Fair Trade Laws – Regulate The Selling Price Of Merchandise

Fair trade laws permit the manufacturers as well as the producers to set minimum rates for the resale of their products. It was first introduced in California during the time of worldwide economic depression before World War II.

Fair trade laws – The purpose:

The fair trade laws were enacted to protect the governments as well as the businesses from companies and countries that attempt to dump commodities into a marketplace with unfair subsidies or at low rates. The US government offers subsidies or financial assistance to companies so that they can produce, manufacture or export goods. The subsidies range from cash payments to loans granted at below market rates. However, the government offset subsidies when it determines that an unfair subsidy has been granted. This practice facilitates open competition between the domestic and the foreign companies.

Fair trade laws – Regulate selling price:

The manufacturers always try to establish as well as maintain goodwill towards the merchandise by assuring the consumers that the goods are quality products. In 1900s, the commanding over the minimum retail prices became a necessity in order to preserve the goodwill. What happened was, the manufacturers feared that the consumers would become skeptical and feel cheated if the retailers began to sell a product for a much lower price whereas the price of the commodity had been consistent for quite a long time. The manufacturers thought that this practice would weaken the claim that the high price was necessary in order to maintain the quality of the product.

In order to control the above situation, the fair trade laws were enacted in the year 1931. These laws legalized that if a manufacturer entered into an agreement, the retailers (who signed the agreement) would not be able to sell the particular product/products below the prescribed minimum price. In 1933, these laws were amended to make it binding for the non signers, too.

Along with the domestic laws, global fair trade laws were also enacted that ensures that the US businesses are protected against the unfair government subsidies and foreign pricing in the world marketplace. If any US industry suspects any such unfair practice, then it can file a petition with the Import Administration and the US International Trade Commission, requesting them to take measures against the offender.