Fair Trade vs. Free Trade
By TRCF intern Natalia Mitsui
Walking down the grocery aisle it is likely that the average costumer is faced with various decisions to be made about their purchases. Should they buy organic? Local? Gluten free? There are certain labels that are becoming trendy and drawing in a clientele that is conscious of their groceries. One such label is the fair trade sticker that is seen on various imported goods such as coffee. So the question is: what is fair trade and is it worth the higher price?
Proponents of free trade and fair trade share a good deal of common ground when it comes to their ultimate goals. Both groups aim to improve global prosperity, justice, and alleviating poverty. However, there are distinct differences between the two trade camps.
Free trade, the common counter choice to fair trade, is a policy where a government does not intervene in the market by discriminating against imports via tariffs and favoring exports with subsidies. This form of international trade depends on the idea of comparative advantage where each country produces or provides services at a lower marginal cost than its competitors. In other words, each country does what it is best at and trades with other countries to get other products and services.
Fair trade, on the other hand, functions on the principal of its roots as a social movement. Fair trade is a market based approach to assist producers in developing countries to enter better trade relationships and promote development and sustainability. Running on continued trade partnerships and “fairness,” this form of international trade is not deemed as entirely efficient.
While free trade has mutual gains and eliminates subsidies, taxes and tariffs, non-tariff barriers, regulatory legislation, import quotas, and inter-nation managed trade agreements; fair trade requires intervention in the market. Free trade is the option that is usually supported by economists as a policy that maximizes social welfare as it is understood that the market will provide the optimal distribution of production. Fair trade supporters are proponents of ethical consumerism and base their strategy on the consumer conscience.
Fair trade is most often associated with coffee beans and when a package has gone through the proper channels, it gets the seal of approval. Fair trade aims to pay the producer a “fairer” price for their products, so a product that has gone through this intensive certifying process is marked up compared to its counterparts. It plays on the guilt of consumers and campaigning on what is “right.” However, critics of this system point out that fair trade has the potential to stunt growth by subsidizing old methods and not promoting development or innovation. Another critique is that non-fair trade farmers suffer because they are unable to compete because fair trade farmers flood the market with goods and drag down the market price. There is also some debate as to how much of the higher price the fair trade farmer receives in added revenue as compared to the farmer who is not fair trade(?).
Free trade is importation and exportation based on supply and demand, which in turn keeps prices competitive and lower than in fair trade. Opposition for free trade state that this competitive format drives some producers out of business -something that is understood as inevitable in a free market. In addition, free trade is met with opposition from domestic producers that are now met with competition which in turn drives down revenue.
In the end the purchases that a shopper makes is dependent on what they value. However, it is important to understand what the labels mean before unconditionally purchasing a good simply because one believes it is the trendier choice.