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What is Free Trade?

The term Fair Trade accurately implies that our current trade system is unfair. To understand the economic importance of Fair Trade it is first necessary to become familiar with our current trade policy, most commonly referred to as free trade (not Fair Trade).

The Free Trade Myth

The free trade economic theory (also known as neo-liberal economics) is based on the belief that the elimination of all trade restrictions will lead to more efficient production, which will make more goods available at lower prices to more people. Free trade economics believes that global prosperity will only be achieved when trade can occur "freely" and when every country operates according to the theory of comparative advantage. In order to achieve free trade, all import tariffs and quotas must be eliminated and state run industries must be privatized.

Although, free trade paints a rosy picture of uninhibited exchanges occurring between cheery nations, the truth behind this economic theory is that it benefits the wealthy countries at the expense of the developing ones. Free trade negatively impacts countries in the Global South because their domestic economies are young and vulnerable and therefore in need of protection from international competition. The economies of the Global South need to nurture their domestic industries, until they are strong enough to engage in the global marketplace; much in the same way that the economic powerhouses of today protected their domestic economies until they were strong enough to engage in the global marketplace.

What is Free Trade? protest

For example, the United States, Britain, Germany, Japan, India, Hong Kong, Korea, Thailand, Malaysia, and Indonesia all instituted internal policies specifically aimed to protect their domestic industries and economies from foreign competition. Even though these protectionist policies enabled these economic powerhouses to rise to greatness, by growing their economies slowly and nurturing their domestic industries, the same countries have now changed the rules of the game and rigged them so that the countries in the Global South have to open their vulnerable domestic markets to imported goods, foreign investors and mega corporations. Most often, this means that the local merchants are undermined and run out of business by international chains, that public hospitals are privatized and become unaffordable to the average person, that the environment is raped and pillaged and that the country's valuable natural resources are extracted and shipped to wealthy nations for bargain prices.

The truth is that the free trade theory is in fact, just that, a theory. It is an economic system that fails to bring economic prosperity to all but is accomplishing just the opposite; it is bringing prosperity to the elite few at the expense of the majority. Free trade economics is making the rich nations wealthier and the poor nations more destitute.

Read an in-depth study on Fair Trade economic policy (PDF Format - 332Kb)

Read a New York Times article about Fair Trade (10-2-07)- Fair Trade In Bloom (PDF Format - 21Kb)