Difference Between Free Trade and Fair Trade

The principles of free trade postulate a world with reduced restrictions to optimise global supply chains. On the other hand, fair trade principles ardently favour unbiased trade practices that help improve the standard of living of third-world producers.

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Business Quiz

Test your knowledge about topics related to business

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Importing goods for the purpose of re-export is termed as ___________.

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Business-to-consumer (B2C) is also known as

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Which of the following is not an economic activity?

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Over-capitalization results from __________.

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A partner in a firm _____.

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Which of the following speculators expect fall in the prices of securities in the near future?

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What is revenue?

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If a general manager asks the sales manager to recruit some salesman on his behalf, it is an instance of ___________.

9 / 10

The return of shares to the company is known as ___________.

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When an existing company offers its shares for sale to the existing shareholders, it is known as ___________.

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Key Takeaways

  1. Free trade is a policy of non-interference in trade, while fair trade advocates for the ethical treatment of producers.
  2. Free trade allows free competition in the market, whereas fair trade promotes social and environmental sustainability.
  3. Free trade often leads to unequal distribution of wealth, while fair trade attempts to create a fairer distribution.

Free Trade vs Fair Trade

Free trade refers to the principles that promote International trading by reducing trade barriers like tariffs. Free trade focused on improving the nation’s economic condition. Fairtrade refers to the policy of fair distribution of resources and fair means of profit for all producers. 

Free Trade vs Fair Trade

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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 aims to annihilate trading restrictions and regulations in the concurrent globalized world order.

Comparison Table

Parameters of ComparisonFree TradeFair Trade
DefinitionThe ideology of free trade consists of principles committed to reducing 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.Fairtrade improves net economic benefits, albeit at slightly higher prices.
Policy MeasuresReduction of tariffs, quotas, and 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 economic principle that enhances freedom in international import and export trade. These policies aim to reduce cross-border trading restrictions by lowering tariffs, quotas, and duties.

Free trade is guided by inter-governmental directives like Trans-Pacific Partnership (TPP) and various other Free Trade Agreements (FTAs). Countries often support free trade to boost their economic growth levels by fostering global supply chains.  

Free trade advocates often cite these policies’ manifold benefits 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 can condone exploitative measures of maximizing profits.

free trade

What is Fair Trade?

Fairtrade 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 third-world nations.

They mainly focus on the individual relationships between primary producers and business houses and work to make this relationship humane. The key goal of all fair trade policy measures is to secure a living wage for every worker.

They are committed to improving the working conditions of the primary producers like artisans and farmers. Transparent and non-discriminatory practices fall within the domain of fair trade alliances.

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

fair trade

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 worldwide), fair trading practices focus on individuals engaging with one another in daily lived realities.
  3. Free trade operates to achieve unmatched economic growth through enhanced foreign trade. Fairtrade is geared toward improving 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. Like farmers and artisans, the primary producers of goods and services 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 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. In contrast, in the latter’s case, change can be initiated through community improvement programmes and the payment of a living wage to the workers.
  8. The free trade supply chain structure is complicated as it is interceded by several layers of intermediaries between the producers and consumers. At the same time, the structure of the proposed fair trade supply chain is imagined to be simpler, as it seeks to link the actual producers to the consumers directly.
  9. A communitarian outlook guides fair trade, while a libertarian ideology guides free trade practices.
Difference Between Free Trade and Fair Trade
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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