The determination of the United States to spread "free" market capitalism can be seen in the multi-lateral economic agreements and treaties entered into by the United States in the last decade of the twentieth century. Following World War II, Washington sought cooperative ways to rebuild the world economy and create a more coherent institutional framework within which the United States might best utilize its economic strength. This restructuring was to be based on the law of comparative advantage and free trade.
The first steps were taken at Bretton Woods, New Hampshire, where forty-four nations met from 1 July to 22 July 1944 and created the International Monetary Fund (IMF) to oversee the world's monetary and exchange-rate systems. The Bretton Woods Conference also established the World Bank to rebuild western Europe utilizing Marshall Plan funds. Congress passed the Bretton Woods Agreement Act in July 1945 (House 345 to 18; Senate 61 to 16). In 1946 the first session of the Preparatory Committee of the UN Conference on Trade and Employment created the General Agreement on Trade and Tariffs (GATT), to which the United States became a party. The trade rules in the GATT were part of the International Trade Organization (ITO) agreed to in the Havana charter in 1948. Interestingly, because the rules governing world trade set out in the GATT were so ambiguous, flexible, and loosely framed, Congress refused to ratify U.S. membership in the International Trade Organization. So the United States joined through an executive agreement, using power given to the president under the Reciprocal Trade Agreements Act of 1934. Congress has never recognized the GATT, but in the Trade Expansion Act of 1962, it extended the power given to the president in the 1934 act to negotiate tariff-cutting agreements.
The initial purpose of the GATT was to negotiate tariff concessions among members and to establish a code of conduct and procedures for the resolution of trade disputes by negotiation. The core assumption underlying American participation in these efforts to encourage multilateral trade arrangements was that international cooperation in trade and investment created harmonious political relations and reduced tensions between nations. The GATT was founded on the principles of nondiscrimination and multilateralism in international trade. Nondiscrimination was expressed through unconditional most-favored-nation status for all contracting parties. By this convention, if tariffs on imports from one country were lowered, the tariff on all imports of the same goods from other GATT members must also be reduced. Most-favored-nation treaties had been the preferred device for the United States in dealing with China in the nineteenth century, when the United States gained access to the China market on the back of British imperialism. Indeed, most-favored-nation treaties were favored throughout U.S. history, and the GATT was just the latest embodiment of this mechanism of extending commercial opportunities. Multilateralism in the 1950s and 1960s favored the expansion of U.S. corporations across the globe, but by the 1970s and 1980s free trade meant that the United States faced stiff competition from the revitalized economies of western Europe and Japan. At first Washington sought to maintain its advantage by promoting the expansion of the GATT rules into nontraditional areas. GATT sponsored a series of multinational trade negotiations (called rounds) to progressively lower tariffs and eliminate unfair trade practices. At the Uruguay Round (1986–1994), in which 117 countries participated, the GATT agreement was extended to include such areas as services, patents, trademarks, copyright, and, most importantly, agriculture. At its final meeting (held in Marrakesh, Morocco, on 7 April 1994), the Uruguay Round also created the World Trade Organization, which, from 1 January 1995, would take over the administrative functions formerly conducted by GATT. Congress legislated to implement the agreement on 7 December 1994.
Under President Reagan the United States adopted protectionist measures. It attempted to stem the hemorrhage of its traditional areas of comparative advantage through "managed" trade and ending European subsidies on agriculture. When members of GATT resisted, Washington reverted to a unilateral policy—falling back on Section 301 of the 1974 Trade Act, which allowed for more effective (punitive) measures on goods entering the United States. The United States also entered bilateral arrangements with Canada.
As the twentieth century came to an end the world economy was in turmoil. Macroeconomic failures across countries had created staggering levels of unemployment in rich and poor countries alike. American protectionist practices, along with the programs dictated by the International Monetary Fund and World Bank, helped increase the gap between rich and poor countries. Mexico, one of the countries whose economy was most at risk because of foreign-owed debt—primarily to American-owned banks—had signed the GATT in 1986, and in response to International Monetary Fund demands, began to restructure its economy along lines acceptable to U.S. economic and financial interests. These requirements included elimination of fetters on the free market, privatizing areas of the economy that were previously under public control, and eliminating restrictions on foreign investment. Mexico set in motion a series of tariff-reduction and other economic liberalization measures. It also indicated that it would be interested in securing a "Canadian" deal with the United States.
The United States, once the defender of multi-lateralism and free trade, sought regional solutions to its economic woes. One such initiative was the North American Free Trade Agreement (NAFTA), signed with Canada and Mexico. Designed to create a free trade zone in the North American continent, it came into effect on 1 January 1994. NAFTA was an executive agreement reached on 12 August 1992. It was approved by the Congress after a vigorous national debate in late 1993.
In its own words, one of the main objectives of NAFTA was "the elimination of tariffs between Canada, Mexico, and the United States on 'qualifying' goods by the year 1998 for originating goods from Canada and for originating goods from Mexico by the year 2008." It also sought to promote fair competition, increase investment in the territories, protect and enforce intellectual property rights, and establish a framework for further cooperation between the countries.
Critics argued that NAFTA had only a limited relation to free trade. They pointed out that a primary U.S. objective was increased protection for "intellectual property," including software, patents for seeds and drugs, and so on. Such measures were designed to ensure that U.S.based corporations controlled the technology of the future, including biotechnology, which, it was hoped, would allow protected private enterprise to control health, agriculture, and the means of life generally, locking the poor into dependence and hopelessness. Nevertheless, NAFTA provided Mexican exporters with additional market access and helped attract foreign direct investment into Mexico, in services as well as in the industrial export sector. At the end of 1999, Mexico was the eighth largest export economy in the world, with $280 billion in exports. By the end of 2000, Mexico ranked as the fifth largest export economy in the world (up from twenty-sixth at the beginning of the 1990s) with an estimated $300 billion in exports. Between 1993 and 1999, Mexico's exports to the United States rose a remarkable 160 percent. The U.S. International Trade Commission estimated that American companies stood to gain $61 billion a year from the Third World if U.S. protectionist demands were satisfied by NAFTA. Opponents further pointed out that NAFTA included intricate "rules of origin" requirements designed to keep foreign competitors out. Moreover, the agreements went far beyond trade. A prime U.S. objective was liberalization of services, which would allow supranational banks to displace domestic competitors and thus eliminate any threat of national economic planning and independent development.
The treaty was also thought likely to have harmful environmental effects, encouraging a shift of production to regions where enforcement was lax. Increasingly in the global economy, production could be shifted to high-repression, low-wage areas and directed to privileged sectors. In 1996, General Motors, for example, planned to close almost two dozen plants in the United States and Canada even as it became the largest private employer in Mexico. Critics charged that the agreement overrode the rights of workers, consumers, and the future generations who cannot "vote" in the market on environmental issues, and that the goal was to provide a business environment unfettered by government interference. Package and labeling requirements and inspection procedures to protect consumers, for example, would not be required.
NAFTA did set up an institutional framework to address regional environmental issues. The North American Agreement on Environmental Cooperation (NAAEC) and the Commission for Environmental Cooperation (CEC) were two such steps to promote the effective enforcement of environmental law. Mexico attempted to enforce its environmental laws for new companies, thereby diminishing any incentive for firms to relocate to Mexico to avoid environmental enforcement. The Mexican government began to enforce more effectively its environmental laws by imposing sanctions against the more visible polluters and, more importantly, developed a program of voluntary environmental audits. One institution set up to help deal with the extensive environmental problems on the U.S.–Mexico border was the Border Environment Cooperation Commission (BEEC). The BEEC was an autonomous, binational organization that supported local communities and other project sponsors in developing and implementing environmental infrastructure projects related to the treatment of water and wastewater and the management of municipal solid waste.