The World Trade Organization and The Theory of Absolute and Comparative Advantage

Why the famous theory of absolute and comparative advantages did not work when the GATT and WTO were created?

In the world of internationalization and globalization, which worships money and encourages ever growing trade, it is very difficult to find a model and further implement it into the modern system so that it would be efficient, eco-friendly and yet economically viable for all participants. Most suggested models are in my opinion out of date and do not answer the current world trends and challenges. And surely the trade system we have at the moment cannot claim to be free.
Under globalization, all national economies are integrated into one global economy and must obey the laws laid down by a global economic institution—currently the World Trade Organization (WTO). Free markets work only as long as they allow people to act on their own knowledge, without the need for a central authority. While unregulated free markets only work with pure market goods (which don’t really exist), the basic idea of relying on decentralized information is believed to be a good one.
Adam Smith in the eighteenth century suggested that if the country can produce the good in question at a lower absolute cost or with higher productivity than its trading partner, it has an absolute advantage. David Ricardo went on to assume that if it can produce the good in question more cheaply relative to other goods it produces than can its trading partners, regardless of absolute costs, it has a comparative advantage.
Absolute advantage theory asserts that a nation benefits from manufacturing more output than others since it is in the possession of a particular resource or commodity. This particular resource can also be a certain method or knowledge that increas...

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7. www.bigpicture.tv/videos: Lori Wallach – Free Trade – The Price Paid