Why the WTO? An Introduction to the Economics of Trade Agreements

The purpose of this study is to present to readers with limited training in economics the perspective that most international trade economists bring to the study of trade agreements. It focuses on the main approach in the literature, which sees these agreements as means to address negative international externalities that would arise from unilateral determination of trade policies. The study argues that this approach may help explain salient features of trade agreements in general, and of the GATT in particular, such as their reciprocal nature, the need for trade agreements to be self-enforcing, and the inevitable contractual incompleteness of trade agreements. The study also discusses the main critiques that have been directed against this popular approach.