Globalization and Canadian federalism: implications of the NAFTA's investment rules.

• Author: Luz, Mark A.

Globalization is a theory blind to federalism. In this Note, the authors consider the implications of globalization for Canadian federalism by exploring the implications of the investment protection provisions of Chapter 11 of the North American Free Trade Agreement ("NAFTA").

After exploring the theoretical foundations of globalization, three indicators of globalization are identified: the increase in regulatory treaties, the legalization of dispute resolution, and the individualization of remedy. All three indicators are exemplified by the NAFTA investment protections.

The authors then address three potential consequences of NAFTA Chapter 11 for the constitutional division of powers in Canada. First, they foresee that international law will be brought to bear on the most local levels of Canadian society, with an unprecedented effect on provincial powers. Second, the territorial limitation on provincial powers will be challenged by the non-territorial aspects of globalization. Third, the authors predict an expansion of federal power through the trade and commerce power and the peace, order, and good government power.

The authors conclude that a judicial balancing solution is preferable to granting the federal government a treaty-making power. This balance may be assisted by employing the national concern doctrine.

La theorie du federalisme echappe e la mondialisation. Dans cette Note, les auteurs examinent les implications de la mondialisation pour le federalisme canadien en explorant les implications des directives de protection d'investissement du Chapitre 11 de l'Accord de libre-echange nord-americain (>).

Apres un examen des fondements theoriques de la mondialisation, trois indicateurs de la mondialisation sont identifies, soit la croissance des traites regulateurs, la legalisation des resolutions de differends et l'individualisation du remede. Ces trois indicateurs sont illustres par les directives de protection d'investissements de I'ALENA.

Les auteurs examinent ensuite les implications du Chapitre 11 de l'ALENA pour la division des pouvoirs en Canada. Premierement, ils prevoient que le droit international sera applique aux echelons locaux de la societe canadienne entrainant ainsi un effet sans precedent sur les pouvoirs provinciaux. Deuxiemement, les limitations territoriales des pouvoirs provinciaux seront mises au defi par les aspects non territoriaux de la mondialisation. Troisiemement, les auteurs envisagent un elargissement du pouvoir federal a travers les pouvoirs du trafic et du commerce et du pouvoir de paix, d'ordre et de bon gunvernment.

En conclusion, les auteurs reconnaissent qu'une solution d'equilibre judiciaire est preferable au pouvoir federal de conclure des traites. La doctrine de l'interet national peut aider a atteindre cet equilibre.

Introduction I. The Theory of Globalization II. Legal Indicators of Globalization A. Increase in the Number and Scope of Regulatory Treaties B. Legalization of Dispute Resolution C. Individualization of Remedy III Case Study: NAFTA Chapter 11 IV. Effects on Canadian Federalism A. International Law in Canada B. Territoriality of Provincial Powers C. Implicated Federal Powers 1. Trade and Commerce Power 2. Peace, Order, and Good Government Power Conclusion Introduction

While there has been substantial discussion about the implications of the North American Free Trade Agreement ("NAFTA") (1) for the Canadian economy, sovereignty, and democracy, few studies have sought to put the NAFTA into the broader context of globalization and examine what impact it will have on Canadian federalism. Indeed, globalization is a theory blind to federalism. If globalization represents the decay of national borders, how can internal borders in federal states remain unaffected? The NAFTA, as a particular expression of globalization, is similarly blind to the basic tenets of federalism. If we are to reconcile globalization with the principles of federalism that have sustained Canada since Confederation, the traditional tests of balancing federal and provincial powers need to be rethought.

We argue that a treaty like the NAFTA, particularly the investment protection provisions contained in Chapter 11, will accelerate significantly the entrenchment of international legal standards at the provincial level by virtue of the threat of credible international arbitration and the direct enforcement of arbitral awards by domestic courts. Historically, there have been few international investment claims against Canada (on its own behalf or because of an alleged wrongful action taken by a province) because Canada has rarely entered into agreements that either gave individuals procedural remedies against it or covered provincial actions within the scope of the agreement. Recently, treaties like the NAFTA, the Canada-Chile Free Trade Agreement, (2) and Canada's newest versions of foreign investment protection agreements ("FIPAs"), (3) expose the country to potential international investment claims unprecedented in Canadian history. In particular, NAFTA Chapter 11 outlines specific standards of treatment of investors and their investments, directly incorporates customary international law as a source of interpretation, and provides for a direct right of action by an investor against a NAFTA government for transgressions of the treaty by federal and provincial entities. With the federal and provincial governments having recently adopted legislation on the recognition and enforcement of foreign arbitral awards, (4) individual and corporate investors have more power against governments than ever before. Whether this is a positive or negative development is a topic for another study, but it is clear that conflicts centred on the status of treaties and customary international law will likely arise in Canada in the near future.

In Part I we discuss globalization from a theoretical perspective and identify globaiization for the purposes of this paper as a process that is transforming traditional structures of society, in particular the state. In Part II we identify three indicators of globalization: the increase in regulatory treaties, the legalization of dispute resolution, and the individualization of remedy. Part III outlines how the three indicators operate by demonstrating how certain provisions in a regulatory treaty such as the NAFTA (particularly those contained in Chapter 11) are symptomatic of globalization. Finally, in Part IV we address the potential impact of NAFTA's Chapter 11 provisions on Canada's federal structure and suggest that these provisions will present an increasing challenge to the traditional distribution of powers between the federal and provincial governments.

1. The Theory of Globalization

   The modern use of the term "globalization" can be traced back at least to the 1960s. In 1962, Marshall McLuhan observed that the "new electronic interdependence" was recreating the world in the image of a global village and that this new electronic age was merging humanity into a single global tribe. (5) McLuhan pointed to technological development as having created a situation in which change itself had become the "archetypal norm of social life." (6) The growing discussion of "the global", for which McLuhan's work was in part responsible, builds on the great technological developments of the twentieth century. Indeed, the common theme running through most accounts of globalization emphasizes the massive technological leap that has occurred in the past century and its effects on humanity through the provision of instant access to information in vast quantities and through allowing individuals to interact with each other more quickly, more often, and more economically than before. The globalization debate, however, is much more than the observation of technological transformation.

   Globalization is not an entirely new phenomenon. Indeed, if one is to believe McLuhan, global change started with Gutenberg's printing press. If globalization is to be identified with converging societies and a process of integration, then Emile Durkheim, Claude-Henri de Saint-Simon, Karl Marx, and Max Weber, among others, have already addressed this phenomenon. (7) Durkheim argued that industrialization was erasing national borders and Saint-Simon identified the emergence of a pan-European state. Weber saw the Protestant ethic as a rationalization process that would modernize the Western world, while Marx argued that the capitalist method of production led to the expansion of the bourgeois class, which would eventually allow a worldwide proletariat to triumph. (8) These writers focused not only on economic development but also on the shaping of ideas and the transformation of societies.

   >From a historical perspective, it can be argued that the current form of globalization is the result of a drawn-out process. Roland Robertson identifies five phases of globalization. (9) The fifth phase, from 1965 onward, is marked by the vast increase in global consciousness due largely to the increase in means of communication and information transfers. It is, according to Robertson, characterized by the spread of democracy and human rights as a global norm of governance, and coincides roughly with what Samuel Huntington has called the third wave of democratization. (10) This model, though summary, illustrates the historical progress that forms the basis for globalization theory. (11)

   Anthony Giddens argues that a dislocation has occurred in modern history such that forms of organization like the nation-state can only be properly understood in reference to modernity, a social process that began with industrialization. Giddens claims that "originating in the West but becoming more and more global in their impact [are] a series of changes of extraordinary magnitude." (12) Giddens further argues that globalization is a process involving a dialectic between the global and the local." Understood as an...