Why the WTO? An introduction to the economics of trade agreements

Introduction This study is part of The American Law Institute (ALI) project Legal and Economic Principles of World Trade Law. The project aims to analyze the central instrument in the World Trade Organization (WTO) Agreement for the regulation of trade in goods – The General Agreement on Tariffs and Trade (GATT). The present study is one of two background studies for this project. The first study, The Genesis of the GATT, appraises the rationale for the creation of the GATT, and tracks its development from a historical and legal perspective. This second study provides an overview of the economics of trade agreements. A distinguishing feature of this ALI project is the desire to base the analysis of the GATT firmly in both economics and law. The necessity of legal analysis needs no justification. But why also base the study in economics? Art. 31.1 of the Vienna Convention of the Laws of Treaties states that an international agreement should be interpreted “in the light of its object and purpose.” There are fundamental reasons why the interpretation of the GATT therefore cannot be adequately addressed without economic analysis.