What Is the Difference Between Free Trade & Fair Trade?
By Nicholas B. Sisson,
The growth of the global economy has brought attention to the nature of international trade where its economic and ethical implications are concerned. The late 20th century witnessed worldwide efforts to remove obstructions to trade (tariffs and volume constraints, for example) as part of a movement called free trade. The fair trade movement emphasizes an organic approach to international exchange centered on equity, cooperation, and the protection of foreign workers and the environment, rather than pure profit.
Traditional Trading Practices
Stretching back to antiquity, the peoples of the world have engaged in trade relations in order to satisfy needs and wants on the basis of comparative production capabilities. Driven by greed and or a desire to protect domestic industry, national governments imposed, and continue to impose, special taxes on imported goods and services. Called tariffs and duties, these taxes artificially raise the prices of imported goods and services for consumers. As the national economies of the world became increasingly interconnected by the 1990s, it was apparent that such taxes were hindering economic efficiency and global well-being.
Free Trade and GATT
The international shift toward free trade was characterized by the reduction and gradual removal of tariffs and duties imposed at the national level. Free trade grew out of the conviction that the need to protect domestic industry had become obsolete due to the reciprocal marketability of domestic goods abroad (exports). In 1995, the U.N. passed the General Agreement on Tariffs and Trade (GATT), in which member nations agreed to conform to a set of trade rules designed to increase economic well-being through the reduction of import taxes.
The fair trade movement addresses the economic and environmental exploitation that frequently, or even unknowingly, occurs as a result of cost-cutting measures sought by large companies through the employment of foreign labor. To this extent, fair trade seeks the economic well-being of all parties involved in an international transaction as well as environmentally-friendly production methods.
Many companies now engage in and promote fair trade practices through direct relationships with foreign producers that address the company’s and consumers’ ethical considerations. These relationships are intended to ensure that the foreign producer’s production process and work environment meet health and safety criteria, while ensuring that employees are fairly compensated for their time and labor. This frequently involves visiting foreign production facilities and negotiating directly with managers and workers.
Fair Trade and Free Trade Relationship
The distinction between free trade and fair trade does not render them mutually exclusive or unable to co-exist. The reduction or elimination of tariffs and duties (free trade) places less pressure on importers to keep costs low. In turn, importers have more margin to consider the human and environmental aspects of foreign producers (fair trade). Fair trade practices combined with an environment of free trade fosters not only global efficiency, but also transparency, national economic well-being, respect for dignity and workers’ rights and heightened environmental concerns.
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