Last Updated 22 Jun 2020

Free Trade and Fair Trade

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Free Trade and Fair Trade All over work places and school campuses around the world you can be sure to find cocoa, coffee and certain other products that are labeled “free trade,” but is fair trade the same as free trade? “Free” and “fair” are powerful, often abused words when applied to the concept of trade. I will attempt to clarify the differences between free and fair trade, show how they may overlap, and the beneficial in each system. Deliberate trade benefits both the buyer and the seller. The benefits in excess of costs are the gains from trade.

An efficient society maximizes the gains from trade by wisely using human, natural and capital resources. Political processes redistribute these gains to promote or reduce equity. Free trade means that anyone can trade with anyone else. Property rights are typically maintained, but government intervention in markets are minimal at best, (Wetzel). The fairness of this trade depends on the amount of competition between buyers and sellers. For example, products price rises when there are few sellers and many buyers. In this case, sellers gained because they have “market power”.

With few buyers and many sellers, the price falls; buyers use their market power to gain. Fair Trade is about more than just paying a fair wage. It means that trading partnerships are based on equal benefits and mutual respect; that prices paid to producers reflect the work they do; that workers have the right to organize; that national health, safety, and wage laws are enforced; and that products are environmentally sustainable and conserve natural resources, (Codey). When trade is freed, competition increases, market power falls and gains distributed more evenly. Numerous buyers and sellers in the farmer’s market reduce bargaining power.

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Seller competition pushes price down; buyer competition holds them up. Free trade can be fair trade, but agreements that open some markets to powerful producer where they can use their market power, while keeping others closed and uncompetitive, are neither free nor fair. Free trade and fair trade can provide important benefits to participants. Free trade is benefit by all those involved, especially the large multination corporations. It helps nations develop the best economic policies for their citizens. Companies willing to meet consumer demand for several items will look for the cheapest resources or goods to increase supply.

Nations engaging in free trade allow companies to import resources or goods from international countries with no government restrictions or tariffs. Governments placing restrictions or tariffs on imported goods often increase a cost of doing business in the domestic economic market, (Mathews 2009). Free trade can help nations improve job opportunities in the economic market. Meanwhile, fair trade provides favorable economic opportunity for those smallholder farming families able to join producer organizations and provide products of the right specifications for the market.

Fair trade improves health, education, and agricultural development in the community. Finally, free and fair trade is somehow important to participants that are involved. However clarifying the different between free and fair trade, show how they may overlap, and the beneficial in each system is the main context of this essay. Codey, Scott & Embry, Mary. “ Fair Trade Resource Network. ” Education and Discussion to Mark Trade Fair. 1999. 05 Oct. 2012 Mathews, Tony. “Enhancing the Global Linkages of Cooperatives: The Fair Trade Option. ” 2009. 05 Oct. 2012. Wetzel, Doug. “Fair V. S. Free Trade. ” 1999-2012. 05 Oct 2012.

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