Difference Between Free Trade and Fair Trade

Nowadays the power of the government to regulate economic life has been profoundly altered by globalization. Worldwide supply chains have grown, and the jurisdictions where items are purchased and used have shifted frequently. Commercial activity has been regulated mostly through free trade and fair trade.

Free Trade vs Fair Trade

The difference between Free Trade and Fair Trade is that the basic purpose of free trade is to help a country grow. On the other hand, the primary purpose of fair trade is to empower poor individuals while significantly making their lives better.

Trade deals between countries that allow unlimited export and import of goods are examples of FREE TRADE. While free trade improves global market efficiency by promoting economic development and lowering the cost of goods, it has several drawbacks. Certain trade breaches, such as the use of cheap labor, may cause the items to become cheaper.

FAIR TRADE is a trading partnership built on communication, transparency, and respect, with the primary goal of achieving more equity in international trade. It attempts to improve trading circumstances while also protecting the rights of underprivileged people by providing better salaries and working conditions, as well as protecting child labor issues.

Comparison Table Between Free Trade and Fair Trade

Parameters of ComparisonFree TradeFair Trade
BeneficiariesSpecifically targets import and export market participantsSmall and medium enterprises operators in the community benefit.
ObjectiveThe goal is to boost economic growth.The goal is optimizing the living of people
Major PlayersHere the main figure is the governmentHere the main figures are small and medium enterprises operators in the community
FocusTrade among the countriesTransactions between company owners and individuals
Trade RegulationsHave minimal rules governing the trading of goodsHave procedures in place to guarantee that critical players are not exploited

What is Free Trade?

The free market is important to free trade. It assumes that a company’s success or failure is determined by its capacity to respond to a free and open market. Free trade is associated with the belief that corporations do not require government protection to defend the industry or its workers. By eliminating trade barriers such as taxes, subsidies, and regulations in the global trading system, firms will be able to thrive wherever they are.

Free trade highlights the elimination of commercial barriers between countries. It seeks to eradicate trade rules that favor individual countries or businesses. Free trade advocates think that removing trade obstacles and tariffs will eventually result in a level playing field for all businesses worldwide. They claim that these savings will be passed on to customers, and that competition among businesses will ensure that only the finest products succeed.

The goal of Fair Trade is to empower producers so that they can support themselves and their communities. Fair trade, in theory, decreases human rights breaches, environmental difficulties, and market exploitation. When you buy a product labeled “fair trade,” you are voting with your dollar that these ideals are important to you. Many free trade proponents call for the abolition of tariffs and subsidies, as well as rules and limitations that discourage them from participating in specific activities.

What is Fair Trade?

Fair trade is a business relationship built on communication, transparency, and respect, with the primary goal of achieving more equity in international trade. It attempts to improve trading circumstances while also protecting the rights of underprivileged people by providing better salaries and working conditions, as well as protecting child labor issues.

The purpose of free trade is to improve freedom in the international trade market by eliminating taxes, regulations, and restrictions on the export and import of goods. Free trade supporters and officials point to the overall economic growth of the countries participating. Fair trade regulations offer more checks and balances to the supply chain and take consumers into account.

A certified fair-trade product may cost more, but the “fair” price represents improved compensation for laborers in the supply chain, such as industrial workers or farmers.

These higher pays ensure that they can improve themselves and their communities, as well as enter the economy for which they labor. The population is able to buy, trade, and sell more inside their region, so stimulating the local economy.

This greater influx of funds is reinvested in local communities. Fair trade attempts to control trade based on worries about potential violations from trading with specific countries. Environmental concerns, human rights abuses, and labor rules could all be considered violations.

Main Differences Between Free Trade and Fair Trade

  1. Economists believe that free trade has the fewest overheads in the production process, resulting in lower prices that are not regulated by the government. Fair trade, on the other hand, includes the additional cost for fair labor; so, products and services are more expensive.
  2. There are minimal constraints in free commerce when it comes to trading products and services across borders. In most circumstances, free commerce between countries is devoid of subsidies, tariffs, quotas, or regulations. However, under fair trade, corporations collaborate with marginalized communities to ensure favorable working conditions and environmental issues are addressed.
  3. Fair trade economists think that by respecting human rights across industries, fair trade policies attract more consumers to an economy.  While a free trade economy has the least amount of overhead throughout the production of services and goods, it allows manufacturers to fulfill demand more quickly. This also has an effect on the final pricing of the goods.
  4. The supply chain in free trade is complex due to various levels of producers and consumers. In contrast, because of direct partnerships that account for the needs of specific communities, the supply chain in fair trade is obvious and easy.
  5. Countries that pursue free trade reduce tariffs, quotas, and regulatory trade barriers. Firms, on the other hand, shook hands with peasants and artisans to conduct fair trade, ensuring adequate funding and wages.

Conclusion

When individuals all around the world are given the ability to lift themselves out of poverty, they can participate in the global economic system of buying and selling products and services. Free trade favors keeping consumer prices as low as feasible. However, without the supply chain checks and balances that exist in a fair-trade system, these low costs come at a cost to the employees.

With the contrasts mentioned above, fair trade is preferable to free trade. This is because fair trade tries to produce a product that does not exploit both labor and the environment. However, free trade seeks to maximize profit regardless of manufacturing mode. The coexistence of free and fair commerce is excellent for achieving a successful economy.

References

  1. https://www.taylorfrancis.com/chapters/edit/10.4324/9781315183930-28/fair-trade-free-trade-debate-trade-labor-environment-robert-howse-michael-trebilcock
  2. https://journals.sagepub.com/doi/pdf/10.1177/0094582X9502200104
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