Difference Between Similar Terms and Objects

Difference Between Free Trade and Fair Trade

Globalization has greatly impacted on the government’s ability to regulate economic life in their jurisdiction. Global supply chains have become wider, and the jurisdictions in which products are purchased and used have constantly changed. Production of goods is also separate from the consumption. This has seen the regulation of commercial activities mainly through free trade and fair trade. 

 

What is a Free Trade?

Free trade entails bilateral agreements between countries that allow unrestricted export and import of goods. While free trade enhances the efficiency of global markets by increasing economic growth while also making goods less expensive, it has its downside. The goods may get cheaper due to certain trade violations, such as the use of cheap labor. 

Many free trade advocates champion for the elimination of tariffs and subsidies, and also oppose regulations and restrictions that deter them from taking part in certain activities. 

 

What is a Fair Trade?

Fair trade is a trading partnership which is based on dialogue, transparency, and respect, whose main aim is to seek greater equity in international trade. It aims at offering better trading conditions and also securing the rights of marginalized groups, by offering better wages, standard working conditions and also protects child labor issues. 

This type of trade tries to regulate trade based on concerns on violations likely to occur by trading with certain countries. The violations could be environmental conditions, violation of human rights and labor laws. Fair traders express their concern through private action like boycotts of products made with child labor, and through government regulation. 

 

Similarities Between Free Trade and Fair Trade

  • Both aim at increasing wealth globally. For instance, free trade protects the traders against unhealthy competition while fair trade aims at maintaining tariff barriers to protect the producers. 
  • Both are regulated by certain players. Free trade is regulated by the government while fair trade is regulated by small businesses and the communities.  

 

Differences Between Free Trade and Fair Trade

  1. Objective

The main goal for free trade is to increase a nation’s growth. However, the main goal for fair trade is to empower marginalized groups of people in the communities while also improving their lives. 

  1. Economic Theory

According to economists, free trade provides the least amount of overheads in the production process, hence lower prices that are not regulated by the government. Fair trade, on the other hand, is inclusive of the additional price for fair labor; hence products and services are pricier. 

  1. Trade Regulations

In free trade, there are few regulations to exchanging goods and services across borders. Free trade between countries in most cases has no subsidies, tariffs, quotas or regulations. In fair trade however businesses work hand in hand with the marginalized groups hence ensuring favorable conditions in terms of working conditions and environmental factors are met. 

  1. Beneficiaries

Free trade mainly benefits businesses in the export and import industry. Fair trade, however, benefits small scale business owners in the communities whose social and economic ability is limited. 

  1. Focus

Free trade focuses on trade policies between countries while fair trade focuses on trade among individuals and businesses. 

  1. Major Players

Free trade mainly involves bilateral talks between countries; hence the government is more involved. Fair trade, on the other hand, involves small business traders and the communities. 

  1. Impact

Free trade creates change through the market and government policies while fair trade creates change through community improvement. 

Free Trade Vs. Fair Trade: Comparison Chart

 

Free Trade versus Fair Trade: Summary 

With the differences highlighted above, fair trade is better than free trade. This is because fair trade aims at producing a product without the exploitation of both labor and the environment. Free trade, however, aims at generating more profit regardless of the production methods. A thriving economy can ideally be achieved by the coexistence of free and fair trade. 


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References :


[0]Luger, Elizabeth. Free Trade versus Fair Trade. GRIN Verlag Publishers, 2003. https://books.google.co.ke/books?id=H4kCOaqFPF8C&printsec=frontcover&dq=difference+between+free+trade+and+fair+trade&hl=en&sa=X&ved=0ahUKEwiBivD8m__dAhUIlIsKHYGyDDIQ6AEIJzAA#v=onepage&q=difference%20between%20free%20trade%20and%20fair%20trade&f=false

[1]Ehrlich, Sean. The Politics of Fair Trade: Moving Beyond Free Trade and Protection. Oxford University Press Publishers, 2018.  https://books.google.co.ke/books?id=xhFQDwAAQBAJ&printsec=frontcover&dq=difference+between+free+trade+and+fair+trade&hl=en&sa=X&ved=0ahUKEwiBivD8m__dAhUIlIsKHYGyDDIQ6AEIODAD#v=onepage&q=difference%20between%20free%20trade%20and%20fair%20trade&f=false

[2]DeCarlo, Jacqueline. Fair Trade: A Beginner's Guide. Oneworld Publishers, 2007. https://books.google.co.ke/books?id=TNM18rLu9LsC&printsec=frontcover&dq=difference+between+free+trade+and+fair+trade&hl=en&sa=X&ved=0ahUKEwiBivD8m__dAhUIlIsKHYGyDDIQ6AEIUzAI#v=onepage&q=difference%20between%20free%20trade%20and%20fair%20trade&f=false

[3]Image credit: https://upload.wikimedia.org/wikipedia/commons/1/15/Fairtrade_HK.jpg

[4]Image credit: https://www.flickr.com/photos/lselibrary/3268804535

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