998. In addition, businesses, mainly in the sectors
of commerce, textiles and clothing, footwear, sporting goods and
toys, are starting to introduce their own codes of conduct.
— Fair trade and the
WTO, in the context of the growth of world trade
4.16 The Commission says that it is fully
committed to the aims and objectives of the World Trade Organisation
(WTO), believing that a more open multilateral trading environment
will increase prosperity and welfare worldwide. However, it recognises
that producers in developing countries may need help if they are
to benefit from the opportunities offered by a more liberalised
trading system. This is the basic premise of fair trade initiatives.
To the extent that these remain voluntary, fair trade is consistent
with a non-discriminatory multilateral trading system. If Governments
were to introduce regulatory mechanisms, they would need to take
their WTO obligations into account.
— Issues when considering
further EU support for fair trade activities
4.17 The Commission argues that the development
of fair trade and that of ethical trade, need to be dealt with
in a coherent manner. An increasing number of individual companies
are making fair trade claims of a self-declaratory character.
The lack of a legal definition leaves the system open to abuse.
Also, the criteria for fair trade products vary. The Fassa Report4
proposed a set of minimum criteria and FINE has begun to outline
common criteria. The Commission proposes more support for NGO
efforts to reinforce the capacity of the labelling organisations.
4.18 There is clearly a need, the Commission
says, to study how claims and labels are substantiated, verified
and controlled, either by fair trade organisations or others.
Consumers need to be able to make properly informed choices. In
monitoring and controlling claims and labels, consideration should
be given to assessing costs and benefits of fair trade products
and their competitiveness. The use of the Directive on Misleading
Advertising[27]
could be considered, as an instrument for ex-post verification
and control, in order to ensure adequate protection for consumers.
4.19 Finally, the Commission suggests that
consideration should be given to establishing a formal platform
for dialogue with the fair trade movement, with a view to discussing
the issues outlined in this Communication.
The Government's view
4.20 In his EM of 31 January, the Minister
for Trade (Mr. Caborn) says:
"Given the growing level of interest in fair
trade initiatives, the Communication is a useful and informative
document. We strongly support fair trade as it can make an important
contribution to tackling poverty by improving livelihoods for
poor producers. We would also agree with the Commission's analysis
of issues to take into account in considering further actions
in this area. These issues (including WTO considerations) would
also need to be considered for any further UK action".
Conclusion
4.21 The Communication is a useful piece
of research but makes only a few tentative proposals for what
action, if any, should be taken by the Community. Nor has the
Commission reacted with alacrity to mounting pressures to produce
the Communication. Indeed, it undertook in June 1998 to do so,
yet this modest document was not produced until 29 November 1999,
on the eve of the WTO Meeting in Seattle.
4.22 On 9 March 1999 the Trade and Industry
Committee published a report on Ethical Trading[28]
in which it welcomed the UK Ethical Trading Initiative and discussed
a number of issues relevant to this report on fair trade, such
as monitoring and verification to inform consumer choice, labelling,
trade and labour rights, and preferential tariffs. We would welcome
the opinion of that Committee on this report and formally refer
it.
4.23 Meanwhile, we do not clear the document.
21 EP document A3-0373/93, PE 206.396. Back
22 Not
deposited. Back
23 CES
538/96 E/as. Back
24 The
Fassa Report: EP document A4-0198/98 EP 225.945. Back
25 African,
Caribbean and Pacific. Back
26 The
Communication does not say what these initials stand for. Back
27 Council
Directive 84/450/EEC of 10 September 1984 relating to the approximation
of the laws, regulations and administrative provisions of the
Member States concerning misleading advertising, OJ No. L 250
of 19.9.1984. Back
28 Ethical
Trading: Sixth Report from
the Trade and Industry Committee, HC 235 (1998-99). Back
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