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Rick Politician 873454/12/2007 I BUS 300 Chapter 5 Extra Credit Free Trade vs. Fair Trade Free trade sprang up out of Adam Smith's Wealth of Nations in 1776. His theories inspired other economists who built upon Smith's premise to create the modern economic theory. In today's world economy, governments across the globe lower tariffs and other inhibitors of trade in order to increase the free trade of goods, services and capital. The governments share the belief that this free trade benefits the society as whole. Proponents of free trade believe that any negative costs of free trade are only short term. As industries go bankrupt, industries that are more efficient will rise up to take their place. Manufacturing plants may leave the industrialized countries to rebuild in developing countries with less expensive labor, but that will only help bridge the economic gap between industrialized and developing nations Unfortunately, the modern economic theory that supports free trade does not take into consideration variables such as the costs of environmental degradation, the loss of cultural identities, inequality of income distribution and many others. Although pure free trade offers strong economic benefits, governments and organizations concede that the application of the theory has created unforeseen negative impacts. These same people are pushing for a restructuring of the free trade theory that will take into account the negative impacts and seek to remedy them. This new is theory is referred to as fair trade. Definitions Free Trade- The absence of barriers to the free flow of goods and services between countries. Fair Trade- Fair trade is a trading partnership based on dialogue, transparency and respect, that seeks greater equity in international trade. Inconsistencies with Free Trade . Costs of environmental degradation- Fair trade proponents argue that the costs associated with the depletion of natural resources should be figured into the calculations when governments and companies are deciding whether to go ahead with a project. The free trade theory allows countries to make use of the cheap, unsustainable energy that coal and nuclear power provide even though this causes considerable damage to the environment. According to the free trade theory governments and corporations should dump their wastes in developing nations because that is the cheaper than dealing with the wastes in an ecological manner. . Value of Cultural Identities- The idea here is that as markets become international and as democracy and capitalism spread, local cultures slowly die out. . Reducing the gap- Industrialized nations' governments should encourage the growth of developing countries. The governments will help decrease poverty and introduce sustainable growth. The northern European Union countries gave billions of dollars to the southern European countries to help bridge the gap in economic superiority in the 90's. . Promote Independence- Governments and corporations should teach the local producers and manufacturers skills that will allow them to compete in the world market. For example, McDonald's upgraded the skills of local farmers in India as they partnered with them as their local suppliers. . Fair Prices- Larger and better off entities should not use their power to force smaller, local entities to succumb to prices not considered fair in that local market. In addition, these larger entities will pay wages equally among genders as well as dues promptly to the local entities. . Acceptable Working Conditions- This involves countries with humane working conditions promoting these same conditions in other countries, or refusing to trade with them. Fair trade is the next step in creating a unified, borderless world economy. Based in the theory of free trade, fair trade proposes that governments and businesses look at the other variables that affect a people's standard of living besides economics. Fair trade searches to bridge the gap between theory of free trade and the reality of the world economy to benefit everyone, but especially the powerless and impoverished. Work Cited Cooperative Coffees. Retrieved April 12, 2007 from: http://www.cooperativecoffees.com/Brochure.pdf Hill, Charles W. L. (2007). International Business: Competing in the Global Marketplace (4th ed.). New York: McGraw-Hill/Irwin. Morris, David (2002). Business Forum: Free Trade is Not Free. Retrieved April 12, 2007 from: http://www.ilsr.org/columns/2002/121602.html Retrieved April 12, 2007 from: http://www.ifat.org/dwr/definition.html Retrieved April 12, 2007 from: http://www.eftafairtrade.org/definition.asp Wallace, A. R. (1873). Free-Trade Principles and the Coal Question. Retrieved April 12, 2007 from: http://www.wku.edu/~smithch/wallace/S231.htm