The WTO also relays disputes between Member States on trade issues. When one country`s government accuses another country`s government of violating world trade rules, a WTO panel settles the dispute. (The panel`s judgment may be appealed to an appellate body.) If the WTO finds that the government of a Member State has not complied with the agreements it has signed, the member is obliged to change its policy and bring it in line with the rules. If the member finds it politically impossible to change his policy, he can offer compensation to other countries in the form of lower obstacles to other goods. If it decides not to do so, other countries may obtain WTO authorization to impose higher tariffs (i.e. “retaliation”) on products originating in the Member State concerned because they have not complied. The second factor that can affect a country`s current account balance is the exchange rate. The exchange rate refers to the amount of currency that can be purchased by a country`s own currency. According to economic theory, if a nation has a persistent trade deficit, its exchange rate is expected to fall against its trading partners – for example, if the United States has a persistent deficit, the dollar should buy fewer currencies like the euro or the yen. This would mean that imported products would cost more because they would cost more dollars for each unit of foreign currency, resulting in lower imports. In addition, U.S. exports are expected to grow, as foreigners can buy more of their products for any unit of their currency.

These results underline the importance of quality. A naïve approach that only examines the impact of trade agreements on prices (uncorrected on quality) could wrongly conclude that trade agreements do not affect consumers. At least for trade agreements implemented by the EU, the overall effect translates into quality changes. Once we have adjusted prices to quality, we find that trade agreements have reduced quality-adjusted prices by almost 7%. However, in the event of trade diversion, a member makes sales at the expense of a more competitive producer in a country that is not a member of the bloc, simply because its products enter the market of its partner duty-free, while the non-member producer, more competitive, is subject to a discriminatory obligation. [20] Third-country exporters with a comparative advantage under equal competitive conditions are losing their commercial character. Our overall results mask a great heterogeneity of the impact of treatment between EU countries, trading partners and types of trade agreements. For example, higher-income EU countries (Belgium/Luxembourg, Ireland, the Netherlands and the United Kingdom) experienced a much stronger improvement in quality than other EU countries. For the group of low-income countries in the EU (Greece, Portugal and Spain), trade agreements have had an almost exclusive effect on price reduction and not on quality. The fourth drawback is that of small businesses in a country. A multilateral agreement gives a competitive advantage to large multinationals.

They are already familiar with the operation in a global environment. As a result, small businesses cannot compete. They lay off workers to reduce costs. Others relocate their factories to countries where living standards are lower. If a region depended on this industry, it would have high unemployment rates. This makes multilateral agreements unpopular. As a multilateral trade agreement, GATT calls on its signatories to extend the status of the Most Preferred Nation (MFN) to other trading partners participating in the WTO.