What’s the Difference Between Fair Trade and Free Trade?

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“Fair Trade makes globalization and ‘free trade’ work for the poor.” ~ TransFair USA, 2005 Shareholder Report

What's the Difference Between Fair Trade and Free Trade?

As we learn more about the concept of fair trade, there may be some potential confusion between the terms fair trade and free trade. While these are two separate business approaches, free trade and fair trade do share some common goals. Both emphasize, for example, the need to assist producers and workers in obtaining access to the global market. However, when you take a closer look, you’ll note some very significant differences. According to the Fair Trade Resource Network:

“Free trade is a market model in which trade in goods and services between or within countries flows unhindered by government-imposed restrictions. Fair trade is an organized social movement and market-based approach to alleviating global poverty and promoting sustainability.”

The fair trade movement promotes the payment of a fair price as well as social and environmental standards in areas related to the production of a wide variety of goods. According to Paul Rice of TransFairUSA, “Fair trade makes globalization and ‘free trade’ work for the poor” (TransFair USA, 2005 Shareholder Report).”

Free trade is a regulatory approach that seeks to open up Third World countries as potential new markets and sources of cheap labor and resources. By standardizing tariffs and other regulations related to production and trade, free trade seeks to lower the cost of doing international business on a large scale.

Fair trade, on the other hand, is a system of international commerce that respects the integrity of laborers and their environment and offers them just compensation for their efforts. Fair trade works within the existing regulatory framework as a voluntary system. Under fair trade, the highest priority is paid to sustainable practices that help protect the environment and to allow those living on the land to benefit from its natural resources.

Another difference between the two systems is in the treatment of workers. Free trade does not typically include minimum safety, human rights and wage standards, as these are not consistent with the goals of free trade. Fair trade, however, places these issues at its core, insisting on just compensation and reasonable safety, health and human standards for workers.

It could be safely stated that free trade benefits multinational corporations, while fair trade benefits people. If you believe in the principles of fair trade, it’s easier now than ever before to support this unique system with your purchasing dollar, given the plethora of stores and on-line sites now offering fair trade goods of all types. Happy (fair) shopping!

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