Free Trade and Fair Trade
There are similarities between fair and free trade in that both have the objective of increasing wealth globally. An advocate of free trade would, for instance, argue against the protectionist measures and subsidies with which certain industrialized countries and trading blocs protect their agricultural producers against competition from agricultural imports from developing countries. On the other hand fair trade, unlike free trade, could be in favor of maintaining tariff barriers to protect producers in small countries who might otherwise have great difficulty in competing with multinational enterprises in international markets.
Proponents of fair trade would point out that the general increase in global wealth brought about by free trade goes mainly to those countries and people who already have economic muscle and strong bargaining power. Free trade may increase the existing disparities of income.
Many advocates of free trade would acknowledge this problem but doubt the ability of fair trade structures to help the situation owing to problems such as inefficiency resulting from the artificial minimum price. Currently, fair trade products form a very small though growing proportion of international trade and it is, therefore, difficult to assess the real benefits except in particular localities and communities where producer groups are located.
The difference between free and fair trade therefore lies in their view of the ability of the invisible hand of the free market to arrive at the optimum conditions for producers and consumers in all parts of the world. Advocates of free trade do not necessarily believe that free market conditions produce the perfect solution, but they consider that the results produced by free trade are preferable to the alternatives.
Where advocates of fair trade attempt to correct the results of the free market by means of intervention to set prices for some producer groups, free traders would see this as a project that cannot succeed. In their view, setting an artificial price floor that is higher than the equilibrium price set by supply and demand cannot solve the problems of the producers because any price floor has a complex set of consequences that negate the apparent benefits to the producers.
The basic problem as they see it is that some producer groups may be helped by fair trade, but only at the expense of producers generally who will see conditions worsen because of the overproduction resulting from the artificial price. The price of the commodities for producers who are not part of the fair trade arrangements is likely to be adversely affected. In their opinion, fair trade cannot displace the mechanism of supply and demand. Free traders, while recognizing that free trade does not always lead to justice, would argue that it leads to the most rational price and levels of production.
The differences between fair and free trade and their effects on producers cannot be tested under laboratory conditions, though useful information may be gathered from statistical surveys. The outcomes of both strategies in the real world are complex and the extent of their effects is not always obvious. The effect of fair trade on the wider economy of developing countries is likely to remain a disputed topic into the future.