Free trade means that capital and goods are traded internationally on a multilateral basis without any restriction or barriers to trade based on the argument that the trade flows and capital flows benefit all countries and it increases income and wealth of all countries. As well, it is a measure to reduce poverty in the third world countries. The free trade is based on the neo-classical economic theory and is supported by WTO.
However, there is an alternative trading system, which is opposed to free trade as it rejects the economic argument of consumers buying more goods and services whether they are necessities or luxuries and utility maximizing consumers. As well, they are critical of the practices of multinationals in labor practices in the third world countries and their environmental practices. In addition, they are also concerned with deepening income inequality in these countries after globalization and inequality in the advanced industrialized countries. In effect they are concerned about economic justice and community safety and labor practices in the trading system and the regulation of trade by consumer groups and they a crucial play apart in the safety of the products the companies produce and the plight of small farmers like coffee growers and other small farmers within the free trade system.
The proponents of fair trade are also concerned about the disadvantage position of small farmers in the free trade system. In affect, they reject the free trade argument that it will benefit all countries equally because on the basis of terms of trade and third world debt. Based on this argument they point that the advanced industrialized countries benefit more than the third world countries and some advanced countries use protectionism in agriculture and it affects the third world countries because they are primary producers and if they cannot access these markets and their prices are volatile in the world market the benefits are skewed towards the advanced countries and the capital flow is more concentrated within the advanced industrial countries than to the third world countries and it is more towards the more developed third world countries than the countries need foreign direct investment. As well, they argue free trade do not exist in the real world and cannot exist because protectionism is practiced by varying degrees by many countries and pure free trade is not a practical option in a real world situation.
There is substantial evidence that free trade has benefited many countries like India and China. However, the income inequality has widened within these countries and also widened in the most advanced countries and some countries have suffered in terms of the economic growth and free trade did not increase sufficiently to minimize poverty. Even in the countries where the free trade benefited to lift their standard of living, in environmental and labor standards they are far worse than ever before. In addition, their wages and conditions are not lifted above subsistence level for many workers in the third world countries and poverty is widespread. The debt burden on third world countries and their terms of trade also is a crucial factor, which is not favorable to them to be benefited by trade and investment flows in inadequate to substantial level to eradicate poverty in most of the third world countries. Some countries also have faced financial melt down like Thailand and some other Asian countries and their economic growth has slowed down considerably.
On the basis of this evidence it is true to some extent the free trade have considerable negative effects as well as some positive results for the trading countries. However, the free trade did not benefit all countries equally and some countries benefited at the expense of some other weaker countries. In addition, the labor standards and conditions are eroded in the third world under the current globalize economy. That is the arguments of Fair trade cannot be disregarded by the free trade proponents and they must address these deficiencies and introduce some regulation and more co-ordination and manage the debt levels of third world countries and also address the labor issues agricultural reform and liberalization and consider product safety and environmental issues and distributional issues seriously and allow fair trade to be practiced other than solely relying on the free trade theory to address all the above concerns. In conclusion it is certain that free trade in a complex world do not benefit equally and it may have the consequence of increasing income inequality than reducing and may increase poverty in some countries in the same time benefit some countries at their expense. Fair Trade proponent's arguments cannot be disregarded as propaganda as it has some economic validity based on empirical evidence as well on theoretical grounds.
