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WHAT’S THE DIFFERENCE BETWEEN

FAIR AND FREE TRADE?


Hint: fair trade isn't fair; free trade isn't free.

They may sound similar, but fair trade and free


trade are often arch enemies.
Fair trade places restrictions on farmers and producers. It forces
them to pay minimum wages, adopt safe working conditions and
pay lip service to planetary protection.
Free trade removes all boundaries for all parties. It
affords unfettered international export and import, free from
taxes, tariffs, worker protections or pesky minimum wages.

Globally: fair trade makes things more expensive, free trade


makes things cheaper; fair trade means workers earn more, free
trade means workers earn less. So while free does mean cheap, it
also means we earn collectively less money with which to buy all
that cheap stuff.
Here’s a simple explanation of the difference
between fair trade and free trade.
FAIR TRADE PAYS A PREMIUM.
fair trade = price + premium
Fair trade standards set two payouts for
producers — a “minimum price” and a
“premium.”
The minimum price is meant to set a floor to keep farmers afloat
in the event of a global commodities collapse. When market prices
are above the minimum, which is typical, producers receive the
market rate.
The premium is a bonus with restrictions. The premium doesn’t
go directly to individual workers. Rather, the money must be used
for worker welfare programs such as education, child care, facility
improvements, etc…
Jonathan Rosenthal, Co-founder of Equal Exchange, says that
“fair trade” could be more accurately described as “trade which is
less unfair,” a fair criticism. In fact, going fair trade can actually
mean less money for a producer. It costs a fair amount of money
for producers to maintain fair trade certification. Meanwhile,
market demand for fair trade products may not be high enough
for producers to sell all of their crops under a fair trade label,
forcing them to sell their remaining crops sans premium.
Fair trade is certainly not egalitarian, but it’s fair-er than free.

FREE TRADE COSTS


free < fair
Free trade is a bilateral agreement between
countries to allow unrestricted import and export
of goods.
The advantage to free trade is that it taps into the efficiency of
global markets. Free trade can spur economic growth while
making goods less expensive.
The downside is that all those goods get less expensive for a
reason. It may be cheaper to build solar panels in China the US,
which is all well and good (Who doesn’t want cheaper solar
panels!), but those panels may be cheaper because workers are
cheaper. So in addition to importing affordable Chinese solar
panels, we’re exporting affable American jobs.
Especially frightening for the fair trade movement, free trade
threatens to forgo worker protections and environmental
standards Far from emancipating, free trade agreements such as
the Trans-Pacific and Trans-Atlantic Partnerships threaten to
force the world’s least empowered workers into feudalism.

Free Trade Vs. Fair trade: Let's take a look at some important points of comparison
between free trade and fair trade presented below.
FREE TRADE
Scope: Conventional market mechanism
Objective: Profit maximization by increasing sales and decreasing overheads
Usability: Promotes innovation and invention
Advantage: Facilitates exchange of human resources and technology
Price determination: Supply and prices are determined by market forces
FAIR TRADE
Scope: Voluntary to engage in fair trade
Objective: Financial sustainability to producers from developing countries
Usability: Protects the interest of vulnerable parties
Advantage: Seeks non-violation of human rights
Price determination: Pricing of fair trade products is slightly higher than average
Conclusion - Which One is Better?
Ultimately, all governments aspire to achieve 'fairness in trade' to solve many issues
plaguing the trade market through free trade or fair trade, whichever matches their belief
system. However, from the above, the points highlighting the 'what should be' and 'what
is' aspect of both approaches clearly indicate that fair trade is better than free trade.
Even the marketing approach of goods produced under free trade and fair trade are
largely distinct. While free trade aims at attracting more consumers to increase sales
turnover and generate more profits, fair trade aims at educating the consumers about
the benefits of producing goods without the exploitation of labor or the environment.
Thus, fair trade mainly thrives on the demand created by the consumers for such
products. Often, fair trade products may not be labeled so because labeling has not
been made mandatory by most governments. However, free trade products may be
labeled as being "recycled" or "sustainably cultivated" but it does not mean that these
products were produced with fair means. According to the Fairtrade Labeling
Organizations International (FLO), in the year 2009, the sales turnover of fair trade
products was €3.4 billion, showing an upward trend. Fair Trade has helped 1.2 million
farmers so far by providing adequate infrastructure to improve living conditions and
garner sufficient funds to harvest crops since the past 40 years. Several studies
conducted by Hicks and Basuindicate that consumers that are less price sensitive are
willing to pay extra for products manufactured under fair trade to support such a trade
practice that improves the living conditions of those producing their food and promote
economic development.

If a trade approach cannot solve problems of both sides, the developed and the
developing nations as well as the producers and consumers, it is ineffective in fulfillment
of the objectives for which it was formed. It must be noted that fair trade has often been
criticized by economists for being a means to cover up an inefficient market system.
Deemed as the world's largest food and nutrition company - Nestle came under fire in
2005 when it was also dubbed as the globally 'least responsible company' for its role in
provoking the coffee crisis that left millions of coffee producers cash-strapped. To
improve its public image, the company ran a fair trade for coffee campaign called
'Coffee with conscience', in 2007. The heavily promoted advertisements stated that
Nestle was trying to enhance the living condition of farmers affected by low coffee
prices (the fate brought upon by the company itself).
Internationally recognized consumer brands like Sainsbury, Cadbury, and
Starbucks have already initiated a fair trade conversion process for their products. The
government's efforts to effectuate a prosperous economy can be achieved by the co-
existence of free trade and fair trade. The latter can help bring poor farmers and
producers at par with their affluent counterparts so they may participate in free trade
with equal opportunity. This can only be effective on the condition that producers do not
resort to unethical ways to bring down costs. This will give rise to a globally effective
trading system.