Free Trade vs.

Fair Trade
Whats the difference?
Free trade: international trade left to its
natural course without tariffs, quotas, or
other restrictions.
Supporters of free trade emphasize the
reduction in trade barriers between
countries and the removal of
preferential policies that favour
countries or specific industries. Free
traders believe that a business should
succeed or fail based on its ability to
respond to the free and open market,
without needing special governmental
protections to protect the industry or its
workers. Many free trade advocates
advocate for the elimination of tariffs
and subsidies, and oppose regulations
that force companies to pay extra for
doing business in foreign markets.
Free trade enables nations to
concentrate their efforts on
manufacturing products or providing
services where they have a distinct
comparative advantage, according to
the theory first espoused by economist
David Ricardo two centuries ago. A free
trade policy should enable a nation to
generate enough foreign currency to
purchase the products or services that it
does not produce indigenously. The
process works best when there are few
if any barriers to entry for such imports.
The imposition of artificial constraints
such as tariffs on imports or the
provision of subsidies to exports will
introduce distortions and impede free
trade.
Adapted from:
http://www.investopedia.com/terms/f/fre
e-trade.asp#ixzz3jFuFyQmO
Fair Trade
Fair trade: trade between companies in
developed countries and producers in
developing countries in which fair prices
are paid to the producers.

Fair trade advocates focus on the wages

and working conditions of labour in
developing markets. For example, a fair
trade activist will fight to increase the
wage rates of workers and improve their
working conditions, especially when a
large multinational corporation chooses
to pay 20 cents per hour for labour in
one country instead of dozens of dollars
per hour elsewhere. Fair traders suggest
that companies and governments
should regulate trade to ensure that
workers receive a just level of
compensation and a safe working
environment.
"Fair trade" as a term is sometimes used
to refer specifically to policies that
provide a living wage to farmers for
their crops, usually above market prices,
because local and small-hold farmers
often cannot compete on price with
large-scale factory farms.
1. Draw a table in which you compare
free trade to fair trade. Using the
information above and that from the
fair trade video, ensure you cover
the following points in your
comparison:
a) what it is
b) who it benefits/who supports it
c) why it benefits the people it does
d) how it helps/hinders global
social/economic equity

Fair trade: equity and social justice

Australians benefit economically, culturally
and politically from international trade, but
social justice problems can arise, for
example, when imported blood diamonds
arrive on our shores from Africa, illegal
drugs from Afghanistan and carpets made
by child labour from Nepal. From an equity
perspective, the benefits of international
trade are not evenly distributed as such
trade favours large, developed countries to
the detriment of small developing
countries. Unfair distribution of trade
wealth within a country can lead to conflict,
as was the case in Bougainville where most
trade money ended up in transnational
corporations bank accounts and little in the
workers hands.
Non-government organisations
Free trade is the trade of goods and
services between countries, unhindered by
government restrictions such as tariffs,
quotas or government assistance to
farmers. Two-thirds of Australias
agricultural products are exported but as
Australian farmers do not receive
agricultural subsidies they find it difficult to
compete with, for example, the $2555
government subsidy per cow in Japan and
$1057 in the United States.
Non-government organisations (NGOs) such
as Oxfam and World Vision support fair
trade and oppose socially unjust trade
agreements. They oppose attempts by
developed countries to block agricultural
imports from developing countries and to
unfairly subsidise their own farmers while
demanding that poor countries keep their
agricultural markets open.
Even though the World Trade Organization
(WTO) promotes a fair trade system,
smaller countries often bow to pressure
from larger, wealthier countries with more
influence. Oxfam argues that international
trade in agricultural products is unjust,
forcing millions of farmers to live in
extreme poverty ($1 a day). To reduce this
inequity their trade campaigns aim to:
stop rich countries dumping subsidised
farm products into developing countries,
ruining the livelihoods of local farmers
improve the price paid to small, local
farmers for their products

ensure bilateral trade agreements

between rich and poor countries do not
undermine development and livelihoods.
Billions of people who live on less than $2 a
day are sliding into hunger as the cost of
basic food skyrockets around the world.
Population growth, global warming and food
crops used for biofuel signal a potential
human disaster requiring governments to
change their agricultural policies towards
sustainability, hunger prevention, and
economic justice for farmers.
Fair trade
Fair trade is a movement that aims to
improve the lives of small producers in
developing nations by the payment of a fair
price to farmers who export goods such as
coffee, cocoa, sugar, tea, bananas, cotton,
wine and fresh fruit. The movement
operates via various national and
international organisations that promote
activities such as the Fair Trade labelling
system, which guarantees that the income
generated from these products will go back
to the farmers and their communities.
Australia is a member of the International
Fair Trade Association (IFAT). By 2009
Australian sales of products carrying Fair
Trade labelling reached $11 million. Coffee
accounted for 75 per cent of sales, followed
by chocolate, tea and sports balls.
On a global scale, eight million producers
and their families have benefited from fairtrade-funded infrastructure and community
development projects. The Fair Trade
Association of Australia and New
Zealand (FTAANZ) reports that 284 000
children in
West Africa were working in dangerous
conditions on cocoa farms. Many were
subjected to forced labour and earned $30
per year. In January 2009, FTAANZ joined
the international Stop the Traffick campaign
to hold Australias largest chocolate fondue
party to raise awareness about child
exploitation and trafficking in the West
African cocoa trade.
1. Who does international trade favour?
2. How do agricultural subsidies help
farmers in an international market?
3. Explain the aims and principles of
the fair trade movement. Who is it
for? What is it trying to do? How is it
trying to create equity in trade?