Free trade vs Fair Trade

Fair Trade vs Free Trade
Is Fair Trade the perfect system, without flaws? No. But to quote the quotable Ben Harper, ‘What good is a cynic with no better plan?’ “Fair Trade” is often compared to “free trade” in popular media. Here’s a brief clarification:

Fair Trade

Fair Trade is a trading partnership, based on dialogue, transparency, and respect, that seeks 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 those in developing countries.

Fair Trade organizations (like Fair Trade Sports), backed by consumers, are engaged actively in supporting producers, awareness raising and in campaigning for changes in the rules and practice of conventional international trade. Fair Trade International’s (FLO) strategic intent is:

  • Deliberately to work with marginalized producers and workers in order to help them move from a position of vulnerability to security and economic self-sufficiency
  • To empower producers and workers as stakeholders in their own organizations
  • To actively to play a wider role in the global arena to achieve greater equity in international trade

In comparison to “free trade,” the fair trade movement, also known as the trade justice movement, promotes international labor, environment, and social standards for the production of traded goods and services. The movement focuses in particular on exports from developing countries to developed World.

Free Trade

In international trade, Free Trade is an idealized market model, often stated as a political objective, wherein trade of goods and services between countries flows unhindered by government-imposed artificial costs.

Intellectually, this arrangement is supported by followers of the neoclassical and micro-economic schools of thought. It is opposed by anti-globalization and labor due to perceived tendencies for abuse by wealthier states.

The term is given to economic policies, as well as political parties that support increases in such trade. Free trade is a concept in economics and government, encompassing:

  • International trade of goods without tariffs (taxes on imports) or other trade barriers (e.g., quotas on imports)
  • International trade in services without tariffs or other trade barriers
  • The free movement of labor between countries
  • The free movement of capital between countries
  • The absence of trade-distorting policies (such as taxes, subsidies, regulations or laws) that give domestic firms, households or factors of production an advantage over foreign ones
  • Trade-distorting policies to enforce property rights so as to ensure the above conditions

Depending on the specific context, use of the term free trade can signify one or more of the above conditions. However, it is fundamental that only governments can restrict trade. They have the legal monopoly over the use of physical force in a geographical area.

The term free trade has become very politically based, and it is not uncommon for so-called “free trade agreements” to impose additional trade restrictions. Such restrictions on trade are often due to domestic political pressure by powerful corporate, environmental or labor interest groups seeking special protections of their perceived interests.

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