Friday, May 12, 2006

The right way to promote "fair" trade

Here's the right way to promote fair trade: bring your case directly to the consumer. Don't go the state and rely on its powers of coercion to restrain foreign competition. Appeal to consumers exercising their voluntary choices in the market.

That said, I still object to the misleading arguments being made to promote fair trade. The idea is that these cheaper foreign-made goods are a threat to domestic livelihoods. This may be true for some sectors in which the country has no comparative advantage. However this cannot be true for all sectors of the country. There will always be something the Filipino producers can offer foreign buyers - that's why it's called "trade". (One might think even a nitwit would understand this implication.) Otherwise foreigners will be happy to sell us their goods with nothing going back to them except useless Filipino currency. If so then we should shaft them to their limit!

One can however appeal to our sense of loyalty to Filipino-made products. Hey if that's something consumers go for voluntarily, who am I to object? Ultimately though one has to observe a trade-off: there is only so much price difference between domestic and foreign-made goods that one can tolerate out of patriotic loyalty. And if there is a high patriotic value for Filipino-made, it would be a great incentive for Filipino producers to conceal the foreign component of their products. For example, they can limit themselves to the final stages of processing and call the product "Filipino-made" whereas import content is actually quite high. Filipino-made laptops, anyone?

Nevertheless, except for the dissemination of economic illiteracy, this form of product promotion is largely harmless. I say let these fair traders vent their feelings in as many fair trade fairs (they themselves fund) as they please.

Consumers will know what to do.


Rizalist said...

Recent discussion at PCIJ blog (and Neal Cruz about a month ago) is on Norvasc and pharma goods in particular. Lots of confusion over patents and the price inequalities between the Philippines and India. I doubt that such differences are confined to meds however. What seems to be underappreciated is that when patented goods come off patent, the technology is essentially in the public domain. So for example, in the case of human insulin produced by genetically modified e. coli bacteria (instead of being source from pig insulin!), the patent expired in the 90s. But I don't think anyone is producing insulin locally like this, when it is state of the art and all the info needed to do it commercially is freely available.

I think people expect "equality" as a matter of "right" rather than perspiration!

I think "fair trade" is only possible within a regime of free competition. But that certainly guarantees that some will win and some will lose. Inequality is a fact of democracy, ironically enough. WE can only impose equality at the level of opportunity.

Rizalist said...

Great post by the Econblogger!

Econblogger said...

Thanks DJB. I am no longer familiar with DOH regulations, but I suspect that the lengthy testing and safety procedures of the BFAD are still constraining investment in pharmaceuticals - even in no-brainers such as "freeware" drugs!

lateralus said...

as much as i would like to think that the case presented is feasible, there is still no assurance that it would work. Allowing free trade is like opening the floodgates - and this "counter measure" of "bringing the case to the consumers" is not exactly a fail-safe method. If it works, then good. But what if it fails? If it does, it will leave us with a vastly uncompetitive local industry with no way to protect itself.

Putting high patriotic value on Pinoy products sure sounds mighty fine on paper - lets see if that gets translated into action. I see the wisdom of the points, but it's a very antiseptic scenario. It is a best-case scenario without taking into consideration the possible pitfalls of the proposition.

Amadeo said...

The news item mentioned the overseas Filipinos with their highly esoteric purchasing power as a target for the campaign. Well, that sector already contributes in cash about 10 billion dollars annually in inward foreign exchange remittances, 60% to 2/3rds of which come from the US. Are there campaigns promoting how that transfer of purchasing power can be used to help local industries?

Also, very much under the radar is the economically deleterious practice of sending balikbayan boxes to the old homeland. In the US, alone coming from unchallenged sources about 2-3 million boxes are sent annually, containing essentially consumer products that are in direct competition with local industries. Thus, the proliferation of freight forwarding entities anywhere a Filipino community can be found.

How could a local Purefoods/Swift luncheon meat product possibly compete with a Spam can that carries no local cost?

Econblogger said...


As I have argued, some local industries would be found to be uncompetitive. They will shrink or even perish with free trade. But others will be found to be competitive. These will prosper under free trade. So from the viewpoint of the Filipino economy considered dynamically and as a whole (and not the narrow perspective of the uncompetitive, incumbent enterprises), free trade is highly beneficial.

Aside from this is the ethical argument, implicit in my post: what about freedom of choice? Should the "entitlement" of local producers to monopolize the domestic market override the freedom of consumers to select products from outside that market?