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Difference between Free Trade and Fair Trade
The voluntary exchange of goods and services between economic actors is known as trade. Free trade and Fairtrade are different kinds of trade with notable differences, although both these trades aim to increase wealth globally.
What is Free Trade?
Free trade, also known as laissez-faire, is a policy where the government does not discriminate against imports or interfere with exports by applying tariffs or subsidies. Here goods and services can be bought and sold between countries or other sub-national regions without tariffs or restrictions.
One example of free trade is the agreement between the United States, Mexico, and Canada, known as the North American Free Trade Agreement (NAFTA).
What is Fair Trade?
Fairtrade is designed to help growing countries' producers achieve sustainable and equitable trade relationships. It is a system of certification that aims to ensure a set of standards are met in the production and supply of products. It involves ensuring the workers behind the production of these goods and services are treated fairly and that human rights are maintained throughout.
Difference between Free Trade and Fair Trade
The following table highlights the major differences between Free Trade and Fair Trade −
Characteristics | Free Trade | Fair Trade |
|---|---|---|
Objective | The main goal of free trade is to
increase the nation’s economic
growth. | The main goal of fair trade is to
improve people’s lives and
empower marginalized groups of
people in the communities. |
Trade
regulations | Free trade has few regulations for
exchanging goods and services
across borders. Most of the time,
free trade between countries has
no subsidies, tariffs, or regulations. | Fairtrade has regulations to
ensure that the key players are not
being taken advantage of. |
Economic theory | Free trade provides the least
amount of overhead costs in
production. Hence, the product
price will be lower, which the
government does not regulate. | In the case of fair trade, the prices
of goods and services are higher
since it includes the additional
cost of honest labor who work
under strict rules. |
Focus | It mainly focuses on trade policies
among other countries. | It mainly focuses on trade policies
among individuals and
businesses. |
Major players | It involves bilateral talks between
the countries, so the government is
more involved. | It involves small-scale business
traders and other communities. |
Beneficiaries | It mainly benefits businesses in the
import and export industry. | It mainly benefits small-scale
business owners in communities
with limited social and economic
ability. |
Impact | Here it creates a change through
market and government policies. | Here it creates a change through
community development or
improvement. |
Conclusion
We can see that Fair trade is better than Free trade because fair exchange aims to produce a product without exploiting both labor and the environment. However, free work aims at generating more profit regardless of the process of production. A flourishing economy can ideally be achieved through free trade and fair trade.
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