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Published on October 12th, 2007 | by Stephanie Evans

Fair Trade vs. Free Trade

There is a great deal of debate in the poltical world, the business world, and in the public sector over Free Trade versus Fair Trade.  So what exactly is Free Trade and what is Fair Trade?

Free trade is defined as:

  • The trade of goods without taxes (including tariffs) or other trade barriers (e.g., quotas on imports or subsidies for producers).
  • The absence of trade-distorting policies (such as taxes, subsidies, regulations or laws) that give some firms, households, or factors of production an advantage over others.
  • Free access to markets and market information.
  • Free movement of labor between and within countries and free movement of capital between and within countries.

The focus of free trade is on creating a level playing field between the trader and the producer with the idea of creating better market efficiency and higher profits.

The definition of Fair Trade by the Fair Trade Federation (FTF):

  • Paying fair wages in local context
  • Supporting participatory work places
  • Ensuring environmental sustainability
  • Supplying financial and technical support
  • Respecting cultural identity
  • Offering public accountability
  • Educating consumers

The idea is to protect the developing nation and its workers from potential exploitation, both environmentally and financially, by wealthier nations and large corporations.  Fair trade practices also promote the building of infrastructure to encourage growth within the developing world.

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