Difference Between Free Trade and Fair Trade (With Table)

The principles of free trade postulate a world with reduced restrictions, so as to facilitate the optimization of global supply chains. Fair trade principles, on the other hand, ardently favor unbiased trade practices that help improve the standard of living of the third world producers.

Free Trade vs Fair Trade

The difference between free and fair trade is that while the former is devoted to improving the prevalent conditions of international trade, by minimizing trade barriers and tariffs, the latter is committed to the empowerment of suppliers in developing regions of the world.

The main objective of fair trade is to achieve the operation of fair and just trade practices that are committed to protecting the more vulnerable section of global producers from exploitation. Free trade has the sole objective of annihilating trading restrictions and regulations in the concurrent globalized world order.

Comparison Table Between Free Trade and Fair Trade

Parameters of ComparisonFree TradeFair Trade
DefinitionThe ideology of free trade consists of principles that are committed to the reduction of trade barriers between nations.The ideology of fair trade consists of principles that are committed to the achievement of just trading practices.
FocusCountries and their international trade policies are the main units of focus.Individual relations between primary producers and businesses are the main unit of focus.  
ObjectiveThe main objective is to ensure the minimization of inter-country trade restrictions.The main objective is to improve the living standards of the marginalized populace.
Economic RationaleFree trade reduces the overhead expenses and thus the final cost of goods.Fair trade improves net economic benefits, albeit at slightly higher prices.
Policy MeasuresReduction of tariffs, quotas, duties are important measures.  Collaborative efforts among businesses and primary producers are needed.
Initiation of ChangesGovernment policies initiate change.Payment of living wages and community improvement programmes.
Key BeneficiariesCorporations and businesses engaged in import-export.The common people, especially primary producers like farmers and artisans.
Structure of Supply ChainsComplicated supply chains with multiple intermediaries.A simple supply chain directly connects the producer and consumer.
Ideological RootsLibertarian ideology.Communitarian ideology.

What is Free Trade?

Free trade is an economical principle committed to the enhancement of freedom in the domain of international import and export trade. The main goal of these policies is to reduce restrictions on cross-border trading by lowering tariffs, quotes, and duties. Free trade is guided by inter-governmental directives like Trans-Pacific Partnership (TPP) and various other Free Trade Agreements (FTAs).

Free trade is often supported by countries to boost their economic growth levels by fostering global supply chains.  Free trade advocates often cite the manifold benefits these policies have to offer in the globalized world. They aid in the smooth, conflict-free operation of the international trade markets, by improving efficiency and output.

Free trade policies have become synonymous with economic growth. Enhancement of exports creates more opportunities for employment, expansion of businesses, investment, and development. The downside of such policy measures is that they are not committed to the equitable distribution of wealth in the country and hence, can condone exploitative measures of maximizing profits.

What is Fair Trade?

Fair trade practices embody the ideals of equality and justice. Their sole objective is to attain a better standard of working and living for the most exploited and vulnerable sections of producers in the third world nations. They mainly focus on the individual relationships between primary producers and business houses and work to make this relation just and humane.

The key goal of all fair trade policy measures is to secure a living wage for every worker. They are committed to the improvement of the working conditions of the primary producers like artisans and farmers. Transparent, just, and non-discriminatory practices fall within the domain of fair trade alliances.

These policies are crucial in tackling and eliminating violations of labor laws, environmental standards, and human rights. They operate to elevate the conditions of survival for the most marginalized producers, who are often exploited by multinational corporations for the attainment of their individualistic profit-driven agendas.

Main Differences Difference Between Free Trade and Fair Trade

  1. The main difference between free and fair trade can be noted in the definitions of each term. While free trade expresses the commitment to reduce global trading restrictions, fair trade is a concept that emerged to ensure non-discriminatory and just trading practices.
  2. While free trade focuses on the national and international trading units (countries around the world), fair trading practices focus on individuals who are engaging with one another in the daily lived realities.
  3. Free trade operates to achieve the objective of unmatched economic growth through enhanced foreign trade. Fair trade is geared toward the improvement of the lives of the marginalized populace in various third world nations.
  4. Reduction of tariffs, quotas, exchange duties, etc. are some of the steps taken to boost free trade. While fair trade is achieved through collaborative efforts among businesses and primary producers to ensure the latter are paid a living wage and work in an exploitation-free environment.
  5. The key beneficiaries of the free trade principle are the import-export businesses and corporations in various countries. The primary producers of goods and services like farmers and artisans benefit primarily from fair trade practices.
  6. The economic rationale for free trade policies is that they help reduce overheads, thus making goods available at a lower average cost to the consumers. Conversely, the economic rationale for fair trade is that even though the end prices are slightly higher, these practices improve the net economic benefit with the augmentation of the customer base –as more people now have an adequate disposable income.
  7. Change is initiated in the former through alterations in government policies, while in the case of the latter, change can be initiated through community improvement programmes and the payment of a living wage to the workers.
  8. The structure of the free trade supply chain is quite complicated as it is interceded by several layers of intermediaries between the actual producers and consumers. While the structure of the proposed fair trade supply chain is imagined to be simpler, as it seeks to directly link the actual producers to the consumers.
  9. Fair trade is guided by a communitarian outlook, while free trade practices are guided by a libertarian ideology.

Conclusion

Free and fair trading practices may sound similar to most but their differences outweigh the few semblances they have to offer. They are both tools used to regulate the market in order to ensure healthy competition among the key players. However, at their very core, both policies are often deemed contrary to each other.

Fair trade is committed to the protection of primary producers who are often exploited to maximize profits. Provision of safe, humane working conditions, a living wage are key elements of all fair trade policies. It helps improve the standard of living by ensuring unbiased trade practices.

Free trade is committed to the reduction of trade barriers between countries. These policies are government regulated and often operate to make international trade easier and cost-efficient. In the drive to reduce overheads, free trading principles may indulge in unjust and exploitative production processes, violating the norms of fair trade.

Most countries often rely on an amalgamation of these two trading practices. They create a suitable mix of the two in order to ensure economic growth coupled with a parallel improvement in the lives of the marginalized.

References

  1. https://heinonline.org/hol-cgi-bin/get_pdf.cgi?handle=hein.journals/cintl27&section=22
  2. https://link.springer.com/article/10.1007/s10551-005-3041-8
  3. https://search.informit.com.au/documentSummary;dn=653195884653056;res=IELBUS
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