A Comparative Analysis of the Regulation of State and Provincial Governments in NAFTA and GATT/WTO

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I. INTRODUCTION

The creation of the World Trade Organization ("WTO") and the proliferation of regional free trade areas have brought trade liberalization to economic disciplines reaching farther and deeper into the sovereign heart of nation-states. While this growth is generally perceived as a natural progression with worldwide economic and welfare benefits, it is increasingly reaching into areas within the constitutional competence of state and provincial governments in federal nation-states. As such, state and provincial actors are in an increasingly better position to influence world trade, both positively and negatively.

This Article reviews the manner in which international trade regimes regulate state and provincial behavior by comparing and contrasting the "federal clauses" of the North American Free Trade Agreement ("NAFTA") and the General Agreement on Tariffs and Trade ("GATT")/WTO. section II provides an overview of the current aggressive trade agenda and how subfederal actors in the United States and Canada are becoming increasingly involved in trade issues, with potential negative ramifications for the international trade system. section III explores the constitutional distribution of powers in the United States and Canada and how this impacts the international trade system. section IV examines the history of GATT/WTO and NAFTA efforts to regulate federal nation-states, including a look at relevant international dispute settlement decisions. section V concludes with a summary of the challenges facing international regulation of federal nation-states and recommendations for improving regulation in this area.

II. OVERVIEW OF THE CURRENT INTERNATIONAL TRADE ENVIRONMENT

NAFTA recently enjoyed its tenth anniversary with all the fanfare one might expect for an international trade agreement understood by few outside of Washington, D.C. That is not to say, however, that NAFTA's anniversary went unnoticed and without reflection on its political and economic impact. In a somewhat scathing economic analysis, Joseph E. Stiglitz opined that Mexico has failed to realize numerous benefits promised at the outset of the treaty,1 which now serves as an unfair benchmark for future regional trade agreements. In a more fundamental critical analysis, Senator Charles Schumer and Paul Roberts utilized NAFTA's anniversary as an occasion to question the continuing viability of global trade liberalization in general, arguing that the economic theory of comparative advantage is no longer tenable in light of the free cross-border movement of factors of production.2

While there are certainly varying opinions regarding the distorting effects of regional trade agreements and the continuing efficacy of the traditional economic theory of comparative advantage, there is no question that globalization is here to stay. As Thomas Friedman aptly described it:

I feel about globalization a lot like I feel about the dawn. Generally speaking, I think it's a good thing that the sun comes up every morning. It does more good than harm, especially if you wear sunscreen and sunglasses. But even if I didn't much care for the dawn there isn't much I could do about it.3

Despite recent calls for reversion to protectionism, the general consensus is that globalization should be embraced and used as a platform for new and innovative economic development. China is an example of a country that has embraced globalization and utilized its entry into the WTO as an opportunity for economic and political reforms.4 Russia is another country that is seeking entry into the WTO in order to take full advantage of the economic benefits associated with global trade.5

As globalization continues, it is important to consider how far and deep trade liberalization should go. With respect to NAFTA, most commentators agree that it already goes exceptionally far in terms of trade liberalization, particularly in light of its supplemental side agreements on labor and environment. …