What’s the difference between fair and free trade?
They may sound similar, but Fair Trade and free trade are actually more like opposing forces.
While one looks to remove barriers and regulations for trade, the other seeks to create equity within the global market.
For the confused, curious, and ethically-minded—here’s a comparison between the two.
What is free trade?
Free trade essentially calls for more freedom within the international trade market. The focus is on removing restrictions, tariffs, and regulations placed on the import and export of goods. This is done with the goal of enhancing the efficiency of global markets and improving the overall economic growth of involved nations.
The advantages of free trade
Some of the advantages of free trade include:
- Lower prices – International competition means that consumers can access goods at lower costs. This can actually help to ease the pressure of inflation within a country by giving consumers more money leftover to spend on other products.
- Increased efficiency – When consumers have easy access to high quality, lower cost imported goods, local businesses can focus their attention on producing goods they are more specialized in. In theory, this leads to higher output and increased efficiency.
- Economic growth – With countries growing more focused on their own specializations, this should grow demand for local goods and services. This leads to more exports, more local jobs, and increased economic growth.
The problems with free trade
- Job losses – While some industries may experience increased job opportunities, those that cannot compete with global imports can suffer. The idea is that lost jobs will relocate to more efficient industries, however this can take a long time to happen and may be difficult for the individuals or communities that are involved.
- Vulnerability & pressure – When one country begins to rely heavily on the goods and imports of another, it can become vulnerable to political pressure. One country may attempt to dominate the politics of another by threatening to deny access to critical goods and services.
- Tax havens – Countries with high tax rates can see portable industries take their businesses to more tax-advantageous locations so they can turn a greater profit. With less taxes, governments have less budget for community services (like new roads, healthcare or education), which can have an affect on the wellbeing of society.
What is Fair Trade?
The main goals of Fair Trade are to reduce exploitation in the trade market, reduce violations to human rights and the environment, and empower producers to be able to support themselves. This is done by securing the rights of marginalized groups through better wages and improved working conditions.
Workers at farms, factories and plantations are among the most vulnerable people in global trade. They often have few options for a sustainable livelihood, as well as lacking formal contracts, freedom of association, basic health and safety assurances, and adequate wages. Being the first step in the supply chain, there are many other actors who have an interest in keeping these producer’s wages low so that they can keep their own prices low and profits high. Fair Trade seeks to address these imbalances with two primary mechanisms: 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 democratically agreed-upon worker welfare programs.
Advantages of Fair Trade
- Better wages for producers – Global producers with a Fair Trade certification are protected from fluctuating market prices by earning a minimum price for their goods. This grants them long-term stability and the chance to plan for their future.
- No child labor – Fair Trade advocates express concern for exploitation by boycotting products that are considered unethical—for example, products made using child labor or slave labor, or created in unsafe working conditions. By providing fair wages for workers, Fair Trade also reduces the need for children in undeveloped countries to work to support their families.
- Community investment – A Fair Trade premium is paid on top of regular wages, going towards a community fund. This can be spent on community projects determined by the producers themselves, such as better medical care, schooling, or building projects.
- Better working conditions – Fair Trade producers have safe working conditions, free from dangerous chemicals and other harmful substances.
Problems with Fair Trade
- Certification fees – It can be costly for organizations or individuals to become certified as Fair Trade. Joining fees as well as annual fees are charged. This means that some local producers are unable to obtain certification without the help of a larger organization.
- Higher prices mean limited customers – Fair Trade products tend to be pricier than free trade items. While this is what allows workers to earn a good wage, it can also limit the customer base of Fair Trade products to those who are able to afford them. Others may be forced to purchase cheaper products of less quality.
- Less product choice – Consumers have less product choice when choosing Fair Trade, as it’s still a niche market.
- Not all producers can access Fair Trade – Since Fair Trade is still a niche market, it’s unable to reach all producers, which means there can be differences between conditions from producer-to-producer in local areas.
Principles of Fair Trade
Fair Trade operates under nine principles which govern the operation of its members.
- Creating opportunities – To reduce poverty and allow for sustainable social and economic development.
- Encouraging transparency – With relationships based on openness, fairness, consistency, and respect. This includes transparency along the entire trade chain.
- Developing capacity – Allowing producers to be more independent through development of skills, access to the market, financial or technical assistance, and best practices.
- Fair Trade promotion – To spread greater awareness of the possibility of justice within the global economy.
- Fair pay – Through minimum standard wages, premium wages, and the encouragement of equal pay for both men and women.
- Safer working conditions – Through no forced labor, no hazards, no discrimination, and a safe and healthy workplace for all.
- Children’s rights – Besides no child labor, Fair Trade operates on the belief that all children have the right to security, education, and play.
- Environmental stewardship – Environmentally sustainable practices are encouraged throughout the entire trade chain.
- Cultural identity – Fair Trade is a celebration of cultural diversity. Many members work to maintain Indigenous techniques and traditions that sustain cultures.
What does it mean to be Fair Trade certified?
Each organization has its own standards and requirements for certification. Major requirements include payment at or above the minimum Fair Trade price, as well as payment of a premium that goes into a communal fund that can be accessed by workers to invest in community and social development.
What does it mean to be Fair Trade verified?
Fair Trade verification is more about evaluating an entire business (wholesale or retail), rather than individual producers, ingredients, or sites.
To achieve verification, a business must demonstrate complete dedication and commitment to the Fair Trade principles listed above. They must uphold what is known as 360° Fair Trade, ensuring that every business decision revolves around the wellbeing of artisans and farmers.
At GlobeIn, we are extremely proud to be verified by the Fair Trade Federation.
How do you know if your products are Fair Trade?
Fair Trade products are distinguished by the Fair Trade Certified seal, which differs depending on the certifying organization. When you see the seal, you can rest assured the product has been made in accordance to rigorous standards, producers or artisans have been paid a fair wage, and additional money has gone towards community or social investment.
You can also look to see if a retailer or wholesaler has been verified by the Fair Trade Federation by looking for them using the FTF search engine.