<P> David Ricardo in 1817 first clearly stated and proved the principle of comparative advantage, termed a "fundamental analytical explanation" for the source of gains from trade . But from publication of Adam Smith's The Wealth of Nations in 1776, it was widely argued, that, with competition and absent market distortions, such gains are positive in moving toward free trade and away from autarky or prohibitively high import tariffs . Rigorous early contemporary statements of the conditions under which this proposition holds are found in Samuelson in 1939 and 1962 . For the analytically tractable general case of Arrow - Debreu goods, formal proofs came in 1972 for determining the condition of no losers in moving from autarky toward free trade . </P> <P> It does not follow that no tariffs are the best an economy could do . Rather, a large economy might be able to set taxes and subsidies to its benefit at the expense of other economies . Later results of Kemp and others showed that in an Arrow - Debreu world with a system of lump - sum compensatory mechanisms, corresponding to a customs union for a given subset set of countries (described by free trade among a group of economies and a common set of tariffs), there is a common set of world' tariffs such that no country would be worse off than in the smaller customs union . The suggestion is that if a customs union has advantages for an economy, there is a worldwide customs union that is at least as good for each country in the world . </P> <P> Classical economists maintain that there are two methods to measure the gains from trade: 1) international trade increases national income which helps us to get low priced imports; 2) gains are measured in terms of trade . To measure the gains from the trade, comparison of a country's cost of production with a foreign country's cost of production for the same product is required . However, it is very difficult to acquire the knowledge of cost of production and cost of imports in a domestic country . Therefore, terms of trade method is preferable to measure the gains from trade . </P> <P> There are several factors which determine the gains from international trade: </P>

Is it possible to estimate the gains from trade