Free Trade

Since World War II ended in 1945 the leading trading nations have generally made a concerted effort to promote freer trade and remove protectionist barriers. In 1948 the General Agreement on Tariffs and Trade (GATT) went into effect. GATT was a treaty and international trade organization that worked to reduce or eliminate tariffs and other barriers to trade. GATT was originally signed by 23 nations, including the United States. A succession of trade “rounds” or negotiations significantly reduced tariffs on a large number of manufactured goods. In 1994 Canada, Mexico, and the United States took a major step toward removing trade barriers by ratifying the North American Free Trade Agreement (NAFTA). Then in 1995 GATT was replaced by the World Trade Organization (WTO). By 2001, 142 nations were members of the WTO. The trade round that created the WTO further liberalized trade in manufactured goods and expanded the scope of the international trade agreement. The WTO began to reduce trade barriers and limit subsidies for agricultural products. It phased out protectionist measures for textiles and apparel, and it imposed limits on the ability of participating nations to enact or maintain nontariff trade barriers such as regulatory standards that discriminate against imports. The WTO also established a more effective system for adjudicating trade disputes.

Despite the apparent role of free trade in promoting strong economic growth during the 1990s, both NAFTA and the WTO proved highly controversial. Large and often violent demonstrations at a WTO meeting in Seattle, Washington, in 1999 revealed a substantial public backlash against trade liberalization in the United States, particularly among trade union and environmental groups. Many critics argued that free trade had led to reduced wages, job displacement, and harm to the environment. Many environmental organizations, for example, objected that domestic regulations to protect the environment could be overturned under the WTO if they were shown to restrict imports.

The continuing controversy over free trade agreements appeared to narrow the support given to new accords. The first free trade pact in more than a decade—the Central American Free Trade Agreement (CAFTA)—narrowly passed the U.S. House of Representatives by a vote of 217-215 in July 2005 and required strong backing by the administration of President George W. Bush. The agreement lowered trade barriers between the United States and the Central American nations of Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua, along with the Dominican Republic. Critics said the agreement lacked the labor and environmental standards that were negotiated for NAFTA and would lead to job loss in the United States and increased exploitation of workers in Central America. Supporters of the pact said it would “level the playing field” by immediately eliminating tariffs on 80 percent of U.S. industrial exports and 50 percent of U.S. agricultural exports to those nations. Prior to CAFTA, imports from those nations to the United States were already tariff-free.

See also Commercial Treaties; Economics; European Union; European Free Trade Association; Monopoly; North American Free Trade Agreement.