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B. The Bretton Woods System: Culmination of Open Door Empire
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B. The Bretton Woods System: Culmination of Open Door Empire

The second Roosevelt's administration saw the guarantee of American access to foreign markets as vital to ending the Depression and the threat of internal upheaval that went along with it. Assistant Secretary of State Francis Sayre, chairman of Roosevelt's Executive Committee on Commercial Policy, warned: "Unless we can export and sell abroad our surplus production, we must face a violent dislocation of our whole domestic economy."22 FDR's ongoing policy of Open Door Empire, faced with the withdrawal of major areas from the world market by the autarkic policies of the Greater East Asia Co-Prosperity Sphere and Fortress Europe, led to American entry into World War II, and culminated in the postwar establishment of what Samuel Huntington called a "system of world order" guaranteed both by global institutions of economic governance like the IMF, and by a hegemonic political and military superpower.

In 1935, a War Department memorandum described the emerging Japanese threat in primarily economic terms. Japanese hegemony over Asia, it warned, would have "a direct influence on those people of Europe and America who depend on trade and commerce with this area for their livelihood." Germany, likewise, was defined as an "aggressor" because of its trade policies in Latin America.23

After the fall of western Europe in the spring of 1940, Assistant Secretary of State Breckinridge Long warned that "every commercial order will be routed to Berlin and filled under its orders somewhere in Europe rather than in the United States," resulting in "falling prices and declining profits here and a lowering of our standard of living with the consequent social and political disturbances."24

Beginning in the Summer of 1940, the CFR and State Department undertook a joint study to determine the minimum portion of the world the U.S. would have to integrate with its own economy, in order to provide sufficient resources and markets for economic stability; it also explored policy options for reconstructing the postwar world.25 The study group found that Germany's continental system was far more self-sufficient in resources, and more capable of autarky, than was the United States. The U.S. economy could not survive in its existing form without access to the resources and markets not only of the Western Hemisphere, but of the British Empire and Far East (together called the Grand Area). But the latter region was rapidly being incorporated into Japan's economic sphere of influence. FDR made the political decision to contest Japanese power in the Far East, and if necessary to initiate war. In the end, however, he successfully maneuvered Japan into firing the first shot.26 The American policy that emerged from these struggles was one of securing control over the markets and resources of the global "Grand Area" through institutions of global economic governance, reflected in the postwar Bretton Woods system.

The problem of access to foreign markets and resources was central to U.S. policy planning for a postwar world. Given the structural imperatives of "export dependent monopoly capitalism," the fear of a postwar depression was a real one. The original drive toward foreign expansion at the end of the nineteenth century reflected the fact that industry, with state capitalist encouragement, had expanded far beyond the ability of the domestic market to consume its output. Even before World War II, the state capitalist economy had serious trouble operating at the level of output needed for full utilization of capacity and cost control. Military-industrial policy during the war greatly exacerbated the problem of over-accumulation, increasing the value of plant and equipment by two-thirds at taxpayer expense. The end of the war, if followed by the traditional pattern of demobilization, would result in a drastic reduction in orders to this overbuilt industry at the same time that over ten million workers were dumped back into the civilian labor force. And four years of forced restraints on consumption had created a vast backlog of savings with no outlet in the already overbuilt domestic economy.

In November 1944, Dean Acheson addressed the Congressional committee on Postwar Economic Policy and Planning. He stressed the consequences if the war were be followed by a slide back into depression: "it seems clear that we are in for a very bad time, so far as the economic and social position of the country is concerned. We cannot go through another ten years like the ten years at the end of the twenties and the beginning of the thirties, without having the most far-reaching consequences upon our economic and social system." The problem, he said, was markets, not production. "You don't have a problem of production.... The important thing is markets. We have got to see that what the country produces is used and is sold under financial arrangements which make its production possible." Short of the introduction of a command economy, with controls over income and distribution to ensure the domestic consumption of all that was produced, Acheson said, the only way to achieve full output and full employment was through access to foreign markets.27

A central facet of postwar economic policy, as reflected in the Bretton Woods agencies, was state intervention to guarantee markets for the full output of U.S. industry and profitable outlets for surplus capital. The World Bank was designed to subsidize the export of capital to the Third World, by financing the infrastructure without which Western-owned production facilities could not be established there. According to Gabriel Kolko's 1988 estimate, almost two thirds of the World Bank's loans since its inception had gone to transportation and power infrastructure.28 A laudatory Treasury Department report referred to such infrastructure projects (comprising some 48% of lending in FY 1980) as "externalities" to business, and spoke glowingly of the benefits of such projects in promoting the expansion of business into large market areas and the consolidation and commercialization of agriculture.29

Besides the benefit of building "an internal infrastructure which is a vital prerequisite for the development of resources and direct United States private investments," such banks (because they must be repaid in U.S. dollars) require the borrowing nations "to export goods capable of earning them, which is to say, raw materials...."30

The International Monetary Fund was created to facilitate the purchase of American goods abroad, by preventing temporary lapses in purchasing power as a result of foreign exchange shortages. It was "a very large international currency exchange and credit-granting institution that could be drawn upon relatively easily by any country that was temporarily short of any given foreign currency due to trade imbalances."31

The Bretton Woods system by itself, however, was not nearly sufficient to ensure the levels of output needed to keep production facilities running at full capacity, or to absorb excess investment funds. First the Marshall Plan, and then the permanent war economy of the Cold War, came to the rescue.

The Marshall Plan was devised in reaction to the impending economic slump predicted by the Council of Economic advisers in early 1947 and the failure of Western Europe "to recover from the war and take its place in the American scheme of things." Undersecretary of State for Economic Affairs Clayton declared that the central problem confronting the United States was the disposal of its "great surplus."32 Dean Acheson defended the Marshall Plan in a May 1947 address:

The extreme need of foreign countries for American products is likely... to continue undiminished in 1948, while the capacity of foreign countries to pay in commodities will be only slightly increased.... What do these facts of international life mean for the United States and for United States foreign policy? ...the United States is going to have to undertake further emergency financing of foreign purchases if foreign countries are to continue to buy in 1948 and 1949 the commodities which they need to sustain life and at the same time rebuild their economies....33

One New Deal partisan implicitly compared foreign economic expansion to domestic state capitalism as analogous forms of surplus disposal: "it is as if we were building a TVA every Tuesday."34

The permanent war economy, however, had another advantage over projects like the TVA that produced use-value for the civilian population: since it did not produce consumer goods, it did not add to the undisposable surplus or compete with the output of private capital in consumer markets. In the apt words of Immanuel Goldstein: "Even when weapons of war are not actually destroyed, their manufacture is still a convenient way of expending labor power without producing anything that can be consumed." War is a way of "shattering to pieces, or pouring into the stratosphere, or sinking in the depths of the sea," excess output and capital.35

Besides facilitating the export of goods and capital, the Bretton Woods agencies play a central role in the discipline of recalcitrant regimes. There is a considerable body of radical literature on the Left on the use of debt as a political weapon to impose pro-corporate policies (e.g., the infamous "structural adjustment program") on Third World governments, analogous to the historic function of debt in keeping miners and sharecroppers in their place.36 Cheryl Payer compared Third World debt to individual debt peonage, in that the aim of the latter was "neither to collect the debt once and for all, nor to starve the employee to death, but rather to keep the labourer permanently indentured through his debt to his employer...."37 David Korten argued, likewise:

The very process of the borrowing that created the indebtedness that gave the World Bank and the IMF the power to dictate the policies of borrowing countries represented an egregious assault on the principles of democratic accountability. Loan agreements, whether with the World Bank, the IMF, other official lending institutions, or commercial banks, are routinely negotiated in secret between banking officials and a handful of government officials--who in many instances are themselves unelected and unaccountable to the people on whose behalf they are obligating the national treasury to foreign lenders. Even in democracies, the borrowing procedures generally bypass the normal appropriation processes of democratically elected legislative bodies. Thus, government agencies are able to increase their own budgets without legislative approval, even though the legislative body will have to come up with the revenues to cover repayment. Foreign loans also enable governments to increase current expenditures without the need to raise current taxes--a feature that is especially popular with wealthy decision makers. The same officials who approve the loans often benefit directly through participation in contracts and "commissions" from grateful contractors. The system creates a powerful incentive to over-borrow.38

Another way the Bretton Woods agencies exercise political power over recalcitrant regimes is the punitive withholding of aid. This powerful political weapon has been used at times to undermine elective democracies whose policies fell afoul of corporate interests, and to reward compliant dictatorships. For example, the World Bank refused to lend to the Goulart government in Brazil; but following the installation of a military dictatorship by the 1964 coup, the Bank's lending averaged $73 million a year for the rest of the decade, and reached almost a half-billion by the mid-70s. Chile, before and after the Pinochet coup, followed a similar pattern.39 Or as Ambassador Korry warned, in the latter-day equivalent of a papal interdict, "Not a nut or bolt shall reach Chile under Allende. Once Allende comes to power we shall do all within our power to condemn Chile and all Chileans to utmost deprivation and poverty."40

Cheryl Payer's The Debt Trap is an excellent historical survey of the use of debt crises to force countries into standby arrangements, precipitate coups, or provoke military crackdowns. In addition to their use against Goulart and Allende, as mentioned above, she provides case studies of the Suharto coup in Indonesia and Marcos' declaration of martial law in the Phillippines. Walden Bello, in Development Debacle,41 goes into much greater depth on the Phillippines specifically, based on extensive documentation of World Bank collaboration with Marcos in support of the authoritarian crackdown preceding his austerity programs.

Among the many features of the so-called structural adjustment program, mentioned above, the policy of "privatization" (by selling state assets to "latter-day Reconstructionists," as Sean Corrigan says below) stands out. Joseph Stromberg described the process, as it has been used by the Iraq Provisional Authority, as "funny auctions, that amounted to new expropriations by domestic and foreign investors...." Such auctions of state properties will "likely lead... to a massive alienation of resources into the hands of select foreign interests."42

The promotion of unaccountable, technocratic Third World governments, insulated from popular pressure and closely tied to international financial elites, has been a central goal of Bretton Woods agencies since World War II.

From the 1950s onwards, a primary focus of [World] Bank policy was "institution-building", most often taking the form of promoting the creation of autonomous agencies within governments that would be continual World Bank borrowers. Such agencies were intentionally established to be independent financially from their host governments, as well as minimally accountable politically--except, of course, to the Bank.43

The World Bank created the Economic Development Institute in 1956 specifically to enculture Third World elites into the values of the Bretton Woods system. It offered a six-month course in "the theory and practice of development," whose 1300 alumni by 1971 included prime ministers, ministers of planning, and ministers of finance.44

The creation of such patronage networks has been one of the World Bank's most important strategies for inserting itself in the political economies of Third World countries. Operating according to their own charters and rules (frequently drafted in response to Bank suggestions), and staffed with rising technocrats sympathetic, even beholden, to the Bank, the agencies it has funded have served to create a steady, reliable source of what the Bank needs most--bankable loan proposals. They have also provided the Bank with critical power bases through which it has been able to transform national economies, indeed whole societies, without the bothersome procedures of democratic review and discussion of the alternatives.45

Despite the vast body of scholarly literature on the issues discussed in this passage, perhaps the most apt description of it was a pithy comment by a free market libertarian, Sean Corrigan:

Does he [Treasury Secretary O'Neill] not know that the whole IMF-US Treasury carpet-bagging strategy of full-spectrum dominance is based on promoting unproductive government-led indebtedness abroad, at increasingly usurious rates of interest, and then--either before or, more often these days, after, the point of default--bailing out the Western banks who have been the agents provocateurs of this financial Operation Overlord, with newly-minted dollars, to the detriment of the citizenry at home?

Is he not aware that, subsequent to the collapse, these latter-day Reconstructionists must be allowed to swoop and to buy controlling ownership stakes in resources and productive capital made ludicrously cheap by devaluation, or outright monetary collapse?

Does he not understand that he must simultaneously coerce the target nation into sweating its people to churn out export goods in order to service the newly refinanced debt, in addition to piling up excess dollar reserves as a supposed bulwark against future speculative attacks (usually financed by the same Western banks’ lending to their Special Forces colleagues at the macro hedge funds) - thus ensuring the reverse mercantilism of Rubinomics is maintained?46

The American economy could have had access to the resources it was willing to buy on mutually satisfactory terms, and marketed its own surplus to those countries willing to buy it, without the apparatus of transnational corporate mercantilism. Such a state of affairs would have been genuine free trade. What the American elite really wanted, however, has been ably stated by Thomas Friedman in one of his lapses into frankness:

For globalism to work, America can't be afraid to act like the almighty superpower it is.... The hidden hand of the market will never work without a hidden fist--McDonald's cannot flourish without McDonnell Douglas, the designer of the F-15. And the hidden fist that keeps the world safe for Silicon Valley's technologies is called the United States Army, Air Force, Navy and Marine Corps.47

It was not true that the American corporate economy was ever in any real danger of losing access to the raw materials it needed, in the absence of an activist foreign policy to secure access to those resources. As free market advocates often point out, countries with disproportionate mineral wealth--say, large oil reserves--are forced to center a large part of their economic activity on the extraction and sale of those resources. And once they sell them, the commodities enter a world market in which it is virtually impossible to control who eventually buys them. The real issue, according to Baran and Sweezy, is that the American corporate economy depended on access to Third World resources on favorable terms set by the United States, and those favorable terms depended on the survival of pliable regimes.

But this [genuine free trade in resources with the Third World on mutually acceptable terms] is not what really interests the giant multinational corporations which dominate American policy. What they want is monopolistic control over foreign sources of supply and foreign markets, enabling them to buy and sell on specially privileged terms, to shift orders from one subsidiary to another, to favor this country or that depending on which has the most advantageous tax, labor, and other policies--in a word, they want to do business on their own terms and wherever they choose. And for this what they need is not trading partners but "allies" and clients willing to adjust their laws and policies to the requirements of American Big Business.48

The "system of world order" enforced by the U.S. since World War II, and lauded in Friedman's remarks about the "visible hand," is nearly the reverse of the classical liberal notion of free trade. This new version of "free trade" is aptly characterized in a passage by Christopher Layne and Benjamin Schwarz:

The view that economic interdependence compels American global strategic engagement puts an ironic twist on liberal internationalist arguments about the virtues of free trade, which held that removing the state from international transactions would be an antidote to war and imperialism....

....Instead of subscribing to the classical liberal view that free trade leads to peace, the foreign policy community looks to American military power to impose harmony so that free trade can take place. Thus, U.S. security commitments are viewed as the indispensable precondition for economic interdependence.49

Oliver MacDonagh pointed out that the modern neoliberal conception, far from agreeing with Cobden's idea of free trade, resembled the "Palmerstonian system" that the Cobdenites so despised. Cobden objected, among other things, to the "dispatch of a fleet 'to protect British interests' in Portugal," to the "loan-mongering and debt-collecting operations in which our Government engaged either as principal or agent," and generally, all "intervention on behalf of British creditors overseas." Cobden favored the "natural" growth of free trade, as opposed to the forcible opening of markets. Genuine free traders opposed the confusion of "free trade" with "mere increases of commerce or with the forcible 'opening up' of markets."50

I can't resist quoting Joseph Stromberg's only half tongue-in-cheek prescription "How to Have Free Trade":

For many in the US political and foreign policy Establishment, the formula for having free trade would go something like this: 1) Find yourself a global superpower; 2) have this superpower knock together the heads of all opponents and skeptics until everyone is playing by the same rules; 3) refer to this new imperial order as "free trade;" 4) talk quite a bit about "democracy." This is the end of the story except for such possible corollaries as 1) never allow rival claimants to arise which might aspire to co-manage the system of "free trade"; 2) the global superpower rightfully in charge of world order must also control the world monetary system....

The formula outlined above was decidedly not the 18th and 19th-century liberal view of free trade. Free traders like Richard Cobden, John Bright, Frederic Bastiat, and Condy Raguet believed that free trade is the absence of barriers to goods crossing borders, most particularly the absence of special taxes--tariffs--which made imported goods artificially dear, often for the benefit of special interests wrapped in the flag under slogans of economic nationalism....

Classical free traders never thought it necessary to draw up thousands of pages of detailed regulations to implement free trade. They saw no need to fine-tune a sort of Gleichschaltung (co-ordination) of different nations labor laws, environmental regulations, and the host of other such issues dealt with by NAFTA, GATT, and so on. Clearly, there is a difference between free trade, considered as the repeal, by treaty or even unilaterally, of existing barriers to trade, and modern "free trade" which seems to require truckloads of regulations pondered over by legions of bureaucrats.

This sea-change in the accepted meaning of free trade neatly parallels other characteristically 20th-century re-definitions of concepts like "war," "peace," "freedom," and "democracy," to name just a few. In the case of free trade I think we can deduce that when, from 1932 on, the Democratic Party-- with its traditional rhetoric about free trade in the older sense--took over the Republicans project of neo-mercantilism and economic empire, it was natural for them to carry it forward under the "free trade" slogan. They were not wedded to tariffs, which, in their view, got in the way of implementing Open Door Empire. Like an 18th-century Spanish Bourbon government, they stood for freer trade within an existing or projected mercantilist system. They would have agreed, as well, with Lord Palmerston, who said in 1841, "It is the business of Government to open and secure the roads of the merchant." ....

Here, John A. Hobson... was directly in the line of real free-trade thought. Hobson wrote that businessmen ought to take their own risks in investing overseas. They had no right to call on their home governments to "open and secure" their markets.51

And by the way, it's doubtful that superpower competition with the Soviets had much to do with the role of the U.S. in shaping the postwar "system of world order," or in acting as "hegemonic power" in maintaining that system of order. Layne and Schwarz cited NSC-68 to the effect that the policy of "attempting to develop a healthy international community" was "a policy which we would probably pursue even if there were no Soviet threat."

Underpinning U.S. world order strategy is the belief that America must maintain what is in essence a military protectorate in economically critical regions to ensure that America's vital trade and financial relations will not be disrupted by political upheaval. This kind of economically determined strategy articulated by the foreign policy elite ironically (perhaps unwittingly) embraces a quasi-Marxist or, more correctly, a Leninist interpretation of American foreign relations.52

The policy planners who designed the Bretton Woods system and the rest of the postwar framework of world order, apparently, paid little or no mind to the issue of Soviet Russia's prospective role in the world. The record that appears, rather, in Shoup and Minter's heavily documented account, is full of references to the U.S. as a successor to Great Britain as guarantor of a global political and economic order, and to U.S. global hegemony as a war aim (even before the U.S. entered the war). As early as 1942, when Soviet Russia's continued existence was very much in doubt, U.S. policy makers were referring to "domination after the war," "Pax Americana," and "world control." To quote G. William Domhoff, "the definition of the national interest that led to these interventions was conceived in the years 1940-42 by corporate planners in terms of what they saw as the needs of the American capitalist system, well before communism was their primary concern."53

Considering the continuity in the pattern of U.S. Third World intervention during the Cold War with its gunboat diplomacy of the 20s and 30s, or with its actions as the world's sole superpower since the fall of communism, should also be instructive. Indeed, since the collapse of the USSR, the U.S. has been frantically scrambling to find (or create) another enemy sufficient to justify continuing its role as world policeman.

Despite Chomsky's periodic rhetorical excesses, his characterization of the postwar era was essentially correct: "Putting second-order complexities to the side, for the USSR the Cold War has been primarily a war against its satellites, and for the US a war against the Third World. For each, it has served to entrench a particular system of domestic privilege and coercion."54

If anything, the Cold War with the Soviet Union appears almost as an afterthought to American planning for a postwar order. Far from being the cause of the U.S. role as guarantor of a system of world order, the Soviet Empire acted as a spoiler to preexisting U.S. plans for acting as a sole global superpower. Historically, any rival power which has refused to be incorporated into the Grand Area, or which has encouraged other countries (by "defection from within") to withdraw from the Grand Area, has been viewed as an "aggressor." Quoting Domhoff once again,

....I believe that anticommunism became a key aspect of foreign policy only after the Soviet Union, China, and their Communist party allies became the challengers to the Grand Area conception of the national interest. In a certain sense..., they merely replaced the fascists of Germany and Japan as the enemies of the international economic and political system regarded as essential by American leaders.55

Likewise, as Domhoff's last sentence in the above quote suggests, any country which has interfered with U.S. attempts to integrate the markets and resources of any region of the world into its international economic order has been viewed as a "threat." The Economic and Financial Group of the CFR/State Department postwar planning project, produced, on July 24, 1941, a document (E-B34), warning of the need for the United States to "defend the Grand Area," not only against external attack by Germany, but against "defection from within," particularly against countries like Japan (which, along with the rest of east Asia, was regarded as part of the Grand Area) bent on "destroying the area for its own political reasons."56 The centrality of this consideration is illustrated by the report of a 1955 study group of the Woodrow Wilson Center, which pointed to the threat of "a serious reduction in the potential resource base and market opportunities of the West owing to the subtraction of the communist areas and their economic transformation in ways that reduce their willingness and ability to complement the industrial economies of the West."57

One way of defending against "defection from within" is to ensure that Third World countries have the right kind of government. That can be done either by supporting authoritarian regimes, or what neoconservatives call "democracy." The key quality for Third World elites, in either case, is an orientation toward what Thomas Barnett calls "connectivity." The chief danger presented by "outlaw regimes," according to Barnett, lies in their being disconnected "from the globalizing world, from its rule sets, its norms, and all the ties that bind countries together in mutually assured dependence."58

The neoconservative version of democracy is more or less what Noam Chomsky means by "spectator democracy": a system in which the public engages in periodic legitimation rituals called "elections," choosing from a narrow range of candidates all representing the same elite. Having thus done its democratic duty, the public returns to bowling leagues and church socials, and other examples of "civil society," and leaves the mechanics of policy to its technocratic betters--who immediately proceed to take orders from the World Bank and IMF. This form of democracy is nearly synonymous with what neocons call "the rule of law," which entails a healthy dose of Weberian bureaucratic rationality. The stability and predictability associated with such "democracies" is, from the business standpoint, greatly preferable to the messiness of dictatorship or death squads.

American "pro-democratic" policy in the Third World, traditionally, has identified "democracy" with electoralism, and little else. In Central America, for example, a country is viewed as a "democracy" if its government "came to power through free and fair elections." But this policy ignores the vital dimension of popular participation, "including the free expression of opinions, day-to-day interaction between the government and the citizenry, the mobilization of interest groups," etc. The "underlying objective" of pro-democracy policies is "to maintain the basic order of what... are quite undemocratic societies." Democracy is a means of "relieving pressure for more radical change," but only through "limited, top-down forms of democratic change that [do] not risk upsetting the traditional structures of power with which the United States has been allied."59 Democracy policy in El Salvador, more specifically, promoted a form of "democracy" through the Duarte regime that did not touch the power of the military or the landed elite.60

American elites prefer "democracy" whenever possible, but will resort to dictatorship in a pinch. The many, many cases in which the U.S. Assistance Program, the School of the Americas, the CIA, the World Bank and IMF, and others from the list of usual suspects have collaborated in just this expedient are recounted, in brutal detail, by William Blum in Killing Hope.61

Even an authoritarian communist regime is preferable, as an ultimate last resort, to a democracy that pursues a genuinely populist agenda, like the Arbenz regime in Guatemala. To prevent the latter development, the U.S. will risk a country falling to genuine Marxist-Leninists. It is obvious that the primary concern behind the typical Third World intervention was not the danger of an alliance between that country and Soviet strategic power. Had anti-communism been the U.S. government's main preoccupation, and not economic control, its policy would have been much different.

While there were many varieties of capitalism consistent with the anti-Communist politics the United States... sought to advance, what was axiomatic in the American credo was that the form of capitalism it advocated for the world was to be integrated in such a way that its businessmen played an essential part in it. Time and again it was ready to sacrifice the most effective way of opposing Communism in order to advance its own national interests. In this vital sense its world role was not simply one of resisting the left but primarily of imposing its own domination....

....[I]t was its clash with nationalist elements, as diverse as they were, that revealed most about the U.S. global crusade, for had fear of Communism alone been the motivation of its behavior, the number of obstacles to its goals would have been immeasurably smaller.62

An authoritarian communist regime, like the pigs on Animal Farm, can be quite reasonable in dealing with its neighboring farmers. The Chinese "workers' paradise," a favorite haven for foreign sweatshops, is a prime example.

The chief necessity, as we saw above, is that a Third World country's economic policy be made by a domestic elite that is safely insulated from real accountability to the native population, and at the same time amenable to the policy goals and values of transnational elites in such bodies as the World Bank and IMF. In the last couple of years we have seen this to be true of the new regime in Afghanistan, headed by a man noted for his history of collaboration with the latter agencies; of the Iraqi occupation government, or Iraq Provisional Authority, of which a high priority was the adoption of new laws to enforce international copyrights.